SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal quarter ended June 30, 2006
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file No. 0-24805
-------
Littlefield Corporation
-----------------------
(Exact name of small business issuer as specified in its charter)
Delaware 74-2723809
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2501 North Lamar Blvd., Austin TX 78705
---------------------------------------
(Address of principal executive offices)
(512) 476-5141
--------------
(Issuer's telephone number)
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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES [ ] NO [ X ]
As of June 30, 2006, the Issuer had 10,833,334 shares of its Common Stock, par
value $.001 per share outstanding.
Transitional Small Business Disclosure Format: YES [ ] NO [ X ]
Littlefield Corporation
FORM 10-QSB
For the quarter ended June 30, 2006
INDEX
Part I. Financial Information
Item 1. Financial Statements
a) Consolidated Statements of Operations for the Three
Months Ended June 30, 2006 and 2005................. 2
b) Consolidated Statements of Operations for the Six
Months Ended June 30, 2006 and 2005................. 4
c) Consolidated Balance Sheet as of June 30, 2006...... 6
d) Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2006 and 2005................. 7
e) Notes to Consolidated Financial Statements.......... 9
Item 2. Management's Discussion and Analysis of Financial
Condition And Results of Operations................. 19
Item 3. Controls and Procedures............................. 21
Part II. Other Information
Item 1. Legal Proceedings................................... 21
Item 6. Exhibits............................................ 21
Signatures.................................................................. 22
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Littlefield Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended June 30, 2006 2005
---- ----
(Restated)
----------
REVENUES:
Entertainment $1,996,000 $1,692,090
Hospitality 1,622,035 1,301,113
Other (3,186) 4,316
------------- -------------
TOTAL REVENUES 3,614,849 2,997,519
------------- -------------
DIRECT COSTS AND EXPENSES:
Direct salaries and other compensation 758,204 705,976
Rent and utilities 626,303 582,617
Other direct operating costs 953,494 771,707
Depreciation and amortization 165,975 231,099
License expense 30,664 16,307
Provision for doubtful accounts 0 129,597
------------- -------------
TOTAL COSTS AND EXPENSES 2,534,640 2,437,303
------------- -------------
GROSS MARGIN 1,080,209 560,216
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and other compensation 142,596 122,622
Legal and accounting fees 62,932 422,611
Depreciation and amortization 26,247 23,160
Compensation expense related to options 56,400 47,000
Other general and administrative 128,454 111,877
------------- -------------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 416,629 727,270
------------- -------------
OPERATING INCOME 663,580 (167,054)
OTHER INCOME AND EXPENSES:
Interest and investment income 11,516 4,385
Interest expense ($7,875 and $10,315 respectively to related parties) (51,506) (76,283)
Gain (loss) on fixed asset sales 4,000 (4,479)
Gain (loss) on sale of investments 9,312
Gain settlement 0 667,793
Other income and (expense) 125 625
------------- -------------
TOTAL OTHER INCOME AND EXPENSES (35,865) 601,353
------------- -------------
NET INCOME BEFORE PROVISION FOR INCOME TAXES 627,715 434,299
PROVISION FOR INCOME TAXES 15,774 6,840
------------- -------------
NET INCOME 611,941 427,459
OTHER COMPREHENSIVE INCOME 0 (34)
------------- -------------
NET COMPREHENSIVE INCOME 611,941 427,425
============= =============
See notes to consolidated financial statements.
2
Littlefield Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended June 30, 2006 2005
---- ----
(Restated)
----------
EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share $.057 $.041
------------- -------------
------------- -------------
Diluted earnings (loss) per share $.055 $.041
============= =============
Weighted average shares outstanding - basic 10,756,967 10,333,151
Weighted average shares outstanding - diluted 11,048,517 10,413,769
See notes to consolidated financial statements.
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Littlefield Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Six Months Ended June 30, 2006 2005
---- ----
(Restated)
----------
REVENUES:
Entertainment $4,168,319 $3,491,787
Hospitality 2,322,883 1,938,427
Other 42,884 57,021
------------- -------------
TOTAL REVENUES 6,534,086 5,487,235
------------- -------------
DIRECT COSTS AND EXPENSES:
Direct salaries and other compensation 1,326,722 1,235,396
Rent and utilities 1,240,122 1,081,971
Other direct operating costs 1,611,936 1,440,099
Depreciation and amortization 329,592 443,565
License expense 70,890 26,822
Provision for doubtful accounts 0 134,797
------------- -------------
TOTAL COSTS AND EXPENSES 4,579,262 4,362,650
------------- -------------
GROSS MARGIN 1,954,824 1,124,585
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and other compensation 290,450 266,405
Legal and accounting fees 78,311 540,077
Depreciation and amortization 50,643 46,857
Compensation expense related to options 81,358 66,750
Other general and administrative 239,657 210,899
------------- -------------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 740,419 1,130,988
------------- -------------
OPERATING INCOME 1,214,405 (6,403)
OTHER INCOME AND EXPENSES:
Interest and investment income 43,968 5,374
Interest expense ($15,753 and $23,815 respectively to related parties) (108,365) (134,255)
Gain (loss) on fixed asset sales 4,346 (4,479)
Gain (loss) on sale of investments 9,312
Gain on Settlement 687,293
Other income and (expense) 37,527 0
------------- -------------
TOTAL OTHER INCOME AND EXPENSES (22,524) 563,245
------------- -------------
NET INCOME BEFORE PROVISION FOR INCOME TAXES 1,191,881 556,842
PROVISION FOR INCOME TAXES 30,774 21,840
------------- -------------
NET INCOME 1,161,107 535,002
OTHER COMPREHENSIVE INCOME 0 759
------------- -------------
NET COMPREHENSIVE INCOME $1,161,107 $535,761
============= =============
See notes to consolidated financial statements.
4
Littlefield Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Six Months Ended June 30, 2006 2005
---- ----
(Restated)
----------
EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share $.109 $.052
------------- -------------
------------- -------------
Diluted earnings (loss) per share $.107 $.052
============= =============
Weighted average shares outstanding - basic 10,626,668 10,263,810
Weighted average shares outstanding - diluted 10,843,946 10,353,576
See notes to consolidated financial statements.
