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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-K


|           |  |                                                   | 
|---------- |  | ------------------------------------------------- | 
|(Mark One) |  |                                                   | 
|[X]        |  | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)     | 
|           |  | OF THE SECURITIES EXCHANGE ACT OF 1934            | 
|           |  | For the Fiscal Year Ended June 30, 2003           | 
|           |  | or                                                | 
|[   ]      |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) | 
|           |  | OF THE SECURITIES EXCHANGE ACT OF 1934            | 
|           |  | For the transition period from_______to______     | 
|           |  | Commission File Number 1-6802                     | 



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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 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:

|                                       |  |                                          
|-------------------------------------- |  | -----------------------------------------
|Title of each class                    |  | Name of each exchange on which registered
|                                       |  |                                          
|Common Stock, $.01 par value per share |  | New York Stock Exchange                  

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.

| |                   
| | ------------------
| | Yes  [X]   No [  ]

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.)

| |                 
| | ----------------
| | Yes [  ]  No [X]

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.





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TABLE OF CONTENTS



|                                              |                                                                                               |  |  |  |  |  |  | 
|--------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                       
|                                              | Item 1. Business                                                                             
|                                              | Item 2. Properties                                                                           
|                                              | Item 3. Legal Proceedings                                                                    
|                                              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                      
|                                              | Item 5. Market for the Registrants Common Equity and Related Stockholder Matters            
|                                              | Item 6. Selected Financial Data (in thousands, except per share amount)                      
|                                              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                              | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                                              | Item 8. Financial Statements and Supplementary Data                                          
|                                              | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|                                              | Item 9A. Controls and Procedures                                                             
|PART III                                     
|                                              | Item 10. Directors and Executive Officers of the Registrant                                  
|                                              | Item 11. Executive Compensation                                                              
|                                              | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                              | Item 13. Certain Relationships and Related Transactions                                      
|                                              | Item 14. Controls and Procedures                                                             
|PART IV                                      
|                                              | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES                                   
|                                              | INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                                   
|EX-10.8 Stock Purchase Agreement             
|EX-21.1 A list of Subsidiaries               
|EX-31.1 Certification Pursuant to Section 302
|EX-31.2 Certification Pursuant to Section 302
|EX-32.1 Certification Pursuant to Section 906
|EX-32.2 Certification Pursuant to Section 906



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##### Table of Contents



LIBERTÉ INVESTORS INC.

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

TABLE OF CONTENTS

|         |  |                                                                                               |  |      |     | 
|-------- |  | --------------------------------------------------------------------------------------------- |  | ---- | --- | 
|         |  |                                                                                               |  | Page
|         |  |                                                                                               |  |     
|PART I   |  |                                                                                               |  |     
|         |  | Item 1. Business                                                                              |  |      | 3   | 
|         |  | Item 2. Properties                                                                            |  |      | 4   | 
|         |  | Item 3. Legal Proceedings                                                                     |  |      | 4   | 
|         |  | Item 4. Submission of Matters to a Vote of Security Holders                                   |  |      | 4   | 
|PART II  |  |                                                                                               |  |     
|         |  | Item 5. Market for the Registrants Common Equity and Related Stockholder Matters             |  |      | 5   | 
|         |  | Item 6. Selected Financial Data                                                               |  |      | 6   | 
|         |  | Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations |  |      | 6   | 
|         |  | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                           |  |      | 13  | 
|         |  | Item 8. Financial Statements and Supplementary Data                                           |  |      | 13  | 
|         |  | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure  |  |      | 13  | 
|         |  | Item 9A. Controls and Procedures                                                              |  |      | 13  | 
|PART III |  |                                                                                               |  |     
|         |  | Item 10. Directors and Executive Officers of the Registrant                                   |  |      | 14  | 
|         |  | Item 11. Executive Compensation                                                               |  |      | 14  | 
|         |  | Item 12. Security Ownership of Certain Beneficial Owners and Management                       |  |      | 14  | 
|         |  | Item 13. Certain Relationships and Related Transactions                                       |  |      | 15  | 
|         |  | Item 14. Principal Accountant Fees and Services                                               |  |      | 15  | 
|PART IV  |  |                                                                                               |  |     
|         |  | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                      |  |      | 16  | 
|         |  | Signatures                                                                                    |  |      | 18  | 
|         |  | Index to Consolidated Financial Statements                                                    |  |      | F-1 | 

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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.

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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.
| |  | ---------------

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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:

|            |                |      |   |      |  |  |   |      | 
|----------- | -------------- | ---- | - | ---- |  |  | - | ---- | 
|Fiscal Year |                | High |   | Low 
|            |                |      |   |     
|2003        |                |      |   |      |  |  |   |     
|            | First Quarter  |      | $ | 4.85 |  |  | $ | 3.40 | 
|            | Second Quarter |      |   | 4.35 |  |  |   | 3.80 | 
|            | Third Quarter  |      |   | 4.50 |  |  |   | 3.91 | 
|            | Fourth Quarter |      |   | 5.79 |  |  |   | 3.94 | 
|2002        |                |      |   |      |  |  |   |     
|            | First Quarter  |      | $ | 4.24 |  |  | $ | 3.00 | 
|            | Second Quarter |      |   | 3.90 |  |  |   | 3.00 | 
|            | Third Quarter  |      |   | 4.28 |  |  |   | 3.30 | 
|            | Fourth Quarter |      |   | 4.95 |  |  |   | 3.54 | 

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

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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.

|                              |                                                      |  |                                               |        |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|----------------------------- | ---------------------------------------------------- |  | --------------------------------------------- | ------ | ---- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                              |                                                      |  | Year Ended June 30,                          
|                              |                                                      |  |                                              
|                              |                                                      |  | 2003                                          |        | 2002 |  | 2001 |       | 2000 |  | 1999
|                              |                                                      |  |                                               |        |      |  |      |       |      |  |     
|                              |                                                      |  | (dollars in thousands, except per share data)
|Statement of Operations Data: |                                                      |  |                                               |        |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |      
|                              | Revenues                                             |  | $                                             | 1,331  |      |  | $    | 1,474 |      |  | $    | 3,321 |  |  | $ | 2,973 |  |  | $ | 2,662 | 
|                              | Net (loss) income                                    |  |                                               | (1,862 | )    |  |      | 480   |      |  |      | 2,516 |  |  |   | 2,218 |  |  |   | 1,850 | 
|                              | Basic and diluted net (loss) income
per common share |  |                                               | (0.09  | )    |  |      | 0.02  |      |  |      | 0.12  |  |  |   | 0.11  |  |  |   | 0.09  | 
|                              | Cash dividends declared per share                    |  |                                               |       |      |  |      | 0.006 |      |  |      | 0.125 |  |  |   | 0.094 |  |  |   | 0.060 | 

|                                       |                      |  |                        |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|-------------------------------------- | -------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                       |                      |  | June 30,              
|                                       |                      |  |                       
|                                       |                      |  | 2003                   |        | 2002 |  | 2001 |        | 2000 |  | 1999
|                                       |                      |  |                        |        |      |  |      |        |      |  |     
|                                       |                      |  | (dollars in thousands)
|Statement of Financial Condition Data: |                      |  |                        |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |       
|                                       | Total assets         |  | $                      | 59,053 |      |  | $    | 58,919 |      |  | $    | 58,564 |  |  | $ | 58,475 |  |  | $ | 58,216 | 
|                                       | Stockholders equity |  |                        | 58,075 |      |  |      | 58,391 |      |  |      | 58,033 |  |  |   | 58,048 |  |  |   | 57,735 | 




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

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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

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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.

