SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------


                                    FORM 10-K

  [X]             ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                     For the Fiscal Year Ended June 30,1997
                                                        

                                       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

                                   ----------

                             Liberte Investors Inc.
             (Exact name of registrant as specified in its charter)

               DELAWARE                                      75-1328153
    (State or other jurisdiction of                       (I.R.S. Employer
    incorporation or organization)                       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 on this
Form 10-K. [ ]

     The aggregate market value of the voting stock held by nonaffiliates of the
registrant,  based on the  closing  price of these  shares on the New York Stock
Exchange  on  September  22,  1997 was  $39,723,558.  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.

              APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

     Indicate by check mark whether the  registrant  has filed all documents and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.

                                  Yes X* No____


* The  registrant's  confirmed  plan of  reorganization  under Chapter 11 of the
Bankruptcy Code did not provide for a distribution of securities;  however,  all
required  documents and reports have been timely filed by the  registrant  after
confirmation of the plan.

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

The registrant had 20,256,097  shares of common stock, $.01 per share par value,
outstanding as of September 22, 1997.

                      DOCUMENTS INCORPORATED BY REFERENCE:

                                      None

<PAGE>

                             LIBERTE INVESTORS INC.

                FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1997

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                           Page
                                                                                           ----
<S>                                                                                         <C>
PART I

      Item 1.  Business .................................................................    3

      Item 2.  Properties ...............................................................    6

      Item 3.  Legal Proceedings ........................................................    6

      Item 4.  Submission of Matters to a Vote of Security Holders ......................    6

PART II

      Item 5.  Market for the Company's Common Equity and Related Stockholder Matters ...    7

      Item 6.  Selected Financial Data ..................................................    9

      Item 7.  Management's Discussion and Analysis of Financial Condition and Results of
                    Operations ..........................................................    9

      Item 8.  Financial Statements and Supplementary Data ..............................   15

      Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial
                    Disclosure ..........................................................   15

PART III

      Item 10. Directors and Executive Officers of the Company ..........................   16

      Item 11. Executive Compensation ...................................................   16

      Item 12. Security Ownership of Certain Beneficial Owners and Management ...........   16

      Item 13. Certain Relationships and Related Transactions ...........................   16

PART IV

      Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .........   18

      Signatures ........................................................................   21

      Index to Consolidated Financial Statements ........................................   F-1
</TABLE>


                                       2
<PAGE>

                                     PART I

Item 1. Business

     Liberte  Investors Inc. ("LBI" or the "Company") is a Delaware  corporation
which was  organized in April of 1996 in order to effect the  reorganization  of
Liberte  Investors,  a  Massachusetts  business  trust (the "Trust")  originally
created pursuant to a Declaration of Trust dated June 26, 1969, as amended.

     At a special  meeting of the  shareholders  of the Trust held on August 15,
1996,  (the  "Special  Meeting"),  the Trust's  shareholders  approved a plan of
reorganization  whereby  the Trust  contributed  its assets to the  Company  and
received all of the Company's outstanding common stock, par value $.01 per share
("Shares" or "Common Stock").  The Trust then distributed to its shareholders in
redemption of all  outstanding  shares of beneficial  interest in the Trust (the
"Beneficial  Shares") the Shares of the Company.  The Company assumed all of the
Trust's assets and outstanding  liabilities  and  obligations.  Thereafter,  the
Trust was terminated.

     The  principal  business  activity  of the  Trust  was  investing  in notes
receivable,  primarily  first  mortgage  construction  notes and first  mortgage
acquisition and development  notes.  Over the past several years,  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.  After the Trust
emerged from bankruptcy proceedings, it became a virtually debt-free entity with
cash and cash  equivalents,  real estate mortgage notes  receivable,  foreclosed
real estate,  and tax net  operating  loss ("NOL")  carryforwards.  Although the
bankruptcy  plan  contemplated  that the Trust  would  continue  as a  financial
services  company,  the Board of Trustees  opted to forego  further  real estate
mortgage  lending  and  purchase  or create an  operating  business  in order to
realize  the value of the NOL  carryforwards.  Further,  the  Board of  Trustees
determined that additional Beneficial Shares could be issued to generate cash to
finance an acquisition or startup  company  without  restricting the Trust's NOL
carryforward.

     On January 16, 1996, the Trust entered into a Stock Purchase  Agreement (as
amended, the "Stock Purchase Agreement") with Hunter's Glen/Ford,  Ltd., a Texas
limited  partnership  ("Hunter's  Glen"),  pursuant to which the Trust agreed to
sell  8,102,439  of  newly-issued  Shares  to  Hunter's  Glen  for  $23,091,951,
representing a purchase price of $2.85 per Share (the "Purchase").  The Purchase
was approved by the Trust's shareholders at a Special  Stockholder's Meeting and
was consummated on August 16, 1996.  Immediately prior to the sale of the Shares
pursuant  to the  Stock  Purchase  Agreement,  the  Trust  reorganized  into the
Company,  and shareholders of the Trust became  shareholders of the Company on a
share for share  basis.  Gerald J. Ford,  a general  partner of  Hunter's  Glen,
became the Chief Executive Officer and Chairman of the Board of Directors of the
Company.

     Since August of 1996, the Company has been actively pursuing  opportunities
to acquire several operating companies.


                                       3
<PAGE>

Portfolio Review

     At June 30, 1997, the Company owned  foreclosed  real estate  totaling $3.4
million and had one note  receivable  outstanding  with a  principal  balance of
$1,693,  net of discount.  At June 30, 1997, there were no additional amounts to
be  advanced  under any notes  receivable  and all  foreclosed  real  estate was
classified as nonearning.

     Foreclosed real estate consisted of four properties,  all of which are held
for sale. The following  table sets forth  undeveloped  land by type of property
and  geographic  location  at  June  30,  1997.  See  also  Note 2 of  Notes  to
Consolidated Financial Statements.

                                        Texas         California         Total
                                      ----------      ----------      ----------
Single family lots                    $     --        $  620,400      $  620,400
Land                                   2,815,221            --         2,815,221
                                      ----------      ----------      ----------
                                      $2,815,221      $  620,400      $3,435,621
                                      ==========      ==========      ==========

     At  June  30,  1997,  the  Company's   remaining  note  receivable  had  an
outstanding balance of $1,693. The following table sets forth the detail of this
receivable at June 30, 1997:

<TABLE>
<CAPTION>
                                          Periodic          Face       Carrying       Principal
              Interest     Maturity        Payment         Amount       Amount         Amount
Description     Rate         Date           Terms          of Note      of Note       Delinquent
------------------------------------------------------------------------------------------------
<S>             <C>         <C>            <C>             <C>          <C>              <C> 
Unsecured       9.0%        12/1/98        Monthly P+I     $1,786       $1,693           $319
</TABLE>

     At  June  30,  1997,  the  Company  also  had  impaired  loans  from  prior
foreclosure  related  deficiency  notes and/or judgments with no carrying value.
The face  amounts  ranged from  $12,000 to  $3,118,000.  These  receivables  are
unsecured, and collections are doubtful. Should any amount be collected on these
receivables,  the Company  would  recognize a gain.  See also Note 3 of Notes to
Consolidated Financial Statements.

Prior Management - Related Party Activity

     The Trust was managed by Lomas Management,  Inc., a wholly-owned subsidiary
of Lomas Financial Corporation,  from its inception in 1969 until February 1995.
Lomas Financial  Corporation was the original sponsor of the Trust. The terms of
certain  management  agreements  in effect  during  that  period  of time  often
required Lomas Financial  Corporation or one of its  subsidiaries to participate
in real  estate  loans  originated  by the Trust.  In 1995,  however,  the Trust
terminated its management agreement with Lomas Management,  Inc. and assumed its
own operating  and  accounting  responsibilities.  Management of assets owned at
that time were addressed in an Asset  Disposition  Agreement  dated February 28,
1995  between  the  Trust  and a  wholly-owned  subsidiary  of  Lomas  Financial
Corporation (the "Asset Disposition Agreement").

     The Asset  Disposition  Agreement  provided  for an exchange  of  ownership
positions  in various  pieces of  foreclosed  real estate and one  earning  note
receivable.  No gain or loss was  recognized  by the  Company as a result of the
exchange,  and at June 30,  1995,  the Trust owned 100% of its  foreclosed  real
estate and note receivable portfolio with the exception of one real estate asset
(which  was  subsequently  sold) and one  mortgage  note  receivable.  The Asset
Disposition  Agreement  also  addressed  


                                        4
<PAGE>

a group of shared  receivables with no carrying value that related to deficiency
notes obtained through previous foreclosure  proceedings and outlined procedures
to distribute future collections, if any.

     On April  24,  1996,  the  Trust  entered  into a  supplement  to the Asset
Disposition  Agreement  whereby  100% of the  outstanding  common  stock  of LNC
Holdings,  Inc., whose sole asset is one tract of undeveloped  real estate,  was
transferred to the Trust and the remaining mortgage note receivable not resolved
in  the  Asset  Disposition  Agreement  was  exchanged  for  a  comparable  note
receivable held by the subsidiary of Lomas Financial Corporation.

     In accordance with the Asset Disposition Agreement and the supplement,  the
subsidiary of Lomas Financial  Corporation received compensation of $69,237 from
the Company for the asset  administration and collection services in fiscal year
ended  June 30,  1996.  See  also  Note 6 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,  including various investment
funds,  other  companies  in  similar   industries,   corporate   conglomerates,
individual investors, etc. Recent market conditions have resulted in substantial
amounts  of  cash  becoming  available  for  new  acquisition  activity  by both
institutional and individual investors. Consequently, many potential acquisition
candidates  targeted by the Company  have been  pursued by numerous  prospective
buyers and bidding has been competitive.

Certain Customers

     In  1994,   upon  emerging  from   bankruptcy   pursuant  to  the  plan  of
reorganization,  the  Company  received  a note  receivable  (the  "Note")  from
Resurgence Properties,  Inc. ("RPI") in the original amount of $6.0 million. The
Note was  collateralized by a pool of first mortgage loans and by deeds of trust
on various real estate  assets owned by RPI. RPI  repurchased  the Note from the
Company  on  June  27,  1996  for  $4.09  million  representing  98.75%  of  the
outstanding balance in a negotiated transaction.  The Company charged $51,740 to
the allowance for possible losses on notes receivable related to this sale.

     Revenue from RPI for the fiscal year ended June 30, 1997  consisted  solely
of dividend  income  totaling  $33,500 on RPI stock.  Revenue  from RPI provided
greater than 10% of the  Company's  total revenue for the fiscal year ended June
30, 1996,  and consisted of: (i) interest  income  totaling  $389,958 on the RPI
Note  receivable  and (ii)  dividend  income  totaling  $21,375 on RPI preferred
stock.