5
Littlefield Corporation
CONSOLIDATED BALANCE SHEET (Unaudited)
ASSETS
------
Current Assets: June 30, 2006
--------------------
Cash and cash equivalents $2,518,314
Accounts receivable, net of allowance for doubtful accounts of $84,108 1,045,971
Equity Securities, available for sale 3,130
Restricted Cash 918,290
Other prepaid expenses and current assets 241,727
--------------------
Total Current Assets
4,727,432
--------------------
Property and Equipment - at cost, net of accumulated depreciation and amortization 6,153,556
Other Assets:
Goodwill 4,905,111
Intangible assets, net 641,445
Other non-current assets 206,696
--------------------
Total Other Assets 5,753,252
--------------------
TOTAL ASSETS $16,634,240
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Long term debt, current portion 172,506
Trade accounts payable 67,222
Legal Settlements - current portion 120,000
Reserve for settlements 3,200,000
Other current liabilities - related party 456,793
Accrued expenses 475,407
--------------------
Total Current Liabilities 4,491,928
--------------------
Long-term Liabilities:
Legal Settlements - net of current portion 60,000
Long term debt, net of current portion 2,351,278
Long term debt-related party 105,650
--------------------
Total Long-term Liabilities
2,516,928
--------------------
Total Liabilities 7,008,856
--------------------
Stockholders' Equity:
Common stock, $.001 par value, (authorized 20,000,000 shares, issued
11,959,532 shares, outstanding 10,833,334 shares) 11,960
Additional paid-in capital 23,338,541
Treasury stock - 1,126,198 shares, at cost (1,433,809)
Accumulated Comprehensive Income (2,100)
Accumulated deficit (12,289,208)
--------------------
Total Stockholders' Equity 9,625,384
--------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $16,634,240
====================
See notes to consolidated financial statements.
6
Littlefield Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, 2006 2005
(Restated)
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,161,107 $535,002
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 380,235 490,423
Gain on investment sales (9,312)
Stock-based compensation expense 81,358 66,750
Gain on Exercise of Deferred Compensation (54,749)
Increase (decrease) in cash flows as a result of changes in asset
and liability account balances:
Accounts receivable 146,051 (152,845)
Other assets and licenses (41,980) 82,367
Trade accounts payable (358,443) 105,753
Accrued expenses and other current liabilities (241,101) 35,556
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,127,227 1,098,945
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures (175,727) (162,564)
Purchase of Intangibles 0
Proceeds from sale of equity securities 46,263
Proceeds from collection of Note Receivable 1,184,214 845,000
------------- -------------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES
1,008,487 728,699
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (65,668) (35,446)
Payments on notes payable (374,704) (944,863)
Proceeds from options exercised 158,000 59,750
Collection of Subscriptions 46,000 0
------------- -------------
NET CASH (USED) IN FINANCING ACTIVITIES (236,372) (920,559)
------------- -------------
NET INCREASE IN CASH 1,899,342 907,085
CASH AT BEGINNING OF PERIOD 618,972 527,103
------------- -------------
CASH AT END OF PERIOD $2,518,314 $1,434,188
============= =============
See notes to consolidated financial statements.
7
Littlefield Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended June 30, 2006 2005
------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments:
Interest $96,718 $101,370
============= =============
Income taxes $0 $0
============= =============
Non-cash transactions:
Acquisition of property, equipment and intangibles in exchange for
notes payable $0 $7,988
Issuance of treasury stock for deferred compensation and 401K plan $24,403 $0
============= =============
See notes to consolidated financial statements.
8
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2006
--------------------------------------------------------------------------------
NOTE 1 - PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION.
--------------------------------------------------------------------------------
The unaudited consolidated financial statements include the accounts of
Littlefield Corporation and its wholly owned subsidiaries (the "Company"). The
financial statements contained herein are unaudited and, in the opinion of
management, contain all adjustments necessary for a fair presentation of
financial position, results of operations and cash flows for the periods
presented. The preparation of the condensed consolidated financial statements in
conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and liabilities and the
reported amount of revenue and expenses during the reported period. Actual
results could differ from these estimates. Where appropriate, items within the
consolidated condensed financial statements have been reclassified to maintain
consistency and comparability for all periods presented.
The operating results for the six-month period ended June 30, 2006 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2006. Except for historical information contained herein,
certain matters set forth in this report are forward looking statements that are
subject to substantial risks and uncertainties, including the impact of
government regulation and taxation, customer attendance and spending,
competition, and general economic conditions, among others. This Quarterly
Report on Form 10-QSB contains "forward-looking" statements as such term is
defined in the Private Securities Litigation Reform Act of 1995 and information
relating to the Company and its subsidiaries that are based on the beliefs of
the Company's management. When used in this report, the words "anticipate,"
believe," "estimate," "expect," and "intend" and words or phrases of similar
import, as they relate to the company or its subsidiaries or Company management,
are intended to identify forward-looking statements. Such statements reflect the
current risks, uncertainties and assumptions related to certain factors
including, without limitations, competitive factors, general economic
conditions, customer relations, relationships with vendors, the interest rate
environment, governmental regulation and supervision, seasonality, distribution
networks, product introductions and acceptance, technological change, changes in
industry practices, onetime events and other factors described herein and in
other filings made by the company with the Securities and Exchange Commission,
based upon changing conditions, should any one or more of these risks or
uncertainties materialize, or should any underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. The company does not intend to update
these forward-looking statements.
--------------------------------------------------------------------------------
NOTE 2 - RESTATEMENT.
--------------------------------------------------------------------------------
In July 2006, we identified certain errors that had resulted in misstatements of
previously reported stock option expenses. In July 2006 management and the Audit
Committee of the Board of Directors concluded that we would amend our previously
filed Form 10-Q for the quarter ended March 31, 2006 to correct our reported
stock option expenses. In August 2006 management and the Audit Committee of the
Board of Directors concluded that we would also amend our previously filed 2005
Form 10-KSB to correct our reported stock options expenses. Accordingly, our
financial statements for 2005 and the first quarter of 2006 in our original
filings should no longer be relied upon. Management and the Chairman of the
Audit Committee also discussed these matters with our independent registered
public accountants.
The following table sets forth the effects of restatements made to correct the
error in our reported Q1 2006 stock option expenses for a modification to
certain stock option agreements in 2005.
9
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2006
--------------------------------------------------------------------------------
NOTE 2 - RESTATEMENT (Continued).
