UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
quarterly period ended June 30, 2009
Commission
file number: 333-144973
LIBERTY
CAPITAL ASSET MANAGEMENT, INC.
(Exact
name of small business issuer as specified in its charter)
DELAWARE
|
56-2646797
|
(State
of incorporation)
|
(IRS
Employer Identification No.)
|
2470 St.
Rose Parkway
Henderson,
NV 89074
(Address
of principal executive offices)
702-914-4300
(Issuer’s
telephone number)
CORPORATE
OUTFITTERS, INC.
3327 West Indian Trail Road, Suite
152,
Spokane, WA 99208
(Former
name, former address and former fiscal year, if changed since last
report)
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 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
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No x
State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: As of August 10, 2009, the
registrant had 9,377,779 shares of common stock, $.0001 par value, issued and
outstanding.
Transitional
Small Business Disclosure Format (Check one):
Yes o No
x
LIBERTY
CAPITAL ASSET MANAGEMENT, INC.
TABLE
OF CONTENTS
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PAGE
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PART
I FINANCIAL INFORMATION
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Item
1.
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Financial
Statements
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3
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Item
2.
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Management's
Discussion and Analysis or Plan of Operation
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11
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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14
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Item
4T.
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Controls
and Procedures
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16
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PART
II OTHER INFORMATION
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Item
1.
|
Legal
Proceedings
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17
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Item
2.
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Unregistered
Sale of Equity Securities and Use of Proceeds
|
17
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Item
3.
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Defaults
Upon Senior Securities
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17
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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|
Item
5.
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Other
Information
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17
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Item
6.
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Exhibits
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17
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SIGNATURES
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18
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PART
I FINANCIAL INFORMATION
Item
1. Financial Statements (unaudited)
LIBERTY
CAPITAL ASSET MANAGEMENT, INC.
CONSOLIDATED
BALANCE SHEETS
JUNE
30, 2009
(Unaudited)
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|
|
June 30,
|
|
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March 31,
|
|
|
|
|
2009
|
|
|
2009
|
|
ASSETS:
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
|
|
$ |
6,196
|
|
$ |
$20,304
|
|
Loan
receivable
|
|
|
758,804
|
|
|
775,820
|
|
Loans
held for investment
|
|
|
4,494,598
|
|
|
4,494,598
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|
Stock
subscription receivable
|
|
|
-
|
|
|
|
|
Accounts
receivable
|
|
|
42,074
|
|
|
42,074
|
|
Total
current assets
|
|
|
5,301,671
|
|
|
5,332,795
|
|
|
|
|
|
|
|
|
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Property
and equipment, net
|
|
|
244,032
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|
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261,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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TOTAL
ASSETS
|
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$ |
5,545,703
|
|
$ |
5,594,710
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|
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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|
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|
|
|
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|
|
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LIABILITIES:
|
|
|
|
|
|
|
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Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
495,964
|
|
$ |
478,172
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|
Notes
payable
|
|
|
356,028
|
|
|
356,028
|
|
Notes
payable related party
|
|
|
142,236
|
|
|
192,236
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Total
current liabilities
|
|
|
994,227
|
|
|
1,026,436
|
|
|
|
|
|
|
|
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TOTAL
LIABILITIES
|
|
|
994,227
|
|
|
1,026,436
|
|
|
|
|
|
|
|
|
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Stockholders'
equity:
|
|
|
|
|
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Common
stock, par value $0.0001, 75,000,000 shares
|
|
|
|
|
|
|
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authorized,
9,377,779 and 0 shares issued and outstanding,
|
|
|
|
|
|
|
|
as
of June 30, 2009 and 2008, respectively
|
|
|
938
|
|
|
858
|
|
Additional
paid-in capital
|
|
|
5,313,157
|
|
|
5,290,737
|
|
Accumulated
earnings
|
|
|
(762,620)
|
|
|
(723,321)
|
|
Total
stockholders' equity
|
|
|
4,551,475
|
|
|
4,568,274
|
|
|
|
|
|
|
|
|
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TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$ |
5,545,703
|
|
$ |
5,594,710
|
|
See
accompanying notes to consolidated financial statements
LIBERTY
CAPITAL ASSET MANAGEMENT, INC.