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. 


                                       5
<PAGE>

Accordingly,  the Trust and the Company are subject to federal  income taxes and
adopted  Statement of Financial  Accounting  Standards No. 109  "Accounting  for
Income Taxes".

     The Company  incurred  book and tax losses for the year ended June 30, 1995
and no provision  for income tax was reported in the  financial  statements  for
that period.  For the year ended June 30, 1996, the Company  reported net income
for  financial  reporting  purposes of $835,367  and a net loss for tax purposes
primarily  due to  differences  between  book and tax  basis on  disposition  of
foreclosed real estate. The Company reported net income for financial  reporting
purposes for the year ended June 30, 1997 of  $1,308,984;  however,  all of this
amount was offset by the change in valuation allowance of the deferred tax asset
for regular tax purposes and 90 percent for  alternative  minimum tax  purposes,
respectively.

     At June 30, 1997,  the Company had net  operating  loss  carryforwards  for
federal income tax purposes of approximately $227 million which are available to
offset future federal taxable income.  These  carryforwards  will expire in 2005
through 2011. See also Note 7 of Notes to Consolidated Financial Statements.

Personnel

     At June 30, 1997, the Company had two full-time  employees and no part-time
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 a potential acquisition.

Item 2.  Properties

     The  Company's  principal  executive  offices were located at 600 N. Pearl,
Suite  420,  Dallas,  Texas  at June  30,  1997  under a month  to  month  lease
arrangement.  On July 14, 1997, the Company  relocated its executive  offices to
200  Crescent  Court,  Suite 1365,  Dallas,  Texas and signed a lease  agreement
expiring  December  31,  2000.  See Note 5 of Notes  to  Consolidated  Financial
Statements.

Item 3.  Legal Proceedings

     The Company is involved in routine  litigation  incidental  to its business
which,  in the  opinion of  management,  will not  result in a material  adverse
impact on the Company's consolidated financial condition, results of operations,
or cash  flows  without  regard  for  any  possible  insurance  or  third  party
reimbursement.


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

          Not applicable.


                                       6
<PAGE>

                                     PART II

Item 5.  Market for the Company's Common Equity and Related Stockholder Matters

Price Range of Common Stock

     The common stock of Liberte  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  for the  periods
indicated:

  Fiscal Year                                                High         Low
  -----------                                                ----         ---
  1997
        First Quarter.................................    $  5 1/4      $ 3 3/8
        Second Quarter................................       5            4 1/8
        Third Quarter.................................       4 1/2        3 3/4
        Fourth Quarter................................       4 1/2        3 5/8

  1996
        First Quarter.................................    $  2 1/4      $ 1 7/8
        Second Quarter................................       2 1/4        2
        Third Quarter.................................       4            2 1/8
        Fourth Quarter................................       4            3 1/2

     The high and low sales  price  per  share of  Common  Stock on the New York
Stock exchange on September 22, 1997, were $3.875 and $3.8125,  respectively. At
September  22,  1997,  there were 1,794  registered  stockholders  of LBI common
stock.

Dividend Policy

     During the last two fiscal years, the Company has not paid, and the Company
has no current  plans to pay, cash  dividends on the common  stock.  The Company
currently intends to retain earnings for use in acquiring an operating  business
and  therefore  does not  anticipate  paying cash  dividends in the  foreseeable
future.

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 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  consents to the transfer.  If void,  upon demand by the Company,  the
purported  transferee  must return the shares to the Company's agent to be sold,
or if already sold the purported transferee must forfeit some, or possibly,  all
of the sale proceeds.  In addition,  in connection  with certain  changes in the
ownership of the holders of the  Company's  shares,  the Company may 


                                       7
<PAGE>

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.

Registration Rights

     In connection with the Purchase, Hunter's Glen and the Company entered into
a Registration Rights Agreement (the "Purchaser Registration Rights Agreement"),
pursuant to which Hunter's Glen and certain  subsequent holders of the shares of
Common Stock (the "Hunter's Glen Shares")  acquired in the Purchase were granted
certain  registration  rights with  respect to such shares until (i) such shares
have  been sold  pursuant  to a resale  registration  statement  filed  with the
Securities  and Exchange  Commission,  (ii) such shares have been sold under the
safe-harbor  provision of Rule 144 under the  Securities Act of 1933, as amended
(the "Securities Act"), or (iii) such shares have been otherwise transferred and
the Company has issued new stock certificates representing such shares without a
legend  restricting  further  transfer.  The holders of not less than 20% of the
Hunter's  Glen  Shares may  require  the  Company  to file a shelf  registration
statement registering their sale of such shares. The Company will be required to
maintain the  effectiveness  of such  registration  statement for two years.  In
addition,  the holders of not less than 20% of the Hunter's Glen Shares may make
two  demands  upon  the  Company  to  register  their  sale  of such  shares  in
underwritten  offerings,  provided that the shares to be sold have a fair market
value in excess of $5.0  million.  Finally,  the  holders of the  Hunter's  Glen
Shares may  require  the  Company to  register  the sale of their  shares if the
Company  proposes to file a registration  statement under the Securities Act for
its account or the  account of its  securityholders,  other than a  registration
statement  concerning a business  combination,  an exchange of  securities or an
employee  benefit plan.  The holders of these  registration  rights may exercise
them at any time during the period  beginning on August 16, 1997 and ending when
the holders of such shares own an aggregate  of less than 5% of the  outstanding
Shares and are no longer  affiliates  of the  Company  under the  United  States
federal  securities  laws.  The Company  will bear all of the  expenses of these
registrations, except any underwriters' commissions, discounts and fees, and the
fees and  expenses  of any legal  counsel to the  holders of the  Hunter's  Glen
Shares.

     At the  closing of the  Purchase,  Hunter's  Glen,  the Company and certain
other  persons  entered into an Agreement  Clarifying  Registration  Rights (the
"Agreement  Clarifying   Registration  Rights").   Under  this  agreement,   the
registration rights that the Trust had previously extended to 400,000 Beneficial
Shares owned by the Enloe Descendants' Trust were extended to the 759,000 Shares
that the Enloe Descendants'  Trust, Mr. Robert Ted Enloe, III and his wife owned
upon the  consummation  of the  Reorganization  and the Purchase.  The Agreement
Clarifying  Registration  Rights also  defined the  relationship  between  these
registration  rights and the  registration  rights  extended under the Purchaser
Registration  Rights Agreement.  The Agreement  Clarifying  Registration  Rights
generally  permits  Hunter's Glen to require the Company to register the sale of
its shares in connection with any exercise of demand  registration rights by the
Enloe Descendants'  Trust, and permits the Enloe  Descendants'  Trust, Mr. Enloe
and his wife to require  the  Company to  register  the sale of their  shares in
connection with any exercise of demand  registration rights by Hunter's Glen. In
addition,  this Agreement provides that the Enloe Descendants' Trust, Mr. Enloe,
his wife and Hunter's Glen will not publicly sell their Shares during the period
beginning ten days before the filing of a  registration  statement in connection
with certain  underwritten  offerings and ending ninety days after the effective
date  of  such  registration   statement.   Finally,  the  Agreement  Clarifying
Registration  Rights provides that the  registration  rights with respect to the
Shares  held by the Enloe  Descendants'  Trust,  Mr.  Enloe and his wife will be
transferable to the subsequent holders of such shares.


                                       8
<PAGE>

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

     The following table sets forth selected income  statement and balance sheet
data at and for the five years ended June 30, 1997. In October  1993,  the Trust
filed a voluntary  petition for  reorganization  under  Chapter 11 of the United
States  Bankruptcy  Code and  emerged  from  bankruptcy  in April of 1994.  As a
result,  information  for years  ended  June 30,  1997,  1996,  and 1995 are not
comparable to prior years.  This information  should be read in conjunction with
the Consolidated  Financial  Statements and related Notes thereto of the Company
and with  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations," which are included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                                                            Year Ended June 30,
                                       ------------------------------------------------------
                                           1997      1996       1995        1994       1993
                                       --------   --------   --------    --------    --------
                                             (dollars in thousands, except per share data)
<S>                                    <C>        <C>        <C>         <C>         <C>     
Income Statement Data:
  Revenues                             $  2,527   $  2,784   $  2,172    $ 10,019    $ 15,115
  Interest expense                           --         --         --       7,673      16,295
  Provision for loan losses                  --        187      3,192       3,175      15,150
  Net income (loss)                       1,309        835     (2,868)    (16,341)    (34,672)
  Net income (loss) per common share       0.07       0.07      (0.23)      (1.34)      (2.94)
  Cash dividends declared per share          --         --         --          --          --
</TABLE>

                                                   June 30,
                            ----------------------------------------------------
                               1997       1996       1995       1994       1993
                            --------   --------   --------   --------   --------
                                          (dollars in thousands)
Balance Sheet Data:
  Total assets              $ 56,445   $ 33,354   $ 32,036   $ 36,316   $261,575
  Stockholders' equity        56,206     32,852     31,620     34,914     63,591
  Debt                            --         --         --         --    187,725


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,  involve a number of risks and
uncertainties,  and there can be no assurance that other factors will not affect
the  accuracy of such  forward-looking  statements.  While it is  impossible  to
identify all such factors,  factors  which could cause actual  results to differ
materially from those estimated by the Company include,  but are not limited to,
the  uncertainty as to whether the Company will be able to make future  business
acquisitions  or that any such  acquisitions  will be successful,  the Company's
ability to obtain financing for any possible acquisitions, general conditions in
the economy and capital markets,  and other factors which may be identified from
time to time in the Company's  Securities  and Exchange  Commission  filings and
other public announcements.


                                       9
<PAGE>

General

     The fiscal  year  ended June 30,  1997 was a  transition  year for  Liberte
Investors  Inc.  With the  reorganization  of the Trust  into the  Company,  the
additional  cash  provided by the  issuance  of stock to  Hunter's  Glen and the
associated  changes in management,  the Company  believes it is prepared to seek
and acquire a viable  operating  company that will generate  increased value per
share to existing  stockholders  and provide a new focus and  direction  for the
Company.  Although  substantial  efforts  have  been  made to  identify  quality
acquisitions in fiscal 1997, the Company has not yet entered into any definitive
acquisition agreements.

1997 compared with 1996

     Net income for the year ended June 30, 1997  increased to  $1,309,000  from
$835,000  for the year ended June 30, 1996,  an increase of 57%.  This change in
operating results is discussed below.

     Interest  income  on  interest-bearing   deposits  in  banks  increased  to
$2,364,000  for the year ended June 30, 1997 from  $1,182,000 for the year ended
June  30,  1996.  This  increase  is due  to the  increase  in  the  balance  of
unrestricted  cash and cash  equivalents  to $52.5 million on June 30, 1997 from
$27.2  million on June 30, 1996.  The increase in cash  balances was primarily a
result of the sale of 8,102,439 shares of newly-issued  common stock to Hunter's
Glen in August of 1996 for $23.1  million and the  collection of $1.3 million on
notes receivable during the year ended June 30, 1997.

