SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Amendment No. 1
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the Fiscal Year Ended December 31, 2005
Commission file No. 0-24805
Littlefield Corporation
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(Exact name of small business issuer as specified in its charter)
Delaware 74-2723809
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(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
2501 North Lamar Blvd. Austin, Texas 78705
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(Address of principal executive offices)
(512) 476-5141
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(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
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Securities registered under Sections 12(g) of the Exchange Act: Common Stock
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Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. [ ]
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 issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S- contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB/A or any
amendment to this Form 10-KSB/A. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act. YES [ ] NO [X]
Issuer's revenues for its most recent fiscal year: $ 11,331,268
Aggregate market value of the issuer's common stock held by
non-affiliates based on the average bid and asked
price as of March 1, 2006 $ 7,215,058
Number of shares of the issuer's common stock outstanding
as of March 1, 2006 8,689,355
Documents Incorporated By Reference
The issuer's Proxy Statement for its annual meeting of stockholders held on May
17, 2006, is incorporated by reference in this Form 10-KSB/A in Part III Item 9,
Item 10, Item 11 and Item 12.
This report contains statements that constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements appear in a number of
places in this Report and include all statements regarding the intent, belief or
current expectations of the Company, its directors or its officers, with respect
to, among other things: (i) the Company's financing plans; (ii) trends affecting
the Company's financial condition or results of operations; (iii) the Company's
growth strategy and operating strategy; and (iv) the declaration and payment of
dividends. Investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in the
forward-looking statements as a result of various factors discussed herein and
those factors discussed in detail in the Company's filings with the Securities
and Exchange Commission.
PART I
EXPLANATORY NOTE
This Amendment No. 1 to our Annual Report on Form 10-KSB ("Form 10-KSB/A-1") for
the year ended December 31, 2005, initially filed with the Securities and
Exchange Commission ("SEC") on March 31, 2006 (the "Original Filing") reflects,
among other things, a restatement of the Financial Statements of Littlefield
Corporation, as discussed in Note 2 to the Financial Statements.
This Form 10-KSB/A-1 amends and restates Items 5, 6, 7, and 8A of the Original
Filing and we have revised language in certain of these Items from the Original
Filing to reflect the restatement of our Financial Statements. As explained in
Note 2 of our restated financial statements for the year ended December 31,
2005, we have restated our financial statements to correct an accounting error
in the recording of stock options costs and additional paid in capital. This
change was required to reflect modifications made to extend the termination
dates of stock option agreements for four non-executive employees and to record
a stock subscription receivable in 2005. Item 5 was amended to reflect the
modification to certain stock option agreements in 2005. Item 6 was amended to
reflect the affect of the modification on general and administrative expenses
and net income. Item 7 reflects our restated financial statements. Item 8A
discusses our disclosure controls and procedures, weaknesses identified and
steps taken to improve our internal control over financial reporting.
ITEM I: DESCRIPTION OF BUSINESS
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Littlefield Corporation develops, owns and operates charitable bingo halls, and
owns and operates party rental and catering companies. We operate 31 charitable
bingo halls in Texas, Alabama, and South Carolina. We also own and operate
Littlefield Hospitality in Austin, Texas. The Hospitality division consists of
Premiere Events and Rental, a party and tent rental company, and Word of Mouth
Catering, a custom catering company.
We were incorporated in Delaware in 1994 as American Bingo and Gaming Corp. From
inception through 1999 we suffered through a chaotic leadership structure. There
have been five (5) separate Presidents or Chief Executive Officers during our
brief history as well as a continuously changing Board of Directors. In
mid-1999, Daniel W. Deloney was named a director, and immediately after the
resignation of the Board of Directors and management, became interim Chief
Executive Officer and Chairman of the Board. In July 1999, Jeffrey L. Minch was
appointed a director and in October 1999, was named President. Current
independent board members are Carlton Williams, Alfred Stanley and Michael
Wilfley. Alfred Stanley and Michael Wilfley were reelected at the May 2004
annual meeting. Carlton Williams was named Chairman of the Board. The Board of
Directors owns a substantial amount of stock.
CURRENT YEAR EVENTS:
January 2005 - 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. This case was heard and judgment
found against the Company in the amount of $1,280,000 plus attorney fees. The
company is appealing this decision. The reserve for this case was booked in 2004
in the amount of $1,500,000.
In March 2005, the Company through it's wholly owned subsidiary Conway Bingo
Inc., leased a facility in Conway, SC and opened a "C" hall doing business as
Mill Pond Bingo.
2
In April 2005, the Company through it's wholly owned subsidiary Aiken Bingo
Inc., leased a facility in Aiken, SC and opened a "C" hall doing business as
Tally Ho! Bingo.
In September 2005, Columbia One Inc., a wholly owned subsidiary of the Company
sold a shopping center located in Columbia, SC which originally was the Company
Headquarters. The Company had two bingo halls located in the shopping center,
American Bingo I and II, one a "B" bingo hall and one a "C" bingo hall, both of
which were closed. In addition the Company signed a non-compete agreement
pulling the Company out of the Columbia market.
In conjunction with the sale of the bingo hall in Columbia, SC, the Company
assumed the lease on Galley Hall bingo in Charleston, SC which was operated by
the purchaser of the shopping center. Galley Hall operates as a "C" bingo hall.
In October 2005, the Company completed the purchase of the Strike It Rich Bingo
hall in San Angelo, Texas, which is operating under the wholly owned subsidiary
San Angelo Charitable Bingo Inc.
All of these events are discussed more thoroughly in Item 6 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
PRINCIPLE BUSINESS AND MARKETS
We currently have two distinct and separate business segments.
1. "Littlefield Entertainment" owns and operates 31 charitable bingo
halls. Of these 31 bingo halls, seventeen (17) are in Texas (Austin-1,
Abilene-2, Amarillo-3, McAllen-3, Lubbock-3, Odessa-2, Midland-1, San
Angelo-1 and San Antonio-1), three (3) are in Alabama (Montgomery-2 and
Mobile-1) and eleven (11) are in South Carolina (Charleston-6,
Georgetown-1, Goose Creek-1, Walterboro-1, Conway-1, and Aiken-1). The
total segment comprised approximately 61% of our total revenues in
2005.
2. "Littlefield Hospitality" consists of Austin Tents and Events which was
acquired in November 2000, Premiere Party Rental which was acquired in
July of 2001, and Word of Mouth Custom Catering which was acquired in
August of 2001. Austin Tents and Events and Premiere Party Rental were
subsequently combined and are now called Premiere Tents and Events.
Revenues in our Hospitality division comprised 38% of total gross
revenues in 2005.
LITTLEFIELD ENTERTAINMENT. Our main business is the management of charitable
bingo halls. We might be called a "charitable bingo lessor" or "bingo conductor"
or "bingo promoter" depending upon the jurisdiction in which we are operating.
A new charity bingo hall is created when we contract with a real estate
landlord, through a long-term real estate lease, to rent premises suitable for a
bingo hall. We engage in precise market, demographic and location research in
order to ensure the suitability of a specific site for the development of a new
bingo hall. We then develop the physical plant for a bingo hall based upon our
expertise; and, attract the requisite number of charities for the use of the
premises and the services provided to support the Charities' conduct of bingo
operations.
In the due diligence of investing in a new start up bingo hall, the company
anticipates recovering our entire investment (usually $100,000 to $400,000)
within one to two years after the attainment of a stable and predictable
operating environment (typically 6-12 months after the initiation of operations
with a full contingent of charities). In 2004 we opened Coveralls Bingo in
Walterboro, SC, which reached a stable and predictable environment in 2005 and
should return our entire investment within the 2 year window. We had two new
start up halls in South Carolina, neither of which has reached a stable and
predictable operating environment to date. These halls are Mill Pond Bingo in
Conway, SC and Tally Ho! Bingo in Aiken, SC.
In addition to starting up new charitable bingo halls, we may acquire other
companies that also engage in the management of charitable bingo halls. We
anticipate an immediate going in return of 25-35% on our entire investment and
the ability to sustain that level of performance for a ten (10) year period,
absent only regulatory environmental changes beyond our ability to predict or
control. In the past three years we have purchased El Bingo Grande Bingo Hall,
3
Bingo Idea and Bingo Barn. Of these Bingo Idea and Bingo Barn were purchased
with the knowledge that we would not attain these goals, as these were strategic
purchases that allowed us to take advantage of our market presence. The El Bingo
Grande purchase has produced a 58% return since 2002. In 2002, the first year we
operated the hall, we had 12% return, in 2003 a 16% return, in 2004 a 16% return
and in 2005 a 20% return. In October 2005, we obtained the bingo operations of
Strike It Rich Bingo in San Angelo, TX. This was an ongoing bingo hall, but one
that was not operating at it's potential and in the 3 months that we have
operated the hall, it has already generated a 5% return.
In 2005, our charitable bingo halls raised approximately $3,818,000 in
charitable funding for those charities that operate in our bingo halls. We
helped raise $667,000 for charities in South Carolina, $651,000 for charities in
Alabama, and $2,500,000 for charities in Texas. Since 2001 our company has
helped raise well over $16 million for charity.
Competition: The charitable bingo market is a fragmented business, often with
operators who are individuals or partnerships, with no one dominant competitor.
Competition also includes charitable organizations. From region to region there
may be a dominant player in their immediate markets, but we are the only
publicly traded bingo promoter with more than just a regional presence.
Our unit of competition is an individual bingo hall. Competition is further
subdivided by the time of day or night that a bingo hall operates. A bingo hall
could generally be a daytime hall, a nighttime hall or a late night hall. In
certain jurisdictions, we would like to operate at all three times. An
individual bingo hall competes within a trade area of approximately fifteen (15)
miles against other bingo halls operating at the same time. Within a larger
market (e.g. Charleston, South Carolina) the presence of a number of bingo halls
may not give rise to significant competition. In general, we believe that
approximately one to one and a half percent (1-1.5%) of the population in a city
of more than 100,000 are meaningful and consistent bingo players.
The principle methods of competition used, once an ideal location is obtained,
include providing clean, safe and attractive facilities, creating customer
loyalty through various marketing efforts, and other promotional programs to
stimulate interest in not only playing the game of bingo, but in frequenting our
bingo locations specifically. Our combined industry knowledge also gives us a
competitive advantage when negotiating with the various charities to use our
facilities for their operations. Direct advertising is not permitted under the
local bingo regulations by the promoter's organizations in some jurisdiction and
is permitted in others.
Regulation. We operate in Texas, Alabama and South Carolina, and each state
regulates bingo operations differently.
In Texas, the Texas Lottery Commission regulates bingo and its rules are uniform
throughout the State. In general, a bingo hall can contain up to seven (7)
charities and can operate seven (7) days per week and conduct as many as
fourteen (14) bingo sessions per week.