CONSOLIDATED
STATEMENT OF OPERATIONS
JUNE
30, 2009
(Unaudited)
|
|
For
the Three
Months
Ended
|
|
|
For
the Three
Months
Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Asset
liquidation revenue
|
|
$ |
302,118 |
|
|
$ |
1,040,404 |
|
|
|
|
|
|
|
|
|
|
Cost
of Sales
|
|
|
18,207 |
|
|
|
100,732 |
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
283,911 |
|
|
|
939,672 |
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Salary
& wages & payroll taxes
|
|
|
142,365 |
|
|
|
313,956 |
|
Selling,
general and administrative
|
|
|
64,388 |
|
|
|
225,683 |
|
Professional
fees
|
|
|
80,223 |
|
|
|
206,353 |
|
Depreciation
expense
|
|
|
18,283 |
|
|
|
- |
|
Total
expenses
|
|
|
305,259 |
|
|
|
745,992 |
|
|
|
|
|
|
|
|
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|
(Loss)
income from operations
|
|
|
(21,348 |
) |
|
|
193,680 |
|
|
|
|
|
|
|
|
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Other
(expense) income
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(17,951 |
) |
|
|
(425 |
) |
Total
other (expense) income
|
|
|
(17,951 |
) |
|
|
(425 |
) |
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(39,299 |
) |
|
$ |
193,255 |
|
|
|
|
|
|
|
|
|
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Net
(loss) per share basic and diluted
|
|
$ |
(0.00 |
) |
|
$ |
- |
|
|
|
|
|
|
|
|
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Weighted
average number of common shares
|
|
|
|
|
|
|
|
|
shares
outstanding, basic and diluted
|
|
|
8,597,779 |
|
|
|
- |
|
See
accompanying notes to consolidated financial statements
LIBERTY
CAPITAL ASSET MANAGEMENT, INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS
FOR
THE THREE MONTHS ENDED JUNE 30, 2009 AND 2008
(Unaudited)
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(39,299 |
) |
|
$ |
193,255 |
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss from operations to net cash used in
operations:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
18,283 |
|
|
|
- |
|
Stock
issued for settlement of accounts payable
|
|
|
22,500 |
|
|
|
- |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase)
decrease in loan receivable
|
|
|
17,017 |
|
|
|
(253,288 |
) |
(Increase)
decrease in accounts receivable
|
|
|
- |
|
|
|
(77,237 |
) |
(Increase)
decrease in stock subscription receivable
|
|
|
- |
|
|
|
(86,500 |
) |
Increase
(decrease) in accounts payable and accrued expenses
|
|
|
17,792 |
|
|
|
(2,663 |
) |
Net
cash provided by (used in) operating activities
|
|
|
36,292 |
|
|
|
(226,433 |
) |
|
|
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|
|
|
|
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Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of fixed assets
|
|
|
(400 |
) |
|
|
(1,999 |
) |
Net
cash used in investing activities
|
|
|
(400 |
) |
|
|
(1,999 |
) |
|
|
|
|
|
|
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Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from Notes Payable
|
|
|
- |
|
|
|
220,000 |
|
Payments
for related notes payable
|
|
|
(50,000 |
) |
|
|
- |
|
Net
cash (used in) provided by financing activities
|
|
|
(50,000 |
) |
|
|
220,000 |
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(14,108 |
) |
|
|
(8,432 |
) |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
$ |
20,304 |
|
|
$ |
34,210 |
|
Cash
and cash equivalents, end of period
|
|
$ |
6,196 |
|
|
$ |
25,778 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
2,500 |
|
|
$ |
- |
|
See
accompanying notes to consolidated financial statements
LIBERTY
CAPITAL ASSET MANAGEMENT INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
(1) Description of
Business:
Liberty
Capital Asset Management, Inc. (the “Company”) was formed in 2003 as CD Banc LLC
with the purpose of acquiring real estate assets and holding them for long-term
appreciation. In
August of 2007, CD Banc LLC acquired an interest in HCI, a mortgage banking
company with 50 FHA lending branches. On September 30, 2008, the
Company’s Board of Directors rescinded the transaction retroactively to January
1, 2008, as consideration for the transaction was never duly executed by the
parties.. In September of 2007, CD Banc acquired 4,426 non
performing sub-prime mortgage loans from South Lake Capital for a total
consideration of $5,015,485. Liberty Capital Asset Management, a Nevada
corporation, was formed in July of 2008 as a holding company for certain assets
of CD Banc LLC in contemplation of the company going public via a reverse merger
into a publicly trading corporation. On November 3, 2008, Liberty Capital Asset
Management completed a share exchange and asset purchase agreement with
Corporate Outfitters Inc., a publicly-traded Delaware corporation which
subsequently changed its name to Liberty Capital Asset Management
Inc. The Company has been actively engaged in generating revenues
from reperforming, sale of loans and fee revenue since July 1,
2007.
(2) Summary of Significant Accounting
Policies:
Basis
of Presentation:
The
accompanying unaudited consolidated interim financial statements of the Company
have been prepared in accordance with accounting principles generally accepted
in the United States of America. Our consolidated financial
statements include the accounts of the parent and all subsidiaries. Intercompany
transactions and accounts are eliminated in consolidation. The
Company's policy is to prepare its financial statements on the accrual basis of
accounting. The fiscal year end is March 31.
Risks and
Uncertainties:
The Company operates in a highly
competitive industry that is subject to intense competition and potential
government regulations. Significant changes in interest rates or the
underlying economic condition of the United States or any specific region of the
United States real estate market could have a matrially adverse impact on the
Company’s operations.
Use
of Estimates:
The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reported periods. Significant estimates made by the
Company’s management include, but are not limited to, the realizability loans
held for investment, mortgage servicing rights, and the recoverability of
property and equipment through future operating profits. Actual results could
materially differ from those estimates.
Cash
and Cash Equivalents:
For the purpose of the statement of cash
flows, the Company considers all highly liquid holdings with maturities of three
months or less at the time of purchase to be cash
equivalents.
Property
and Equipment:
Property and equipment are stated at
cost, less accumulated depreciation. Depreciation is recorded using
the straight-line method over the estimated useful lives of the related assets,
ranging from three to thirty years. Maintenance and repairs are charged to
operations when incurred. Major betterments and renewals are
capitalized. Gains or losses are recognized upon sale or disposition
of assets.