--------------------------------------------------------------------------------
FOR THE QUARTER ENDED June 30,
Consolidated Statement of Operations 2005 2005
Previously
Restated Reported
Compensation Expense
$47,000 $0
Total General and Administrative 727,270 680,270
Operating Income (167,054) (120,054)
Net Income Before Taxes 434,299
481,299
Net Income 427,459 474,459
Net Comprehensive Income $427,425 $474,425
Basic Earnings Per Share $0.041
$0.055
Diluted Earnings Per Share $0.041
$0.054
Wtd Avg Shares Outstanding - Basic 10,333,151 8,550,509
Wtd Avg Shares Outstanding - Diluted 10,413,769 8,858,009
FOR THE SIX MONTHS ENDED June 30,
Consolidated Statement of Operations 2005 2005
Previously
Restated Reported
Compensation Expense
$66,750 $0
Total General and Administrative 1,130,988 1,064,238
Operating Income (6,403) 60,347
Net Income Before Taxes 556,842 623,592
Net Income 535,002 601,752
Net Comprehensive Income $535,761 602,511
Basic Earnings Per Share $0.052
$0.071
Diluted Earnings Per Share $0.052
$0.068
Wtd Avg Shares Outstanding - Basic 10,263,810 8,481,168
Wtd Avg Shares Outstanding - Diluted 10,843,946 8,788,668
10
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2006
--------------------------------------------------------------------------------
NOTE 3 - PROPERTY AND EQUIPMENT.
--------------------------------------------------------------------------------
Property and equipment at June 30, 2006 consists of the following:
Land $778,826
Buildings 3,207,889
Leasehold improvements 3,867,274
Rental inventory and bingo equipment 1,779,786
Equipment, furniture and fixtures 2,393,670
Automobiles 406,037
-------------
12,433,482
Less: Accumulated depreciation and amortization (6,279,926)
-------------
Property and equipment, net $6,153,556
=============
Total depreciation expense, for owned and leased assets, charged to operations
for the six months ended June 30, 2006 and 2005 was approximately $369,000 and
$475,000 respectively.
--------------------------------------------------------------------------------
NOTE 4 - GOODWILL & OTHER INTANGIBLE ASSETS.
--------------------------------------------------------------------------------
Goodwill at June 30, 2006 consists of the following:
Gross Carrying Accumulated
Amount Amortization Total
------ ------------ -----
Goodwill $6,704,907 $(1,799,796) $4,905,111
============ ============ ============
Entertainment Hospitality
------------- -----------
Balance at December 31, 2005 $4,533,727 $371,384 $4,905,111
Goodwill acquired in the Quarter -0- -0- -0-
Impairment losses -0- -0- -0-
------------ ------------ ------------
Balance at June 30, 2006 $4,533,727 $371,384 $4,905,111
============ ============ ============
Intangible assets at June 30, 2006 consists of the following:
Gross Carrying Accumulated
Amount Amortization Total
------ ------------ -----
Intangible Assets with Indefinite Lives:
Bingo licenses $589,720 $(51,974) $537,746
Intangible Assets with Finite Lives:
Covenants not to compete $297,500 $(193,801) $103,699
------------
Intangible Assets, Net of Accumulated
Amortization $641,445
============
Amortization expense charged to operations for the six months ended June 30,
2006 and 2005 was approximately $11,000 and $15,000 respectively.
11
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2006
--------------------------------------------------------------------------------
NOTE 5 - SHAREHOLDERS' EQUITY.
--------------------------------------------------------------------------------
At June 30, 2006 the Company holds 1,126,198 treasury shares at an average
purchase cost of $1.27.
--------------------------------------------------------------------------------
NOTE 6 - SHARE BASED PAYMENTS.
--------------------------------------------------------------------------------
Effective January 1, 2006, the Company adopted FASB Statement of Financial
Accounting Standards No. 123R (Revised 2004), Share-Based Payment, which
requires that the compensation cost relating to share-based payment transactions
be recognized in financial statements based on the provisions of SFAS 123 issued
in 1995. We have adopted this statement using the modified prospective method of
implementation, whereby the prospective method records the compensation expense
from the implementation date forward, but leaves prior periods unchanged.
The Company recorded approximately $81,000 in compensation expense in the period
ended June 30, 2006 related to options issued under its stock-based incentive
compensation plans. This includes expense related to both options issued in the
current year and options issued in prior years for which the requisite service
period for those options includes the current year. The fair value of these
options was calculated using the Black-Scholes options pricing model.
Information related to the assumptions used in this model is set forth in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2005. For options issued in 2006, the following assumptions were used: dividend
yield of 10%, expected volatility of 68%, risk free interest rates of 5.0% and
an expected life of 7 years.
--------------------------------------------------------------------------------
NOTE 7 - PRO FORMA INFORMATION UNDER SFAS 123 FOR PERIODS PRIOR TO 2006.
--------------------------------------------------------------------------------
The following table represents the effect on net income and earnings per share
as if the Company had applied the fair-value recognition provisions of SFAS 123
to all of its share-based compensation awards for the quarter ending June 30,
2005:
Three Months Ended Six Months Ended
June 30, 2005 June 30, 2005
------------- -------------
(Restated) (Restated)
---------- ----------
Net Income - as reported $ 427,459 $ 535,002
Stock-based compensation included in reported net income, net of related
tax effects 47,000 66,750
Total stock-based compensation expense determined under the Fair Value
Based method, net of related tax effects (81,342) (147,826)
---------------------------------------
Net Income - pro forma $ 393,117 $ 453,926
Earnings Per Share
Basic - as reported $ 0.041 $ 0.052
Basic - pro-forma $ 0.038 $ 0.044
Diluted - as reported $ 0.041 $ 0.052
Diluted - pro-forma $ 0.038 $ 0.044
12
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2006
--------------------------------------------------------------------------------
NOTE 8 - EARNINGS (LOSS) PER SHARE.