     Notes  receivable  interest income decreased to $112,000 for the year ended
June 30,  1997 from  $525,000  for the year  ended  June 30,  1996  because  the
outstanding balance of notes receivable declined to $2,000 on June 30, 1997 from
$1.3  million on June 30,  1996.  The  Company  had  collected  all but one note
receivable with a nominal balance as of June 30, 1997.

     Gains on sales of foreclosed real estate  decreased to $11,000 for the year
ended June 30, 1997 from $599,000 for the year ended June 30, 1996. The gains on
sales of real  estate  represent  proceeds  received  from the sale of assets in
excess of carrying value.  The gain recognized in 1997 resulted from the sale of
single-family lots in San Antonio,  Texas. The gain in 1996 was primarily due to
the sale of single-family lots in Murrieta, California.

     Other  income  decreased  to $39,000  for the year ended June 30, 1997 from
$478,000  for the year ended June 30,  1996.  Other  income in 1997  represented
primarily  dividends on RPI  preferred  stock.  Other  income in 1996  consisted
primarily of cash  collections on impaired loans which had no carrying value and
the RPI dividends.

     Insurance  expense  increased  to $307,000 for the year ended June 30, 1997
from  $216,000 for the year ended June 30, 1996.  This increase is primarily due
to increased premiums related to Directors' and Officers'  insurance coverage as
required by the Stock Purchase Agreement between the Company and Hunter's Glen.

     Foreclosed real estate operations  expense increased $121,000 from $118,000
for the year ended June 30, 1996 to $239,000  for the year ended June 30,  1997.
The increase is primarily due to an accrual in fiscal 1997  established for 1996
and 1997 for property taxes on 40 acres of land held by LNC Holdings, Inc. which
is  encumbered  by  delinquent  taxes and an  increase  in the  accrual for 1997
property taxes.


                                       10
<PAGE>

     Legal,  audit and consulting fees were $186,000 for the year ended June 30,
1997, a decrease of $393,000  from the $579,000  incurred in the year ended June
30, 1996.  Fees in 1997 were primarily for real estate  consulting  services and
legal  advisory work related to potential  acquisitions.  Prior period  activity
included  primarily  legal and  investment  banking  fees  incurred  related  to
potential acquisitions.

     Directors  fees and expenses  decreased  from $77,000 in 1996 to $46,000 in
1997 due to a decrease in the number of meetings held by the board. In 1996, the
directors held several special  meetings to discuss  acquisition  candidates and
the corporate reorganization.

     Franchise tax expense for the year ended June 30, 1997 totaled  $65,000 and
represents  Delaware  and Texas  franchise  tax  expense  due as a result of the
reorganization  of the Trust  into the  Company.  The Trust was not  subject  to
franchise tax expense and no such expense was recorded for years prior to 1997.

     Compensation  and employee  benefits  decreased by $458,000  from  $593,000
during  the year  ended June 30,  1996 to  $135,000  for the year ended June 30,
1997.  The  decrease is due to the reduced  compensation  package for Robert Ted
Enloe III, the Chief Executive Officer,  during the last quarter of 1996 as well
as the resignation of the Company's employees, including Mr. Enloe, in August of
1996. Since the  reorganization in August of 1996, the Company has employed only
two full-time employees. Under the terms of the Stock Purchase Agreement between
the Company and Hunter's  Glen,  Mr. Ford, in his capacity as Chairman and Chief
Executive Officer, does not receive compensation.

     General and  administrative  expense  increased  from $178,000 for the year
ended June 30, 1996 to $225,000 for the year ended June 30,  1997.  The increase
is attributed to an increase in stockholder  service  expenses for costs related
to the  August  1996  special  meeting  and  November  1996  annual  meeting  of
stockholders  and to the renewal of the  listing  privileges  for the  Company's
common stock on the New York Stock Exchange.

1996 compared to 1995

     The  Trust's  net income  was  $835,000  for the year  ended June 30,  1996
compared to a loss of $2.9 million for the year ended June 30, 1995. This change
resulted  from the decrease in the  provision  for loan losses  recorded in 1996
compared to 1995, and the  substantial  gains on disposition of real estate that
were realized in 1996.

     Interest  income on notes  receivable  decreased from $658,000 for the year
ended June 30, 1995 to $525,000 for the year ended June 30,  1996.  The decrease
was the result of a  significant  decrease  in average  earning  notes which was
partially offset by an increase in yield. Average earning notes declined from $8
million  with a yield of 8.25% in 1995 to $5.6  million with a yield of 8.54% in
1996. Nonearning notes averaged $189,000 for 1996 compared to $276,000 for 1995.

     At June 30, 1996, the Trust's  portfolio of notes receivable and foreclosed
real estate totaled $4.8 million compared to $21.2 million ($10.7 million net of
reserves) at June 30, 1995.

     At June 30, 1996, the Trust's portfolio of notes receivable aggregated $1.3
million compared to $5.8 million at June 30, 1995. The large decrease in earning
investments  is mainly  due to the sale of the RPI note  receivable  during  the
fourth quarter of 1996. At the time of the sale, the note had a balance of $4.14
million  and was sold for  98.75%  of the  outstanding  balance.  The  remaining
balance of $51,740 was 


                                       11
<PAGE>

charged to the allowance  for loan losses.  There were no amounts to be advanced
under any notes  receivable at June 30, 1996. The interest rates on the notes at
June 30, 1996, ranged from 9.0% to 10.25% on the outstanding  balances.  At June
30, 1996 and 1995,  the Trust had no notes which were more than 90 days past due
as to interest but on which the Trust was continuing to accrue interest.

     At June 30,  1996,  the Trust held  foreclosed  real estate of $3.5 million
compared to $15.4 million  ($5.1 million net of allocated  reserves) at June 30,
1995. The net reduction in foreclosed  real estate held for sale was primarily a
result  of sales  totaling  $1.9  million  partially  offset by an  increase  in
carrying value of the single family lots located in Murrieta,  California. These
lots were sold during the second quarter of 1996.

     There was no allowance  for loan losses at June 30, 1996  compared to $10.5
million at June 30,  1995.  Prior to the year ended June 30,  1996,  the Company
provided an  allowance  for losses on  foreclosed  real estate based on the fair
value  of  each  property  acquired  through  foreclosure  or  deed  in  lieu of
foreclosure.  Effective  July  1,  1995,  the  Company  adopted  SFAS  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". The statement requires that assets held for disposal be carried
at the lower of their  carrying  amount or fair value less cost to sell and that
allocated  reserves be netted against  foreclosed  real estate.  The adoption of
SFAS  No.  121  did  not  have a  material  effect  on the  Company's  financial
condition,  results of operations or cash flows,  as foreclosed  real estate was
previously  carried at fair value less estimated cost to sell. Future changes in
fair value will result in a direct write-down or write-up of the foreclosed real
estate.

     One note was originated  during the year ended June 30, 1996 which was made
to facilitate the sale of foreclosed real estate.

     Income from cash and cash equivalents  increased from $892,000 for the year
ended June 30, 1995 to $1.2  million for the year ended June 30, 1996  primarily
as a result  of the  Trust's  increase  in cash and  cash  equivalents  to $27.3
million at June 30, 1996 from $20.6  million at June 30,  1995.  The increase is
primarily a result of the collection of notes receivable,  including the sale of
the RPI note, and the sale of foreclosed real estate.

     The gain on disposition of real estate represents proceeds from the sale of
foreclosed  real estate in excess of its  carrying  value,  and the  write-up of
value of long lived assets to be disposed of that were previously  written down.
A group of developed  single  family lots located in San  Antonio,  Texas,  were
written  up in value to more  accurately  reflect  their fair value less cost to
sell.  Also  included  is a  $439,000  gain  from the sale of real  estate  that
consisted of 97 residential  lots developed for single family home  construction
in Murrieta,  California. The Trust accepted a substantial cash down payment and
a note  receivable  (carrying a market rate of  interest)  from the buyer of the
lots in California.

     Other income  decreased  from  $623,000 for the year ended June 30, 1995 to
$478,000  for the year ended June 30,  1996.  Other  income in 1996  represented
primarily income from impaired loans. More  specifically,  other income included
$415,000  collected in full  settlement of a deficiency  note receivable with no
carrying value, the face value of which was $829,000 at June 30, 1995. There was
no income from impaired loans prior to 1996 because collections were recorded as
recoveries and credited to the allowance for possible loan losses.  Other income
in 1995  consisted of consulting  fee income that began in the fourth quarter of
1994 in connection  with an agreement with RPI. The agreement  provided that the
Trust would receive  $87,500 of consulting fee income per quarter until March of
1996;  however,  the  agreement  was  discontinued  in exchange for a payment of
$500,000 in lieu of the $525,000  that would have been received over the term of
the contract.


                                       12
<PAGE>

     There was a net provision for loan losses of $187,000 recorded for the year
ended June 30, 1996  compared to a provision  of $3.2 million for the year ended
June 30, 1995.

     The Trust reversed $18,000 of unallocated  allowance for loan losses in the
fourth quarter of 1996 to eliminate the remaining unallocated allowance for loan
losses on the Trust's portfolio of notes receivable based on management's review
of the  collectibility of the related notes receivable.  A $1.1 million reversal
to the  allowance  for loan  losses on notes  receivable  occurred  in 1995 as a
result  of  the  substantial   reduction  in  the  Trust's  portfolio  of  notes
receivable.  The Trust's  reduction  in notes  receivable  in 1995  involved the
foreclosure  of a $4.8  million note  secured by an  operating  retail  shopping
center which was promptly sold for cash during the second quarter of 1995. These
reversals  partially offset the provision for losses on the Trust's portfolio of
foreclosed real estate.

     There was a provision for losses on  foreclosed  real estate of $205,000 in
1996 compared to a provision of $4.3 million in 1995. The $205,000  provision on
foreclosed real estate in 1996 resulted from an adjustment of the carrying value
of 55 single family lots located in Fontana, California. The trust decreased its
carrying value from $15,000 per lot to $12,000 per lot during the fourth quarter
of 1996. The trust decreased its carrying value of these lots by $900,000 during
1995 in order to recognize the decline in market value.