LIBERTY
CAPITAL ASSET MANAGEMENT INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
Long-Lived
Assets:
The Company accounts for its long-lived
assets in accordance with SFAS No. 144, “Accounting For The Impairment or
Disposal of Long-Lived Assets” which requires that long-lived assets and certain
identifiable intangibles to be held and used by any entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Pursuant to SFAS
144, management of the Company assesses the recoverability of property and
equipment by determining whether the depreciation of such assets over their
remaining lives can be recovered through projected undiscounted cash
flows. The amount of impairment, if any, is measured based on fair
value (projected discounted cash flows) and is charged to operations in the
period in which such impairment is determined by management. To date,
management has not identified any impairment of property and
equipment. There can be no assurance, however, that market conditions
or demands for the Company’s services will not change which could result in
future long-lived asset impairment.
Intangible
Assets:
The
Company has adopted FASB 142. Under guidance of SFAS 142, net assets
of companies acquired in purchase transactions are recorded at fair value at the
date of acquisition, as such, the historical cost basis of individual assets and
liabilities are adjusted to reflect their fair value. Identified
intangibles are amortized on an accelerated or straight-line basis over the
period benefited. Goodwill is not amortized, but is reviewed for
potential impairment on an annual basis at the reporting unit
level. The impairment test is performed in two phases. The
first step of the goodwill impairment test, used to identify potential
impairment, compares the fair value of the reporting unit with its carrying
amount, including goodwill. Of the fair value of the reporting unit
exceeds its carrying amount, goodwill of the reporting unit is considered not
impaired; however, if the carrying amount of the reporting unit exceeds its fair
value, an additional procedure must be performed. That additional
procedure compares the implied fair value of the reporting units’ goodwill (as
defined in SFAS 142) with the carrying amount of that goodwill. An
impairment loss is recorded to the extent that the carrying amount of goodwill
exceeds its implied fair value. As of June 30, 2009, the Company did
not have any Goodwill recorded.
Revenue and Cost
Recognition:
Revenue from liquidation of loans is
recognized at the time the loans are sold. At this point, all of the
services required to be performed for such revenues have been
completed. Loan liquidation costs and incremental direct costs are
recognized as incurred. Incremental direct costs include credit
reports, appraisal fees, document preparation fees, wire fees, tax and filing
fees, funding fees and commissions. Revenue from the servicing of
loans are recognized as earned.
Basic
and Diluted Loss Per Share:
In accordance with SFAS No. 128,
“Earnings Per Share,” the basic loss per common share is computed by dividing
net loss available to common stockholders after reducing net income by preferred
stock dividend, by the weighted average common shares outstanding during the
period. Diluted earnings per share reflect per share amounts that
would have resulted if diluted potential common stock had been converted to
common stock. Common stock equivalents have not been included in the
earnings per share computation as the amounts are
anti-dilutive.
Income Taxes:
The Company accounts for income taxes
under SFAS No. 109, “Accounting for Income Taxes.” Under the asset
and liability method of SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period the
enactment occurs. A valuation allowance is provided for certain
deferred tax assets if it is more likely than not that the Company will not
realize tax assets through future operations.
LIBERTY
CAPITAL ASSET MANAGEMENT INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
Stock
Issued for Services:
The
Company accounts for equity instruments issued to non-employees in accordance
with the provisions of SFAS No. 123 and Emerging Issues Task Force (“EITF”)
Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services”. All transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the
fair value of the consideration received or the fair value of the equity
instrument issued whichever is more reliably measurable. The measurement date of
the fair value of the equity instrument issued is the earlier of the date on
which the counter party’s performance is complete or the date on which it is
probable that performance will occur.
The
amounts that have issued for settlement of accounts payable were approximately
$22,500 and $0 for the three months ended June 30, 2009 and 2008,
respectively.
Fair Value of Financial
Instruments:
The Company has adopted SFAS No. 107,
“Disclosures About Fair Value of Financial Instruments.” SFAS No. 107
requires disclosure of fair value information about financial instruments when
it is practicable to estimate that value. For certain of the Company’s financial
instruments including cash, receivables, and accounts payable and accrued
expenses, the carrying amounts approximate fair value due to their short
maturities. The amounts shown for notes payable also approximate fair
value because current interest rates and terms offered to the Company for
similar debt are substantially the same.
New Accounting
Pronouncements:
In
November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of
ARB No. 43, Chapter 4. SFAS No. 151 amends the guidance in ARB No. 43, Chapter
4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle
facility expense, freight, handing costs, and spoilage. This statement requires
that those items be recognized as current period charges regardless of whether
they meet the criterion of "so abnormal" which was the criterion specified in
ARB No. 43. In addition, this Statement requires that allocation of fixed
production overheads to the cost of production be based on normal capacity of
the production facilities. This pronouncement is effective for the Company
beginning October 1, 2005. The Company does not believe adopting this new
standard will have a significant impact to its financial
statements.
In
December 2004, the FASB issued SFAS No. 123 (revised 2004). Share-Based Payment,
which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation.