In South Carolina, the South Carolina Department of Revenue is the principal
regulator for bingo. Its rules are uniform throughout the State. In general, a
bingo hall can contain a single charity and can only operate five (5) sessions
per week with a Class B license or everyday with a Class C license. In general,
a Class C hall is permitted to play more often, but is required to pay out less
money than a Class B hall.
In Alabama, bingo can only be played in counties that have a "local bill"
authorizing bingo that has been passed by the state legislature. The local
county sheriff is the principal regulator of bingo and regulations vary from
county to county. In general, a bingo hall can contain up to ten (10) charities
and can operate seven (7) days per week and conduct up to twenty-one (21) bingo
sessions per week.
LITTLEFIELD HOSPITALITY:
In the last quarter of 2000, we began a diversification of our businesses with
the acquisition of Austin Tents and Events, and with the purchase of Premiere
Party Rental and Word of Mouth Custom Catering in the summer of 2001. These
combined businesses had average revenue of approximately $4,500,000 per year and
operated in the central Texas area in and around Austin, Texas. The companies
engaged in the party rental business, catering, and installation of tents for
events, parties, weddings, festivals, etc. as well as a small amount of event
planning (music, flowers, catering, etc.).
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Competition: The catering, party rental, tent installation, and event
coordination market is very fragmented, especially in the local Austin area.
There are numerous catering and party rental companies in the Austin area. While
some companies do offer catering services and party rentals, they do not offer
"one-stop shopping", that our combined companies can provide. The keys to
success in the hospitality industry are to maintain quality-trained labor and to
strive for consistency and excellence in customer service. The hospitality
industry has a tradition of being fragmented and our combined acquisitions of
Austin Tents and Events, Premiere Party Rental, and Word of Mouth Custom
Catering give us a competitive edge in the Austin marketplace.
Regulation: There is no special regulation for this type of business, other than
normal business taxes (sales & use, Texas Alcohol and Beverage Commission,
franchise, property, etc.) and employment issues. Permits are often needed for
certain site locations. We comply with all regulatory issues.
EMPLOYEES:
As of the report date, we had approximately two hundred forty five (245)
employees and four (4) directors, of which one is a full time employee. Of the
current employment level, nine (9) are at our headquarters in Austin, Texas,
thirteen (13) are engaged in bingo operations, and two hundred twenty three
(223) are with Littlefield Hospitality. Littlefield Hospitality consists of
fifty six (56) full time employees and one hundred sixty seven (167) part time
employees.
ITEM 2 - DESCRIPTION OF PROPERTY
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Our principal executive offices, which we own, are located at 2501 North Lamar
Boulevard, Austin, Texas 78705. We lease space for the majority of our bingo
operations in Texas, Alabama, and South Carolina and in turn sublease the bingo
centers to various charities. We are responsible for real estate taxes,
insurance, common area maintenance and repair expenses on some of our leases. We
own two bingo centers. We believe the condition of our leased and owned
properties is good. No single property, leased or owned, amounts to 10% or more
of our total assets.
State City Location Purpose Location Name Status
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Alabama Mobile Bingo Hall Bingo Haven Operating
Montgomery Bingo Hall Winners Operating
Montgomery Bingo Hall Good Times Operating
South Carolina Charleston (2) Bingo Halls (B&C) Beacon Operating
Charleston (2) Bingo Halls (B&C) Lucky I Operating
Charleston (2) Bingo Halls (B&C) Shipwatch Operating
Georgetown Bingo Hall By George! Bingo Operating
Walterboro Bingo Hall Coverall Bingo Operating
Conway Bingo Hall Mill Pond Bingo Operating
Aiken Bingo Hall Tally Ho! Bingo Operating
Goose Creek Bingo Hall Galley Hall Operating
Texas Abilene Bingo Hall Ambler Bingo Operating
Abilene Bingo Hall Super Bingo Operating
Amarillo Bingo Hall Hi-Plains Bingo Operating
Amarillo Bingo Hall Goldstar II Bingo Operating
Amarillo Bingo Hall Grandview Bingo Operating
Austin Corporate Headquarters Corporate Hdqtrs Occupied
Austin Bingo Hall American Paradise Operating
Lubbock Bingo Hall Lucky Bingo Operating
Lubbock Bingo Hall Goldstar I Bingo Operating
Lubbock Bingo Hall Parkway Bingo Operating
McAllen Bingo Hall Americana I Operating
McAllen/San Juan Bingo Hall Triple City Bingo Operating
McAllen Bingo Hall El Bingo Grande Operating
Midland Bingo Hall Bingo Barn Operating
Odessa Bingo Hall Strike It Rich Operating
Odessa Bingo Hall Let It Ride Operating
Austin Warehouse Premiere Party Rental Operating
Austin Kitchen & Offices Word of Mouth Operating
San Antonio Bingo Hall Blanco Bingo Operating
San Angelo Bingo Hall Strike It Rich Operating
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ITEM 3 - LEGAL PROCEEDINGS
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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.)
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.
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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
is awaiting a trial date.
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. The Company has petitioned the court to enforce the
settlement agreement and is currently awaiting this decision. 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. The terms call for
payments to be made in one lump sum payment of $250,000 due January 3, 2006 and
then $10,000 a month for 25 months. The $250,000 payment and subsequent monthly
payments have been made as scheduled.
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 the Company is awaiting judgment
from the South Carolina Supreme Court. 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.
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George M. Harrison, et al. v. Littlefield Corporation Civil Action No.
4:04-1038-25 This action is currently pending in the United States District
Court for the District of South Carolina, Florence Division. Plaintiffs were the
owners of a parcel of real property in Darlington, South Carolina that was
leased to Darlington Music Company, a former subsidiary of Littlefield
Corporation. In 1990, Plaintiffs, who were also the owners of Darlington Music
Company at that time, caused Darlington Music Company to enter into a 15-year
lease of the real property they owned. Darlington Music Company was later
acquired from Plaintiffs by Littlefield Corporation's predecessor, American
Bingo & Gaming. This business continued to operate as a wholly-owned subsidiary
until such time as changes in South Carolina law regarding video gaming required
that the business be wound down. In May 2001, Plaintiffs later received a
judgment in the amount of $199,148 against Darlington Music Company for
nonpayment of rent. Through this action, Plaintiffs are now attempting to
enforce that judgment against Littlefield Corporation on the basis of various
legal theories. Littlefield intends to vigorously defend this action and will
also ask, if possible, to have the underlying judgment against its former
subsidiary reexamined. This case was settled in June 2005 with Littlefield
agreeing to pay $95,000 to the Plaintiffs.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
There were no matters submitted to a vote of the stockholders during the fourth
quarter of 2005.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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Market Information
Our common stock is traded on the OTC Bulletin Board under the symbol "LTFD".
The following table shows the range of reported high and low closing bid prices
for our common stock for the periods indicated as reported on a daily basis by
the OTC Bulletin Board.
2005: High Low 2004: High Low
----- ---- --- ----- ---- ---
First Quarter $0.75 $0.57 First Quarter $1.22 $0.65
Second Quarter $0.75 $0.56 Second Quarter $0.94 $0.59
Third Quarter $0.72 $0.60 Third Quarter $0.64 $0.45
Fourth Quarter $0.73 $0.57 Fourth Quarter $0.75 $0.50
Security Holders
As of March 1, 2006, our common stock was held by approximately 1,182 beneficial
shareholders.
Dividends
We have never paid, and currently have no intention to pay, any cash dividends
on our common stock.
8
Securities Authorized For Issuance Under Equity Compensation Plans
Number of securities to be Weighted average exercise
issued upon exercise of price of outstanding Number of securities
outstanding options, options, warrants and remaining available for
Plan Category warrants and rights rights future issuance
(a) (b) (c)
----------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 1,101,555 1.13 1,014,312
Equity compensation plans not
approved by security holders NA NA NA
Total 1,101,555 1.13 1,014,312
Recent Sales of Unregistered Securities
There were no sales of unregistered securities in 2005.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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Overview
The year 2005 brought continued growth in our bingo division and significantly
lower losses in our hospitality division.
In March 2005, the Company through it's wholly owned subsidiary Conway Bingo
Inc., leased a facility in Conway, SC and opened a "C" hall doing business as
Mill Pond Bingo.
In April 2005, the Company through it's wholly owned subsidiary Aiken Bingo
Inc., leased a facility in Aiken, SC and opened a "C" hall doing business as
Tally Ho! Bingo.
In September 2005, Columbia One Inc., a wholly owned subsidiary of the Company
sold a shopping center located in Columbia, SC which originally was the Company
Headquarters. The Company had two bingo halls located in the shopping center,
American Bingo I and II, one a "B" bingo hall and one a "C" bingo hall, both of
which were closed. In addition the Company signed a non-compete agreement
pulling the Company out of the Columbia market.
In conjunction with the sale of the bingo hall in Columbia, SC, the Company
assumed the lease on Galley Hall bingo in Charleston, SC which was operated by
the purchaser of the shopping center. Galley Hall operates as a "C" bingo hall.
In October 2005, the Company completed the purchase of the Strike It Rich Bingo
hall in San Angelo, Texas, which is operating under the wholly owned subsidiary
San Angelo Charitable Bingo Inc. This is the only bingo hall in a city of
approximately 100,000 persons.
In Alabama, bingo operations continued to be faced with competition from Native
American Casinos and a race track in the area. These casinos and the race track,
which are mini-gaming centers, operate under different rules with different
pay-out structures than our charitable bingo halls in the same market. Despite
these pressures our operations continue to improve. This is an improvement that
began in the 4th quarter of 2004.
In South Carolina, we continue to grow the South Carolina operations. In 2005 we
opened Millpond Bingo in Conway, Tally Ho! Bingo in Aiken and assumed a lease on
Galley Hall Bingo into which we moved a charity from Columbia.
9
Our Hospitality division showed an improvement in 2005. Despite the increase in
revenues, net income remained negative, though we lost 300% less for the year
than in 2004. Direct and indirect expenses were up from 2004, largely due to
increased costs associated with the increase in activity. These costs would
include personnel costs, supplies, food, etc. The Company took strategic steps
in mid and late 2005 to increase the margin in the both areas of the hospitality
divisions that will come into full use in early 2006 reversing the trend of
higher revenues and lower net income.
General & Administrative cost are down due to a large legal accrual in 2004.
With the legal accruals removed G&A expenses were up in 2005 due to legal
expenses. There was substantial activity within the current cases. With the
change in legal and stock based compensation expenses removed General &
Administrative were lower by $18,000. Other income increased due to the
settlement of a note receivable and the sale of the shopping center in South
Carolina.
Results of Operations
---------------------
The breakdown in revenues, net profit, and assets by segment is as follows:
Total
Entertainment Hospitality Other Company
(Restated) (Restated)
--------------- ------------ ------------- -------------
Gross revenues 6,908,000 4,327,000 96,000 11,331,000
Net income (loss) 3,207,000 (250,000) (1,920,000) 1,037,000
Total assets 24,913,000 1,604,000 (10,289,000) 16,228,000
The "Other" column consists of corporate overhead, other income and expenses,
income taxes, inter-company eliminations.