     The $4.3 million  provision for possible  losses on foreclosed  real estate
for the year ended June 30, 1995  resulted  from  increases in the  estimates of
losses on  foreclosed  real  estate  held for sale.  During  this time,  a large
portion of the Trust's  foreclosed real estate was in the form of land which was
inherently illiquid and/or in geographic locations where real estate markets for
this type of property  were  depressed.  The Trust  increased  the allowance for
losses by  approximately  $2.3 million in  connection  with its  ownership of 97
residential  lots  developed  for single family home  construction  in Murrieta,
California.  The Trust had been  unsuccessful in liquidating its position during
1995 as the California  real estate markets  continued to decline.  Furthermore,
the costs  involved  to  acquire  permits to build on these  lots  continued  to
escalate,  thereby  contributing  to the  decline in fair  market  value and the
number of potential buyers. The Trust further increased the allowance during the
second  quarter of 1995 based on a  contingent  sales  contract  which failed to
close and further  increased its allowance in the third quarter of 1995 based on
discussions held with other potential purchasers of the property. This asset was
sold  in  November  1996  for  cash  and a  note  receivable  resulting  in  the
recognition of a $439,000 gain.

     Foreclosed  real estate  operations  decreased from $275,000 for year ended
June 30, 1995 to $118,000 for year ended June 30, 1996 because of the  reduction
in the size of the real estate  portfolio.  Foreclosed  real  estate  operations
include  property  taxes and costs to maintain the portfolio of foreclosed  real
estate such as mowing expenses, survey expenses, etc.

     Legal,  audit and consulting  fees increased to $579,000 for the year ended
June 30, 1996 from $332,000 for the year ended June 30, 1995.  This increase was
caused  primarily  by  activities  during the first and second  quarters of 1996
relating to potential acquisition  candidates,  and fees paid to a subsidiary of
Lomas  Financial   Corporation  for  impaired  loan  collections  and  sales  of
foreclosed real estate in accordance with the Asset Disposition Agreement.

     Management  fees were  eliminated  in the fourth  quarter  of 1995  because
management services provided by Lomas were terminated in February of that year.

     Compensation and employee benefits  expenses  decreased to $593,000 for the
year ended June 30,  1996 from  $619,000  for the year ended June 30,  1995.  In
1996,  salary and related expenses  included


                                       13
<PAGE>

$150,000  relating to bonuses that were paid to the president and executive vice
president  upon  the  consummation  of  the   reorganization   into  a  Delaware
corporation.  Excluding  this  $150,000  bonus  accrual,  salaries  and  related
expenses  were  $175,000  less in 1996  than  1995  primarily  as a result  of a
reduction in the president's base salary.

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.

     As described in "Item 1. Business," the Trust entered into an agreement and
subsequently  consummated the sale of newly-issued  Shares to Hunter's Glen. The
proceeds  from  this sale  were  $23.1  million.  Management  believes  that the
additional  cash will assist the  Company in its efforts to expand its  business
through  acquisitions.  Hunter's  Glen is an  affiliate  of Gerald J. Ford,  who
became the Chief  Executive  Officer  and  Chairman  of the Board of the Company
following the Trust's reorganization into the Company and the sale of the shares
to Hunter's Glen.

     Operating activities for the year ended June 30, 1997 provided $1.4 million
of cash compared to $0.2 million used in 1996 and $0.5 million used in 1995. The
table below reflects cash flow from operating activities (in millions):

                                                        Year Ended June 30,
                                                  -----------------------------
                                                     1997       1996       1995
                                                  -------    -------    -------
Total income                                      $   2.5    $   2.8    $   2.2
Operating expenses                                   (1.2)      (1.8)      (1.8)
Net change in other receivables,
  assets and liabilities                              0.1       (1.2)      (0.9)
                                                  -------    -------    -------
Net cash provided (used) by operating activities  $   1.4    $  (0.2)   $  (0.5)
                                                  =======    =======    =======

     Net cash provided by investing  activities for the year ended June 30, 1997
was $1.4  million  compared to $6.8 million for the year ended June 30, 1996 and
$12.4  million for the year ended June 30,  1995,  primarily  as a result of the
contraction of the Company's note receivable portfolio. The table below reflects
cash flow from investing activities (in millions):

                                                        Year Ended June 30,
                                                  -----------------------------
                                                     1997       1996       1995
                                                  -------    -------    -------
Collections on mortgage loans                     $   1.3    $   0.6    $   1.4
Collections on RPI note receivable                     --        5.3        0.6
Advances on mortgage loans                             --         --       (0.3)
Sales of foreclosed real estate                       0.1        0.9       10.3
Net sales of restricted cash investments               --         --        0.6
Expenditures on foreclosed real estate                 --         --       (0.2)
                                                  -------    -------    -------
Net cash provided by investing activities         $   1.4    $   6.8    $  12.4
                                                  =======    =======    =======


                                       14
<PAGE>

     Net cash  provided by financing  activities  totaled  $22.5 million for the
year ended June 30, 1997 from the issuance of new stock to Hunter's  Glen,  less
expenses of the new issue. Total cash and cash equivalents were $52.5 million at
June 30, 1997.

     The  Company  plans  to  finance   acquisitions  with  its  cash  and  cash
equivalents,  borrowings  and private or public debt and equity  financings.  To
avoid  restricting  the  use of its  NOL  carryforwards,  the  Company  will  be
effectively  precluded from issuing any additional  shares of common stock,  any
shares of any other  class of voting  stock or stock  that  participates  in the
earnings  or growth of the  Company,  or certain  options  with  respect to such
stock,  for three  years after the sale of the Common  Stock to  Hunter's  Glen.
During this period,  the Company will have to incur  indebtedness  to the extent
that it does not use its cash and cash equivalents to make acquisitions.


Item 8.  Financial Statements and Supplementary Data

     See "Item 14. 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

     On November  19, 1996 the Company  filed a report on Form 8-K to report the
change in independent  accountants of the Company from Ernst & Young LLP ("E&Y")
to KPMG Peat Marwick LLP. No report of E&Y on the Company's financial statements
for  either of the past two  fiscal  years  contained  an  adverse  opinion or a
disclaimer  of opinion,  or was qualified or modified as to  uncertainty,  audit
scope or accounting principles. Further, there were no disagreements with E&Y on
any matter of accounting principles or practices, financial statement disclosure
or auditing  scope of  procedure,  which  disagreements,  if not resolved to the
satisfaction  of E&Y,  would have  caused it to make  reference  to the  subject
matter of the disagreements in its reports.


                                       15
<PAGE>

                                    PART III

Item 10.  Directors and Executive Officers of the Company

     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 Commission and sent to  stockholders  in connection  with the Company's
Annual  Meeting of  Stockholders  to be held  November 7, 1997 under the heading
"DIRECTOR  NOMINEES AND EXECUTIVE  OFFICERS," 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 heading  "MANAGEMENT  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.


Item 13.  Certain Relationships and Related Transactions

     The  Company  was  managed  by  Lomas  Management,  Inc.  ("LMI")  from its
inception in 1969 until February 28, 1995.  LMI is a wholly-owned  subsidiary of
Lomas Financial Corporation,  the original sponsor of the Trust. On February 28,
1995, the Company  terminated its management  agreement with LMI and assumed all
operating and accounting  responsibilities.  Any remaining  property  management
responsibilities  with  regard  to assets  jointly-owned  with  Lomas  Financial
Corporation  were  provided  for in the Asset  Disposition  Agreement  described
below.

     Effective February 28, 1995, the Company entered into an "Asset Disposition
Agreement" with ST Lending,  Inc.  ("STL"),  a wholly-owned  subsidiary of Lomas
Financial  Corporation,  whereby the Company and STL exchanged their  respective
ownership  positions in a group of ten assets in order to achieve a separate and
distinct  ownership  position.  The Company  exchanged  its 80% ownership in six
assets,  whose 80%  interest  had a net  carrying  value of  approximately  $1.2
million (net of  reserves)  for STL's 20%  ownership  in four assets,  whose 20%
interest  had a net  carrying  value  of  approximately  $1.2  million  (net  of
reserves).  No gain or loss was recognized as a result of this  transaction.  In
addition,  a group of approximately 14 receivables,  which had no carrying value
and related primarily to deficiency notes, remained 80% owned by the Company and
20% owned by STL. The 14 receivables  had face amounts which ranged in size from
$9,875  to  $2,494,118.  The Asset  Disposition  Agreement  stipulated  that the
Company  would pay STL 10% of any gross  proceeds  received in addition to STL's
20%  ownership,  from  this  pool of  receivables  in  return  for  STL's  asset
administration.  Effective April 15, 1996, STL's interest in the seven remaining
deficiency notes and or judgments, which had no carrying value, were transferred
to the Company.


                                       16
<PAGE>

     On April 24, 1996, the Company entered into a Supplement (the "Supplement")
to the Asset Disposition Agreement.  The Supplement transferred ownership of LNC
Holdings,  Inc.,  whose sole asset is approximately 40 acres of undeveloped real
estate that is fully  encumbered by tax liens,  to the Company and set forth the
terms under  which STL would  continue to manage the  property.  The  Supplement
further  described the method of allocating  the funds to be paid to the Company
and STL with respect to a proposed  settlement  agreement for a deficiency  note
receivable  received by the Company in June 1996 in the amount of  approximately
$8,000.  The Company also exchanged its 50% interest,  representing  $212,000 of
principal,  in a note the Company has classified as  non-earning,  for STL's 20%
interest,  representing $269,000 of principal,  in a note the Company classified
as earning.  The exchange of these notes  resulted in the Company owning 100% of
an  interest-bearing  note,  secured  by 72 lots in  Murrieta,  California.  The
difference  in the  exchange  values  resulted  in the  recording  of $31,000 of
interest income.  The remaining  difference of $26,000 was applied as a discount
to the carrying  value of the note received and was  amortized  into income over
the life of the loan.

     In accordance with the Asset Disposition  Agreement and the Supplement,  in
fiscal 1996, STL received compensation of $69,237 from the Company for its asset
administration and collection services.

     Under the  management  agreement in effect prior to February 28, 1995,  LMI
was entitled to basic  compensation at an annual rate of 1% of the daily average
book  value of the  Company's  Invested  Assets (as  defined  in the  management
agreement) plus $81,000 per year for accounting services. During the fiscal year
ended  June  30,  1995,   the  Company  paid  LMI   compensation   of  $157,907.
Additionally,  STL received  $10,898 in  accordance  with the Asset  Disposition
Agreement.

     At June  30,  1996,  the  Company  had a  collateral  assignment  of a life
insurance  policy  which  was  recorded  as a  receivable  under a  split-dollar
agreement. On December 13, 1996, Mr. Enloe purchased the policy from the Company
for $126,727, the amount of the receivable.


                                       17
<PAGE>

                                     PART IV

Item 14.  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)  Consolidated Financial Statements Schedule IV - Mortgage Loans on
              Real Estate on Page F-18.

         (3)  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  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).

              2.3    Letter  Agreement,  dated as of April 1,  1996,  among  the
                     Trust, the Company, and the Purchaser.