SFAS No. 123(R) effective December 15, 2005, supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees and amends SFAS No. 95, Statement of
Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to
the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative. As of June 30, 2009, the
Company has 2,000,000 outstanding employee stock
options.
LIBERTY
CAPITAL ASSET MANAGEMENT INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
(3)
|
Mortgage
Loans Held for Investment:
|
The
Company acquired a portfolio of 4,466 mortgage loans of for a value
of $5,015,485 with a face value in excess of $108 million dollars on December
31, 2007. The loans were purchased at a discount and are scheduled to be re-
performing or sold at foreclosure and liquidated for cash. Management
intends to resale the loans or work with a borrower to conform the loan into
performing status.
For the
years ended March 31, 2009 and 2008, the Company sold a total of 1,292 loans for
approximately $4.9 million in revenue which includes the revenue for performing
loans before liquidation. The recovery rate for the performing
loans was 28.4% of the Acquired Principal Value, “APV”. As of March
31, 2009, the Company had a balance of 557 performing loans with an APV of $16.3
million with an estimated historical recovery of 28.4% or
$4,634,387. The recorded balance of the loans held for investment for
June 30, 2009 is $4,494,598. The Company elected to value the
remaining asset at a lower cost as a reserve allowance. The Company
has a total of 2,614 non performing loans which recorded value is
$0.
(4) Notes
Payable:
On June
25, 2008 the Company entered into two short term promissory notes with investors
totaling $382,000. The Company repaid $25,972 of the notes, leaving a
balance of $356,028. The notes carry an interest rate of 16% per
annum.
(5) Derivative
Instruments:
The Company accounts for debt with
embedded conversion features and warrant issues in accordance with EITF 98-5:
Accounting for
convertible securities with beneficial conversion features or contingency
adjustable conversion and
EITF No. 00-27: Application of issue
No 98-5 to certain convertible instruments. Conversion features
determined to be beneficial to the holder are valued at fair value and recorded
to additional paid in capital. The Company determines the fair value
to be ascribed to the detachable warrants issued with the convertible debentures
utilizing the Black-Scholes method. Any discount derived
from determining the fair value to the debenture conversion features and
warrants is amortized to financing cost over the life of the
debenture. The unamortized discount, if any, upon the conversion of
the debentures is expensed to financing cost on a pro rata
basis.
Debt issue with the variable conversion
features are considered to be embedded derivatives and are accountable in
accordance with FASB 133; Accounting for
Derivative Instruments and Hedging Activities. The fairs value of the
embedded derivative is recorded to derivative liability. This
liability is required to be marked each reporting period. The
resulting discount on the debt is amortized to interest expense over the life of
the related debt. As of June 30, 2009 the
Company did not have any value relating to its issued options and
warrants.
(6) Equity:
Common Stock The Company is authorized to issue
75,000,000 shares of common stock. There were 9,377,779
shares of common stock outstanding as of June 30, 2009. The holders
of common stock are entitled to one vote per share on all matters submitted to a
vote of stockholders and are not entitled to cumulate their votes in the
election of directors. The holders of common stock are entitled to
any dividends that may be declared by the Board of Directors out of funds
legally available therefore subject to the prior rights of holders of any
outstanding shares of preferred stock and any contractual restrictions we have
against the payment of dividends on common stock. In the event of our
liquidation or dissolution, holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preferences of any outstanding shares of preferred stock. Holders of
common stock have no preemptive or other subscription rights and no right to
convert their common stock into any other securities.
Warrants As of June
30, 2009, there are warrants outstanding to purchase a total of 2,853,175 shares
of our common stock. The warrants may be exercised at price of $1.50
and expire on November 1, 2013 The fair value for these options was estimated at
the date of grant using a Black-Scholes pricing model with the following
weighted-average assumptions for the three months ended June 30, 2009: risk free
rate of 3.5%; no dividend yield and volatility factors of the expected market
price of the Company's common stock of (465%). For the three months
ended June 30, 2009 and June 30, 2008, the Company had no value associated with
the warrants and has not recorded an expense relating to such.
LIBERTY
CAPITAL ASSET MANAGEMENT INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
(7) Stock
Option Plan:
In
December 2004, the FASB issued SFAS No. 123 (revised 2004). Share-Based Payment,
which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation.
SFAS No. 123(R) effective December 15, 2005, supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees and amends SFAS No. 95, Statement of
Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to
the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative. As of June 30, 2009, the
Company has 2,000,000 outstanding employee stock options.
We
generally recognize compensation expense for grants of restricted stock units
using the value of a share of our stock on the date of grant. We estimate the
value of stock option grants using the Black Scholes valuation model. Stock
compensation is recognized straight line over the vesting period.
2008
Stock Option Plan provides for the grant of 4,000,000 incentive or non-statutory
stock options to purchase common stock. Employees, who share the responsibility
for the management growth or protection of the business of the Company and
certain Non-Employee (“Selected Persons”), are eligible to receive options which
are approved by a committee of the Board of Directors. These options
primarily vest over five years and are exercisable for a ten-year period from
the date of the grant.
The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for the
three months ended June 30, 2009 and June 30, 2008: risk free rate of 3.5%; no
dividend yield; volatility factors of the expected market price of the Company's
common stock of (465%); and weighted-average expected life of the option of five
years.