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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

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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



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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:

|                             |            |        |         |       |         | 
|---------------------------- | ---------- | ------ | ------- | ----- | ------- | 
|Fiscal Year Ending           |            |        |         |      
|June 30,                     |            | Amount
|                             |            |       
|                             |            | 2004   |         | $     | 137,773 | 
|                             |            | 2005   |         |       | 112,526 | 
|                             |            | 2006   |         |       | 114,786 | 
|                             |            | 2007   |         |       | 117,052 | 
|                             |            | 2008   |         |       | 119,418 | 
|                             | Thereafter |        |         | 9,968 |        
|                             |            |        |         |      
|Total future minimum rentals |            | $      | 611,523 |      
|                             |            |        |         |      

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

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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:

|                               |  |           |           |                |  |             |      |                   |  |  |         | 
|------------------------------ |  | --------- | --------- | -------------- |  | ----------- | ---- | ----------------- |  |  | ------- | 
|                               |  | Number of |           |                |  |             |      | Number of Options
|                               |  | Options   |           | Exercise Price |  | Exercisable
|                               |  |           |           |                |  |            
|Balance/price at June 30, 2002 |  |           |          |                |  |             | N/A  |                   |  |  |        | 
|                               |  |           |           |                |  |             |      |                   |  |  |         | 
|Granted                        |  |           | 2,823,678 |                |  | $           | 3.00 |                   |  |  |         | 
|Exercised                      |  |           |          |                |  |             | N/A  |                   |  |  |         | 
|Forefeited                     |  |           |          |                |  |             | N/A  |                   |  |  |         | 
|                               |  |           |           |                |  |             |      |                   |  |  |         | 
|Balance/price at June 30, 2003 |  |           | 2,823,678 |                |  | $           | 3.00 |                   |  |  | 543,902 | 
|                               |  |           |           |                |  |             |      |                   |  |  |         | 

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



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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



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##### 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:

|                                                               |  |                   |           |                  |  |                             |      |  |  |  |           | 
|-------------------------------------------------------------- |  | ----------------- | --------- | ---------------- |  | --------------------------- | ---- |  |  |  | --------- | 
|                                                               |  | Number of         |           | Weighted-        |  | Number of securities       
|                                                               |  | securities to be  |           | average exercise |  | remaining available for    
|                                                               |  | issued upon       |           | price of         |  | future issuance under      
|                                                               |  | exercise of       |           | outstanding      |  | equity compensation        
|                                                               |  | outstanding       |           | options,         |  | plans (excluding           
|                                                               |  | options, warrants |           | warrants and     |  | securities reflected in the
|Plan Category                                                  |  | and rights        |           | rights           |  | first column)              
|                                                               |  |                   |           |                  |  |                            
|Equity compensation
plans approved by
security holders (1)     |  |                   | 2,823,678 |                  |  | $                           | 3.00 |  |  |  | 3,176,322 | 
|Equity compensation
plans not approved
by security holders
(2) |  |                   | 333,333   |                  |  | $                           | 3.00 |  |  |  |          | 
|                                                               |  |                   |           |                  |  |                             |      |  |  |  |           | 
|Total                                                          |  |                   | 3,157,011 |                  |  | $                           | 3.00 |  |  |  | 3,176,322 | 
|                                                               |  |                   |           |                  |  |                             |      |  |  |  |           | 



|(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
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|    |  | 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.

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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:                                                                                     

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Number  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|2.1     |  | Plan of Reorganization, dated as
of April 1, 1996, between the Trust and the Company
(incorporated by reference to Exhibit 2.1 of
Registration Statement No. 333-07439 on Form S-4,
filed by the Company, which the Securities and
Exchange Commission declared effective on July 3, 1996
(the Registration Statement).                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|2.2     |  | Stock Purchase Agreement, dated
as of January 16, 1996, between the Trust and Hunters
Glen/Ford, Ltd. (the Purchaser) (incorporated by
reference to Exhibit 4.1 of the Trusts Current Report
on Form 8-K filed with the Commission on January 24,
1996), as amended by the Amendment to the Stock
Purchase Agreement, dated as of February 27, 1996, and
the Second Amendment to the Stock Purchase Agreement,
dated as of March 28, 1996 (incorporated by reference
to Exhibit 2.1 of the Trusts Quarterly Report on Form
10-Q for the quarter ended March 31, 1996).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|3.1     |  | The Companys Charter
(incorporated by reference to Exhibit 3.1 of the
Registration Statement).                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|3.2     |  | The Companys Bylaws
(incorporated by reference to Exhibit 3.2 of the
Registration Statement).                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|4.1     |  | Form of Registration Rights
Agreement dated August 16, 1996, between the Company
and the Purchaser (incorporated by reference to
Exhibit 4.1 of the Registration Statement).                                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|4.2     |  | Form of Agreement Clarifying
Registration Rights dated August 16, 1996, between the
Company, the Purchaser, the Enloe Descendants Trust,
and Robert Ted Enloe, III (incorporated by reference
to Exhibit 4.3 of the Registration Statement).                                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|4.3     |  | Registration Rights Agreement
dated as of July 1, 2002, by and between the Company
and Donald J. Edwards (incorporated by reference to
Exhibit 4.1 of the Companys Report on Form 8-K dated
July 11, 2002).                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.1    |  | Form of Indemnification Agreement
for the Companys directors and officers and schedule
of substantially identical documents (incorporated by
reference to Exhibit 10.2 of the Registration
Statement).                                                                                                                                                                                                                                                                                                                                                                    

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|        |  |                                                                                                                                                                                                                                        
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                        
|Number  |  |                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                        
|10.2    |  | Retirement Plan for Trustees of
the Trust, dated October 11, 1988 (incorporated by
reference to Exhibit 10.23 of the Trusts Annual
Report on Form 10-K for the year ended June 30, 1993).                                             
|        |  |                                                                                                                                                                                                                                        
|10.3    |  | Employment Agreement dated as of
July 1, 2002, by and between Liberté Investors Inc.
and Donald J. Edwards (incorporated by reference to
Exhibit 10.1 of the Companys Report on Form 8-K dated
July 11, 2002).                        
|        |  |                                                                                                                                                                                                                                        
|10.4    |  | Liberté Investors Inc. 2002 Long
Term Incentive Plan (incorporated by reference to
Exhibit 10.2 of the Companys Report on Form 8-K dated
July 11, 2002).                                                                              
|        |  |                                                                                                                                                                                                                                        
|10.5    |  | Nonqualified Stock Option
Agreement dated as of July 9, 2002, by and between
Liberté Investors Inc. and Donald J. Edwards
(incorporated by reference to Exhibit 10.3 of the
Companys Report on Form 8-K dated July 11, 2002).         
|        |  |                                                                                                                                                                                                                                        
|10.6    |  | Indemnification Agreement dated
as of July 1, 2002, by and between Liberté Investors
Inc. and Donald J. Edwards (incorporated by reference
to Exhibit 10.4 of the Companys Report on Form 8-K
dated July 11, 2002).                   
|        |  |                                                                                                                                                                                                                                        
|10.7    |  | Stock Purchase Agreement dated as
of July 9, 2002, by and between Liberté Investors Inc.
and Donald J. Edwards (incorporated by reference to
Exhibit 10.3 of the Companys Registration Statement
on Form S-8 dated December 26, 2002).
|        |  |                                                                                                                                                                                                                                        
|10.8    |  | Stock Purchase Agreement dated as
of June 30, 2003, by and between Liberté Investors
Inc. and Donald J. Edwards.                                                                                                                       
|        |  |                                                                                                                                                                                                                                        
|21.1    |  | A list of the subsidiaries of the
Company.                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                        
|31.1    |  | Chief Executive Officers
Certification pursuant to Section 302 of the
Sarbanes-Oxley Act Of 2002.                                                                                                                                     
|        |  |                                                                                                                                                                                                                                        
|31.2    |  | Principal Accounting Officers
Certification pursuant to Section 302 of the
Sarbanes-Oxley Act Of 2002.                                                                                                                                
|        |  |                                                                                                                                                                                                                                        
|32.1    |  | Chief Executive Officers
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act Of 2002.                                                                                      
|        |  |                                                                                                                                                                                                                                        
|32.2    |  | Principal Accounting Officers
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act Of 2002.                                                                                 