Comparison of 2005 to 2004
Note: All figures discussed below have been rounded off to the nearest thousand
and are approximate.
Net Income
----------
2005 2004 Change
(Restated)
--------------- --------------- ---------------
Total Net Income $ 1,037,000 $ (1,097,000) $ 2,134,000
Entertainment 3,207,000 2,312,000 895,000
Hospitality (250,000) (489,000) 239,000
We had a net income in 2005 totaling $1,037,000 compared to net loss in 2004 of
$1,097,000. The large net income is a result of two non-recurring transactions
the sum of which totals approximately $1,757,000. The first of those being the
settlement of a Note Receivable and the second the sale of a shopping center in
South Carolina. Net income was negatively affected by approximate legal fees of
$1,403,000.
Broken down by segments, net income from bingo operations (Littlefield
Entertainment) less the gain on the sale of the shopping center in South
Carolina was $2,400,000 in 2005 compared to $2,312,000 in 2004, an increase of
$88,000. The hospitality division had a net loss from operations of $250,000 in
2005, compared to a net loss of $489,000 in 2004, an improvement of 49%. The
increase was a result of increased revenues and reduced interest expense. This
trend began in late Q3 2004 and carried through to the end of 2005. Revenues
were up 27% over the same period in 2004.
Revenues
--------
2005 2004 Change % Change
--------------- -------------- -------------- ----------
Total Revenues $ 11,331,000 $ 9,928,000 $ 1,403,000 14%
Entertainment 6,908,000 6,484,000 424,000 7%
Texas 3,939,000 4,075,000 (136,000) (3%)
South Carolina 1,439,000 1,209,000 230,000 19%
Alabama 1,530,000 1,200,000 330,000 28%
Hospitality 4,327,000 3,409,000 918,000 27%
10
Revenues were up from the prior year, held back slightly by the Texas operations
in the Entertainment Division. Texas revenues are down slightly as a result of
an adjustment to rent contracts in markets where we are in heavy competition and
it is a strategic move to improve our long term position. This move coupled with
other strategic planning is expected to increase revenues in 2006 for the Texas
division. While the Alabama operations were hurt by increased competition in the
form of casinos on the Indian Reservations and electronic gaming machines at a
horse race track in the adjoining counties revenues improved in 2005. The
Alabama operations began their rebound in the latter part of 2004 and we
anticipate this trend to continue in the coming year. Alabama revenues were up
28% from the prior year. South Carolina revenues are up 19%, as a result of
targeted marketing and the additional income from the hall that that was opened
in 2004 that became stable in 2005. Hospitality's revenues were up 27% from the
prior year, a trend that begin late in 2004 and continued throughout the year.
We anticipate 2006 to continue to show improvement in the economy and continued
revenue growth in the Hospitality division.
Gross Margins
-------------
2005 2004 Change % Change
-------------- -------------- ------------- --------
Total Gross Margins $ 2,368,000 $ 2,109,000 $ 259,000 12%
Entertainment 2,509,000 2,506,000 3,000 .1%
Hospitality (221,000) (427,000) 206,000 48%
Gross Margin in 2005 was $2,368,000 or 21% of revenue, compared to gross margin
in 2004 of $2,109,000. This represents an increase in gross margin of $259,000.
This represents an increase in gross margin of 12%.
Broken down by segments, the Entertainment (bingo) division had gross margin in
2005 of $2,509,000 or 36% of total entertainment revenue compared to gross
margin in 2004 of $2,506,000 or 39% of revenue. This represents an increase in
gross margin of $3,000 or .1%. The Hospitality division had negative gross
margin in 2005 of $221,000 compared to negative gross margin in 2004 of
$427,000.
Gross margin as discussed above includes all direct and indirect expenses,
depreciation, and goodwill impairment.
General & Administrative Expenses
---------------------------------
Corporate overhead, also called general and administrative expense, was
$2,596,000 in 2005 compared to $2,920,000 in 2004, a decrease in overhead
expense of $324,000. The decrease is a result of a large legal settlement
accrual in 2004.
Other Income and Expenses
-------------------------
Interest and investment income was up 300% to $40,000 in 2005 from $10,000 in
2004. The increase is a result of the sale of some investments in a security
deposit account and largely from interest earned on the note receivable related
to the sale of the shopping center in South Carolina. Interest expense was down
11% in 2005 to $253,000 from $285,000 in 2004. We had accrued $1,200,000 for
legal settlements and $300,000 in post judgment interest on a separate case in
2004, in 2005 we accrued approximately $463,000 related to ongoing cases. We had
a gain on the sale of fixed assets in 2005 of $996,000 compared to a gain on the
sale of fixed assets of $3,000 in 2004. The gain on the sale of fixed assets in
2005 was the result of the sale of the shopping center in South Carolina.
Our income tax expense for 2005 was approximately $77,000 compared to $60,000 in
2004, all of which is related to state income taxes. The Company currently has a
net operating loss available for carryover on its federal income taxes of
approximately $6,200,000.
Liquidity and Capital Resources
-------------------------------
Cash flow from operations of $310,208 and cash provided by investing was
sufficient to fund all financing activities in 2005. At year end, net cash and
cash equivalents increased by approximately $92,000 compared to last year. 2004
included a $1,500,000 accrual for legal settlements. The Company has notes
payable coming due in the next twenty four months amounting to $483,000 in 2006
and $186,000 in 2007. Of these notes payable, there is only one balloon payment
of $106,000 to a related party, allowing for manageable debt repayments on a
monthly and quarterly basis. The related party debt, is fully expected to be
restructured.
11
Debt/Lease 12 months 24 Months 36 Months 48 Months 60 Months
Schedule 2006 2007 2008 2009 2010 Thereafter Totals
---------------- -------------- ------------- -------------- ------------- -------------- -------------- -------------
Related Parties $ 105,650 $ 105,650
Notes Payable $ 377,557 $ 185,755 $ 194,651 $ 206,286 $ 213,028 $ 1,651,211 $ 2,828,488
Capital Leases $ 65,668 $ 65,668
Operating Leases $ 1,553,843 $ 1,217,463 $ 952,968 $ 567,751 $ 412,021 $ 1,023,014 $ 5,727,060
---------------- -------------- ------------- -------------- ------------- -------------- -------------- -------------
Total
Obligations $ 2,102,718 $ 1,403,218 $ 1,147,619 $ 774,037 $ 625,049 $ 2,674,225 $ 8,726,866
---------------- -------------- ------------- -------------- ------------- -------------- -------------- -------------
We have reserved approximately $3,700,000 for punitive damages related to legal
judgments that were rendered against the Company, of this amount $3,237,000 was
for judgments rendered or accrued for prior to 2005. Of the $3,237,000,
$1,500,000 was accrued for in 2004 on a January 2005 judgment. In 2005 we
accrued approximately $463,000 of legal expense, approximately $353,000 related
to a settlement in January 2006 and approximately $110,000 related to an ongoing
case. All cases are on appeal or recently settled, if we lose our appeals we
plan to set up a payout arrangement with the plaintiff to pay off the amounts
due in installments.
Current assets totaled approximately $4,122,000 at December 31, 2005, leaving
the Company with negative working capital of approximately $1,504,000 and a
current ratio of .73 to 1. This is a decrease of the deficit from 2004 of
$2,262,000 which had current assets of $1,374,000, negative working capital of
approximately $3,766,000 and a current ratio of .27 to 1. However, a legal
reserve of $3,700,000 is included in the 2005 current liabilities. In 2004 the
legal reserve was $3,237,000. The legal cases are currently on appeal or
awaiting judgment in South Carolina and Florida. The reduction was largely a
result of cash received from the settlement of a note receivable and the
addition of a new note receivable from the sale of a capital asset. Net cash
flow from operations that approximated $310,000 in 2005 was sufficient to cover
all operating activities, which included approximately $950,000 in paid legal
expenses. In 2006, we plan to continue to use our cash generated from operations
to make leasehold improvements and renovations in our bingo operations. We also
plan to use advantageous combinations of bank financing, seller financing,
treasury stock, and cash on new bingo hall acquisitions when favorable terms can
be obtained. The Company is confident in its ability to structure a payout
arrangement in the legal cases should it exhaust all of its appeals. In Florida,
the Company has already secured a bond in the event it is unsuccessful on its
appeal(s).
Critical Accounting Policies
Statement of Financial Accounting Standards No. 149, Derivative Instruments and
Hedging Activities - amends SFAS 133 effective after June 30, 2003 for
"Financial accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities. The Company does not believe that the adoption of this pronouncement
will have a material effect on its financial statements.
Statement of Financial Accounting Standards No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity -
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
Effective for financial instruments entered into or modified after May 31, 2003
and otherwise effective at the beginning of the first interim period beginning
after June 15, 2003. The Company does not believe that the adoption of this
pronouncement will have a material effect on its financial statements.
12
Statement of Financial Accounting Standards No. 151, Inventory Costs - an
amendment to ARB No. 43, Ch 4, clarifies the accounting for abnormal amounts of
idle facility expense, freight, handling costs and wasted materials (spoilage),
requires items those items to be recognized as current-period charges regardless
of whether they meet the criterion of "so abnormal" and that allocation of fixed
production overheads to the costs of conversions be based on the normal capacity
of the production facilities effective November 2004. The Company does not
believe that the adoption of this pronouncement will have a material effect on
its financial statements.
Statement of Financial Accounting Standards No. 152, Accounting for Real Estate
Time-Sharing Transaction - an amendment to FASB No. 66 & 67 amends No. 66,
Accounting for Sales of Real Estate, to reference the financial accounting and
reporting guidance for real estate time-sharing transactions that is provided in
AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing
Transactions. It also amends FASB No. 67, Accounting for Costs and Initial
Rental Operations of Real Estate Projects, to state that the guidance for (a)
incidental operations and (b) costs incurred to sell real estate projects does
not apply to real estate time-sharing transactions. This is effective the fiscal
year beginning after June 15, 2005. The Company does not believe that the
adoption of this pronouncement will have a material effect on its financial
statements.
Statement of Financial Accounting Standards No. 153, Exchanges of Nonmonetary
Assets - an amendment to APB No. 29 amends Opinion 29 to eliminate the exception
for nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. The Company does not believe that the adoption of this
pronouncement will have a material effect on its financial statements.
Statement of Financial Accounting Standards No. 154, Accounting Changes and
Error Corrections - this statement replaces APB Opinion No. 20 Accounting
Changes and FASB Statement No. 3 Reporting Accounting Changes in Interim
Financial Statements and changes the requirements for the accounting for and
reporting of a change in accounting principle. This Statement applies to all
voluntary changes in accounting principle and to changes required by an
accounting pronouncement in the unusual instance that the pronouncement does not
include specific transition provisions. When a pronouncement includes specific
provisions, those provisions should be followed. The Company does not believe
that the adoption of this pronouncement will have a material effect on its
financial statements.