The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price
volatility. Because the Company’s employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management’s opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For the
three months ended June 30, 2009 and June 30, 2008, the Company had no value
associated with the options and has not recorded an expense relating to
such.
(8)
|
Related-Party
Transactions:
|
The Company’s CEO and Director, Michael
A. Barron has advanced $192,236 in the form of a
note. The Company made
a payment of $50,000 towards the advance leaving a balance
at June 30, 2009 of $142,236. The indebtness bears
interest at 12% per annum and is secured by substantially all the assets of the
corporation.
Item 2. Management's
Discussion and Analysis of Financial Condition and Plan of
Operations.
Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995
Information set forth herein contains
"forward-looking statements" which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may,” “should" or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy. No assurance can be given that the
future results covered by the forward-looking statements will be achieved. The
Company cautions readers that important factors may affect the Company’s actual
results and could cause such results to differ materially from forward-looking
statements made by or on behalf of the Company. These include the Company’s lack
of historically profitable operations, dependence on key personnel, the success
of the Company’s business, ability to manage anticipated growth and other
factors identified in the Company's filings with the Securities and Exchange
Commission.
General
Liberty
Capital Asset Management, Inc. (the “Company”) was formed in 2003 as CD Banc LLC
with the purpose of acquiring real estate assets and holding them for long-term
appreciation. In September of 2007, CD Banc acquired 4,426 non performing
sub-prime mortgage loans from South Lake Capital for a total consideration of
$5,015,485. Liberty Capital Asset Management, a Nevada corporation, was formed
in July of 2008 as a holding company for certain assets of CD Banc LLC in
contemplation of the company going public via a reverse merger into a publicly
trading corporation. On November 3, 2008, Liberty Capital Asset Management
completed a share exchange and asset purchase agreement with Corporate
Outfitters Inc., a publicly-traded Delaware corporation which subsequently
changed its name to Liberty Capital Asset Management Inc.
The
Company maintains offices at 2470 Saint Rose Parkway, Suite 314, Henderson,
Nevada 89074.
Critical
Accounting Policies
The preparation of our consolidated
financial statements and notes thereto requires management to make estimates and
assumptions that affect the amounts and disclosures reported within those
financial statements. On an ongoing basis, management evaluates its estimates,
including those related to revenue recognition, workers' compensation costs,
collectibles of accounts receivable, and impairment of goodwill and intangible
assets, contingencies, litigation and income taxes. Management bases its
estimates and judgments on historical experiences and on various other factors
believed to be reasonable under the circumstances. Actual results under
circumstances and conditions different than those assumed could result in
differences from the estimated amounts in the financial statements. There have
been no material changes to these policies during the fiscal
year.
Disclosure,
pursuant to SFAS No. 107, is required of the fair value of financial
instruments. However, since most of the Company’s financial
instruments turn over within a very short time period, management discloses that
the net book value approximates fair value at the balance sheet
date.
Capital
Environment in 2008
A key
component to the company’s business plan for growth is the attraction of new
investment partners to provide capital such that new pools of toxic assets may
be purchased. As investor confidence began to wane during 2008, the
capital markets which Liberty depends upon to supply it with new capital for
acquisitions began to dry up. Hedge funds are traditional resources for capital
asset firms such as Liberty, to source for investment capital to acquire new
assets at a discount and then restore those assets to a more valuable status
& thus a potential for profit for the company could be made. During the
first part of 2008, the company visited with numerous hedge funds and received
general commitments for funding to acquire pools of mortgages according to the
Liberty formula. Liberty actually executed an agreement with Silar Advisors to
fund up to $50 million in capital for pool acquisitions. Market conditions have
retarded Silar’s
investment
ability and only a nominal amount of the allocation has been
used.
Item 2. Management's Discussion and
Analysis of Financial Condition and Plan of Operations (Continued).
Axiom
Capital was hired by Liberty on a referral by a Liberty shareholder and meetings
were set up and attended. Following is a listing of the companies Liberty's
management visited with from April of 2008 through March of 2009.
Silar
Advisors
|
Centrecourt
Asset Mgt
|
TAIB
Securities
|
Bryant
Park Capital
|
Angelo
Gordon
|
EOS
Partners
|
JCAM
|
Chicago
Investment Group
|
Amherst
Holdings LLC
|
Lion
Partners Ltd
|
Sheridan
Capital Advisors LLC
|
Guggenheim
Partners
|
Aristeia
Capital
|
Platinum
Partners
|
Centurion
|
Mahler
& Emerson Inc.
|
Quarry
Capital Partners
|
Gilford
Securities
|
Contego
Capital Partners
|
Meyers
Associates L.P.
|
Opus
Capital LLC
|
DME
Capital LLC
|
Somerset
Capital Advisors
|
Rockmore
Capital
|
The
company secured several letters of intent & term sheets which totaled in
excess of $100 million in funding to be delivered to Liberty Capital during 2008
& 2009. None of the funds were placed with the company. Silar
purchased shares of stock in the company comprising 4.9% of the company and has
purchased a small amount of pools from Liberty.
With the
hedge funds weighted down with non-performing toxic assets and calls for
redemptions by their investors, the hedge fund sources for capital dried up last
year. Economic uncertainty and the doubt of a new national election put capital
expenditures on hold.