              2.4    Confidentiality  and  Standstill  Agreement,  dated  as  of
                     January  16,  1996,  between  the Trust  and the  Purchaser
                     (incorporated  by  reference  to Exhibit 2.2 of the Trust's
                     Quarterly  Report on Form 10-Q for the quarter  ended March
                     31, 1996).

              2.5    Escrow  Agreement,  dated as of January 19, 1996, among the
                     Trust,  the  Purchaser,  and Texas  Commerce  Bank National
                     Association.

              2.6    The Trust's  First  Amended Plan of  Reorganization,  dated
                     December 14, 1993, as modified by the  Modification  to the
                     First  Amended Plan of  Reorganization,  dated  January 19,
                     1994  (incorporated  by  reference  to the Trust's  Current
                     Report on Form 8-K filed with the Commission on February 9,
                     1994).


                                       18
<PAGE>

              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).

              3.3    The  Trust's  Declaration  of Trust,  dated June 26,  1969,
                     restated  to give  effect  to the  First  Amendment  to the
                     Declaration of Trust,  dated September 19, 1969, the Second
                     Amendment to the  Declaration  of Trust,  dated January 24,
                     1986,  the Third  Amendment  to the  Declaration  of Trust,
                     dated  January  19,  1989,  the  Fourth  Amendment  to  the
                     Declaration  of Trust,  dated  December 18, 1992, the Fifth
                     Amendment  to the  Declaration  of Trust,  dated  March 31,
                     1995, and the Sixth  Amendment to the Declaration of Trust,
                     dated  November  22, 1995  (incorporated  by  reference  to
                     Exhibit  3.1 of the Trust's  Quarterly  Report on Form 10-Q
                     for the quarter ended December 31, 1995.

              3.4    Form of the Seventh Amendment to the Trust's Declaration of
                     Trust  (incorporated  by  reference  to Exhibit  3.4 of the
                     Registration Statement).

              3.5    The  Trust's  Bylaws,  restated to give effect to the First
                     Amendment  to the  Bylaws  (incorporated  by  reference  to
                     Exhibit  3.1 of the Trust's  Quarterly  Report on Form 10-Q
                     for the Quarter ended March 31, 1996).

              4.1    Form of Registration Rights Agreement to be entered into by
                     the Company and the Purchaser (incorporated by reference to
                     Exhibit 4.1 of the Registration Statement).

              4.2    Stock  Option  Agreement,  dated May 7, 1993,  between  the
                     Trust and Robert Ted Enloe, III  (incorporated by reference
                     to Exhibit 10.22 of the Trust's  Annual Report on Form 10-K
                     for the year ended June 30, 1993).

              4.3    Form of  Agreement  Clarifying  Registration  Rights  to be
                     entered  into by the  Company,  the  Purchaser,  the  Enloe
                     Descendants' Trust, and Robert Ted Enloe, III (incorporated
                     by reference to Exhibit 4.3 of the Registration Statement).

              10.1   Exchange  Agent  Agreement,  dated  as of  June  13,  1996,
                     between the Company and KeyCorp Shareholder Services,  Inc.
                     (incorporated   by   reference   to  Exhibit  10.1  of  the
                     Registration Statement).

              10.2   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).


                                       19
<PAGE>

              10.3   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).

              10.4   Promissory  Note,  dated October 22, 1993,  from Robert Ted
                     Enloe,  III to the  Trust  (incorporated  by  reference  to
                     Exhibit 10.1 of the Trust's  Quarterly  Report on Form 10-Q
                     for the quarter ended December 31, 1993.

              10.5   Stock  Pledge and  Security  Agreement,  dated  October 22,
                     1993,   between  Robert  Ted  Enloe,   III  and  the  Trust
                     (incorporated  by  reference to Exhibit 10.2 of the Trust's
                     Quarterly  Report  on  Form  10-Q  for  the  quarter  ended
                     December 31, 1993), as supplemented by a letter  agreement,
                     dated  November  13, 1995,  between the Enloe  Descendants'
                     Trust and the Trust  (incorporated  by reference to Exhibit
                     10.5 of the Registration Statement).

              10.6   Agreement Regarding Registration Rights, Amendment of Stock
                     Option  Agreement,  and  Ratification of Pledge  Agreement,
                     dated as of November 13, 1995, among the Trust,  Robert Ted
                     Enloe, III, and the Enloe Descendants' Trust  (incorporated
                     by   reference   to  Exhibit   10.6  of  the   Registration
                     Statement).

              10.7   Asset  Disposition  Agreement,  dated  February  28,  1995,
                     between the Trust and ST  Lending,  Inc.  (incorporated  by
                     reference to Exhibit 10.9 of the Trust's  Annual  Report on
                     Form 10-K for the year ended June 30, 1995),  as amended by
                     the Supplement to Asset  Disposition  Agreement dated April
                     24, 1996.

              16.1   Letter  dated  November  15,  1996  from  Ernst & Young LLP
                     regarding Company's change in independent accountants.

              21.1   A list of the subsidiaries of the Company.

              27.1   Financial  Data  Schedule   (included  only  in  the  EDGAR
                     filing).


     (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.


                                       20
<PAGE>

                                   SIGNATURES

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

     DATED: September 29, 1997              LIBERTE INVESTORS INC.


                                            /s/ GERALD J. FORD
                                            ------------------------------------
                                            Gerald J. Ford
                                            Chief Executive Officer and Chairman
                                            of the Board


     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.

<TABLE>
<CAPTION>
      Signatures                                Title                                        Date
      ----------                                -----                                        ----

<S>                                 <C>                                                  <C> 
 /s/ GERALD J. FORD                 Chief Executive Officer and Chairman                 September 29, 1997
------------------------------      of the Board (Principal Executive Officer) 
     Gerald J. Ford                     

 /s/ NANCY J. FOEDERER              Secretary and Treasurer                              September 29, 1997
------------------------------      (Principal Financial Officer and
    Nancy J. Foederer               Accounting Officer)              
                                      

   /s/ GENE H. BISHOP               Director                                             September 29, 1997
------------------------------                      
     Gene H. Bishop                                 
                                                    
                                                    
   /s/ HARVEY B. CASH               Director                                             September 29, 1997
------------------------------                      
     Harvey B. Cash                                 
                                                    
                                                    
/s/ ROBERT TED ENLOE, III           Director                                             September 29, 1997
------------------------------                      
  Robert Ted Enloe, III                             
                                                    
                                                    
 /s/ EDWARD W. ROSE, III            Director                                             September 29, 1997
------------------------------                      
   Edward W. Rose, III                              
                                                    
                                                    
   /s/ GARY SHULTZ                  Director                                             September 29, 1997
------------------------------                      
       Gary Shultz                                  
</TABLE>
                                                  


                                       21
<PAGE>

                             Liberte Investors Inc.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     The following  consolidated  financial statements of Liberte Investors Inc.
are included in response to Item 8 and Item 14 (1) and (2):

<TABLE>
<CAPTION>
                                                                                                            Page
                                                                                                            ----
<S>                                                                                                         <C>
Report of KPMG Peat Marwick LLP, Independent Auditors..................................................      F-2

Report of Ernst & Young LLP, Independent Auditors......................................................      F-3

Consolidated Statements of Financial Condition
      as of June 30, 1997 and June 30, 1996............................................................      F-4

Consolidated Statements of Operations for the years ended June 30, 1997, June 30,
     1996, and June 30, 1995...........................................................................      F-5

Consolidated Statements of Stockholders' Equity for the years ended June 30, 1997,
     June 30, 1996, and June 30, 1995..................................................................      F-6

Consolidated Statements of Cash Flows for the years ended June 30, 1997, June 30,
     1996, and June 30, 1995...........................................................................      F-7

Notes to Consolidated Financial Statements.............................................................      F-8

Schedule IV - Mortgage Loans on Real Estate............................................................     F-18
</TABLE>

     Separate  financial  statements  relating to the Company's  subsidiary  are
omitted since it is wholly-owned and such separate financial  statements are not
material.

     All other  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.


                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Liberte Investors Inc.:

We have audited the accompanying  consolidated  statement of financial condition
of Liberte  Investors  Inc. and  subsidiary as of June 30, 1997, and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
the year then ended. In connection with our audit of the consolidated  financial
statements,  we have also audited the financial statement schedule as of and for
the  year  ended  June 30,  1997 as  listed  in the  accompanying  index.  These
consolidated  financial  statements  and  financial  statement  schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  and  financial  statement
schedule based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides 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 Liberte Investors
Inc. and subsidiary as of June 30, 1997, and the results of their operations and
their cash flows for the year then ended in conformity  with generally  accepted
accounting  principles.  Also, in our opinion,  the related financial  statement
schedule as of and for the year ended June 30, 1997, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.


                                        KPMG Peat Marwick LLP


Dallas, Texas
July 23, 1997


                                      F-2
<PAGE>


               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Shareholders and Trustees
Liberte Investors

     We have  audited the  accompanying  consolidated  balance  sheet of Liberte
Investors and  subsidiaries  (the Company) as of June 30, 1996,  and the related
consolidated statements of operations,  shareholders' equity, and cash flows for
each of the two  years in the  period  ended  June 30,  1996.  Our  audits  also
included the June 30, 1996 and 1995 amounts in the financial  statement schedule
listed in the Index at Item 14(a).  These financial  statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these  financial  statements  and amounts in the schedule based on
our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  These 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 consolidated financial position of
Liberte  Investors  and  subsidiaries  at June 30,  1996,  and the  consolidated
results  of their  operations  and their cash flows for each of the two years in
the period ended June 30, 1996, in conformity with generally accepted accounting
principles.  Also,  in our  opinion,  the June 30, 1996 and 1995  amounts in the
related financial statement  schedule,  when considered in relation to the basic
financial  statements taken as a whole,  present fairly in all material respects
the information set forth therein.

/s/ Ernst & Young LLP

Dallas, Texas
July 26, 1996

                                      F-3

<PAGE>

                             LIBERTE INVESTORS INC.
                                 AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


                                                     June 30,         June 30,
                                                       1997            1996
                                                  -------------    -------------
Assets
Unrestricted cash                                 $  52,474,290    $  27,245,594
Restricted cash and cash equivalents                     61,237           58,325
                                                  -------------    -------------
      Total cash and cash equivalents                52,535,527       27,303,919


Foreclosed real estate held for sale                  3,435,621        3,475,790
Notes receivable, net                                     1,693        1,331,390
Accrued interest and other receivables                    4,507           63,875
Other assets                                            467,876        1,179,277
                                                  -------------    -------------
      Total assets                                $  56,445,224    $  33,354,251
                                                  =============    =============

Liabilities and Stockholders' Equity
Liabilities-accrued and other liabilities         $     239,545    $     502,078

Stockholders' Equity
Common stock, $.01 par value,
   50,000,000 shares authorized,
   20,256,097 shares issued and outstanding             202,561             --
Shares of Beneficial Interest, no par value,
   unlimited authorization, 12,423,208 shares
   issued, 12,153,658 shares outstanding,
   net of 269,550 shares held in treasury                  --         32,852,173
Additional paid-in capital                          309,392,399             --
Accumulated deficit                                (253,389,281)            --
                                                  -------------    -------------

     Total stockholders' equity                      56,205,679       32,852,173
                                                  -------------    -------------

Commitments and contingencies

     Total liabilities and stockholders' equity   $  56,445,224    $  33,354,251
                                                  =============    =============

See notes to consolidated financial statements.