--------------------------------------------------------------------------------
A reconciliation of basic to diluted earnings per share is as follows:
Six months ended June 30, 2006 2006 2005 2005
------------------------- ---- ---- ---- ----
(Restated) (Restated)
---------- ----------
Basic Diluted Basic Diluted
-------------- -------------- -------------- -------------
Numerator:
---------- -------------- -------------- -------------- -------------
Net income (loss) $1,161,107 $1,161,107 $535,002 $535,002
============== ============== ============== =============
Denominator:
------------
Weighted average shares outstanding 10,626,668 10,626,668 10,263,810 10,263,810
Effect of dilutive securities:
Preferred stock --- --- --- ---
Stock options and warrants --- 217,278 --- 89,766
-------------- -------------- -------------- -------------
Weighted average shares outstanding 10,626,668 10,843,946 10,263,810 10,353,576
============== ============== ============== =============
-------------- -------------- -------------- -------------
Earnings (loss) per share $.109 $.107 $.052 $.052
============== ============== ============== =============
--------------------------------------------------------------------------------
NOTE 9 - COMPREHENSIVE INCOME.
--------------------------------------------------------------------------------
The Company has adopted Financial Accounting Standards Board Statement No. 130,
Reporting Comprehensive Income. Statement No. 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of this Statement has no impact on net income or shareholders' equity.
Statement No. 130 requires unrealized gains or losses to be included in other
comprehensive income.
The components of comprehensive income for the quarters ended June 30, 2006 and
2005, are as follows:
2006 2005
(Restated)
--------------- ---------------
Net income $1,161,107 $535,002
Other comprehensive income
Net unrealized gain $0 $759
--------------- ---------------
Total comprehensive income $1,161,107 $535,761
=============== ===============
--------------------------------------------------------------------------------
NOTE 10 - INCOME TAXES.
--------------------------------------------------------------------------------
The Company recorded approximately $31,000 and $22,000 of state income tax
expense, respectively, for the six months ended June 30, 2006 and 2005. The
Company does not expect to incur material federal income tax charges until the
depletion of its accumulated federal income tax loss carry-forwards, which
totaled approximately $6,800,000 at December 31, 2005.
13
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2006
--------------------------------------------------------------------------------
NOTE 11 - RELATED PARTY TRANSACTIONS.
--------------------------------------------------------------------------------
In August 2001, the Company acquired Word of Mouth Custom Catering. In
conjunction with this purchase, the Company issued two promissory notes payable
in the amount of $200,000 each to the two sellers (related parties), as partial
consideration for this purchase, and entered into three-year employment
agreements with the sellers. In November 2003, the relationship with one of the
sellers changed from that of an employee to an independent contractor on a
consulting basis, in August of 2004 the agreement terminated with the remaining
employee as per the original agreement. The terms of the notes did not change.
These notes payable at an annual rate of 8.0% and a maturity date of August
2005. These obligations were paid in full in August 2005. For the six months
ended June 30, 2006 and 2005, the Company recognized $0 and $3,000,
respectively, of interest expense related to these obligations.
The President and CEO of the Company had personally guaranteed $300,000 of a
note payable to a third party lender, in the original total amount of $540,000.
The note was paid in full in May 2005.
The Company accrued a total of $61,275 in loan guaranty fees to its President in
2002. This amount has been added to his bonus amount accrued in 2002 in the
amount of $300,000, plus accrued interest and is presented on the balance sheet
as a long term liability - related party. For the six months ended June 30, 2006
and 2005, the Company recognized $12,088 and $13,950 respectively, of interest
expense related to these obligations.
The Company purchased the President's office furniture and antiques for a total
price of $105,650 in July 2002. This amount was set up on a note payable with
interest only payments for 4 years at 6.75% with the principal amount due in
July 2006 as a balloon payment. In 2006, the note was revised with interest only
payments for 5 years at 6.75% with the principal amount due in July 2010.
Interest paid on this note for the six months ended June 30, 2006 and 2005 was
$3,565 and $3,565 respectively.
--------------------------------------------------------------------------------
NOTE 12 - COMMITMENTS AND CONTINGENCIES.
--------------------------------------------------------------------------------
Generally speaking, the Securities and Exchange Commission guidelines require a
company to report any pending legal and/or regulatory proceedings that involves
a claim for damages in excess of ten percent (10%) of its current assets. The
litigation and proceedings discussed below do not necessarily meet this
threshold, but are included in the interest of full disclosure. In general, the
Company will vigorously defend itself against all claims to the fullest extent
possible:
Pondella Hall for Hire, Inc., d/b/a Eight Hundred v. American Bingo and Gaming,
Case No.: 97-2750, Circuit Court of the Twelfth Judicial Circuit in and for
Manatee County, Florida.
800438 Ontario Ltd v. American Bingo and Gaming Corporation, Case No.: 99-1161,
Circuit Court of the Twelfth Judicial Circuit in and for Manatee County,
Florida.
These two related cases arise from a transaction carried out by a predecessor,
American Bingo & Gaming Corporation ("American Bingo"), in July 1995, when
American Bingo bought three Florida bingo centers from two corporations owed and
controlled by Phillip Furtney. More specifically, American Bingo purchased the
assets of Pondella Hall for Hire and Fountains Bingo from Pondella Hall for
Hire, Inc., and the stock of Bingo Trail from 800438 Ontario Ltd. American Bingo
paid the Furtney controlled entities over $450,000 at the time of purchase and
agreed to pay additional compensation of $450,000 over a period of twenty-four
months and transfer stock in American Bingo having a value of an additional
$450,000. Several months after the acquisition of the three halls, the Florida
Attorney General's office obtained an indictment and brought a civil proceeding
related to two of the three halls for alleged gambling related offenses. This
investigation had been ongoing at, and for some time prior to, the acquisition
of the halls, but had not been disclosed to American Bingo by the sellers. As a
result of these legal proceedings, and the very real threat of additional legal
proceedings against the American Bingo and its officers, the halls were closed
and sold to third parties. Additionally, American Bingo settled the litigation
brought by the Florida Attorney General by pleading to misdemeanor sales tax
violations, paying substantial fines, and agreeing to terms which precluded
American Bingo from business in the state of Florida. (This prohibition has
since been lifted as a result of further negotiations with the State of
Florida.)
14
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2006
--------------------------------------------------------------------------------
NOTE 12 - COMMITMENTS AND CONTINGENCIES.