Federal Regulation and
“Bail-Out” Effects
With the
election of the new Democratic President and Congress came additional impacts to
the business environment Liberty operated in last fiscal year. The government’s
announcement of cash aid to purchase toxic mortgage assets from ailing lenders
virtually dried up the source of cheap product to Liberty’s business model. Many
lenders who were willing to sell toxic mortgage pools suddenly withdrew their
sales and opted to hang on to the assets so they could sell them to the
government at better prices than the free market was willing to
pay. In addition to this practice, the government also began to pass
legislation which forced lenders who held foreclosed or soon to be foreclosed
properties to extend the time it would take them to recover their assets. The
effect of this is that any pool which Liberty would be bidding on would have
typically 30% of those assets go to foreclosure. Once foreclosed, Liberty would
resell the property for a profit. Historically and prior to this legislation,
Liberty had been yielding approximately 70+% returns on REO (foreclosed and
recaptured) properties. With the new legislation, recapture periods went from an
average of six months to over two years. That turns a 70% return into a 17%
return. Investors considered this type of asset too risky given the government
interference and capital for toxic assets dried up. Further, assets the
government had acquired at premium prices were made available to be repurchased
by institutions if qualified. To qualify for Federal sharing funds for these
purchases, a company must prove tangible liquid assets of at least $100 million.
Liberty could never qualify having only $ 5 million.
The new
administration also changed the FHA financing requirements for borrowers. Before
2009, FHA did not require a minimum FICO score (a rating system which
establishes credit worthiness) for new borrowers, but rather only required that
a new borrower had remained current with his payments for the previous twelve
months. This allowed borrowers with sub standard credit to continue to receive
home loans to purchase or refinance even if their credit profile was impaired.
Most of the borrowers who are in the Liberty pool of assets fall into this
category. The administration now requires that new borrowers must have at least
a 600 FICO score to be considered for approval by FHA. This is a substantial
change in the regulations governing FHA loans and a severe blow to the Liberty
business model. The Liberty model assumes sub standard credit borrowers would
still be able to re-finance out of their loans into new FHA loans once the
Liberty modified loans had been held for twelve months.
In
addition to the restrictive credit requirements, FHA also changed their minimum
refinance limit to a minimum of $50,000. Many of the loans Liberty owns are less
than $50,000 which means that this new requirement forces Liberty borrowers who
wish to refinance will need to find sources elsewhere than FHA.
Item 2. Management's Discussion and
Analysis of Financial Condition and Plan of Operations (Continued).
It is the
company’s assessment that the combination of economic uncertainty, bankruptcies
of major financial institutions such as Bear Stearns, Lehman Bros. Countrywide
and AIG, together with harsh government regulations for mortgage holders, has
led to the operating environment where it has taken much longer to execute on
Liberty’s operating model.
Results of
Operations:
The
Company acquires pools of non performing loans and then re-performs those loans
by restructuring the financial parameters such that the defaulted borrower can
return to making payments in a timely manner again. The loans are held for six
months to one year and the new re-performing payment history creates loans
having much more value than the partnership paid for it. The Company then either
sells the loan or pool of reconditioned loans to a bulk purchaser or refinances
the borrower out of the loan.
For comparative purposes the Company is
reporting for the period ending June 30, 2009, as compared to the period ended
June 30, 2008. Due to the Company's period of inception, July 1, 2007, there are no results for comparative
purposes for the period ended June 30, 2007.
Revenues generated from
reperforming, sale of loans and fee revenue decreased $738,000, or 71% to
$302,000, as compared to $1.0 million for the three months ended June 30, 2008.
The decrease is attributable to the depletion of the bulk of performing
loans left in the active portfolio as well as restrictive credit availability
for borrowers to refinance out of the existing loans. Also, governmental
regulations have retarded borrower incentives to pay on time and have extended
the foreclosure recovery period thus reducing revenue.
Selling, general and administrative,
(SG&A), expenses decreased $161,000 or 71%, to $64,000 for the
three month period ended June 30, 2009, as compared to $226,000 for
the same period in the prior year. Salary and payroll taxes were $142,000 for
the three month period ended June 30, 2009 as compared to $314,000, a decrease
of 55% or $172,000, for the same period in the prior
year. Professional fees were $64,000 for the three month period ended
June 30, 2009 as compared to $206,000, a decrease of 61% or $126,000, during the
same period of the prior year. For the three months ended June 30, 2009,
depreciation expense was $18,000 as compared to $0, for the same period of the
prior year. The decrease in expenses is directly attruibutable to the
71% reduction in revenue generated.
Interest expense was $18,000 and $400
for the three month period ended June 30, 2009, respectively, relating to the
increase in borrowings.
Loss from
operations was $21,000, for the three month ended June 30, 2009 as compared to
income of $194,000 from the same period in the prior year. For the
three months ended June 30, 2009, the Company had loss of operations of $39,000
as compared to income of $193,000, during the same period in the prior
year. The decrease in revenue and its related costs are attributable
to the impact of
loan refinances declining due to the government's tightening of borrower
requirements for FHA refinancing as well as restrictive credit scoring. Our
loans & borrowers are sub-standard to conventional credit scoring and the
added restrictions impair the ability for the company to sell individual loans.