                                      F-4
<PAGE>

                             LIBERTE INVESTORS INC.
                                 AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                         Year Ended June 30,
                                             ------------------------------------------
                                                 1997           1996           1995
                                             ------------   ------------   ------------
<S>                                          <C>            <C>            <C>         
Income
  Interest-bearing deposits in banks         $  2,364,381   $  1,182,179   $    892,008
  Notes receivable interest                       111,776        525,290        657,511
  Gains on sales of foreclosed real estate         11,310        598,557           --
  Other                                            39,145        478,307        622,555
                                             ------------   ------------   ------------
Total income                                    2,526,612      2,784,333      2,172,074
                                             ------------   ------------   ------------

Expenses
  Insurance                                       307,292        216,089        215,572
  Foreclosed real estate operations               238,854        118,456        274,546
  Legal, audit and consulting fees                186,058        578,791        332,367
  Directors (trustees) fees and expenses           46,050         77,400         61,215
  Management fees                                    --             --          157,907
  Franchise tax                                    65,206           --             --
  Compensation and employee benefits              134,803        593,104        619,433
  Provision for loan losses                          --          187,058      3,192,000
  General and administrative                      225,365        178,068        186,613
                                             ------------   ------------   ------------
Total expenses                                  1,203,628      1,948,966      5,039,653
                                             ------------   ------------   ------------

Income (loss) before income
  taxes                                         1,322,984        835,367     (2,867,579)

Income tax expense                                 14,000           --             --
                                             ------------   ------------   ------------

Net Income (loss)                            $  1,308,984   $    835,367   $ (2,867,579)
                                             ============   ============   ============

Net income (loss) per share of common
  stock (beneficial interest in 1996
  and 1995)                                  $       0.07   $       0.07   $      (0.23)
                                             ============   ============   ============

Weighted average number of shares of
  common stock (beneficial interest in
  1996 and 1995)                               19,237,758     12,153,658     12,322,773
                                             ============   ============   ============
</TABLE>

See notes to consolidated financial statements.


                                      F-5
<PAGE>

                             LIBERTE INVESTORS INC.
                                 AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                Additional
                             Number of    Beneficial      Number of   Common     Paid-In    Treasury    Accumulated
                              Shares       Interest        Shares     Stock      Capital      Stock       Deficit          Total
                            ----------  -------------    ----------  --------  ------------  --------  -------------    -----------
<S>                         <C>         <C>              <C>         <C>       <C>           <C>       <C>              <C>        
Balance at June 30, 1994    12,423,208  $ 287,954,763          --    $   --    $       --    $   --    $(253,040,818)   $34,913,945
  Deferred interest 
    on executive
    stock option loan             --             --            --        --            --        --          (22,227)       (22,227)
  Purchase of treasury
    stock                     (269,550)          --            --        --            --    (404,325)          --         (404,325)
  Net loss                        --             --            --        --            --        --       (2,867,579)    (2,867,579)
                            ----------  -------------    ----------  --------  ------------  --------  -------------    -----------
Balance at June 30, 1995    12,153,658    287,954,763          --        --            --    (404,325)  (255,930,624)   $31,619,814
  Repayment of executive
    stock option loan             --             --            --        --            --        --          396,992        396,992
  Net income                      --             --            --        --            --        --          835,367        835,367
                            ----------  -------------    ----------  --------  ------------  --------  -------------    -----------
Balance at June 30, 1996    12,153,658    287,954,763          --        --            --    (404,325)  (254,698,265)    32,852,173 
  Exchange of shares 
    pursuant to plan 
    of reorganization      (12,153,658)  (287,954,763)   12,153,658   121,537   287,428,901   404,325           --             --
  Issuance of common 
    stock, net of 
    stock issuance costs
    of $1,047,429                 --             --       8,102,439    81,024    21,963,498      --             --       22,044,522
  Net income                      --             --            --         -            --        --        1,308,984      1,308,984
                            ----------  -------------    ----------  --------  ------------  --------  -------------    -----------
Balance at June 30, 1997          --    $        --      20,256,097  $202,561  $309,392,399  $   --    $(253,389,281)   $56,205,679
                            ==========  =============    ==========  ========  ============  ========  =============    ===========
</TABLE>

See notes to consolidated financial statements.


                                      F-6
<PAGE>

                             LIBERTE INVESTORS INC.
                                 AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                               Year Ended June 30,
                                                                             ------------------------------------------------------
                                                                                 1997                 1996                 1995
                                                                             ------------         ------------         ------------
<S>                                                                          <C>                  <C>                  <C>          
Cash flows from operating activities:
  Net income (loss)                                                          $  1,308,984         $    835,367         $ (2,867,579)
  Adjustments to reconcile net income (loss)
  to net cash provided by (used in) operating
  activities:
     Provision for loan losses                                                         --              187,058            3,192,000
     Decrease in accrued interest and other receivables                            59,368               40,012              220,667
     Decrease (increase) in other assets                                          291,217             (678,145)            (114,028)
     (Decrease) increase in accrued and other liabilities                        (262,533)              85,914             (985,868)
     Income from impaired loans                                                      (500)            (452,903)                  --
     Gains from sales of foreclosed real estate                                   (11,310)            (598,557)                  --
     Collection of executive stock option loan                                         --              416,787                   --
                                                                             ------------         ------------         ------------
          Net cash provided by (used in) operating
               activities                                                       1,385,226             (164,467)            (554,808)
                                                                             ------------         ------------         ------------

Cash flows from investing activities:
   Collections of notes receivable                                              1,330,197            5,937,776            1,997,003
   Note receivable advances                                                            --                   --             (308,299)
   Foreclosed real estate expenses                                                     --                   --             (127,350)
   Proceeds from sales and basis reductions of
        foreclosed real estate                                                     51,479              894,848           10,252,601
   (Increase) decrease in restricted cash investments                              (2,912)                 920              564,055
                                                                             ------------         ------------         ------------
       Net cash provided by investing activities                                1,378,764            6,833,544           12,378,010
                                                                             ------------         ------------         ------------

Cash flows from financing activities:
   Issuance of newly issued shares of common
       stock                                                                   23,091,951                   --                   --
  Stock issuance costs                                                           (627,245)                  --                   --
  Purchase of treasury stock                                                           --                   --             (404,325)
                                                                             ------------         ------------         ------------
       Net cash provided by financing activities                               22,464,706                   --             (404,325)
                                                                             ------------         ------------         ------------

Net increase in unrestricted cash and cash equivalents                         25,228,696            6,669,077           11,418,877
Unrestricted cash and cash equivalents at beginning
      of year                                                                  27,245,594           20,576,517            9,157,640
                                                                             ------------         ------------         ------------
Unrestricted cash and cash equivalents at end of year                        $ 52,474,290         $ 27,245,594         $ 20,576,517
                                                                             ============         ============         ============

Schedule of non-cash activities:
  Transfer of notes receivable to foreclosed real
        estate                                                               $         --                   --            4,792,782
  Charge-offs to allowance for loan losses, net                              $         --           10,498,922            4,402,473
  Sales of foreclosed real estate financed by
       mortgage loans                                                        $         --            1,076,800              138,400
  Write-up of value of impaired note                                         $         --               71,250                   --
  Write-up of value of long-lived assets to be
        disposed                                                             $         --               53,751                   --
  Increase in note receivable from asset swap                                $         --               31,313                   --
</TABLE>

 See notes to consolidated financial statements.


                                      F-7
<PAGE>


                      Liberte Investors Inc. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          June 30, 1997, 1996 and 1995

(1)  Summary of significant accounting policies

     (a)  Organization - Liberte  Investors  Inc., a Delaware  corporation  (the
"Company"), was organized in April of 1996 in order to effect the reorganization
of Liberte Investors, a Massachusetts business trust (the "Trust"). At a special
meeting of the  shareholders of the Trust held on August 15, 1996, (the "Special
Meeting"),  the Trust's shareholders  approved a plan of reorganization  whereby
the  Trust  contributed  its  assets  to the  Company  and  received  all of the
Company's  outstanding  common  stock,  par value  $.01 per share  ("Shares"  or
"Common Stock"). The Trust then distributed to its shareholders in redemption of
all  outstanding  shares of  beneficial  interest in the Trust (the  "Beneficial
Shares")  the Shares of the  Company.  The  Company  assumed  all of the Trust's
assets and outstanding liabilities and obligations.

     Unless otherwise indicated,  the information  contained in the consolidated
financial  statements  which  relates  to periods  prior to August  16,  1996 is
information related to the Trust and information relating to periods on or after
August 16, 1996 is information relating to the Company.

     (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.  Over  the past  several  years,
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 utilize the net operating  loss  carryforwards  available to
offset future earnings.

     (c)  Consolidation  - The  accompanying  financial  statements  include the
accounts of the Company and LNC Holdings,  Inc., a wholly-owned subsidiary whose
sole asset is  approximately  40 acres of land located in Arlington,  Texas. All
intercompany balances have been eliminated.

     (d) Use of estimates - The preparation of consolidated financial statements
in conformity with generally accepted accounting  principles requires management
to make certain  estimates and  assumptions.  These  estimates  and  assumptions
affect the reported amounts of assets, liabilities,


                                      F-8
<PAGE>

                      Liberte Investors Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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.  Interest
income on impaired  loans is recognized on a cash basis only after all principal
has been  collected.  Collections  on impaired  loans with no carrying value are
recognized on a cash basis and are recorded as loan income.

     (f) Allowance for loan losses - notes receivable - Prior to the fiscal year
ended June 30, 1996,  the Company  provided an allowance for possible  losses on
notes  receivable  based on an evaluation of each note considering the financial
strength  of the  borrower,  any  third  party  guarantors  and the value of any
underlying collateral.  Effective July 1, 1995, the Company adopted Statement of
Financial  Accounting  Standards ("SFAS") No. 114,  "Accounting by Creditors for
Impairment of a Loan", as amended by SFAS No. 118,  "Accounting by Creditors for
Impairment  of a Loan  -  Income  Recognition  and  Disclosures"  and  began  to
determine an allowance  based on either (i) the present value of expected future
cash flows  discounted at the note's  effective  interest rate, or (ii) the fair
value of the  collateral if the repayment of the loan is expected to be provided
solely by the collateral.  The adoption of SFAS No. 114 and SFAS No. 118 did not
have a  material  effect on the  Company's  financial  condition  or  results of
operations, as the Company's note receivable had been previously written down to
the amounts in accordance with these new statements.