| | (b) |  | Reports on Form 8-K.                                                                                  
| | --- |  | ------------------------------------------------------------------------------------------------------
|
| |     |  | No reports on Form 8-K were filed during the last quarter of the
period covered by this annual report.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                          |  |                                      
|------------------------- |  | -------------------------------------
|DATED: September 22, 2003 |  | LIBERTÉ INVESTORS INC.               
|                          |  |                                      
|                          |  | /s/ DONALD J. EDWARDS                
|                          |  |                                      
|                          |  | Donald J. Edwards                    
|                          |  | President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

|                                           |  |                                                                                                                          |  |                   
|------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------ |  | ------------------
|Signatures                                 |  | Title                                                                                                                    |  | Date              
|                                           |  |                                                                                                                          |  |                   
|/s/ DONALD J. EDWARDSDonald J. Edwards     |  | President and Chief Executive Officer
(Principal Executive Officer)                                                      |  | September 22, 2003
|                                          
|/s/ ELLEN V. BILLINGSEllen V. Billings     |  | Vice President, Secretary, Treasurer
   and Controller
(Principal Financial Officer and
   Principal Accounting Officer) |  | September 22, 2003
|                                          
|/s/ GERALD J. FORDGerald J. Ford           |  | Chairman of the Board of Directors                                                                                       |  | September 22, 2003
|                                          
|/s/ GENE H. BISHOPGene H. Bishop           |  | Director                                                                                                                 |  | September 22, 2003
|                                          
|/s/ HARVEY B. CASHHarvey B. Cash           |  | Director                                                                                                                 |  | September 22, 2003
|                                          
|/s/ JEREMY B. FORDJeremy B. Ford           |  | Director                                                                                                                 |  | September 22, 2003
|                                          
|/s/ EDWARD W. ROSE, IIIEdward W. Rose, III |  | Director                                                                                                                 |  | September 22, 2003
|                                          
|/s/ GARY SHULTZGary Shultz                 |  | Director                                                                                                                 |  | September 22, 2003

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Liberté Investors Inc.




INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The following consolidated financial statements of Liberté Investors Inc.
are included in response to Item 8 and Items 15(a)(1) and 15(a)(2):

|                                                                                                 |  |      |     | 
|------------------------------------------------------------------------------------------------ |  | ---- | --- | 
|                                                                                                 |  | Page
|                                                                                                 |  |     
|Report of KPMG LLP, Independent Auditors                                                         |  |      | F-2 | 
|Consolidated Statements of Financial Condition as of
June 30, 2003 and 2002                      |  |      | F-3 | 
|Consolidated Statements of Operations for the years ended June 30, 2003, 2002 and 2001           |  |      | F-4 | 
|Consolidated Statements of Stockholders Equity for the years ended June 30, 2003, 2002
and 2001 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the years ended June 30, 2003, 2002 and 2001           |  |      | F-6 | 
|Notes to Consolidated Financial Statements                                                       |  |      | F-7 | 

All financial statement schedules have been omitted because the required
information is not material to require submission of the schedule or because
the information required is included in the financial statements, including the
notes thereto.

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##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholders
Liberté Investors Inc.:

We have audited the consolidated financial statements of Liberté Investors Inc.
and subsidiary as listed in the accompanying index. These consolidated
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Liberté Investors
Inc. and subsidiary as of June 30, 2003 and 2002, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 2003, in conformity with accounting principles generally
accepted in the United States of America.

KPMG LLP

Dallas, Texas
July 24, 2003

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##### Table of Contents



LIBERTÉ INVESTORS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

|                                            |                                                                                                                                                             |   |            |              |          |   |            |              |  
|------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- | ------------ | -------- | - | ---------- | ------------ | -
|                                            |                                                                                                                                                             |   | June 30,   |              | June 30,
|                                            |                                                                                                                                                             |   | 2003       |              | 2002    
|                                            |                                                                                                                                                             |   |            |              |         
|Assets                                      |                                                                                                                                                             |   |            |              |          |   |            |             
|Cash and cash equivalents                   |                                                                                                                                                             | $ | 56,847,351 |              |          | $ | 56,509,738 |             
|Foreclosed real estate held for sale        |                                                                                                                                                             |   | 1,593,767  |              |          |   | 2,175,137  |             
|Other assets, net                           |                                                                                                                                                             |   | 611,999    |              |          |   | 234,612    |             
|                                            |                                                                                                                                                             |   |            |              |          |   |            |             
|                                            | Total assets                                                                                                                                                |   | $          | 59,053,117   |          |   | $          | 58,919,487   |  
|                                            |                                                                                                                                                             |   |            |              |          |   |            |             
|Liabilities and Stockholders Equity        |                                                                                                                                                             |   |            |              |          |   |            |             
|Liabilities - accrued and other liabilities |                                                                                                                                                             | $ | 978,030    |              |          | $ | 528,573    |             
|Stockholders Equity:                       |                                                                                                                                                             |   |            |              |          |   |            |             
|                                            | Common stock, $.01 par value,
50,000,000 shares authorized, 20,589,430 and
20,256,097 shares issued and outstanding at
June 30, 2003 and 2002, respectively |   |            | 205,894      |          |   |            | 202,561      |  
|                                            | Additional paid-in capital                                                                                                                                  |   |            | 310,934,942  |          |   |            | 309,392,398  |  
|                                            | Accumulated deficit                                                                                                                                         |   |            | (253,065,749 | )        |   |            | (251,204,045 | )
|                                            |                                                                                                                                                             |   |            |              |          |   |            |             
|                                            | Total stockholders equity                                                                                                                                  |   |            | 58,075,087   |          |   |            | 58,390,914   |  
|                                            |                                                                                                                                                             |   |            |              |          |   |            |             
|Commitments and contingencies               |                                                                                                                                                             |   |            |              |          |   |            |             
|                                            | Total liabilities and stockholders equity                                                                                                                  |   | $          | 59,053,117   |          |   | $          | 58,919,487   |  
|                                            |                                                                                                                                                             |   |            |              |          |   |            |             

See accompanying notes to consolidated financial statements.