The delay in liquidation has caused the operating losses
Liquidity and Capital
Resources
Liquidity is the ability of a company to
generate funds to support asset growth, satisfy disbursement needs, maintain
reserve requirements and otherwise operate on an ongoing basis. The company has
maintained sufficient operating cash to maintain its operations and holds
reserves to service its assets. These reserves have been generated from
operating cash flow.
Item 2. Management's Discussion and
Analysis of Financial Condition and Plan of Operations (Continued).
Management
sought to adjust the company’s position in the market and given the operating
environment, opted to raise capital in order to keep the staff on board until
the capital markets loosened up and assets could again be purchased properly.
The company hired Grant Bettingen, Inc to raise a $1 million private placement
of the company’s stock. Uses of proceeds were to keep operations going and to
market new pools to purchase. If the company could raise $20 million from high
net worth investors, it could continue to be successful. The offering was not
successful although in excess of twenty companies were visited, primarily in New
York. The offering was terminated in June.
Management
cut staff positions and salaries were reduced to 50% of their previous levels.
Company principals advanced money to the company from time to time for working
capital needs. The company still has a pool of toxic mortgage loans on its books
which it continues to work off to create cash. It has remained profitable
through this current economic environment.
Cash
Flows
Net cash
provided by operating activities for the three months ended June 30, 2009 was
$36,300, as compared to net cash used for operating activities for the three
months ended June 30, 2008 of $226,000. The primary sources of net cash provided
by operating activities the three months ended June 30, 2009 was net loss of
$39,300, depreciation of $18,300, stock issued for settlement of accounts
payable of $22,500, decrease in loan receivable of $17,000 and an increase in
accounts payable and accrued expenses of $17,800. The primary sources
of cash used for operating activities the three months ended June 30, 2008, was
from a net income of $193,300, increase in loan receivable of $253,300, increase
in accounts receivable of $77,200, increase in stock subscription receivable
$85,700 and an increase in accounts payable of $2,700.
Net cash
used for investing activities during the three months ended June 30, 2009 and
June 30, 2008 was $400 and $2,000, respectively. Net cash used for
investing activities was primarily for the purchase of software.
Net cash used in financing activities
for the three months ended June 30, 2009 was $50,000, consisting primarily of
payments of notes payable. Net cash provided by financing activities for the
three months ended June 30, 2008 was $220,000, which were proceeds of notes
payable.
Management
currently believes that cash flows from operations will be sufficient to meet
the Company’s current liquidity and capital needs at least through fiscal 2010.
The
Company operates in a volatile and fragmented marketplace which recently has
been subject to new financial regulation by the Federal Government. As such,
these proposed changes in the law may have an impact on the liquidity of the
Company’s business plan and time frames to liquidate assets may be extended.
These proposed regulatory changes have not been fully introduced into the
marketplace and the final legislation provisions have not been determined. The
Company continues to operate under its current business plan which involves the
process of foreclosure and liquidation of toxic assets under the current laws of
each state. If legislation changes the current regulatory environment, returns
of capital and gains from liquidation of assets may take longer and gains may be
lost over such extended time.
We
Have a Limited Operating History and Consequently Face Significant Risks and
Uncertainties.
As a
result of our limited operating history, our recent growth and our reporting
responsibilities as a public company, we may need to expand operational,
financial and administrative systems and control procedures to enable us to
further train and manage our employees and coordinate the efforts of our
accounting, finance, marketing, and operations departments.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
(Continued).
Our
Quarterly Financial Results are Vulnerable to Significant Fluctuations and
Seasonality, Which Could Adversely Affect Our Stock Price.
Our
revenues and operating results may vary significantly from quarter to quarter
due to a number of factors. Certain months or quarters have historically
experienced a greater volume of loan applications and funded
loans. As a result, we believe that quarter-to-quarter comparisons of
our operating results are not a good indication of our future performance. It is
possible that in some future periods our operating results may be below the
expectations of public market analysts and investors. In this event, the price
of our common stock may fall.
Our
Business Will be Adversely Affected if We Are Unable to Safeguard the Security
and Privacy of Our Customers’ Financial Data.
We retain
on our premises personal financial documents that we receive from prospective
borrowers in connection with their loan applications. These documents
are highly sensitive and if a third party were to misappropriate our customers’
personal information; customers could possibly bring legal claims against us. We
cannot assure you that our privacy policy will be deemed sufficient by our
prospective customers or compliant with any federal or state laws governing
privacy, which may be adopted in the future.
If
We Fail To Comply With The Numerous Laws And Regulations That Govern Our
Industry, Our Business Could Be Adversely Affected.
Our
business must comply with extensive and complex rules and regulations of, and
licensing and examination by, various federal, state and local government
authorities. These rules impose obligations and restrictions on our
residential loan brokering and lending activities. In particular,
these rules limit the broker fees, interest rates, finance charges and other
fees we may assess, require extensive disclosure to our customers, prohibit
discrimination and impose on us multiple qualification and licensing
obligations. We may not always have been and may not always be in
compliance with these requirements. Failure to comply with these
requirements may result in, among other things, revocation of required licenses
or registrations, loss of approved status, voiding of loan contracts or security
interests, rescission of mortgage loans, class action lawsuits, administrative
enforcement actions and civil and criminal liability.