     (g)  Allowance  for losses -  foreclosed  real estate - Prior to the fiscal
year ended June 30,  1996,  the  Company  provided  an  allowance  for losses on
foreclosed real estate based on the fair value of each property acquired through
foreclosure or deed in lieu of foreclosure.  Effective July 1, 1995, the Company
adopted SFAS No. 121,  "Accounting  for the Impairment of Long-Lived  Assets and
for  Long-Lived  Assets to Be Disposed Of". The  statement  requires that assets
held for disposal be carried at the lower of their carrying amount or fair value
less cost to sell and that allocated  reserves be netted against foreclosed real
estate.  The  adoption  of SFAS No.  121 did not have a  material  effect on the
Company's  consolidated  financial  condition  or  results  of  operations,   as
foreclosed real estate was previously  carried at fair value less estimated cost
to sell.  Future  changes in fair value will  result in a direct  write-down  or
write-up of the foreclosed real estate.

     (h)  Foreclosed  real  estate -  Foreclosed  real estate is recorded at the
lower of cost or fair  value  less  estimated  costs  to sell.  Cost is the note
amount  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 income.

     (i) Income taxes - Income taxes are maintained 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 bases of assets and


                                      F-9
<PAGE>


                      Liberte Investors Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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.

     (j) Income  (loss) per share - Net income  (loss) per share is based on the
weighted average number of shares outstanding during the year.

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

     (l)   Reclassifications   -  Certain  amounts  in  prior  years'  financial
statements have been reclassified to conform to the current year's presentation.


(2)  Foreclosed Real Estate

     The  following is a summary of the Company's  activity in  foreclosed  real
estate for the years ended June 30, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                                1997             1996             1995
                                            ------------     ------------     ------------
<S>                                         <C>              <C>              <C>         
Balance at beginning of year                $  3,475,790     $ 15,385,214     $ 25,207,002

Foreclosures                                          --               --        4,840,782
Write-up in value                                     --          492,730               --
Expenditures                                          --               --          127,350
Reclassification of allowance for losses
  upon adoption of SFAS No. 121                       --      (10,331,733)              --
Write-down in value                                   --         (204,600)              --
Cost of real estate sold                         (40,169)      (1,865,821)     (14,789,920)
                                            ------------     ------------     ------------
Balance at end of year                      $  3,435,621     $  3,475,790     $ 15,385,214
                                            ============     ============     ============
</TABLE>

     The  following  table sets forth the Company's  portion of foreclosed  real
estate by type of property and geographic location:

                                                             June 30,
                                                  ------------------------------
                                                     1997                1996
                                                  ----------          ----------
Type of Property:
Single-family lots                                $  620,400          $  660,569
Land                                               2,815,221           2,815,221
                                                  ----------          ----------
                                                  $3,435,621          $3,475,790
                                                  ==========          ==========
Geographic Location:
Texas                                             $2,815,221          $2,855,390
California                                           620,400             620,400
                                                  ----------          ----------
                                                  $3,435,621          $3,475,790
                                                  ==========          ==========

     The Company has substantively  repossessed or obtained control of a certain
property collateralizing a note receivable with an outstanding principal balance
of $2,188,583 at June 30, 1997

                                      F-10
<PAGE>



                      Liberte Investors Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


and 1996. The note was recorded as foreclosed real estate in October of 1993 and
has subsequently been written down to $620,400 as of June 30, 1997 and 1996.


(3)  Notes Receivable

     The following is a summary of notes receivable activity for the years ended
June 30, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                             1997             1996             1995
                                         ------------     ------------     ------------
<S>                                      <C>              <C>              <C>         
Balance at beginning of year             $  1,331,390     $  5,807,372     $ 12,130,956

Advances and other additions to notes
  receivable                                       --          106,782          341,714
Sales of foreclosed real estate
  financed by notes receivable                     --        1,076,800          138,400
Principal collections                      (1,329,317)      (5,561,473)      (1,997,003)
Foreclosures                                       --               --       (4,792,782)
Write-off of principal                           (380)         (98,091)         (13,913)
                                         ------------     ------------     ------------
Balance at end of year                   $      1,693     $  1,331,390     $  5,807,372
                                         ============     ============     ============
</TABLE>



     At June 30,  1997 and 1996,  the  Company  had  impaired  loans  from prior
foreclosure  related deficiency notes and/or judgments,  with no carrying value.
During fiscal 1997 and 1996, in addition to the  collections  shown in the table
above, the Company  recognized $500 and $452,903,  respectively,  of loan income
from impaired loans which had no carrying  value at the time of collection.  The
collections  primarily  consist of settlements on deficiency  notes or judgments
related to deficiency notes and generally represent a small fraction of the face
amount of such notes or judgments.


                                      F-11
<PAGE>

                      Liberte Investors Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(4)  Allowance for Possible Losses

       A summary of  transactions  affecting  the  Company's  allowance for loan
losses for the three-year period ended June 30, 1997, is as follows:

<TABLE>
<CAPTION>
                                       Notes          Foreclosed
                                     Receivable       Real Estate        Total
                                    ------------     ------------     ------------
<S>                                 <C>              <C>              <C>         
Balance at June 30, 1994            $  1,562,921     $ 10,146,474     $ 11,709,395

Provision for loan losses             (1,148,960)       4,340,960        3,192,000
Amounts charged off, net
  of recoveries                         (284,060)      (4,118,413)      (4,402,473)
                                    ------------     ------------     ------------
Balance at June 30, 1995                 129,901       10,369,021       10,498,922

Reclassifications - SFAS No. 121              --      (10,331,733)     (10,331,733)
Provision for loan losses                (17,542)         204,600          187,058
Amounts charged off, net
  of recoveries                         (112,359)        (241,888)        (354,247)
                                    ------------     ------------     ------------
Balance at June 30, 1996                      --               --               --

Provision for loan losses                     --               --               --
Amounts charged off, net
  of recoveries                               --               --               --
                                    ------------     ------------     ------------
Balance at June 30, 1997            $         --     $         --     $         --
                                    ============     ============     ============
</TABLE>


(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 $930,000 including penalties and interest.

     On April 16, 1997,  LNC Holdings Inc.  received a notice of final  judgment
from the City of Arlington with regard to the delinquent  taxes. On May 27, 1997
LNC Holdings  Inc.  notified the City of Arlington  that it would execute a deed
without  warranty to allow the taxing units to obtain title to the property.  No
response has been  received.  LNC Holdings Inc. has accrued  property  taxes for
calendar  year 1996 and for the six month period  ended June 30, 1997  totalling
$67,000.  Management  believes that  resolution of the delinquent tax issue with
the  taxing  authorities  will not result in a  material  adverse  impact on the
consolidated financial statements.

     Cash and cash  equivalents at June 30, 1997 and 1996,  included  restricted
cash of $61,000 and $58,000, respectively, for claims due to bankruptcy. On June
30, 1997, the court issued an Administrative Closing Order and Final Decree with
regard to the bankruptcy case. The claims


                                      F-12
<PAGE>


                      Liberte Investors Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

remaining  represent unclaimed dividend checks dated May 20, 1994. Any check not
claimed will be voided after five years.

     The Company  entered into an operating lease dated May 16, 1997 to relocate
its principal executive offices. The lease expires December 31, 2000, contains a
renewal  option  and  requires  the  Company  to pay a  proportionate  share  of
operating expenses of the building. On May 19, 1997, the Company entered into an
operating lease for telephone equipment which also expires on December 31, 2000.
Future minimum lease payments under these leases are as follows:

               Fiscal Year Ending
                    June 30,                                     Amount
               ------------------                           ----------------
                      1998                                  $         77,856
                      1999                                            77,856
                      2000                                            77,856
                                                            ----------------
          Total future minimum rentals                      $        233,568
                                                            ================

     The Company is involved in routine  litigation  incidental to its business,
which,  in the  opinion of  management,  will not  result in a material  adverse
impact on the Company's consolidated financial condition, results of operations,
or  cash  flows,   without   regard  for  possible   insurance  or  third  party
reimbursement.


(6)  Related Party Transactions

     The  Company  was  managed  by  Lomas  Management,  Inc.  ("LMI")  from its
inception in 1969 until February 28, 1995.  LMI is a wholly-owned  subsidiary of
Lomas Financial Corporation,  the original sponsor of the Trust. On February 28,
1995, the Company  terminated its management  agreement with LMI and assumed all
operating and accounting  responsibilities.  Any remaining  property  management
responsibilities  with  regard  to assets  jointly-owned  with  Lomas  Financial
Corporation  were  provided  for in the Asset  Disposition  Agreement  described
below.

     Effective February 28, 1995, the Company entered into an "Asset Disposition
Agreement" with ST Lending,  Inc.  ("STL"),  a wholly-owned  subsidiary of Lomas
Financial  Corporation,  whereby the Company and STL exchanged their  respective
ownership  positions in a group of ten assets in order to achieve a separate and
distinct  ownership  position.  The Company  exchanged  its 80% ownership in six
assets,  whose 80%  interest  had a net  carrying  value of  approximately  $1.2
million (net of  reserves)  for STL's 20%  ownership  in four assets,  whose 20%
interest  had a net  carrying  value  of  approximately  $1.2  million  (net  of
reserves).  No gain or loss was recognized as a result of this  transaction.  In
addition,  a group of approximately 14 receivables,  which had no carrying value
and related primarily to deficiency notes, remained 80% owned by the Company and
20% owned by STL. The 14 receivables  had face amounts which ranged in size from
$9,875  to  $2,494,118.  The Asset  Disposition  Agreement  stipulated  that the
Company  would pay STL 10% of any gross  proceeds  received in addition to STL's
20%  ownership,  from  this  pool of  receivables  in  return  for  STL's  asset
administration. Effective April 15,


                                      F-13
<PAGE>


                      Liberte Investors Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


1996,  STL's interest in the seven remaining  deficiency notes and/or judgments,
which had no carrying value, were transferred to the Company.