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##### Table of Contents



LIBERTÉ INVESTORS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                              |                                              |   |                     |           |      |   |            |           |  |   |            |           |  
|------------------------------------------------------------- | -------------------------------------------- | - | ------------------- | --------- | ---- | - | ---------- | --------- |  | - | ---------- | --------- | -
|                                                              |                                              |   | Year Ended June 30,
|                                                              |                                              |   |                    
|                                                              |                                              |   | 2003                |           | 2002 |   | 2001      
|                                                              |                                              |   |                     |           |      |   |           
|Income:                                                       |                                              |   |                     |           |      |   |            |           |  |   |            |          
|                                                              | Interest-bearing deposits in banks           |   | $                   | 1,098,097 |      |   | $          | 1,335,139 |  |   | $          | 2,922,509 |  
|                                                              | Gain on sales of foreclosed real estate      |   |                     | 233,249   |      |   |            | 138,605   |  |   |            | 377,550   |  
|                                                              | Other                                        |   |                     |          |      |   |            | 15        |  |   |            | 21,090    |  
|                                                              |                                              |   |                     |           |      |   |            |           |  |   |            |           |  
|Total income                                                  |                                              |   | 1,331,346           |           |      |   | 1,473,759  |           |  |   | 3,321,149  |          
|                                                              |                                              |   |                     |           |      |   |            |           |  |   |            |           |  
|Expenses:                                                     |                                              |   |                     |           |      |   |            |           |  |   |            |          
|                                                              | Insurance                                    |   |                     | 151,119   |      |   |            | 102,417   |  |   |            | 120,335   |  
|                                                              | Compensation and employee benefits           |   |                     | 1,784,741 |      |   |            | 144,461   |  |   |            | 83,203    |  
|                                                              | Legal, audit and consulting fees             |   |                     | 381,141   |      |   |            | 156,727   |  |   |            | 123,225   |  
|                                                              | Franchise tax                                |   |                     | 73,189    |      |   |            | 58,060    |  |   |            | (21,080   | )
|                                                              | Foreclosed real estate operations            |   |                     | 201,946   |      |   |            | 242,188   |  |   |            | 233,603   |  
|                                                              | Loss on write-down of foreclosed real estate |   |                     | 141,777   |      |   |            |          |  |   |            |          |  
|                                                              | Directors fees and expenses                  |   |                     | 58,400    |      |   |            | 66,000    |  |   |            | 62,600    |  
|                                                              | General and administrative                   |   |                     | 400,737   |      |   |            | 223,988   |  |   |            | 202,977   |  
|                                                              |                                              |   |                     |           |      |   |            |           |  |   |            |           |  
|Total expenses                                                |                                              |   | 3,193,050           |           |      |   | 993,841    |           |  |   | 804,863    |          
|                                                              |                                              |   |                     |           |      |   |            |           |  |   |            |           |  
|(Loss) income before income taxes                             |                                              |   | (1,861,704          | )         |      |   | 479,918    |           |  |   | 2,516,286  |          
|Income tax expense (benefit)                                  |                                              |   |                    |           |      |   |           |           |  |   |           |          
|                                                              |                                              |   |                     |           |      |   |            |           |  |   |            |           |  
|Net (loss) income                                             |                                              | $ | (1,861,704          | )         |      | $ | 479,918    |           |  | $ | 2,516,286  |          
|                                                              |                                              |   |                     |           |      |   |            |           |  |   |            |           |  
|Basic and diluted net (loss) income
per share of common stock |                                              | $ | (0.09               | )         |      | $ | 0.02       |           |  | $ | 0.12       |          
|                                                              |                                              |   |                     |           |      |   |            |           |  |   |            |           |  
|Weighted average number of shares of
common stock             |                                              |   | 20,419,568          |           |      |   | 20,256,097 |           |  |   | 20,256,097 |          
|                                                              |                                              |   |                     |           |      |   |            |           |  |   |            |           |  

See accompanying notes to consolidated financial statements.

F-4



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##### Table of Contents



LIBERTÉ INVESTORS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

|                                  |  |           |            |        |  |         |         |             |  |            |             |  |  |   |              |   |  |   |            |  
|--------------------------------- |  | --------- | ---------- | ------ |  | ------- | ------- | ----------- |  | ---------- | ----------- |  |  | - | ------------ | - |  | - | ---------- | -
|                                  |  |           |            |        |  |         |         |             |  | Additional |             |  |  |   |              |   |  |  
|                                  |  | Number of |            | Common |  | Paid-In |         | Accumulated |  |            |             | 
|                                  |  | Shares    |            | Stock  |  | Capital |         | Deficit     |  | Total     
|                                  |  |           |            |        |  |         |         |             |  |           
|Balance at June 30, 2000          |  |           | 20,256,097 |        |  | $       | 202,561 |             |  | $          | 309,392,398 |  |  | $ | (251,546,700 | ) |  | $ | 58,048,259 |  
|Dividends paid ($0.125 per share) |  |           |           |        |  |         |        |             |  |            |            |  |  |   | (2,532,013   | ) |  |   | (2,532,013 | )
|Net income                        |  |           |           |        |  |         |        |             |  |            |            |  |  |   | 2,516,286    |   |  |   | 2,516,286  |  
|                                  |  |           |            |        |  |         |         |             |  |            |             |  |  |   |              |   |  |   |            |  
|Balance at June 30, 2001          |  |           | 20,256,097 |        |  |         | 202,561 |             |  |            | 309,392,398 |  |  |   | (251,562,427 | ) |  |   | 58,032,532 |  
|Dividends paid ($0.006 per share) |  |           |           |        |  |         |        |             |  |            |            |  |  |   | (121,536     | ) |  |   | (121,536   | )
|Net income                        |  |           |           |        |  |         |        |             |  |            |            |  |  |   | 479,918      |   |  |   | 479,918    |  
|                                  |  |           |            |        |  |         |         |             |  |            |             |  |  |   |              |   |  |   |            |  
|Balance at June 30, 2002          |  |           | 20,256,097 |        |  |         | 202,561 |             |  |            | 309,392,398 |  |  |   | (251,204,045 | ) |  |   | 58,390,914 |  
|                                  |  |           |            |        |  |         |         |             |  |            |             |  |  |   |              |   |  |   |            |  
|Stock issued to officer           |  |           | 333,333    |        |  |         | 3,333   |             |  |            | 1,196,664   |  |  |   |             |   |  |   | 1,199,997  |  
|Issuance of stock options         |  |           |           |        |  |         |        |             |  |            | 345,880     |  |  |   |             |   |  |   | 345,880    |  
|Net loss                          |  |           |           |        |  |         |        |             |  |            |            |  |  |   | (1,861,704   | ) |  |   | (1,861,704 | )
|                                  |  |           |            |        |  |         |         |             |  |            |             |  |  |   |              |   |  |   |            |  
|Balance at June 30, 2003          |  |           | 20,589,430 |        |  | $       | 205,894 |             |  | $          | 310,934,942 |  |  | $ | (253,065,749 | ) |  | $ | 58,075,087 |  
|                                  |  |           |            |        |  |         |         |             |  |            |             |  |  |   |              |   |  |   |            |  

See accompanying notes to consolidated financial statements.