Statement of Financial Accounting Standards No. 155, Accounting for Certain
Hybrid Financial Instruments - this Statement amends FASB Statements No. 133,
Accounting for Derivative Instruments and Hedging Activities, and No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. This Statement permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation. It clarifies which interest-only strips and principal-only
strips are not subject to the requirements of Statement 133. It establishes a
requirement to evaluate interests in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation. It also
clarifies that concentrations of credit risk in the form of a subordination are
not embedded derivatives and amends Statement 140 to eliminate the prohibition
on a qualifying special-purpose entity from holding a derivative financial
instrument that pertains to a beneficial interest other than another derivative
financial instrument. The Company does not believe that the adoption of this
pronouncement will have a material effect on its financial statements.
Statement of Financial Accounting Standards No. 123 (R), Share Based Payments -
an amendment to SFAS 123 amends SFAS 123 to establish standards for the
accounting for transactions in which an entity exchanges its equity instruments
for goods and services. It also address transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair value
of the entity's equity instruments or that may be settled by the issuance of
those equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based
transactions. This Statement does not change the accounting guidance for
share-based payment transactions with parties other than employees provided in
Statement 123 as originally issued and 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. This statement is effective for
public entities that file as small business issuers as of the beginning of the
first interim or annual reporting period that begins after December 15, 2005.
The financial impact of adopting SFAS 123(R) can not be completely predicted;
however, it will likely have a material impact on the Company's financial
statements.
13
Supplementary Financial Information (Unaudited)
The following quarterly results have been derived from unaudited financial
statements that, in the opinion of management, reflect all adjustments necessary
for a fair presentation of such quarterly information. As noted in Note 2 to the
Consolidated Financial Statements, the Company restated its results for the year
ending December 31, 2005. The results of these restatements on previously
reported amounts in each of the four quarters for the year ended December 31,
2005 are reflected below:
FOR THE THREE MONTHS ENDED MARCH 31, 2005
Consolidated Statement of Operations Restated Adjustment Previously
Reported
Revenues $ 2,489,717 $ 0 $ 2,489,717
Gross Margin 640,164 0 640,164
Compensation Expense 19,750 19,750 0
Total General and Administrative 479,845 19,750 460,095
Operating Income 160,319 (19,750) 180,069
Net Income Before Taxes 122,837 (19,750) 142,587
Net Income 107,837 (19,750) 127,587
Net Comprehensive Income $ 108,482 $ (19,750) $ 128,232
Basic Earnings Per Share $ 0.013 $ (.002) $ 0.015
Diluted Earnings Per Share $ 0.013 $ (.002) $ 0.015
Consolidated Balance Sheet
Additional Paid in Capital $ 23,627,545 $ 19,750 $ 23,607,795
Accumulated Deficit (14,379,178) (19,750) (14,359,428)
Total Stockholder's Equity $ 7,134,011 $ 0 $ 7,134,011
FOR THE THREE MONTHS ENDED JUNE 30, 2005
Consolidated Statement of Operations Previously
Restated Adjustment Reported
Revenues $ 2,997,519 $ 0 $ 2,997,519
Gross Margin 560,216 0 560,216
Compensation Expense 47,000 47,000 0
Total General and Administrative 727,270 47,000 680,270
Operating Income (Loss) (167,054) (47,000) (120,054)
Net Income Before Taxes 434,299 (47,000) 481,299
Net Income 427,459 (47,000) 474,459
Net Comprehensive Income $ 427,425 $ (47,000) $ 474,425
Basic Earnings Per Share $ 0.050 $ (.005) $ 0.055
Diluted Earnings Per Share $ 0.049 $ (.005) $ 0.054
Consolidated Balance Sheet
Additional Paid in Capital $ 23,612,770 $ 66,750 $ 23,546,020
Accumulated Deficit (13,952,000) (66,750) (13,885,250)
Total Stockholder's Equity $ 7,651,280 $ 0 $ 7,651,280
14
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005
Consolidated Statement of Operations Previously
Restated Adjustment Reported
Revenues $ 2,573,619 $ 0 $ 2,573,619
Gross Margin 447,023 0 447,023
Operating Income 27,656 0 27,656
Net Income Before Taxes 1,037,439 0 1,037,439
Net Income 1,022,439 0 1,022,439
Net Comprehensive Income $ 1,024,850 $ 0 $ 1,024,850
Basic Earnings Per Share $ 0.012 $ 0 $ 0.012
Diluted Earnings Per Share $ 0.012 $ 0 $ 0.012
Weighted average shares outstanding - basic 8,625,225 35,870 8,589,355
Weighted average shares outstanding - 8,689,856 120,556 8,569,300
diluted
Consolidated Balance Sheet
Common Stock Outstanding Shares 8,689,355 100,000 8,589,355
Treasury Stock Shares 1,487,535 (100,000) 1,587,535
Additional Paid in Capital $ 23,531,770 $ (14,250) $ 23,546,020
Treasury Stock (1,892,707) 127,000 (2,019,707)
Stock Subscription Receivable (46,000) (46,000) 0
Accumulated Deficit (12,929,551) (66,750) (12,862,801)
Total Stockholder's Equity $ 8,676,140 $ 0 $ 8,676,140
FOR THE THREE MONTHS ENDED DECEMBER 31, 2005
Consolidated Statement of Operations Originally
Restated Adjustment Recorded
Revenues $ 3,270,411 $ 0 $ 3,270,411
Gross Margin 613,398 0 613,398
Operating Income 747,142 0 747,142
Net Income (Loss) Before Taxes (481,075) 0 (481,075)
Net Income (Loss) (520,764) 0 (520,764)
Net Comprehensive Income (Loss) $ (525,315) $ 0 $ (525,315)
Basic Earnings Per Share $ (0.060) $ 0.001 $ (0.061)
Diluted Earnings Per Share $ (0.060) $ 0.001 $ (0.061)
Weighted average shares outstanding - basic 8,689,355 100,000 8,589,355
Weighted average shares outstanding -
diluted 8,689,355 100,000 8,589,355
Consolidated Balance Sheet
Common Stock Outstanding Shares 8,689,355 100,000 8,589,355
Treasury Stock Shares 1,487,535 (100,000) 1,587,535
Additional Paid in Capital $ 23,531,770 $ (14,250) $ 23,546,020
Treasury Stock (1,892,707) 127,000 (2,019,707)
Stock Subscription Receivable (46,000) (46,000) 0
Accumulated Deficit (13,450,316) (66,750) (13,383,566)
Total Stockholder's Equity $ 8,150,824 $ 0 $ 8,150,824
15
Item 7 - Financial Statements
-----------------------------
The independent auditors' report, consolidated financial statements and notes
thereto included on the following pages are incorporated herein by reference.
Report of Sprouse & Anderson, L.L.P. F-2
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4-F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7-F-8
Notes to Consolidated Financial Statements F-9-F-27
Item 8 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
------------------------------------------------------------------------
None
Item 8A - Controls and Procedures
---------------------------------
Evaluation of Disclosure Controls
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 2006, the Company's management and
board of directors determined that it was necessary to restate the financial
results for the first quarter of 2006 and for the year 2005 because of errors in
accounting for share based compensation in the first quarter 2006, 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, and to
correct errors in our reported 2005 10K for stock option expenses related to a
modification to certain stock option agreements and to record a stock
subscription receivable in 2005. Because of the required amendment to our
financial statements made after the close of the second fiscal quarter 2006, our
Chief Executive Officer and Chief Financial Officer concluded that, as of
December 31, 2005, our disclosure controls and procedures were not effective due
to the fact that we had failed to correctly account for share based compensation
expense.
There are no changes in our internal control over financial reporting during the
fiscal quarter ended December 31, 2005, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting. 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.
Limitations on the Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our Disclosure
Controls or our internal controls over financial reporting ("Internal Controls")
will prevent all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, but not absolute, assurance
that the objectives of a control system are met. Further, any control system
reflects limitations on resources, and the benefits of a control system must be
considered relative to its costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within Littlefield
16
Corporation have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns can occur
because of simple error or mistake. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more people, or
by management override of a control. A design of a control system is also based
upon certain assumptions about potential future conditions; over time, controls
may become inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and may not be detected.
Conclusions
-----------
Our management, including the Chief Executive Officer and Chief Financial
Officer, believe that, with the changes described in the "Evaluation of
Disclosure Control" above, our disclosure controls and procedures are effective,
as of the date of filing this report on Form 10-KSB/A, 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 III
Item 9 - Directors and Executive Officers; Compliance With Section 16(a) of the
Exchange Act
-------------------------------------------------------------------------------
In response to this item, the information included in our proxy statement for
the annual meeting of stockholders held on May 17, 2006, which proxy statement
was filed with the Securities and Exchange Commission April 26, 2006, and is
incorporated herein by reference.
Item 10 - Executive Compensation
--------------------------------
In response to this item, the information included in our proxy statement for
the annual meeting of stockholders held on May 17, 2006, which proxy statement
was filed with the Securities and Exchange Commission April 26, 2006, and is
incorporated herein by reference.
Item 11 - Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------
In response to this item, the information included in our proxy statement for
the annual meeting of stockholders held on May 17, 2006, which proxy statement
was filed with the Securities and Exchange Commission April 26, 2006, and is
incorporated herein by reference.
Item 12 - Certain Relationships and Related Transactions
--------------------------------------------------------
In response to this item, the information included in our proxy statement for
the annual meeting of stockholders held on May 17, 2006, which proxy statement
was filed with the Securities and Exchange Commission April 26, 2006, and is
incorporated herein by reference.
17
Item 13 - Exhibits, Lists and Reports on Form 8-K
-------------------------------------------------
Exhibit Description
3.1 Certificate of Incorporation of the Company dated September 8,
1994, as amended October 17, 1994, and further amended July 31,
1997 and August 13, 1998, and September 22, 1999 (incorporated by
reference to Exhibit 3.1 of the Quarterly Report on Form 10-QSB
filed by the Company on November 15, 1999, for the quarter ended
September 30, 1999).
3.2 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 of the Quarterly Report on Form 10-QSB
filed by the Company on November 15, 1999, for the quarter ended
September 30, 1999).
10.1* Amended and Restated 1994 Stock Option Plan (incorporated by
reference to Exhibit 10.1 of the Annual Report on Form 10-KSB filed
by the Company on March 18, 1999, for the year ended December 31,
1998).
10.2* Amended and Restated 1995 Employee Stock Option Plan (incorporated
by reference to Exhibit 10.2 of the Annual Report on Form 10-KSB
filed by the Company on March 18, 1999, for the year ended December
31, 1998).
10.3* 1995 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.12 of the Annual Report on Form 10-KSB filed by the
Company for the year ended December 31, 1994).
10.4* Amended and Restated 1996 Employee Stock Option Plan (incorporated
by reference to Exhibit 10.4 of the Annual Report on Form 10-KSB
filed by the Company on March 18, 1999, for the year ended December
31, 1998).