     On April 24, 1996, the Company entered into a Supplement (the "Supplement")
to the Asset Disposition Agreement.  The Supplement transferred ownership of LNC
Holdings,  Inc.,  whose sole asset is approximately 40 acres of undeveloped real
estate that is fully  encumbered by tax liens,  to the Company and set forth the
terms under  which STL would  continue to manage the  property.  The  Supplement
further  described the method of allocating  the funds to be paid to the Company
and STL with respect to a proposed  settlement  agreement for a deficiency  note
receivable  received by the Company in June 1996 in the amount of  approximately
$8,000.  The Company also exchanged its 50% interest,  representing  $212,000 of
principal,  in a note the Company has classified as  non-earning,  for STL's 20%
interest,  representing $269,000 of principal,  in a note the Company classified
as earning.  The exchange of these notes  resulted in the Company owning 100% of
an  interest-bearing  note,  secured  by 72 lots in  Murrieta,  California.  The
difference  in the  exchange  values  resulted  in the  recording  of $31,000 of
interest income.  The remaining  difference of $26,000 was applied as a discount
to the carrying  value of the note received and was  amortized  into income over
the life of the loan.

     In accordance with the Asset Disposition  Agreement and the Supplement,  in
fiscal 1996, STL received compensation of $69,237 from the Company for its asset
administration and collection services.

     Under the  management  agreement in effect prior to February 28, 1995,  LMI
was entitled to basic  compensation at an annual rate of 1% of the daily average
book  value of the  Company's  Invested  Assets (as  defined  in the  management
agreement) plus $81,000 per year for accounting services. During the fiscal year
ended  June  30,  1995,   the  Company  paid  LMI   compensation   of  $157,907.
Additionally,  STL received  $10,898 in  accordance  with the Asset  Disposition
Agreement.

     At June  30,  1996,  the  Company  had a  collateral  assignment  of a life
insurance  policy on Robert Ted Enloe,  III which was  recorded as a  receivable
under a split-dollar  agreement.  On December 13, 1996, Mr. Enloe  purchased the
policy from the Company for $126,727, the amount of the receivable.


                                      F-14
<PAGE>


                      Liberte Investors Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


(7)  Federal Income Taxes

     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 into the  Company.  Accordingly,  the Trust and the
Company are subject to federal income taxes.

     Income tax  expense  attributable  to income  (loss)  before  income  taxes
consists of: June 30,

                        1997                   1996                  1995
                 ------------------    -------------------    ------------------
Federal
     Current     $           14,000    $                --    $               --
     Deferred                    --                     --    $               --
                 ------------------    -------------------    ------------------
                 $           14,000    $                --    $               --
                 ==================    ===================    ==================

     The income tax  expense for the years  ended June 30,  1997,  1996 and 1995
differs from the amounts  computed by applying the U.S.  Federal  corporate  tax
rate of 34% to income (loss) before income taxes:

<TABLE>
<CAPTION>
                                                               June 30,
                                                -------------------------------------
                                                  1997           1996         1995
                                                ---------     ---------     ---------
<S>                                             <C>           <C>           <C>       
Computed "expected" income tax expense
     (benefit)                                  $ 449,815     $ 284,025     $(974,976)
Increase (decrease) in taxes resulting from:
     Adjustment to deferred tax asset            (466,250)           --            --
     Other                                             --       (26,025)           --
     Change in the beginning of the year
          balance of the valuation allowance
          for deferred tax assets allocated
          to income taxes                          30,435      (258,000)      974,976
                                                ---------     ---------     ---------
                                                $  14,000     $      --     $      --
                                                =========     =========     =========
</TABLE>

     The tax  effects of  temporary  differences  that give rise to  significant
portions  of the  deferred  tax assets at June 30,  1997 and 1996 are  presented
below:

                                                             June 30,
                                                  ------------------------------
                                                      1997             1996
                                                  ------------     ------------
Deferred tax assets:
  Net operating loss carryforwards                $ 77,196,311     $ 76,870,000
  Basis differences of foreclosed real estate        2,454,676        2,748,000
  Capital loss carryforward                          1,630,006        1,630,006
  Other                                              1,908,442        1,910,994
                                                  ------------     ------------
    Total gross deferred tax assets                 83,189,435       83,159,000
    Less:  valuation allowance                     (83,189,435)     (83,159,000)
                                                  ------------     ------------
         Net deferred tax assets                  $         --     $         --
                                                  ============     ============


                                      F-15
<PAGE>


                      Liberte Investors Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


     The net change in the valuation allowance for the years ended June 30, 1997
and 1996 was an increase of $30,000  and a decrease of  $258,000,  respectively.
Based on current business activity,  management  believes it is more likely than
not that the Company  will not realize the  benefits of the loss  carryforwards.
Therefore,  a full valuation  allowance has been  established.  In the event the
Company expands its business  operations through an acquisition,  the ability to
use the loss carryforwards may change.

     At June 30, 1997,  the Company had net  operating  loss  carryforwards  for
federal income tax purposes of $227,048,000 which are available to offset future
federal taxable income.  The carryforwards will expire in 2005 through 2011. The
Company also has capital loss carryforwards of $4,794,000 which are available to
offset future capital gains, if any, through 2001. In addition,  the Company has
alternative  minimum tax credit  carryforwards of $14,000 which are available to
reduce future federal income taxes, if any, over an indefinite period.


(8)  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 statement of financial condition,  for which it
is practicable  to estimate that value.  In cases where quoted market prices are
not available,  fair values are based on estimates  using present value or other
valuation  techniques.  Those  techniques  are  significantly  affected  by  the
assumptions  used,  including  the  discount  rate and  estimates of future cash
flows. In that regard,  the derived fair value estimates cannot be substantiated
by comparison to independent  markets and, in many cases,  could not be realized
in  immediate  settlement  of the  instrument.  SFAS No.  107  excludes  certain
financial  instruments  and all  nonfinancial  instruments  from its  disclosure
requirements.  Accordingly,  the aggregate  fair value amounts  presented 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 fair value of notes  receivable - mortgage loans is estimated by discounting
cash flows at interest  rates  currently  being  offered for notes with  similar
terms to borrowers of similar  credit  quality.  The Company  believes  that its
deficiency  notes  receivable which have no carrying value at June 30, 1997, may
have some fair  value,  but such value  cannot be  estimated  and any  potential
collections  are not  measurable  as to timing or amount.  The Company  does not
believe that it is exposed to any  significant  credit risk on its cash and cash
equivalents.

     The estimated  fair values of the Company's  financial  instruments at June
30, 1997 and 1996, are as follows:

<TABLE>
<CAPTION>
                                                           June 30, 1997                     June 30, 1996
                                                  ------------------------------   --------------------------------
                                                      Carrying         Fair           Carrying            Fair
                                                       Amount          Value           Amount             Value
                                                  --------------   -------------   --------------    --------------
<S>                                               <C>                 <C>          <C>                   <C>       
Financial Assets:
         Cash and cash equivalents                $   52,535,527      52,535,527   $   27,303,919        27,303,919
         Notes receivable - mortgage loans                 1,693           1,693        1,331,390         1,331,390
                                                  ==============   =============   ==============    ==============
</TABLE>



                                      F-16
<PAGE>

                      Liberte Investors Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


(9)  Certain Customers

     In  1994,  the  Company  received  a  note  receivable  (the  "Note")  from
Resurgence Properties,  Inc. ("RPI") in the original amount of $6.0 million upon
emerging from bankruptcy  pursuant to the plan of  reorganization.  The Note was
collateralized  by a pool of  first  mortgage  loans  and by  deeds  of trust on
various  real estate  assets  owned by RPI.  RPI  repurchased  the Note from the
Company  on June 27,  1996 for  $4.09  million  representing  98.75% of the then
outstanding balance in a negotiated transaction.  The Company charged $51,740 to
the allowance for possible losses on notes receivable related to this sale.

     Revenue  from RPI for the year  ended  June 30,  1997  consisted  solely of
dividend income totaling $33,500 on RPI stock. Revenue from RPI provided greater
than 10% of the Company's total revenue for the fiscal year ended June 30, 1996,
and  consisted  of:  (i)  interest  income  totaling  $389,958  on the RPI  Note
receivable and (ii) dividend income totaling $21,375 on RPI preferred stock.


(10) Concentrations of Credit Risk

     At June 30,  1997,  the Company had certain  concentrations  of credit risk
with  three  financial  institutions  in the  form of  cash  which  amounted  to
$52,535,527.  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.


(11) Stockholders' Equity

     On August 15,  1996,  the Trust,  pursuant  to the plan of  reorganization,
exchanged  all  Beneficial  Shares  for shares of Common  Stock of the  Company.
Further,  8,102,439  of  newly-issued  shares of the Company  were  purchased by
Hunter's  Glen/Ford,  Ltd., a Texas limited  partnership  ("Hunter's Glen"), for
$23,091,951  ($2.85 per share).  Gerald J. Ford,  partner of Hunter's  Glen,  is
Chief Executive Officer and Chairman of the Board of Directors of the Company.

     In fiscal  year  ended  June 30,  1996,  Stockholders'  Equity  included  a
deduction  for a  promissory  note payable to the Company from Robert Ted Enloe,
III in the amount of $365,625 plus deferred interest  thereon.  On June 18, 1996
Mr. Enloe repaid the outstanding principal and interest balance on this note. At
the time of repayment,  the principal and accrued but unpaid  interest due under
the note was $416,787, net of deferred interest of $19,795.

     On February 15, 1995,  the Trust  repurchased  269,550 Shares of Beneficial
Interest from Lomas Financial  Corporation at a price which approximated  market
value on that date.


                                      F-17
<PAGE>

                      Liberte Investors Inc. and Subsidiary

                   SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

                                  June 30, 1997
<TABLE>
<CAPTION>
                                                      Periodic           Face            Carrying       Principal
                  Interest          Maturity           Payment          Amount          Amount         Amount
Description         Rate              Date              Terms           of Note           of Note       Delinquent
------------------------------------------------------------------------------------------------------------------
<S>                 <C>              <C>                <C>             <C>               <C>              <C> 
Unsecured           9.0%             12/1/98            Monthly P+I     $1,786            $1,693           $319
</TABLE>


(1)  For income tax purposes  the cost of notes is the carrying  amount as shown
     on the schedule.

(2)  Reconciliation of "Mortgage Loans on Real Estate" (in thousands):


                                                        Year Ended June 30,
                                                 -------------------------------
                                                  1997        1996        1995
                                                 -------     -------     -------
Balance at beginning of year                     $ 1,331     $ 5,807     $12,131
Additions during year:
  Write-up in value of impaired loans                 --          71          --
  Net addition from asset swap                        --          35          --
  New mortgage loans and advances
     on existing loans and other                      --       1,077         480
                                                 -------     -------     -------
                                                   1,331       6,990      12,611
Deductions during year:
  Collections of principal                         1,329       5,561       1,997
  Foreclosures                                        --          --       4,793
  Write-off of principal                              --          98          14
                                                 -------     -------     -------
Balance at end of year                           $     2     $ 1,331     $ 5,807
                                                 =======     =======     =======




                                      F-18