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##### Table of Contents



LIBERTÉ INVESTORS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                               |                                                                                                    |                                                 |                                                     |            |                     |            |            |         |          |          |            |           |            |            |  
|---------------------------------------------- | -------------------------------------------------------------------------------------------------- | ----------------------------------------------- | --------------------------------------------------- | ---------- | ------------------- | ---------- | ---------- | ------- | -------- | -------- | ---------- | --------- | ---------- | ---------- | -
|                                               |                                                                                                    |                                                 |                                                     |            | Year Ended June 30,
|                                               |                                                                                                    |                                                 |                                                     |            |                    
|                                               |                                                                                                    |                                                 |                                                     |            | 2003                |            | 2002       |         | 2001    
|                                               |                                                                                                    |                                                 |                                                     |            |                     |            |            |         |         
|Cash flows from operating activities:          |                                                                                                    |                                                 |                                                     |            |                     |            |            |         |          |          |            |          
|                                               | Net (loss) income                                                                                  |                                                 | $                                                   | (1,861,704 | )                   |            | $          | 479,918 |          |          | $          | 2,516,286 |           
|                                               | Adjustments to reconcile net (loss) income
to net cash (used in) provided by operating activities: |                                                 |                                                     |            |                     |            |            |         |          |          |            |           |           
|                                               |                                                                                                    | Depreciation and amortization                   |                                                     |            | 10,201              |            |            |         | 5,671    |          |            |           | 7,811      |           
|                                               |                                                                                                    | Deferred compensation expense                   |                                                     |            | 345,880             |            |            |         |         |          |            |           |           |           
|                                               |                                                                                                    | Compensation related to stock issued to officer |                                                     |            | 199,999             |            |            |         |         |          |            |           |           |           
|                                               |                                                                                                    | Gain from sales of foreclosed real estate, net  |                                                     |            | (233,249            | )          |            |         | (138,605 | )        |            |           | (377,550   | )         
|                                               |                                                                                                    | Loss on write-down of foreclosed real estate    |                                                     |            | 141,777             |            |            |         |         |          |            |           |           |           
|                                               |                                                                                                    | Gain from sale of fixed assets                  |                                                     |            |                    |            |            |         |         |          |            |           | (970       | )         
|                                               |                                                                                                    | (Increase) decrease in other assets, net        |                                                     |            | (192,985            | )          |            |         | (138,721 | )        |            |           | 20,969     |           
|                                               |                                                                                                    | Increase in other liabilities                   |                                                     |            | 449,457             |            |            |         | 22,574   |          |            |           | 104,762    |           
|                                               |                                                                                                    |                                                 |                                                     |            |                     |            |            |         |          |          |            |           |           
|                                               |                                                                                                    |                                                 | Net cash (used in) provided by operating activities |            |                     | (1,140,624 | )          |         |          | 230,837  |            |           |            | 2,271,308  |  
|                                               |                                                                                                    |                                                 |                                                     |            |                     |            |            |         |          |          |            |           |           
|Cash flows from investing activities:          |                                                                                                    |                                                 |                                                     |            |                     |            |            |         |          |          |            |          
|                                               |                                                                                                    | Additions to fixed assets                       |                                                     |            | (194,603            | )          |            |         |         |          |            |           | (5,424     | )         
|                                               |                                                                                                    | Proceeds from sales of foreclosed real estate   |                                                     |            | 672,842             |            |            |         | 297,802  |          |            |           | 479,853    |           
|                                               |                                                                                                    | Proceeds from sale of fixed assets              |                                                     |            |                    |            |            |         |         |          |            |           | 970        |           
|                                               |                                                                                                    |                                                 |                                                     |            |                     |            |            |         |          |          |            |           |           
|                                               |                                                                                                    |                                                 | Net cash provided by investing activities           |            |                     | 478,239    |            |         |          | 297,802  |            |           |            | 475,399    |  
|                                               |                                                                                                    |                                                 |                                                     |            |                     |            |            |         |          |          |            |           |           
|Cash flows from investing activities:          |                                                                                                    |                                                 |                                                     |            |                     |            |            |         |          |          |            |          
|                                               |                                                                                                    | Net proceeds from issuance of common stock      |                                                     |            | 999,998             |            |            |         |         |          |            |           |           |           
|                                               |                                                                                                    | Dividends on common stock                       |                                                     |            |                    |            |            |         | (121,536 | )        |            |           | (2,532,013 | )         
|                                               |                                                                                                    |                                                 |                                                     |            |                     |            |            |         |          |          |            |           |           
|                                               |                                                                                                    |                                                 | Net cash provided by (used in) financing activities |            |                     | 999,998    |            |         |          | (121,536 | )          |           |            | (2,532,013 | )
|                                               |                                                                                                    |                                                 |                                                     |            |                     |            |            |         |          |          |            |           |           
|Net increase in cash and cash equivalents      |                                                                                                    |                                                 | 337,613                                             |            |                     |            | 407,103    |         |          |          | 214,694    |          
|Cash and cash equivalents at beginning of year |                                                                                                    |                                                 | 56,509,738                                          |            |                     |            | 56,102,635 |         |          |          | 55,887,941 |          
|                                               |                                                                                                    |                                                 |                                                     |            |                     |            |            |         |          |          |            |           |           
|Cash and cash equivalents at end of year       |                                                                                                    | $                                               | 56,847,351                                          |            |                     | $          | 56,509,738 |         |          | $        | 56,102,635 |          
|                                               |                                                                                                    |                                                 |                                                     |            |                     |            |            |         |          |          |            |           |           

See accompanying notes to consolidated financial statements.

F-6



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##### Table of Contents



Liberté Investors Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2003, 2002 and 2001



|(1) |  | Summary of significant accounting policies
|--- |  | ------------------------------------------

(a) Organization - Liberté Investors Inc., a Delaware corporation (the
Company), was organized in April of 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. 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.

(b) Business - The principal business activity of the Trust was investing
in notes receivable, primarily first mortgage construction notes and first
mortgage acquisition and development notes. Beginning in fiscal 1988, however,
the Trust progressively curtailed its lending activities and reduced the size
of its portfolio of foreclosed real estate in an effort to repay indebtedness.

On October 25, 1993, the Trust filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. On April
7, 1994, the Trust emerged from bankruptcy pursuant to a plan of reorganization
whereby certain assets and liabilities, including remaining senior
indebtedness, were transferred to Resurgence Properties Inc. (RPI), and RPIs
common stock was distributed to the holders of the Trusts outstanding
subordinated indebtedness in full satisfaction of such holders claims against
the Trust. The Trust received shares of preferred stock of RPI and a note
receivable which was subsequently paid. On June 30, 1997, the court issued an
Administrative Closing Order and Final Decree with regard to the bankruptcy
case.

After the reorganization of the Trust into the Delaware corporation in
August 1996, management has been pursuing the acquisition of an operating
company in order to provide a new focus and direction for the Company and to
increase value to existing stockholders. To that end, the Company considered
acquisitions of several operating companies during the year ended June 30,
2003. In connection with a particular potential transaction, the Company
incurred approximately $255,000 in costs
which are included in Other Assets in the accompanying consolidated financial
statements (see Note 11).

(c) Consolidation - 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 have been eliminated.

(d) Use of estimates - The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make certain estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets, liabilities, revenues and expenses at the date of the consolidated
financial statements. Actual results could differ from those estimates.

(e) Recognition of income - Interest income is recorded on an
accrual basis. The Company discontinues the accrual of interest
income when circumstances cause the collection of such interest to
be doubtful.