10.5* Amended and Restated 1997 Stock Option Plan (incorporated by
reference to Exhibit 10.5 of the Quarterly Report on Form 10-QSB
filed by the Company on August 14, 1998 for the quarter ended June
30, 1998).
10.6* American Bingo 7 Gaming Corp. Stock Option Plan (incorporated by
reference to Exhibit 10.1 of the Quarterly Report on From 10-QSB
filed by the Company on August 16, 1999, for the quarter ended June
30, 1999).
10.7 Master Coin Machine Agreement dated November 9, 1998, by and among
the Company, Gold Strike, Inc., Mims & Dye Enterprises, LLC,
Michael W. Mims and Danny C. Dye (incorporated by reference to
Exhibit 10.20 of the Annual Report on Form 10-KSB filed by the
Company on March 18, 1999, for the year ended December 31, 1998).
10.8 Settlement Agreement dated January 27, 1997 with the State of
Florida (incorporated by reference to Exhibit 10.21 of the
Quarterly Report on Form 10-QSB filed by the Company on August 14,
1998 for the quarter ended June 30, 1998).
10.9* Employment Agreement effective as of April 1, 2002, with Jeffrey L.
Minch.
21.1 Subsidiaries of the Company
31.1 Certification Pursuant to Rules 13a-14(a)
32.1 Certification Pursuant to 18 U.S.C. 1350
* Denotes a management contract or compensatory plan or arrangement.
18
In response to this item, the information included in our proxy statement for
the annual meeting of stockholders held on May 17, 2006, which proxy statement
was filed with the Securities and Exchange Commission April 26, 2006, is
incorporated herein by reference.
Item 14 Principal Accountant Fees and Services
----------------------------------------------
Audit Fees
The aggregate fees billed to the Company by Sprouse & Anderson, L.L.P. for the
audit of Littlefield Corporation and Subsidiaries' annual financial statements
included in the 10KSB and for the review of the financial statements included in
its quarterly reports on Form 10-Q for the fiscal years ended December 31, 2005
and 2004 totaled $34,400 and $62,925, respectively.
Tax Fees
The aggregate fees billed to the Company by Sprouse & Anderson, L.L.P. for
services rendered to the Company during the fiscal years ended December 31, 2005
and 2004 for tax compliance, tax advice or tax planning was $19,050 and $15,000,
respectively.
It is the audit committee's policy to pre-approve all services provided by
Sprouse & Anderson, L.L.P. All services provided by Sprouse & Anderson, L.L.P.
during the years ended December 31, 2005 and 2004 were pre-approved by the audit
committee.
Reports on Form 8-K
January 11, 2005 - Outcome of Florida Lawsuit
January 28, 2005 - Q4 2004 Earnings Press Release
April 15, 2005 - Q1 2005 Earnings Press Release
November 14, 2005 - Q3 2005 Earnings Press Release
November 15, 2005 - Q3 2005 Earnings Press Release
19
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: August 31 2006,
LITTLEFIELD CORPORATION
(Registrant)
By: /s/ Jeffrey L. Minch
--------------------
Jeffrey L. Minch
President and CEO
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Jeffrey L. Minch
-------------------
Jeffrey L. Minch President and Chief Executive
Officer, Director August 31, 2006
/s/Carlton Williams
-------------------
Carlton Williams Chairman of the Board August 31, 2006
/s/Alfred Stanley
-----------------
Alfred Stanley Director August 31, 2006
/s/Michael Wilfley
------------------
Michael Wilfley Director August 31, 2006
20
LITTLEFIELD CORPORATION & SUBSIDIARIES
DECEMBER 31, 2005
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of December 31, 2005 F-3
Consolidated Statements of Operations for the
Years Ended December 31, 2005 and 2004 F-4-F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 2005 and 2004 F-6
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2005 and 2004 F-7-F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9-F-27
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Littlefield Corporation
We have audited the accompanying consolidated balance sheet of Littlefield
Corporation and Subsidiaries ("Company") as of December 31, 2005, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 2005 and 2004. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Littlefield
Corporation and Subsidiaries as of December 31, 2005, and the results of their
operations and their cash flows for the years ended December 31, 2005 and 2004,
in conformity with accounting principles generally accepted in the United States
of America.
As discussed in Note 2 to the consolidated financial statements, the
consolidated financial statements have been restated.
SPROUSE & ANDERSON, L.L.P.
Austin, Texas
March 2, 2006, except Note 2, as to which the date is August 14, 2006
F-2
Littlefield Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2005
(Restated)
ASSETS
------
Current Assets:
Cash and cash equivalents $ 618,972
Accounts receivable, net of allowance for doubtful accounts of $79,455 1,192,022
Equity securities, available for sale 3,130
Other current assets 205,367
Note Receivable 1,184,214
Restricted Cash 918,290
-----------
Total Current Assets $ 4,121,995
Property and Equipment - at cost, net of accumulated depreciation and amortization $ 6,346,847
-----------
Other Assets:
Goodwill 4,905,111
Intangible assets, net 652,662
Other non-current assets 201,076
-------
Total Other Assets $ 5,758,849
TOTAL ASSETS $16,227,691
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Obligations under capital lease $ 65,668
Long term debt, current portion 377,557
Long term debt-related party, current portion 105,650
Trade accounts payable 425,665
Reserve for settlements 3,700,000
Accrued expenses 506,791
Other current liabilities-related party 444,605
-------
Total Current Liabilities $ 5,625,936
-----------
Long-term Liabilities:
Long term debt, net of current portion 2,450,931
---------
Total Long-term Liabilities $ 2,450,931
Total Liabilities $ 8,076,867
-----------
Stockholders' Equity:
Common stock, $.001 par value, (authorized 20,000,000 shares, issued 10,176,890
shares, outstanding 8,689,355 shares) 10,177
Additional paid-in-capital 23,531,770
Treasury stock - 1,487,535 shares, at cost (1,892,707)
Accumulated other comprehensive income (2,100)
Stock Subscription Receivable (46,000)
Accumulated deficit (13,450,316)
-----------
Total Stockholders' Equity $ 8,150,824
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $16,227,691
===========
See notes to consolidated financial statements
F-3
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
2005
(Restated) 2004
--------------- -------------
REVENUES:
Entertainment $ 6,908,360 $ 6,484,397
Hospitality 4,326,891 3,409,328
Other 96,017 33,972
-------------- -------------
TOTAL REVENUES 11,331,268 9,927,697
-------------- -------------
DIRECT COSTS AND EXPENSES:
Direct salaries and other compensation 2,600,475 2,390,147
Rent and utilities 2,301,728 2,163,388
Other direct operating costs 3,207,902 2,388,390
Depreciation and amortization 787,685 821,077
License expense 65,075 55,318
-------------- -------------
TOTAL COSTS AND EXPENSES 8,962,865 7,818,320
-------------- -------------
GROSS MARGIN 2,368,403 2,109,377
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and other compensation 542,890 533,144
Legal and accounting fees 1,050,549 376,667
Reserve for legal settlements 462,500 1,500,000
Depreciation and amortization 93,505 106,806
Compensation Expense 66,750 0
Other general and administrative 379,645 403,333
-------------- -------------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 2,595,839 2,919,950
GAIN ON DISPOSITION OF FIXED ASSETS 995,838 3,154
-------------- -------------
OPERATING INCOME (LOSS) 768,402 (807,419)
OTHER INCOME AND EXPENSES:
Interest and investment income 39,560 9,713
Interest expense (253,360) (284,571)
Gain/(Loss) on sale of investment assets 14,184 45,057
Other Income 544,429 ---
-------------- -------------
TOTAL OTHER INCOME AND EXPENSES 344,813 (229,801)
INCOME (LOSS) BEFORE INCOME TAXES 1,113,215 (1,037,220)
PROVISION FOR INCOME TAXES 76,529 60,000
-------------- -------------
NET INCOME (LOSS) 1,036,686 (1,097,220)
Unrealized Gain (Loss) on Marketable Securities (1,381) (37,148)
-------------- -------------
OTHER COMPREHENSIVE INCOME (LOSS), Net of Tax of $0 and $0 (1,381) (37,148)
-------------- -------------
NET COMPREHENSIVE INCOME (LOSS) $ 1,035,305 $ (1,134,368)
============== =============
See notes to consolidated financial statements
F-4
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Years Ended December 31,
2005 2004
(Restated) ------------
-----------
EARNINGS (LOSS) PER SHARE (NET INCOME):
Basic earnings (loss) per share $ .12 $ (.13)
=========== ============
Diluted earnings (loss) per share $ .12 $ (.13)
=========== ============
Weighted average shares outstanding - basic 8,569,953 8,378,954
Weighted average shares outstanding - diluted 8,645,628 8,474,785
See notes to consolidated financial statements
F-5
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Additional Other
-Common Stock- Paid-in Treasury Subscriptions Accumulated Comprehensive
Description Shares Value Capital Stock Receivable Deficit Income Total
------------------------ ---------- -------- ------------ ------------- ------------- -------------- -------------- -----------
Balance at December 31,
2003 8,307,373 $10,177 $23,743,847 $(2,384,945) $(6,631) $(13,389,782) $36,429 $8,009,095
========== ======== ============ ============= ============= ============== ============== ===========
Issuance of treasury
stock under deferred
compensation plan 25,000 (14,750) 32,000 17,250
Issuance of treasury
stock pursuant to
employee stock purchase
plan and employee 401K
deferrals 46,581 (14,071) 59,455 6,631 52,015
Comprehensive income for
the year ended 12/31/04 (37,148) (37,148)
Net income for the year
ended 12/31/04 (1,097,220) (1,097,220)
---------- -------- ------------ ------------- ------------- -------------- -------------- -----------
Balance at December 31,
2004 8,378,954 $10,177 $23,715,026 $(2,293,490) $0 $(14,487,002) $(719) $6,943,992
========== ======== ============ ============= ============= ============== ============== ===========
Issuance of treasury
stock under deferred
compensation plan 40,000 (26,300) 51,550 25,250
Compensation expense
related to stock option
modifications 66,750 66,750
Issuance of treasury
stock pursuant to
employee stock purchase
plan and employee 401K
deferrals 45,401 (40,225) 60,002 19,777
Options Excercised by
employees 225,000 (183,481) 289,231 (46,000) 59,750
Comprehensive income for
the year ended 12/31/05 (1,381) (1,381)
Net income for the year
ended 12/31/05 1,036,686 1,036,686
--------- ------- ---------- ------------ ------------- ------------- -------------- -----------
Balance at December 31, 8,689,355 $10,177 $23,531,770 ($ 1,892,707) $(46,000) ($ 13,450,316) $(2,100) $8,150,824
2005 ========== ======== ============ ============= ============= ============== ============== ===========
Restated
See notes to consolidated financial statements
F-6
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2005 2004
----------- -----------
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,036,686 $(1,097,220)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation, amortization, and goodwill impairment 881,189 927,883
Bad debt allowance and write-offs 79,455 18,405
Stock based compensation expense 66,750 0
(Gain)/loss on sales of investment assets (9,312) (45,057)
(Gain) on disposal of property and equipment (995,838) (3,154)
Increase (decrease) in cash flows as a result of changes in asset and
liability account balances:
Accounts receivable (640,743) 32,168
Prepaid expenses and other assets (757,256) (15,900)
Trade accounts payable 133,758 (95,036)
Accrued expenses and other liabilities 515,519 1,483,511
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 310,208 1,205,600
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities 43,946 521,451
Purchase of property and equipment (288,573) (364,802)
Purchase of goodwill/intangibles (296,083) (39,983)
Proceeds from sale of property and equipment 631,528 2,875
Proceeds from repayment of note receivable 860,786 --
----------- -----------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES 951,604 119,541
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable and capital leases (1,229,693) (1,089,259)
Proceeds from options exercised 59,750 --
Collections of subscribed receivables -- 6,631
Purchase of Treasury Stock -- (790)
----------- -----------
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES (1,169,943) (1,083,418)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 91,869 241,723
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 527,103 285,380
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 618,972 $ 527,103
=========== ===========
See notes to consolidated financial statements
F-7
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2005 2004
--------- --------
(Restated)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments:
Interest $ 243,360 $288,553
========= ========
Income taxes $ 64,878 $ 56,685
========= ========
Non-cash transactions:
Acquisition of property and equipment in exchange for notes payable $ -0- $ 94,155
========= ========
Acquisition of intangibles in exchange for notes payable $ 350,000 $224,062
========= ========
Acquisition of equipment under notes payable $ 17,850 $ -0-
========= ========
Issuance of treasury stock under deferred compensation plan $ 25,250 $ 32,000
========= ========
Issuance of treasury stock under employee stock purchase plan $ 19,777 $ -0-
========= ========
Issuance of treasury stock for stock subscription receivable $ 46,000 $ -0-
========= ========
See notes to consolidated financial statements
F-8
Littlefield Corporation - Notes to Consolidated Financial Statements
December 31, 2005
NOTE 1 - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Littlefield Corporation actively participates in the U.S. charitable bingo
market, and the event planning/hospitality business. The Company's corporate
headquarters is located in Austin, Texas, and the Company operates primarily
through wholly owned subsidiaries in Texas, South Carolina and Alabama. The
Company generates its revenues from bingo centers in all three states and the
event planning/hospitality market in Texas.