--------------------------------------------------------------------------------
American Bingo did not pay the remaining amounts under the acquisition contracts
since they believed the sellers breached the contracts and committed fraud by
failing to disclose the ongoing investigation by the Florida Attorney General's
office. Pondella filed a two count Complaint against American Bingo in the
Circuit Court for Manatee County, alleging breach of contract and common law
conversion. At the same time, 800438 Ontario also filed a similar Complaint
against American Bingo for breach of contract. American Bingo answered both
Complaints by denying the essential allegations. Additionally, American Bingo
brought Counterclaims against Pondella and 800438 for fraud, negligent
misrepresentation, breach of warranties, contractual indemnity, breach of
guaranty, deceptive and unfair trade practices, and violation of Chapter 517 of
the Florida Statutes. American Bingo also brought claims against Furtney for his
role. However, Furtney, a Canadian citizen and resident of Canada and Mexico,
would not accept service of American Bingo's Complaints and American Bingo was
unable to obtain service of its Complaints on Furtney. The Complaints against
Furtney were dismissed before trial due to lack of service.
A jury trial on all claims, except American Bingo's claims against Furtney, was
conducted in January 2005. The Jury found for Pondella and 800438 Ontario on all
their claims and against American Bingo on their claims against Pondella and
800438 Ontario. Following trial, the Judge granted American Bingo's motion for a
directed verdict on Pondella's claim for conversion. The principal amount of
Pondella's judgment is $410,000 and with interest and attorney's fees totals
$802,039. The principal amount of 800438 Ontario's judgment is $450,000 and with
interest and attorney's fees totals $808,996. The Company has appealed these
judgments to the Florida Second District Court of Appeal and intends to
vigorously pursue its rights on appeal. Additionally, the Company has bonded off
both judgments, which precludes any efforts to collect on the judgments during
the appeal. The range of potential loss on these two cases is between zero and
the amount of the judgments, plus accrued interest. The company accrued a total
of $1,610,000 on its financial statements related to these matters, $1,500,000
on the 2004 financial statements and $110,000 on its 2005 financial statements.
Littlefield Corporation f/k/a/ American Bingo and Gaming v. Philip Furtney, Case
No.: 2001 CA 4000, Circuit Court of the Twelfth Judicial Circuit in and for
Manatee County, Florida. As set forth in the previous section, the Company also
brought claims against Philip Furtney related to his failure to disclose the
existence of the investigation of the Florida Attorney General regarding the
bingo halls acquired by American Bingo from the Furtney controlled entities.
These claims were dismissed from the original litigation based upon the
Company's inability to serve the Complaints on Furtney, a foreign resident, when
he refused to voluntarily accept service of the Complaints. This dismissal did
not decide or relate to the merits of the claims against Furtney. The Company
refiled the Complaints against Furtney in separate litigation and was finally
successful in serving Furtney when he appeared in Florida for trial of the
Pondella/800438 Ontario cases in January 2005. The Company intends to vigorously
pursue its claims against Furtney. The case against Furtney is in discovery and
the Company has a trial date of December 11, 2006.
Lenrich Associates LLC v. Littlefield Corporation, et al; Civil Action No.
00-CP-10-4742, South Carolina Court of Common Pleas, County of Charleston.
Lenrich Associates brought this action against the Company based on a commercial
lease guaranty that was signed by the Company. The tenant on the lease was
Concessions Corp., a subsidiary of the Company and had been used as the location
of the "Lucky II" facility, which was closed in early 2000. The lease expired in
February 2003. Because rental payments under the lease were in arrears, Lenrich
Associates sought to enforce the guaranty against the Company. The Company's
liability under the guaranty was capped at the lesser of two years of fixed and
additional rent or the amount of fixed and additional rent corresponding to the
time period mandated by South Carolina law. A settlement agreement had been
reached for $147,500, which has been accrued for by the Company in June 2002.
However, the plaintiff withdrew their support of the settlement agreement
shortly thereafter. Effective January 1, 2006 a settlement was reached between
the two parties in which Littlefield will pay a sum of $500,000. The Company
accrued for the remaining balance of approximately $353,000 in the 2005
financial statements. A payment was made in one lump sum payment of $250,000 on
January 3, 2006 and additional payment have been made in the amount of $10,000 a
month and will continue for the next 25 months, final payment to be made January
5, 2008.
15
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2006
--------------------------------------------------------------------------------
NOTE 12 - COMMITMENTS AND CONTINGENCIES.
--------------------------------------------------------------------------------
Littlefield Corp. v. Dye, Civil Action No. 2002-cp-08-478. The Company filed an
action on March 6, 2002, in Berkeley County, South Carolina for collection on a
note signed by Danny C. Dye. The note, which was executed on December 10, 1998,
was in the amount of $80,000. The Company alleges that Dye still owes $58,481
toward the principle balance, plus $19,257 in accrued interest through December
31, 2002. On January 14, 2003, Mr. Dye amended his answer to assert
counterclaims against the Company for fraudulent breach of contract and
violation of the South Carolina Payment of Wages Act based on allegations that
the Company failed to pay Dye amounts due under an employment contract. Mr. Dye
has alleged that the Company owes him $375,000 in unpaid salary and is seeking
treble damages under the Payment of Wages Act for a total amount of $1,250,000
in damages. The Company believes that the counterclaims are without merit and
the Company plans to contest them vigorously.
Collins Entertainment Corp. v. Coats and Coats Rental Amusement, d/b/a Ponderosa
Bingo and Shipwatch Bingo, Wayne Coats, individually, and American Bingo and
Gaming Corp.; American Bingo and Gaming Corp. v. Coats and Coats Rental
Amusement, d/b/a Ponderosa Bingo and Shipwatch Bingo, Wayne Coats, individually,
Civil Action No. 97-CP-10-4685, South Carolina Court of Common Pleas, Charleston
County. On October 9, 1997, Collins Entertainment, Inc., filed a lawsuit
alleging the Defendants had engaged in civil conspiracy and tortiously
interfered with the Plaintiff's contract, violating the South Carolina Unfair
Trade Practices Act. The Plaintiff sought actual damages in excess of $350,000
and an unspecified amount of punitive damages. The Company believed this lawsuit
was completely without merit; however, a judgment was issued on February 12,
2001 in favor of the plaintiff. Damages of $157,000 were awarded in addition to
punitive damages of $1,570,000. The Company appealed this decision with the
South Carolina appellate court, and the judgment was affirmed. The Company
applied for a re-hearing with the appellate court, which threw out their
original opinion. However, their new opinion also reaffirmed the judgment. The
Company filed an appeal with the South Carolina Supreme Court. The appeal has
been heard and in April 2006, the judgment was returned in favor of the
plaintiff. The Company has filed a petition with the Supreme Court requesting
reconsideration of the court's decision. The decision on the petition is
pending. The potential outcomes in this matter fall within a range of $0 in the
event of a full and final reversal of the judgment to the full judgment amount
plus accrued simple interest of 12% from the date of judgment plus court costs.