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##### Table of Contents



Liberté Investors Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(f) 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. Cost is the carrying amount of the receivable at the time of foreclosure
net of any allowances. 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.

(g) Income taxes - Income taxes are maintained in accordance with
Statement of Accounting Standard (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.

(h) Basic and diluted net (loss) income per share - Basic and diluted net
(loss) income per share is based on the weighted average number of shares
outstanding during the year.

(i) Cash and cash equivalents - Cash and cash equivalents include highly
liquid investments with original maturities of three months or less.

(j) Recent accounting pronouncements - On July 1, 2002, the Company
adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. SFAS 144 supersedes SFAS 121 Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and the portion
of Accounting Principles Board Opinion (APB) 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 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 APB No. 25, Accounting for Stock Issued to Employees, and
has provided the disclosures required under SFAS 148.

(k) Financial statement presentation - Certain 2002 and 2001 amounts have
been reclassified to conform to the 2003 presentation.

(l) Stock-based compensation - The Company applies the
intrinsic-value-based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations including FASB Interpretation No. 44, Accounting for Certain
Transactions involving Stock Compensation, an interpretation of APB Opinion No.
25 to account for its stock-based compensation. Under this method,
compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price.

F-8



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##### Table of Contents



Liberté Investors Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SFAS No.
123, Accounting for Stock-Based Compensation, established accounting and
disclosure requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. As allowed by SFAS No. 123, the
Company has elected to continue to apply the intrinsic-value-based method of
accounting described above and has adopted only the disclosure requirements of
SFAS No. 123. The following table, as prescribed by SFAS No. 148, illustrates
the effect on 2003 net loss if the fair-value-based method had been applied to
all outstanding and unvested awards, which includes the following assumptions:
risk-free interest rate based on the ten-year U.S. Treasury Note rate; expected
option life of ten years; expected volatility of 3%; and no expected dividends.

|                                                                                              |  |                    |            |  
|--------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | -
|                                                                                              |  | For the Year Ended
|                                                                                              |  | June 30, 2003     
|                                                                                              |  |                   
|Net loss, as reported                                                                         |  | $                  | (1,861,704 | )
|Plus total stock-based employee compensation expense
determined under fair-value-based method |  |                    | (358,189   | )
|                                                                                              |  |                    |            |  
|Pro forma net loss                                                                            |  | $                  | (2,219,893 | )
|                                                                                              |  |                    |            |  
|Loss per share:                                                                               |  |                    |            |  
|Basic and diluted  as reported                                                               |  | $                  | (0.09      | )
|                                                                                              |  |                    |            |  
|Basic and diluted  pro forma                                                                 |  | $                  | (0.11      | )
|                                                                                              |  |                    |            |  

There was no stock-based employee compensation during the fiscal years
ended June 30, 2002 or 2001; therefore, no table is provided for those years.



|(2) |  | Foreclosed Real Estate Held for Sale
|--- |  | ------------------------------------

The following is a summary of the Companys activity in foreclosed real
estate held for sale for the years ended June 30, 2003, 2002, and 2001:

|                             |  |      |           |      |  |      |           |   |  |   |           |  
|---------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                             |  | 2003 |           | 2002 |  | 2001
|                             |  |      |           |      |  |     
|Balance at beginning of year |  | $    | 2,175,137 |      |  | $    | 2,359,334 |   |  | $ | 2,462,445 |  
|Cost of real estate sold     |  |      | (439,593  | )    |  |      | (184,197  | ) |  |   | (103,111  | )
|Loss on write-down           |  |      | (141,777  | )    |  |      |          |   |  |   |          |  
|                             |  |      |           |      |  |      |           |   |  |   |           |  
|Balance at end of year       |  | $    | 1,593,767 |      |  | $    | 2,175,137 |   |  | $ | 2,359,334 |  
|                             |  |      |           |      |  |      |           |   |  |   |           |  

All of the Companys real estate at June 30, 2003, 2002 and 2001 consists
of undeveloped land located in the state of Texas of approximately 380, 438 and
501 acres, respectively.

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 statements of cash flows.

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##### Table of Contents



Liberté Investors Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 statements of cash flows.

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 May 2001, the Company sold 29.07 acres of land in San Antonio, Texas to
a residential homebuilder for a price of $348,818, less associated selling
costs of $25,366. A gain of approximately $267,000 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. The buyer had previously paid a $25,000 deposit on the 59.39
acres, which is treated as a non-cash transaction in the statements of cash
flows.

In September 2002, the Company sold 51.57 acres of land in San Antonio,
Texas to a discount department store chain for a price of $538,907 less
associated selling costs of $13,928. A gain of approximately $234,000 was
recorded as a result of this transaction.

In September 2002, the Company recorded a write-down on the book values of
three parcels of land in San Antonio, Texas for an aggregate of approximately
$124,000. The write-down was recorded 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.

In November 2002, the Company sold 7.07 acres of land in San Antonio,
Texas to a retail store owner for a price of $155,469 less associated selling
costs of $7,606. A loss of approximately $1,000 was recorded as a result of
this transaction. The proceeds from the sale of the 7.07 acres was reduced by
$1,136 for property taxes paid by the purchaser, which is treated as a non-cash
item in the statements of cash flows.

In December 2002, the Company recorded a write-down on the book values of
two parcels of land in San Antonio, Texas for an aggregate of approximately
$17,000. The write-down was recorded 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.

In addition to the sales subsequent to June 30, 2003, as discussed in Note
11, the Company entered into contracts of sale on a total of approximately
14.58 acres as of June 30, 2003, which, if they are consummated, would result
in the Company recognizing a gain of approximately $1.7 million. The Company
is also currently active in negotiations for the sale of an additional total of
approximately 23 acres.

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Liberté Investors Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|(3) |  | Net (Loss) Income Per Share
|--- |  | ---------------------------

Statement of Financial Accounting Standard No. 128 Earnings Per Share
(EPS) specifies the computation, presentation and disclosure requirements for
earnings per share. Basic EPS excludes all dilution while diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common shares were exercised or converted into common shares. The
following table presents the basic and diluted EPS data for the years ended
June 30, 2003.

|                                       |  |      |            |           |  |           |            |  |  |   |       |  
|-------------------------------------- |  | ---- | ---------- | --------- |  | --------- | ---------- |  |  | - | ----- | -
|                                       |  | Net  |            | Wtd. Avg. |  | Per Share
|                                       |  | Loss |            | Shares    |  | Amount   
|                                       |  |      |            |           |  |          
|Basic EPS -                            |  |      |            |           |  |           |            |  |  |   |       |  
|Net loss                               |  | $    | (1,861,704 | )         |  |           | 20,419,568 |  |  | $ | (0.09 | )
|                                       |  |      |            |           |  |           |            |  |  |   |       |  
|Diluted EPS -                          |  |      |            |           |  |           |            |  |  |   |       |  
|Net loss                               |  | $    | (1,861,704 | )         |  |           | 20,419,568 |  |  | $ | (0.09 | )
|Effect of dilutive securities:         |  |      |            |           |  |           |            |  |  |   |       |  
|Stock purchase rights                  |  |      |           |           |  |           |           |  |  |   |      |  
|Options under Long Term
Incentive Plan |  |      |           |           |  |           |           |  |  |   |      |  
|                                       |  |      |            |           |  |           |            |  |  |   |       |  
|Net loss                               |  | $    | (1,861,704 | )         |  |           | 20,419,568 |  |  | $ | (0.09 | )
|                                       |  |      |            |           |  |           |            |  |  |   |       |  

There were no dilutive securities during the year ended June 30, 2002 and
2001; therefore, no table is provided for those years.