Principles of Consolidation:
----------------------------
The accompanying consolidated financial statements include the accounts of
Littlefield Corporation and its subsidiaries (herein collectively referred to as
the "Company"). All significant intercompany accounts and transactions have been
eliminated in the consolidation.
Reclassifications:
------------------
Certain items in the financial statements have been reclassified to maintain
consistency and comparability for all periods presented herein. In 2004, the
Company classified reserve for legal settlements and gain or loss on the sale of
fixed assets as other income (expense). For 2005, reserve for legal settlement
has been reclassified and shown as part of general and administrative expenses,
and the gain or loss on sale of fixed assets was reclassified and shown as part
of operating income (loss).
Management Estimates:
---------------------
The preparation of financial statements in conformity with U.S. 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, as well as the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents:
--------------------------
Cash equivalents consist of funds invested in money market accounts and in
investments with a maturity of ninety days or less when purchased.
Accounts Receivable:
--------------------
Accounts receivable consist of amounts due from charitable organizations that
conduct bingo events at the Company's various bingo centers, and are generally
payable within one month of the event. Receivables also include rent due from
operators of concessions located within bingo centers. Hospitality receivables
are due from businesses, individuals and non-profit organizations and are
generally due immediately after the event. Accounts receivable are not secured.
Management provides an allowance for doubtful accounts, which reflects its
estimate of the uncollectible receivables. In the event of non-performance, the
maximum exposure to the Company is the recorded amount of receivables, net of
allowance for doubtful accounts, at the balance sheet date.
Notes Receivable:
-----------------
In May 2001, the Company entered into a note receivable with David and Harriet
Heep Shaffer. The principal amount of the note was $845,000 paying 16% interest
with a maturity date of May 1, 2004. The Company holds a first lien deed of
trust on approximately 1,154 acres located in Travis and Hayes counties in
Texas.
F-9
In 2002, Heep Shaffer filed for bankruptcy protection. At that time, the Company
had accrued for $222,603 of interest. In accordance with GAAP, at the time of
the bankruptcy the Company discontinued accruing interest, though interest is
still due to the Company. Since May 1, 2004, interest has continued to accrue on
the unpaid principal and interest at an 18% interest rate. The Company believed
there were no potential uncertainties related to the collection due to the
filing of the bankruptcy because of our position as a secured creditor and the
value of the underlying collateral. The bankruptcy court recognized the
Company's position and acknowledged the Company's first lien. In the bankruptcy
filings the land held as collateral was valued in excess of $10,000,000. In
2005, the Heep Note Receivable was collected in full, to include principal,
accrued and un-accrued interest income and legal fees.
This note receivable was pledged as collateral on a $540,000 note with Plains
Capital Bank. The pledge of this receivable to Plains Capital Bank was paid in
full during 2005.
In September 2005, the Company entered into an agreement to sell the South
Carolina shopping center, and accepted a Note Receivable from the purchaser in
the amount of $1,400,000. This was a 5 year note receivable with a 10 year
amortization, at 7.5% interest payable in monthly installments with a one time
$100,000 principal payment due on the first anniversary of the note. This note
was settled in full with a discount of $200,000 in February 2006, and as such is
shown on the consolidated balance sheet at its net realizable value at December
31, 2005.
Property and Equipment:
-----------------------
The cost of equipment, furniture and fixtures is depreciated over the estimated
useful lives of the assets ranging from two to seven years, using the
straight-line method. Leasehold improvements are amortized over the lesser of
the term of the lease or the estimated useful lives. The buildings are amortized
over forty years, which approximates their estimated useful lives. Building
improvements are amortized over their estimated useful lives ranging from seven
to forty years. Upon sale, retirement or abandonment of assets, the related cost
and accumulated depreciation are eliminated from the accounts and gains or
losses are reflected in income. Repairs and maintenance expenses, which do not
extend asset lives, are expensed as incurred.
Investments:
------------
The Company accounts for its investments under Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The Company's securities are considered available for sale and are
valued at fair value for financial statement purposes. Fair value is based on
quoted market prices. The Company uses the average cost method for determining
the cost basis on realized gains and losses of investments. The unrealized
holding gain or loss represents the net change in the fair value of those
securities and is shown in other comprehensive income.
Advertising:
------------
Advertising costs are expensed when incurred or the first time the advertising
takes place. During 2005, the Company had advertising expenses of approximately
$92,000 compared to approximately $126,000 in 2004. At December 31, 2005, the
Company had prepaid advertising costs of approximately $2,800.
Goodwill and Intangible Assets:
-------------------------------
Intangible assets, which primarily consist of goodwill, bingo licenses and
non-compete covenants resulting from the acquisition of bingo entities or
hospitality companies, are periodically reviewed by management to evaluate the
future economic benefits or potential impairments, which may affect their
recorded values. Goodwill, which represents the excess of the cost of assets
acquired over the fair market value of those tangible assets on the date of
their acquisition. Under Statement on Financial Accounting Standard 142,
"Goodwill and Other Intangible Assets", goodwill acquired in a business
combination for which the acquisition date is after June 30, 2001, shall not be
amortized, but shall be reviewed for impairment in value.
F-10
Since 2002, goodwill and intangible assets with indefinite lives are no longer
amortized. These indefinite live assets only pertain to the State of Texas. The
Company has one class of asset that is classified as indefinite and not subject
to periodic amortization. This class of asset is known as a "Grandfathered
License." In discussing these "Grandfathered Licenses", a distinction should be
made as to the types of bingo licenses the Company owns. There are two classes
of commercial lessor licenses in Texas, a "Grandfathered" and a "Tier." The
"Grandfathered" license refers to any license that was in existence prior to
1989 in which a non renewal has not occurred. A "Grandfathered" license allows
the operator to have up to six (6) charities in a hall and charge up to $600 per
session in rent. These licenses are regulated by the Texas Lottery Commission
and must be renewed each year. There is an annual fee associated with the
renewal of these licenses, which is expensed throughout the year. There is a
limited number of these licenses available and they are traded between
individuals and organizations. They are a traded commodity, in that they have a
cash value which is determined by the market place. These licenses can only be
revoked or canceled by failing to renew them by the renewal date or for illegal
activity.
A Tier license is deemed by the company to have no value as an asset and are not
carried as an asset on the Company's books. A "Tier" commercial lessor license
is any license issued after 1989 or any license issued prior to 1989 in which a
non renewal occurred. A "Tier" license allows the operator to have one (1)
charity in a hall and charge up to $600 per session in rent. These licenses are
issued, renewed, and applied for through the Texas Lottery Commission. The only
cost associated with obtaining and keeping this type of license is an annual
renewal fee, which is expensed throughout the year. These licenses are not sold
on a negotiated basis, at this time. There is currently a moratorium on this
license for new operators through December 2005.
In South Carolina there are promoter and solicitor licenses with set fees that
are renewed each year and expensed during the year. In Alabama there is a
business license which is based upon the gross amount of rents, these too are
renewed annually and expensed during the year. These licenses are not recorded
as assets and therefore have no related depreciation.
Non-compete covenants are amortized over the periods of the stated benefits,
ranging from one to five years, and are monitored for contractual compliance. If
the projected undiscounted future cash flows related to the intangible assets
are less than the recorded value, the intangible asset is written down to fair
value.
Revenue Recognition:
--------------------
The Company generates revenues from the following sources:
(i) Bingo:
Bingo rents, paper sales and head tax payments are received
from charitable organizations through various sub-lease
agreements of the Company's bingo centers. Revenues are
determined by customer attendance, spending and prize payouts,
profit splits, as well as state regulations, which may dictate
the number of bingo sessions a charity can conduct and rent
limits that can be paid to a commercial lessor, such as the
Company. Revenues are accrued and accounted for in the month
that they are due. Revenues that are generated in undefined
amounts, such as customer attendance, are recognized in the
month they are earned.
(ii) Catering and Party Rental:
Revenue is also earned from the Hospitality division which
charges fees for catering, staffing, bar service, event
coordination, and party event and tent rentals. Revenues are
accrued and accounted for in the month in which the services
are performed.
(iii) Other:
Other revenues are earned concessions, vending machines, bingo
supplies, and other sources. Other revenues are recognized in
the month they are earned.
F-11
Income Taxes:
-------------
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the tax basis and
financial reporting carrying amounts of assets and liabilities. The Company
periodically evaluates its deferred tax assets and adjusts any related valuation
allowance based on the estimate of the amount of such deferred tax assets which
the Company does not believe will meet the "more-likely-than-not" recognition
criteria.