The company has accrued $1,570,000 on its financial statements related to this
matter. The actual damages of $157,000 were paid in 2001.
The South Carolina Supreme Court held oral argument on whether the trial court
and the South Carolina Court of Appeals committed error in holding that
plaintiff was a "lost volume seller." The Company asked the South Carolina
Supreme Court to reject the lost volume seller doctrine entirely or to determine
that the plaintiff is not a lost volume seller as a matter of law in this case.
Alternatively, if the South Carolina Supreme Court chose to adopt the lost
volume seller doctrine and not rule on its express application as a matter of
law, the Company requested that the court vacate the judgment and remand the
case to the trial ourt for a new trial on the application of the doctrine and,
consequently, the amount of damages. In a split decision, the South Carolina
Supreme Court affirmed the decision of the Court of Appeals on April 10, 2006.
The Company filed a petition with the court requesting reconsideration of the
court's decision. This petition was denied. The Company continues to explore all
options in the case, including a further appeal to the United States Supreme
Court, to address constitutional challenges to the punitive damages awarded in
this case that the South Carolina Supreme Court declined to address.
Amy Ramon and Jessica Searsy v. Clark C. Lilly, Littlefield Corporation, Managed
Care Center for Addictive and Other Disorders, Inc., South Plains Volunteer
Services, Inc., Marion Moss Enterprises, Inc., Alcoholic Service Knocks for
Women, Inc. and Lubbock Area Addictive Services. Cause No. 2006-535,397 in the
237th District Court of Lubbock County, Texas. This case involves claims brought
by two bingo employees of various charities which operate from a bingo hall
leased to the charities by Littlefield Corporation. The plaintiffs claim that
the bingo hall manager sexually harassed them and terminated them in violation
of their rights under nondiscrimination provisions of the Texas Labor Code and
also assert various tort claims against Littlefield under state law including
claims for negligent supervision and retention of the alleged harasser.
Plaintiffs allege that Littlefield was their employer and the employer of the
accused harasser. Discovery has just begun in this case. Littlefield intends to
vigorously defend this case because the plaintiffs and the alleged harasser were
not its employees.
Christina Caudle v. Clark C. Lilly, Littlefield Corporation, Managed Care Center
for Addictive and Other Disorders, Inc., South Plains Volunteer Services, Inc.,
Marion Moss Enterprises, Inc., Alcoholic Service Knocks for Women, Inc. and
Lubbock Area Addictive Services. Cause No. 2006-535,400 in the 99th District
Court of Lubbock County, Texas. This case involves claims brought by a bingo
employee of various charities which operate from a bingo hall leased to the
charities by Littlefield Corporation.
16
The Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2006
--------------------------------------------------------------------------------
NOTE 12 - COMMITMENTS AND CONTINGENCIES.
--------------------------------------------------------------------------------
The plaintiff claims that the bingo hall manager sexually harassed her and
terminated them in violation of their rights under nondiscrimination provisions
of the Texas Labor Code and also asserts various tort claims against Littlefield
under state law including claims for negligent hiring and retention of the
alleged harasser. Plaintiff alleges that Littlefield was her employer and the
employer of the accused harasser. Discovery has just begun in this case.
Littlefield intends to vigorously defend this case because the plaintiff and the
alleged harasser were not its employees.
Courtney A. Bigham v. Clark C. Lilly, Littlefield Corporation, Managed Care
Center for Addictive and Other Disorders, Inc., South Plains Volunteer Services,
Inc., Marion Moss Enterprises, Inc., Alcoholic Service Knocks for Women, Inc.
and Lubbock Area.
Addictive Services. Cause No. 2006-535,453 in the 99th District Court of Lubbock
County, Texas. This case involves claims brought by a bingo employee of various
charities which operate from a bingo hall leased to the charities by Littlefield
Corporation. The plaintiff claims that the bingo hall manager sexually harassed
her and terminated them in violation of their rights under nondiscrimination
provisions of the Texas Labor Code and also asserts various tort claims against
Littlefield under state law including claims for negligent hiring and retention
of the alleged harasser. Plaintiff alleges that Littlefield was her employer and
the employer of the accused harasser. Discovery has just begun in this case.
Littlefield intends to vigorously defend this case because the plaintiff and the
alleged harasser were not its employees.
Regina Butler v. Clark C. Lilly, Littlefield Corporation, Managed Care Center
for Addictive and Other Disorders, Inc., South Plains Volunteer Services, Inc.,
Marion Moss Enterprises, Inc., Alcoholic Service Knocks for Women, Inc. and
Lubbock Area Addictive Services. Cause No. 2006-535,470 in the 72th District
Court of Lubbock County, Texas. This case involves claims brought by a bingo
employee of various charities which operate from a bingo hall leased to the
charities by Littlefield Corporation. The plaintiff claims that the bingo hall
manager sexually harassed her and terminated them in violation of their rights
under nondiscrimination provisions of the Texas Labor Code and also asserts
various tort claims against Littlefield under state law including claims for
negligent hiring and retention of the alleged harasser. Plaintiff also asserts
claims for retaliatory discharge, negligent supervision, intentional infliction
of emotional distress, slander & libel. Plaintiff alleges that Littlefield was
her employer and the employer of the accused harasser. Discovery has just begun
in this case. Littlefield intends to vigorously defend this case because the
plaintiff and the alleged harasser were not its employees.
--------------------------------------------------------------------------------
NOTE 13 - SEGMENTS.
--------------------------------------------------------------------------------
The Company's Chief Operating Decision Maker ("CODM"), the President and CEO,
evaluates performance and allocates resources based on a measure of segment
profit or loss from operations.
The Company has identified two operating segments based on the different nature
of the services and legislative monitoring and, in general, the type of
customers for those services in the current year and two in the prior year. The
entertainment segment encompasses bingo center services provided to charitable
organizations in South Carolina, Texas and Alabama. The Hospitality segment is
the tent rental business (acquired November 2000) and the party rental and
catering businesses in Austin, Texas, which were acquired in July and August of
2001.
17
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2006
--------------------------------------------------------------------------------
NOTE 13 - SEGMENTS (Continued).