Diluted weighted average shares for the year ended June 30, 2003 excludes
incremental shares from assumed conversion of stock options of 592,650 granted
to employees of the Company under the Companys long term incentive plan and
available shares of 27,169 under the stock purchase rights granted to an
officer of the Company due to the net loss for the year.



|(4) |  | Stock Based Compensation
|--- |  | ------------------------

In July 2002, the Company and Donald J. Edwards entered into an employment
agreement, which was approved by the Companys Board of Directors (the
Employment Agreement), that sets forth the terms and conditions of Mr.
Edwards employment as the Companys President and Chief Executive Officer.
The Employment Agreement provides for a grant of a stock option to Mr. Edwards
pursuant to a Nonqualified Stock Option Agreement by and between the Company
and Mr. Edwards (the Option Agreement). In addition, in July 2002, the
Companys Board of Directors also approved the Companys 2002 Long Term
Incentive Plan (the Plan). In July 2002, in accordance with the terms of the
Employment Agreement, the Companys Board of Directors granted to Mr. Edwards
an option, under the Plan, to purchase 2,573,678 shares of Common Stock of the
Company at an exercise price of $3.00 per share pursuant to the terms of the
Option Agreement. The option expires on July 9, 2012. A portion of Mr.
Edwards option shares vest and become exercisable as of the first day of each
month following the grant date. The aggregate market value of the securities
underlying Mr. Edwards options at the grant date was approximately $9,265,000.

The Employment Agreement further granted Mr. Edwards, as an inducement to
his employment with the Company, the right to purchase up to 333,333 shares of
Common Stock of the Company (the
Purchased Shares) at a price of $3.00 per share. Mr. Edwards purchased
166,667 and 166,666 shares contemplated by the Employment Agreement on July 9,
2002 and June 30, 2003,

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##### Table of Contents



Liberté Investors Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

respectively.
The aggregate market value of the Purchased Shares at the grant date was
$1,200,000. The difference between the aggregate market value and purchase
price of the Purchased Shares of $200,000 was recorded as compensation and
employee benefits expense in the consolidated statement of operations for the
year ended June 30, 2003.

In December 2002, in accordance with the terms of the Plan, the Companys
Board of Directors granted to another employee an option to purchase 250,000
shares of Common Stock of the Company at an exercise price of $3.00 per share.
The option expires on November 30, 2012. Ten percent of the employees option
shares vested and became exercisable on May 31, 2003, and an additional 1 2/3 %
of the employees option shares vest and become exercisable as of the last day
of each month following May 31, 2003 through November 30, 2007. The aggregate
market value of the securities underlying the employees options at the grant
date was approximately $1,068,000.

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:

|                               |  |           |           |                |  |             |      |                   |  |  |         | 
|------------------------------ |  | --------- | --------- | -------------- |  | ----------- | ---- | ----------------- |  |  | ------- | 
|                               |  | Number of |           |                |  |             |      | Number of Options
|                               |  | Options   |           | Exercise Price |  | Exercisable
|                               |  |           |           |                |  |            
|Balance/price at June 30, 2002 |  |           |          |                |  |             | N/A  |                   |  |  |        | 
|                               |  |           |           |                |  |             |      |                   |  |  |         | 
|Granted                        |  |           | 2,823,678 |                |  | $           | 3.00 |                   |  |  |         | 
|Exercised                      |  |           |          |                |  |             | N/A  |                   |  |  |         | 
|Forfeited                      |  |           |          |                |  |             | N/A  |                   |  |  |         | 
|                               |  |           |           |                |  |             |      |                   |  |  |         | 
|Balance/price at June 30, 2003 |  |           | 2,823,678 |                |  | $           | 3.00 |                   |  |  | 543,902 | 
|                               |  |           |           |                |  |             |      |                   |  |  |         | 



|(5) |  | 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 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.

The Company entered into an operating lease dated May 16, 1997 relating to
its principal executive offices. 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.

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Liberté Investors Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company entered into an operating lease dated January 13, 2003 relating to
additional executive offices in Chicago, Illinois. The lease commences August
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 July 31,
2003. In addition, the Company has entered into other operating leases for
office equipment in Chicago.

Rental expense for fiscal 2003, 2002 and 2001 under these leases was
approximately $87,000, $76,000 and $80,000, respectively. 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:

|                             |  |        |         |  |  | 
|---------------------------- |  | ------ | ------- |  |  | 
|Fiscal Year Ending           |  |        |         | 
|June 30,                     |  | Amount
|                             |  |       
|2004                         |  | $      | 137,773 | 
|2005                         |  |        | 112,526 | 
|2006                         |  |        | 114,786 | 
|2007                         |  |        | 117,052 | 
|2008                         |  |        | 119,418 | 
|Thereafter                   |  |        | 9,968   | 
|                             |  |        |         | 
|Total future minimum rentals |  | $      | 611,523 | 
|                             |  |        |         | 

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.

(6)     Federal Income Taxes

There was no income tax expense (benefit) recorded for the years ended
June 30, 2003, 2002 or 2001.

The income tax expense (benefit) for the years ended June 30, 2003, 2002
and 2001 differs from the amounts computed by applying the U.S. Federal
corporate tax rate of 34% to (loss) income before income taxes as follows:

|                                                 |                                                                                                                          |   |          |         |      |   |         |          |   |   |         |            |  
|------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------ | - | -------- | ------- | ---- | - | ------- | -------- | - | - | ------- | ---------- | -
|                                                 |                                                                                                                          |   | June 30,
|                                                 |                                                                                                                          |   |         
|                                                 |                                                                                                                          |   | 2003     |         | 2002 |   | 2001   
|                                                 |                                                                                                                          |   |          |         |      |   |        
|Computed expected income tax
expense (benefit) |                                                                                                                          | $ | (632,978 | )       |      | $ | 163,172 |          |   | $ | 855,537 |           
|Increase (decrease) in taxes resulting from:     |                                                                                                                          |   |          |         |      |   |         |          |   |   |         |           
|                                                 | Adjustment to deferred tax asset and
permanent tax items                                                                 |   |          | 1,410   |      |   |         | 4,657    |   |   |         | (4,233     | )
|                                                 | Expiration of capital loss carryforward                                                                                  |   |          |        |      |   |         |         |   |   |         | 1,629,812  |  
|                                                 | Change in the beginning of the year
balance of the valuation allowance
for deferred tax assets allocated
to income taxes |   |          | 631,569 |      |   |         | (167,829 | ) |   |         | (2,481,116 | )
|                                                 |                                                                                                                          |   |          |         |      |   |         |          |   |   |         |           
|                                                 |                                                                                                                          | $ |         |         |      | $ |        |          |   | $ |        |           
|                                                 |                                                                                                                          |   |          |         |      |   |         |          |   |   |         |           