Per Share Data:
---------------
Basic earnings (loss) per share of common stock is calculated by dividing income
(loss) from continuing operations by the weighted average number of common
shares actually outstanding during each period. Diluted earnings (loss) per
share of common stock is calculated by dividing net income (loss) by the fully
diluted weighted average number of common shares outstanding during each period,
which includes dilutive stock options and convertible shares.
Stock Based Compensation:
-------------------------
The Company measures compensation cost for its stock based compensation plans
under the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees". The difference, if any, between the
fair value of the stock on the date of grant over the exercise price for the
stock is accrued over the related vesting period. SFAS No. 123, "Accounting for
Stock-Based Compensation", ("SFAS 123") requires companies that continue to use
APB 25 to account for its stock-based compensation plan to make proforma
disclosures of net income (loss) and earnings (loss) per share as if SFAS No.
123 had been applied. Statement of Financial Accounting Standards No. 148
"Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment
of FASB Statement No. 123" provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this statement amends the disclosure
requirements of Statement No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results.
The options granted have exercise prices which approximate fair value and
accordingly, no compensation cost has been recognized for the compensatory stock
options in the consolidated financial statements. Had compensation cost for the
Company's stock options been determined consistent with FASB Statement No. 123,
"Accounting for Stock Based Compensation", the Company's net income (loss) and
net income (loss) per share would have been decreased (increased) to the
pro-forma amounts indicated below:
2005 2004
---- ----
(Restated)
-----------
Net income (loss) As reported $ 1,036,686 $(1,097,220)
Proforma $ 840,719 $(1,193,478)
Basic earnings (loss) per share As reported $.12 $(.13)
Proforma $.10 $(.14)
Diluted earnings (loss) per share As reported $.12 $(.13)
Proforma $.10 $(.14)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model.
The following assumptions were for grants in 2005; dividend yield of 0%,
expected volatility of 120%, risk free interest rates of 4.5% and an expected
life of approximately 10 years. The following assumptions were for grants in
2004; dividend yield of 0%, expected volatility of 120%, risk free interest
rates of 5.5%, and an expected life of approximately 10 years.
F-12
Comprehensive Income:
---------------------
The Company has other comprehensive income related to unrealized gains and
losses on available for sale securities.
Critical Accounting Policies
----------------------------
Statement of Financial Accounting Standards No. 149, Derivative Instruments and
Hedging Activities - amends SFAS 133 effective after June 30, 2003 for
"Financial accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities. The Company does not believe that the adoption of this pronouncement
will have a material effect on its financial statements.
Statement of Financial Accounting Standards No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity -
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
Effective for financial instruments entered into or modified after May 31, 2003
and otherwise effective at the beginning of the first interim period beginning
after June 15, 2003. The Company does not believe that the adoption of this
pronouncement will have a material effect on its financial statements.
Statement of Financial Accounting Standards No. 151, Inventory Costs - an
amendment to ARB No. 43, Ch 4, clarifies the accounting for abnormal amounts of
idle facility expense, freight, handling costs and wasted materials (spoilage),
requires items those items to be recognized as current-period charges regardless
of whether they meet the criterion of "so abnormal" and that allocation of fixed
production overheads to the costs of conversions be based on the normal capacity
of the production facilities effective November 2004. The Company does not
believe that the adoption of this pronouncement will have a material effect on
its financial statements.
Statement of Financial Accounting Standards No. 152, Accounting for Real Estate
Time-Sharing Transaction - an amendment to FASB No. 66 & 67 amends No. 66,
Accounting for Sales of Real Estate, to reference the financial accounting and
reporting guidance for real estate time-sharing transactions that is provided in
AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing
Transactions. It also amends FASB No. 67, Accounting for Costs and Initial
Rental Operations of Real Estate Projects, to state that the guidance for (a)
incidental operations and (b) costs incurred to sell real estate projects does
not apply to real estate time-sharing transactions. This is effective the fiscal
year beginning after June 15, 2005. The Company does not believe that the
adoption of this pronouncement will have a material effect on its financial
statements.
Statement of Financial Accounting Standards No. 153, Exchanges of Nonmonetary
Assets - an amendment to APB No. 29 amends Opinion 29 to eliminate the exception
for nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. The Company does not believe that the adoption of this
pronouncement will have a material effect on its financial statements.
Statement of Financial Accounting Standards No. 154, Accounting Changes and
Error Corrections - this statement replaces APB Opinion No. 20 Accounting
Changes and FASB Statement No. 3 Reporting Accounting Changes in Interim
Financial Statements and changes the requirements for the accounting for and
reporting of a change in accounting principle. This Statement applies to all
voluntary changes in accounting principle and to changes required by an
accounting pronouncement in the unusual instance that the pronouncement does not
include specific transition provisions. When a pronouncement includes specific
provisions, those provisions should be followed. The Company does not believe
that the adoption of this pronouncement will have a material effect on its
financial statements.
Statement of Financial Accounting Standards No. 155, Accounting for Certain
Hybrid Financial Instruments - this Statement amends FASB Statements No. 133,
Accounting for Derivative Instruments and Hedging Activities, and No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. This Statement permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation. It clarifies which interest-only strips and principal-only
strips are not subject to the requirements of Statement 133. It establishes a
requirement to evaluate interests in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation. It also
clarifies that concentrations of credit risk in the form of a subordination are
not embedded derivatives and amends Statement 140 to eliminate the prohibition
on a qualifying special-purpose entity from holding a derivative financial
instrument that pertains to a beneficial interest other than another derivative
financial instrument. The Company does not believe that the adoption of this
pronouncement will have a material effect on its financial statements.
F-13
Statement of Financial Accounting Standards No. 123 (R), Share Based Payments -
an amendment to SFAS 123 amends SFAS 123 to establish standards for the
accounting for transactions in which an entity exchanges its equity instruments
for goods and services. It also address transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair value
of the entity's equity instruments or that may be settled by the issuance of
those equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based
transactions. This Statement does not change the accounting guidance for
share-based payment transactions with parties other than employees provided in
Statement 123 as originally issued and 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. This statement is effective for
public entities that file as small business issuers as of the beginning of the
first interim or annual reporting period that begins after December 15, 2005.
The financial impact of adopting SFAS 123(R) can not be completely predicted;
however, it will likely have a material impact on the Company's financial
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 and Forms 10-QSB for quarters ending March 31, 2005, June 30, 2005
and September 30, 2005 to correct our reported stock options expenses. This
change was required to reflect modifications made to extend the termination
dates of stock option agreements for four non-executive employees and to record
a stock subscription receivable in 2005. 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 2005 10KSB.
FOR THE YEAR ENDED DECEMBER 31,
Consolidated Statement of Operations 2005 2005
Previously
Restated Reported
----------- -----------
Compensation Expense $ 66,750 $ 0
Total General and Administrative 2,595,839 2,529,089
Operating Income 768,402 835,152
Net Income Before Taxes 1,113,215 1,179,965
Net Income 1,036,686 1,103,436
Net Comprehensive Income $1,035,305 $1,102,055
Basic Earnings Per Share $ 0.12 $ 0.13
Diluted Earnings Per Share $ 0.12 $ 0.13
Weighted Average Shares Outstanding - Basic 8,569,953 8,535,706
Weighted Average Shares Outstanding - Diluted 8,645,628 8,587,634
F-14
FOR THE YEAR ENDED DECEMBER 31,
Consolidated Balance Sheet 2005 2005
Previously
Restated Reported
---------- ------------
Common Stock Outstanding Shares 8,689,355 8,589,355
Treasury Stock Shares 1,487,535 1,587,535
Additional Paid in Capital $23,531,770 $ 23,546,020
Treasury Stock (1,892,707) (2,019,707)
Stock Subscription Receivable (46,000) 0
Accumulated Deficit (13,450,316) (13,383,566)
Total Stockholder's Equity $8,150,824 $ 8,150,824
The restatement also resulted in changes to the Consolidated Statements of
Stockholders' Equity and Cash Flows in addition to Notes 10, 11, 12, 13 and 16.
NOTE 3 - MATERIAL ACQUISITIONS, OPENINGS, CLOSINGS AND REORGANIZATIONS
2005
In March 2005, the Company through a wholly owned subsidiary Conway Bingo, Inc
leased a facility in Conway, SC and opened a "C" hall doing business as Mill
Pond Bingo.
In April 2005, the Company through it's wholly owned subsidiary Aiken Bingo
Inc., leased a facility in Aiken, SC and opened a "C" hall doing business as
Tally Ho! Bingo.
In September 2005, Columbia One, Inc. a wholly owned subsidiary of the Company
sold a shopping center located in Columbia, SC which originally was the Company
Headquarters. The Company had two bingo halls located in this shopping Center,
American Bingo I and II, one a "B" bingo hall and the other a "C" bingo hall,
both of which were closed. In addition the Company signed a non-compete
agreement pulling the Company out of the Columbia, SC market.
In conjunction with the sale of the bingo hall in Columbia, SC the Company
assumed the lease on Galley Hall Bingo in Charleston, SC which was operated by
the purchaser of the shopping center. Galley Hall Bingo operates as a "C" bingo
hall.
In October 2005, the company through a wholly owned subsidiary San Angelo
Charitable Bingo Inc. purchased the Strike It Rich Bingo Hall in San Angelo,
Texas. The company also through a wholly owned subsidiary SA Charitable Bingo
RE, Inc. leased a facility in San Angelo, Texas.
2004
In April, the Company acquired Bingo Barn in Midland for $400,000. This included
a sale of real estate in the amount of $150,000, which was executed with a down
payment of $30,000 cash and a note in the amount of $120,000 and a bingo
license, all equipment, inventory and supplies associated with the bingo hall
for $70,000 cash and a note in the amount of $180,000. The Bingo Barn purchase
allowed the company to reorganize and optimize our operations in the
Midland/Odessa market. The purchase gave us the only night time bingo hall in
the city, allowed us to market three halls together, one in Midland and two in
Odessa, and kept the competition from entering the market place.
In South Carolina, the Company opened Coveralls Bingo in Walterboro and a
temporary hall in Charleston called Meeting Place. Meeting Place closed in
December 2004. The Company began the process in 2004 to open "C" bingo halls in
Conway and Aiken. The Conway and Aiken locations will open in early 2005.
As part of the acquisition of Word of Mouth Catering and Premiere Party Rental,
which took place in 2001, the Company entered into three employment agreements
with the principles of those businesses. In 2003, one of those employment
agreements was amicably terminated under terms agreeable to both parties. That
employee is now an independent contractor who acts as a consultant to the
Company on an "as needed" basis. In 2004, the employment agreement with the
remaining two employees ended as per the original agreements, one of those
employees has left the company, and the other continues his employment with the
Company on an at-will basis. As of December 31, 2004, the remaining salary
expense associated with the remaining two employment agreements is approximately
$0.