--------------------------------------------------------------------------------
A summary of the segment financial information reported to the CODM is as
follows:
June 30, 2006
-------------
Entertainment Hospitality Adjustment Consolidated
------------- ----------- ---------- ------------
Revenue $4,168,000 $2,323,000 $43,000 $6,534,000
Depreciation and Amortization 207,000 123,000 50,000 380,000
Segment profit (loss) 1,941,000 (11,000) (769,000) 1,161,000
Segment Assets 24,193,000 1,462,000 (9,021,000) 16,634,000
June 30, 2005 (Restated)
------------------------
Entertainment Hospitality Adjustment Consolidated
------------- ----------- ---------- ------------
Revenue $3,492,000 $1,938,000 $57,000 $5,487,000
Depreciation and Amortization 256,000 187,000 47,000 490,000
Segment profit (loss) 1,180,000 (195,000) (450,000) 535,000
Segment Assets 22,942,000 1,495,000 (9,390,000) 15,047,000
The adjustments represent other income, depreciation and amortization related to
corporate assets, corporate losses, corporate assets and corporate capital
expenditures to reconcile segment balances to consolidated balances.
--------------------------------------------------------------------------------
NOTE 14 -- SUBSEQUENT EVENTS.
--------------------------------------------------------------------------------
July 2006 - Troy D. Zinn, Chief Financial Officer resigned his position within
the Company.
July 2006 - Richard S. Chilinski hired as the Chief Financial Officer for the
Company.
18
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Our Company was formed in 1994 as a Delaware corporation to consummate the
acquisition of charitable bingo centers and video gaming operations, and
completed the initial public offering in December of 1994. We operate primarily
through wholly owned subsidiaries in Texas, Alabama and South Carolina.
The statements in this Quarterly Report on Form 10-QSB relating to matters that
are not historical facts, including, but not limited to statements found in this
"Management Discussion and Analysis of Financial Condition and Results of
Operations", are forward-looking statements that involve a number of risks and
uncertainties. Factors that could cause actual future results to differ
materially from those expressed in such forward-looking statements include, but
are not limited to the impact of government regulation and taxation, customer
attendance, spending, competition, general economic conditions, and other risks
and uncertainties as discussed in this Quarterly Report and the 2005 Annual
report on Form 10-KSB.
On July 21, 2006, we announced that we would restate our unaudited financial
statements for the first quarter of 2006 to correct an error in accounting for
share based compensation in that quarter. The amended Form 10-QSB/A for the
quarter ended March 31, 2006, is being filed on the same day as this Form 10-QSB
for the quarter ended June 30, 2006. This 10-QSB for the second quarter of 2006
contains all financial adjustments and is based on the restated financial
statements for the first quarter of 2006.
On August 14, 2006, we announced that we would restate our financial statements
for the year ended December 31, 2005. This 2005 restatement also relates to the
proper recording of expenses related to share based compensation. References in
this 10-QSB to our operations, assets, liabilities and cash flows for the second
quarter of 2005 and the full year 2005 include revisions to financial
information for the period ended December 31, 2005. We expect to file the
amended Form 10-KSB/A containing restated financial statements for the year
ended December 31, 2005, within the next ten days.
We intend to grow our business through acquisitions and the selective start up
of charitable bingo halls in markets in which we currently operate and other
attractive markets.
Results of Operations
---------------------
We incurred a net profit of approximately $1,161,000 for the first six months of
2006, which equated to a basic and fully diluted earnings per share of $0.109
and $0.107 respectively, which represented an improvement of approximately
$626,000 over our net profit of $535,000 for the first six months of 2005, which
was $0.052 per basic and $0.052 fully diluted share. The weighted average number
of basic Common Stock shares outstanding totaled 10,626,668 in the first six
months of 2006 as compared to 10,263,810 in the first six months of 2005.
Revenues
--------
2006 2005 Change % Change
---- ---- ------ --------
(Restated)
----------
Total Revenues $ 6,534,000 $ 5,487,000 $ 1,047,000 19%
Entertainment 4,168,000 3,492,000 676,000 19%
Texas 2,421,000 1,947,000 474,000 24%
South Carolina 901,000 751,000 150,000 20%
Alabama 846,000 794,000 52,000 7%
Hospitality $ 2,323,000 $ 1,938,000 $ 385,000 20%
Revenues for the Company increased 19% over the same period in 2005 with both
the Entertainment and the Hospitality divisions contributing. Entertainment
accounted for 64% of total revenues compared with 64% of total revenues in 2005.
By state Entertainment revenues break down for Texas, South Carolina and Alabama
as 58%, 22%, and 20% respectively compared to 55%, 22% and 23% in the first six
months of 2005. Hospitality accounted for 36% of total revenues for the six
months, compared to 35% of total revenues in 2005.
Net Income
----------
2006 2005 Change
---- ---- ------
Restated
--------
Total Net Income $ 1,161,000 $ 535,000 $ 626,000
Entertainment 1,941,000 1,180,000 761,000
Hospitality $ (11,000) $ (195,000) $ 184,000
19
The Company realized net income in the first six months of 2006 of $1,161,000
compared to a net income of $535,000 for the same period in 2005. The
Entertainment division improved by 65% while the Hospitality division decreased
their loss. These increases can be attributed to improved revenues and
management's concentration on cost savings throughout the organization.
Costs and Expenses
------------------
Rent and utilities were up approximately $158,000 or 15% in the first six months
of 2006 as compared to the same period in 2005. This increase is largely related
to a greater number of facilities in 2006 than were present in the same period
of 2005. The remainder of the rent increase is a result of the annual increases
in rent and higher utility costs. Other direct operating costs were up 12% in
the first quarter of 2006 as compared to the same period in 2005. This is
related to higher costs of goods sold, higher property taxes, and higher repairs
and maintenance at our facilities than occurred in the first six months of 2005.
License expense was up 164%, a result of the timing of the payment on licenses
and a change from accruing license expense into a prepaid asset account and
simply expensing when it is submitted.
Depreciation and amortization expense totaled approximately $380,000 ($330,000
Direct plus $50,000 G&A) in the first six months of 2006, a decrease of about
$110,000 from the first six months of 2005. The decrease is largely a result of
the disposition of assets in late 2005.