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##### Table of Contents



Liberté Investors Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at June 30, 2003 and 2002 are presented
below:

|                     |                                             |                                 |                         |            |             |   |      |            |             |   | 
|-------------------- | ------------------------------------------- | ------------------------------- | ----------------------- | ---------- | ----------- | - | ---- | ---------- | ----------- | - | 
|                     |                                             |                                 |                         |            | June 30,   
|                     |                                             |                                 |                         |            |            
|                     |                                             |                                 |                         |            | 2003        |   | 2002
|                     |                                             |                                 |                         |            |             |   |     
|Deferred tax assets: |                                             |                                 |                         |            |             |   |      |           
|                     | Net operating loss carryforwards            |                                 | $                       | 75,899,009 |             |   | $    | 75,048,389 |            
|                     | Basis differences of foreclosed real estate |                                 |                         | 1,623,502  |             |   |      | 1,934,344  |            
|                     | Other                                       |                                 |                         | 2,004,824  |             |   |      | 1,913,032  |            
|                     |                                             |                                 |                         |            |             |   |      |           
|                     |                                             | Total gross deferred tax assets |                         |            | 79,527,335  |   |      |            | 78,895,765  |  
|                     |                                             | Less: valuation allowance       |                         |            | (79,527,335 | ) |      |            | (78,895,765 | )
|                     |                                             |                                 |                         |            |             |   |      |           
|                     |                                             |                                 | Net deferred tax assets |            | $           |  |      |            | $           |  | 
|                     |                                             |                                 |                         |            |             |   |      |           

The net change in the valuation allowance for the years ended June 30,
2003, 2002 and 2001 was an increase (decrease) of $631,569, ($167,829) and
($2,481,116), respectively. 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.

At June 30, 2003, the Company had net operating loss (NOL) carryforwards
for federal income tax purposes of approximately $223 million, which are
available to offset future federal taxable income. The carryforwards will
expire in 2005 through 2023, as shown in the table below. In addition, the
Company has alternative minimum tax credit carryforwards of $15,095, which are
available to reduce future federal income taxes, if any, over an indefinite
period.

|                        |  |        |             |  |  | 
|----------------------- |  | ------ | ----------- |  |  | 
|Expiration Year         |  | Amount
|                        |  |       
|2005                    |  | $      | 12,864,221  | 
|2006                    |  |        | 45,090,574  | 
|2007                    |  |        | 32,584,163  | 
|2008                    |  |        | 36,188,323  | 
|2009                    |  |        | 84,791,075  | 
|Thereafter              |  |        | 11,714,019  | 
|                        |  |        |             | 
|Total NOL carryforwards |  | $      | 223,232,375 | 
|                        |  |        |             | 

(7)      Fair Value of Financial Instruments

SFAS No. 107, Disclosures about Fair Value of Financial Instruments
requires disclosure of fair value information about financial instruments,
whether or not recognized in the consolidated statement of financial condition,
for which it is practicable to estimate that value. SFAS No. 107 excludes
certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts do not
represent the underlying value of the Company.

The fair value of cash and cash equivalents approximates their carrying
value because of the liquidity and short-term maturities of these instruments.
The Company believes that its deficiency notes receivable, which have no
carrying value at June 30, 2003 and 2002, may have some fair value, but such
value cannot be estimated and any potential collections are not measurable as
to timing or amount.

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##### Table of Contents



Liberté Investors Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(8)      Concentrations of Credit Risk

At June 30, 2003, the Company had certain concentrations of credit risk
with three financial institutions in the form of cash, which amounted to
approximately $56.8 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.

(9)      Related Party Transactions

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/Ford, Ltd., an affiliate of the Companys Chairman of
the Board of Directors, for the use of its offices by Hunters Glen employees.

(10)      Selected Quarterly Financial Data (unaudited)

Interim results are not necessarily indicative of fiscal year performance
because of the impact of seasonal and short-term variations. Selected
quarterly financial data are summarized as follows:

|                                        |  |          |          |        |  |       |          |        |  |   |          |   |  |   |          |  
|--------------------------------------- |  | -------- | -------- | ------ |  | ----- | -------- | ------ |  | - | -------- | - |  | - | -------- | -
|                                        |  | Quarters
|                                        |  |         
|                                        |  | First    |          | Second |  | Third |          | Fourth
|                                        |  |          |          |        |  |       |          |       
|Fiscal Year 2002                        |  |          |          |        |  |       |          |        |  |   |          |   |  |   |          |  
|Operating revenues                      |  | $        | 455,094  |        |  | $     | 473,448  |        |  | $ | 277,175  |   |  | $ | 268,042  |  
|Net income                              |  | $        | 238,495  |        |  | $     | 216,349  |        |  | $ | 16,190   |   |  | $ | 8,884    |  
|Basic and diluted net income per share: |  | $        | 0.01     |        |  | $     | 0.01     |        |  | $ | 0.00     |   |  | $ | 0.00     |  
|                                        |  |          |          |        |  |       |          |        |  |   |          |   |  |   |          |  
|Fiscal Year 2003                        |  |          |          |        |  |       |          |        |  |   |          |   |  |   |          |  
|Operating revenues                      |  | $        | 525,435  |        |  | $     | 280,114  |        |  | $ | 265,125  |   |  | $ | 260,672  |  
|Net loss                                |  | $        | (441,207 | )      |  | $     | (278,508 | )      |  | $ | (447,147 | ) |  | $ | (694,842 | )
|Basic and diluted net loss per share:   |  | $        | (0.02    | )      |  | $     | (0.01    | )      |  | $ | (0.02    | ) |  | $ | (0.04    | )
|                                        |  |          |          |        |  |       |          |        |  |   |          |   |  |   |          |  

Previously presented in the Companys Quarterly Report on Form 10-Q for
the three months ended September 30, 2002 was a net loss of $341,207. This
amount for the three months ended September 30, 2002 has been restated above to
reflect the appropriate amount of stock-based compensation. Also see Note 4.

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Liberté Investors Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(11)      Subsequent Events

In July 2003, the Company sold 3.7 acres of land in San Antonio, Texas to
an individual for a price of $75,000 less associated selling costs of $3,867.
A gain of approximately $18,000 was recorded as a result of this transaction in
the first quarter of fiscal 2004.

Also in July 2003, the Company sold 1.6 acres of land in San Antonio,
Texas to a discount department store chain for a price of $336,000 less
associated selling costs of $20,550. A gain of approximately $285,000 was
recorded as a result of this transaction in the first quarter of fiscal 2004.

In July 2003, the Company sold 2.0 acres of land in San Antonio, Texas to
an individual for a price of $1,054,000 less associated selling costs of
$57,546. A gain of approximately $984,000 was recorded as a result of this
transaction in the first quarter of fiscal 2004.

As described in Note 2, the Company has entered into contracts of sale on
a total of approximately 17.5 acres, which, if they are consummated, would
result in the Company recognizing a gain of approximately $1.8 million.
Additionally as of September 22, 2003, the Company is also currently active in
negotiations for the sale of an additional total of approximately 23 acres.

As described in Note 1, the Company incurred and capitalized approximately
$255,000 in costs related to a proposed acquisition. As of June 30, 2003,
management believed the acquisition was probable and, subsequent to June 30,
2003, the Company incurred approximately $332,000 in additional costs related
to its due diligence efforts as negotiations continued. However, on or about
July 24, 2003, negotiations came to an impasse and management now believes that
it is not probable that the acquisition transaction will be consummated.
Accordingly, the Company expects that unless the negotiations resume, the
Company will expense these costs (total of $587,000) during the first or second
quarter of fiscal 2004.

F-16