The
Loss Of Any Of Our Executive Officers Or Key Personnel Would Likely Have An
Adverse Effect On Our Business.
Our
future success depends to a significant extent on the continued services of our
senior management and other key personnel, particularly Michael A.
Barron. The loss of the services of Mr. Barron or other key employees
would also likely have an adverse effect on our business, results of operations
and financial condition. We do maintain “key person” life insurance
for our key personnel.
We
do not anticipate paying dividends.
We have never paid any cash dividends
on our common stock since our inception, and we do not anticipate paying cash
dividends in the foreseeable future. Any dividends, which we may pay
in the future, will be at the discretion of our Board of Directors and will
depend on our future earnings, any applicable regulatory considerations, our
financial requirements and other similarly unpredictable factors. For
the foreseeable future, we anticipate that earnings, if any, will be retained
for the operation and expansion of our business.
Possible
conflicts of interest exist in related party transactions.
Our Board of Directors consists of
Michael A. Barron, Joseph A. Cosio-Barron, Lee Shorey, Gary Cusamano, and Justin
Yorke, three of whom are executive officers and principal shareholders of the
Company. Thus, there has in the past existed the potential for
conflicts of interest in transactions between the Company and such individuals
or entities in which such individuals have an interest. We have
attempted to ensure that any such transactions were entered into on terms that
were no less favorable than could have been obtained in transactions with
unrelated third parties.
Evaluation of Disclosure
Controls and Procedures and Changes in Internal Control over Financial
Reporting
Our
management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2007.
In designing and evaluating our disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their objectives
and management necessarily applied its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on this evaluation, our
chief executive officer and chief financial officer concluded that, as of
December 31, 2008, our disclosure controls and procedures were (1) effective in
that they were designed to ensure that material information relating to us is
made known to our chief executive officer and chief financial officer by others
within the Company, as appropriate to allow timely decisions regarding required
disclosures, and (2) effective in that they provide that information required to
be disclosed by us in our reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and
forms.
Management’s Responsibility
for Financial Statements
Our
management is responsible for the integrity and objectivity of all information
presented in this Quarterly Report on Form 10-Q. The consolidated financial
statements were prepared in conformity with accounting principles generally
accepted in the United States of America and include amounts based on
management’s best estimates and judgments. Management believes the consolidated
financial statements fairly reflect the form and substance of transactions and
that the financial statements fairly represent the Company’s financial position
and results of operations.
Management’s Report on
Internal Control Over Financial Reporting
Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting and for the assessment of the effectiveness of
internal controls over financial reporting. The Company's internal control
system over financial reporting is a process designed under the supervision of
the Company's chief executive officer and chief financial officer to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of the consolidated financial statements in accordance with U.S.
generally accepted accounting principles.
The
Company's management, including its principal executive officer and principal
financial officer, conducted an evaluation of the effectiveness of its internal
control over financial reporting based on the framework in "Internal
Control-Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on its evaluation under the
framework in "Internal Control-Integrated Framework", the Company's management
concluded that the Company's internal control over financial reporting was
effective as of December 31, 2008.
All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions.
This
quarterly report does not include an attestation report of the company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the company's
registered public accounting firm pursuant to temporary rules of the SEC that
permit the company to provide only management's report in this quarterly
report.
Changes
in Internal Control Over Financial Reporting
There
were no changes during the quarter ended June 30, 2009 in our internal control
over financial reporting or in other factors that materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
PART II - OTHER
INFORMATION
Item 1. Legal
Proceedings
We may become
involved in a lawsuit or legal proceeding at any time in the ordinary course of
business. Litigation is subject to inherent uncertainties, and an unexpected
adverse result may arise that may adversely affect our business. We are
currently aware of litigation pending which involves two lawsuits which have
been inherited by the company. They involve The Law Offices of John D. Clunk,
Co., L.P.A, 5601 Hudson
Drive, Hudson OH, 44236 and Professional Law Office of
Kleinsmith & Associates, P.C., 6035 Erin Park Drive, Suite
203, Colorado Springs, CO 80918. Both of these attorney offices were
involved with various transactions for FCI Lender Services, Inc. and CDBANC, LLC
related to the loan pool. We are not aware of any additional legal proceeding or
claims that we believe will have, individually or in the aggregate, a material
adverse affect on our business, financial condition or operating
results.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
During
the three months ended June 30, 2009, the Company issued shares of its common
stock to the following:
|
·
|
150,000
shares issued to an individual for settlement of accounts payable, with a
total value of $22,500.
|
None.
Item 4. Submission of Matters to Vote of
Security Holders
None.
Item 5. Other
Information
None.
Item 6. Exhibits.
Exhibit No.
|
|
Description
|
31.1
|
|
Section 302 Certification of Chief
Executive
|
31.2
|
|
Section 302 Certification of Chief
Financial Officer
|
32
|
|
Certification Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 Of The
Sarbanes-Oxley Act Of 2002
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
Date:
August 14, 2009
|
Liberty
Capital Asset Management, Inc.
|
|
|
|
By: /s/ Michael A.
Barrron
|
|
Chief
Executive Officer
|