General and administrative expenses, excluding related depreciation expense and
stock based compensation expense totaled approximately $608,000 in the first six
months of 2006, compared to approximately $1,017,000 in 2005, a decrease of
about $409,000, all relating to higher legal expenses in 2005. For compensation
expense related to options, see Note 6, Share Based Payments.
Other income and expense was an expense of approximately $23,000 for the first
six months of 2006, compared to other income of approximately $563,000 for the
first six months of 2005. The income in 2005 was mainly from a gain on
settlement on a note receivable. The remaining expenses were interest expenses.
Interest expense was down approximately $26,000 compared to the first six months
in 2005. This was a result of lower debt in the first six months of 2006.
Liquidity and Capital Resources
-------------------------------
Cash and cash equivalents at June 30, 2006, totaled approximately $2,518,000 and
represented approximately 15% of total assets of approximately $16,634,000. Cash
provided from operating activities for the six months ended June 30, 2006,
totaled approximately $1,127,000 compared to cash provided of $1,099,000 during
the same period of 2005, an increase of approximately $28,000. Cash flows
provided by operating activities in the first six months of 2006 were increased
by the net income of approximately $1,161,000, non-cash depreciation expense of
approximately $380,000, increased by stock based compensation of approximately
$81,000 and offset by results of change in asset and liability accounts of
approximately $495,000.
Net cash provided in investing activities totaled approximately $1,008,000 for
the six months ended June 30, 2006, compared to net cash provided of
approximately $729,000 in the six months ended June 30, 2005. In the first six
months, cash was used in the amount of approximately $176,000 for the purchase
of capital assets and offset by the collection of a note receivable in the
amount of approximately $1,184,000. In the same six month period of 2005 cash
was used for the purchase of capital assets of about $163,000.
Cash used by financing activities in the first six months of 2006 totaled
approximately $236,000, as compared to net cash used in financing activities in
the first six months of 2005 of approximately $921,000. In the six months ended
June 30, 2006, approximately $441,000 of cash was used to pay down the normal
principle payments on both capital leases and notes payable, increased by
$46,000 from the collection of a subscription receivable and approximately
$158,000 from the exercising of stock options by employees.
Current assets totaled approximately $4,727,000 at June 30, 2006, leaving the
Company with working capital of approximately $236,000 and a current ratio of
1.05 to 1. Legal reserves totaling $3,320,000 ($3,200,000 legal reserves +
$120,000 legal settlements) are included in current liabilities, of which
$1,610,000, related to the Pondella Hall case discussed in Note 12 to the
unaudited financial statements, is not expected to be paid, if at all, for one
to two years. The remaining reserved amount of $1,570,000 relates to the Collins
Entertainment judgment discussed in Note 11 to the unaudited financial
statements and $20,000 of accrued for other. The $120,000 legal settlement
represents the current portion of the Lenrich settlement discussed in Note 12 of
the unaudited financial statements.
At June 30, 2006, we had approximately $16,634,000 in total assets with total
liabilities of approximately $7,009,000 and approximately $9,625,000 of
shareholders equity. Total assets include approximately $2,518,000 in cash,
$1,291,000 of other current assets and net account receivables and $918,000 of
restricted cash, $6,154,000 of property and equipment, $5,547,000 of intangible
assets, and $207,000 of other assets. Total liabilities primarily consist of
accounts payable of approximately $67,000, notes and capital lease obligations
of approximately $2,524,000 and accrued liabilities, other current liabilities-
related party and legal settlements and reserves of $4,418,000.
20
Item 3. Controls and Procedures
The Company's management evaluated, with the participation of the Chief
Executive Officer and Chief Financial Officer, the effectiveness of the
Company's disclosure controls and procedures as of the end of the period covered
by this report. Disclosure controls and procedures are designed with the
objective of ensuring that (i) information required to be disclosed in the
Company's reports filed under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms and (ii) the information is accumulated and communicated
to management, including the principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required
disclosures.
After the close of the second fiscal quarter covered by this Report, the
Company's management and board of directors determined that it was necessary to
restate the financial results for the first quarter of 2006 because of errors in
accounting for share based compensation in the first quarter, which occurred in
connection with the Company's accounting for stock option expense under
Statement of Financial Accounting Standards No. 123R, "Share Based
Compensation," which the Company adopted in the first quarter of 2006. Because
of the required amendment to our financial statements made after the close of
the second fiscal quarter, our Chief Executive Officer and Chief Financial
Officer concluded that, as of June 30, 3006, our disclosure controls and
procedures were not effective due to the fact that we had failed to correctly
account for share based compensation expense.
The restated financial statements for the first quarter are contained in
Amendment No. 1 to the Company's report on Form 10-QSB/A for the period ended
March 31, 2006, which has been filed with the SEC, August 21, 2006, the same day
as the filing of this Form 10-QSB for the period ended June 30, 2006. Net Income
in Q1 2006 was increased by approximately $341,000 as a result of a correction
in the accounting for stock options. The Company had originally booked expenses
of approximately $365,000 related to the stock options and upon discovery of the
error, management and the Board of Directors made the decision to restate the
10-QSB for the first quarter of 2006.
We have taken steps to improve our internal control over financial reporting
during and after the second fiscal quarter of 2006, including hiring of an
outside consultant to advise management on the proper accounting for stock
options, strengthening the formal process of documenting changes to options
issued, and requiring two officers to verify the documentation of the changes or
exercising of stock options. Other than the changes described in this paragraph,
there have been no other changes in our internal control over financial
reporting during the fiscal quarter ended June 30, 2006, that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
Our management, including the Chief Executive Officer and Chief Financial
Officer, believe that, with the changes described in the preceding paragraph,
our disclosure controls and procedures are effective, as of the date of filing
this quarterly report on Form 10-QSB, to ensure that information required to be
disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the SEC rules and forms.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For a discussion of material pending legal proceedings, see Note 12 to the
unaudited Consolidated Financial Statements included in Part I hereof, which
Note 12 is incorporated herein by reference.
Item 6. Exhibits
31.1 Rule 31a-14(a) / 15d-14(a) Certifications
32.1 Section 1350 Certifications
21
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Littlefield Corporation
August 21, 2006
By:
/s/ JEFFREY L MINCH
--------------------
Jeffrey L. Minch
President and Chief Executive Officer
/s/ TROY D. ZINN
-----------------
Troy D. Zinn
Secretary and Treasurer
(Chief Financial Officer)
22