F-15
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2005 consists of the following:
Land $ 764,053
Buildings 3,207,889
Building and leasehold improvements 3,858,898
Bingo, and rental equipment 1,757,302
Equipment, furniture and fixtures 2,324,917
Automobiles 356,659
------------
12,269,718
Less: Accumulated depreciation and amortization (5,922,871)
------------
Property and equipment, net $ 6,346,847
============
Depreciation and amortization expense charged to operations for the years ended
December 31, 2005 and 2004 was $881,190 and $927,883 respectively.
NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill at December 31, 2005 is as follows:
Gross
Carrying Accumulated
Amount Amortization Total
---------- ------------ ----------
Goodwill $6,704,375 $(1,799,264) $4,905,111
========== ============ ==========
Entertainment Hospitality
------------- -----------
Balance at December 31, 2004 $ 4,032,723 $ 371,384 $4,404,107
Goodwill acquired during the year 535,000 -0- 535,000
Impairment losses -0- -0- -0-
Goodwill disposed during the year (33,996) -0- (33,996)
------------- ----------- ----------
Balance at December 31, 2005 $ 4,533,727 $ 371,384 $4,905,111
============= ============ ==========
Intangible assets at December 31, 2005 consists of the following:
Gross
Carrying Accumulated
Amount Amortization Total
--------- ------------ ----------
Intangible Assets with Indefinite Lives:
Bingo licenses $589,719 $ (51,974) $ 537,745
Intangible Assets with Finite Lives:
Covenants not to compete $297,500 $ (182,583) $ 114,917
---------
Intangible Assets, Net of Accumulated Amortization $ 652,662
=========
F-16
During the year ended December 31, 2005, the Company acquired goodwill in the
amount of $535,000 associated with the acquisition of the Strike It Rich Bingo
Hall in San Angelo, Texas. In addition the Company also acquired bingo licenses
with indefinite lives for $50,000 and a covenant not to compete in the amount of
$60,000. During the year the Company also disposed of goodwill and a covenant
not to compete associated with the sale of the South Carolina shopping center.
Future amortization on intangible assets with finite lives is as follows:
2006 $27,500
2007 27,500
2008 27,500
2009 15,417
2010 10,000
Thereafter 7,000
--------
Total $114,917
========
NOTE 6 - WRITE-OFFS AND CHARGES
In accordance with Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"), the Company recognizes
impairment losses when facts and circumstances indicate that the carrying amount
of an asset may not be recoverable. In such cases, an impairment loss is
recognized and measured as the amount by which the carrying value of the asset
exceeds the fair value of the asset.
For the years ended December 31, 2005 and 2004, the Company evaluated the
carrying value of goodwill for each reporting unit of the company and determined
that no impairment of goodwill was necessary.
NOTE 7 - LONG-TERM DEBT
Long-term debt at December 31, 2005 consist of the following:
Mortgage note payable to a bank, due in quarterly installments of
approximately $27,244 including interest at prime plus 1%, maturing October
2019, secured by real estate $ 912,983
Mortgage note payable to a third party, due in monthly installments of $8,563, including
interest at 9% maturing August 2006, secured by a deed of trust on the real estate 58,181
Mortgage note payable to a bank, due in monthly installments of $4,394, including interest
at the prime rate, maturing August 2012, secured by a deed of trust on the real estate 591,087
Mortgage note payable to a third party, due in monthly installments of $5,578, including
interest at 8% maturing July 2010, secured by a second lien on the real estate 517,455
Installment note payable to a third party, due in monthly installments of $13,170, including
interest at 7%, maturing August 2006, secured by bingo hall business 90,276
Installment note payable to a third party, due in monthly installments of
$2,279, including interest at 5%, maturing March 2012, secured by real
estate 144,853
Installment note payable to a third party, due in monthly installments of
$4,600, including interest at 6%, maturing September 2011, secured by stock 341,409
Installment note payable to a third party, due in monthly installments of $452,
including interest at 9.9%, maturing January 2009, secured by vehicle. 17,851
F-17
Installment note payable to a third party, due in monthly installments of
$1,519, including interest at 5%, maturing March 2012, secured by bingo hall
business 96,569
Installment note payable to a third party, due in monthly installments of
$490, including interest at 13.75%, maturing April 2007. 7,123
Installment note payable to a third party, due in monthly installments of
$222, including interest at 9.9%, maturing April 2006. 1,072
Installment note payable to a third party, due in monthly installments of $527, including
interest at 5.9%, maturing March 2007, secured by an automobile 6,560
Installment note payable to a third party, due in monthly installments of $4,047, including
interest at 8% maturing December 2006, unsecured 43,069
---------
2,828,488
Less current maturities (377,557)
----------
Long-term debt, net of current portion $2,450,931
==========
Long-term debt related party at December 31, 2005 consists of the following:
Installment note payable to a related party, due in monthly interest only
installments of $594 at 6.75%, with a balloon payment on July 2006 105,650
---------
105,650
Less current maturities (105,650)
---------
Long-term debt, related party, net of current portion $ 0
=========
Principal payments on notes payable and long-term debt for each of the next five
fiscal years and thereafter are as follows:
Years Ending December 31,
-------------------------
2006 $ 483,207
2007 185,755
2008 194,651
2009 206,286
2010 213,028
Thereafter 1,651,211
---------
$2,934,138
=========
Interest expense for the years ended December 31, 2005 and 2004 were
approximately $253,000 and $285,000 respectively.
F-18
NOTE 8 - OBLIGATIONS UNDER CAPITAL LEASES
The Company did not enter into any new capital leases in 2005
Future minimum payments due under capital lease obligations are as
follows:
Years Ending December 31, 2005
------------------------------
Total future minimum lease payments $ 73,322
Less amount representing interest (7,654)
--------
Present value of minimum lease payments 65,668
Less current installments (65,668)
--------
Obligations under capital leases, net of current portion $ 0
========
Principal payments on capital leases for each of the next five fiscal
years are as follows:
Future Maturities
2006 $ 65,668
========
Gross amounts of assets on balance sheet recorded under capital leases were
$230,787 and $230,787 for 2005 and 2004, net of accumulated amortization of
$129,106 and $89,215.
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments", requires
disclosure about the fair value of all financial assets and liabilities for
which it is practical to estimate. Cash, accounts receivable, accounts payable,
accrued liabilities and other liabilities are carried at amounts that reasonably
approximate their fair values.
The carrying amount and fair value of notes receivable, capital leases payable
and notes payable at December 31, 2005 are as follows:
Carrying Amount Fair Value
--------------- ----------
Notes receivable $1,184,214 $1,184,214
Capital leases payable 65,668 65,668
Notes payable 2,934,138 2,934,138
The fair values of the Company's fixed rate notes receivable, capital leases
payable and notes payable have been estimated based upon relative changes in the
Company's borrowing rates since origination of the fixed rate debt.
NOTE 10 - INCOME TAXES
A reconciliation of the expected federal income tax expense (benefit) based on
the U.S. Corporate income tax rate of 34% to actual for 2005 and 2004 is as
follows:
2005 2004
----------- ---------
(Restated)
Expected income tax (benefit) $ 378,493 $ 352,655
Amounts not deductible for federal income 23,715 1,020
tax purposes
State income taxes, net of federal income tax 76,529 60,000
Change in valuation allowance (402,208) (353,675)
--------- ---------
$ 76,529 $ 60,000
========= =========
The provision for income taxes consists of the following:
2005 2004
--------- -------
Current year income taxes:
Federal $ 10,000 $ -0-
State 76,529 60,000
Deferred income taxes:
Federal (10,000) -0-
State -0- -0-
--------- -------
$76,529 $60,000
========= =======
F-19
Deferred tax assets and liabilities as of December 31, 2005 are as follows:
Current deferred tax asset $ -- $ --
Current deferred tax liability -- --
Valuation allowance for current deferred tax asset -- --
---------- ----------
Net current deferred tax asset $ -- $ --
========== ==========
Non-current deferred tax asset $4,843,280 $5,576,328
Non-current deferred tax -- --
liability
Valuation allowance for non-current
deferred tax asset (4,833,280) (5,576,328)
---------- ----------
Net non-current deferred tax asset $ 10,000 $ -0-
========== ==========
The non-current deferred tax asset results from differences in depreciation of
fixed assets and legal reserves for financial and federal income tax reporting
purposes and the deferred tax benefit of net operating losses. Due to continuing
operating losses, the deferred tax asset has been allowed for as it does not
meet the "more likely than not" recognition criteria.
At December 31, 2005, the Company has net operating loss carry forwards for
federal income tax purposes of approximately $6.2 million that begin expiring in
the year 2015.
NOTE 11 - STOCKHOLDERS' EQUITY
The Company has acquired, prior to 2002, 2,159,100 shares of its common shares
for $2,337,385 under the current stock buyback program (See Note 15). The
average price to repurchase these shares was $1.27 and at December 31, 2005. The
Company holds 1,487,535 treasury shares.
In 2005 the Company issued 40,000 shares of treasury stock as deferred
compensation at a cost of $25,250. The Company issued 45,401 shares of treasury
stock under the Employee Stock Purchase Plan and 401K Plan at a cost of $19,777.
The Company issued 125,000 shares of treasury stock under options exercised by
employees for cash of $59,750. The Company issued 100,000 shares of treasury
stock under stock options exercised for a subscription receivable in the amount
of $46,000. In addition, the Company recognized additional compensation expense
of $66,750 related to modification of stock option awards.
In 2004 the Company issued 46,581 shares of treasury stock under the Employee
Stock Purchase Plan and 401K plan at a cost of $52,015. The Company issued
25,000 shares of treasury stock at a cost of $17,250 for deferred compensation.
F-20
NOTE 12 - EARNINGS PER SHARE
A reconciliation of basic to diluted earnings (loss) per share is as follows:
2005 2004
---- ----
(Restated)
----------
Numerator: Basic Diluted Basic Diluted
---------- ----- ------- ----- -------
Net income (loss) $ 1,036,686 $ 1,036,686 $(1,097,220) $(1,097,220)
----------- ----------- ----------- -----------
Net income (loss) available to
common stockholders $ 1,036,686 $ 1,036,686 $(1,097,220) $(1,097,220)
----------- ----------- ----------- -----------
Denominator:
-----------
Weighted average shares outstanding 8,569,953 8,569,953 8,378,954 8,378,954
Effect of dilutive securities:
Preferred stock -- -- -- --
Stock options and warrants -- 75,675 -- 95,831
----------- ----------- ----------- -----------
Weighted average shares
outstanding 8,569,953 8,645,628 8,378,954 8,474,785
=========== =========== =========== ===========
Earnings (loss) per share $ .12 $ .12 $ (.13) $ (.13)
=========== =========== =========== ===========
NOTE 13 - ACCOUNTING FOR STOCK BASED COMPENSATION
The Company applies APB Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25") in accounting for its stock options. At December 31, 2005,
the Company has implemented five shareholder approved stock option plans. These
plans are intended to comply with Section 422 of the Internal Revenue Code of
1986, as amended. The plans collectively provide for the total issuance of
3,000,000 common shares over ten years from the date of each plan's approval. At
December 31, 2005, a total of 1,101,555 options were outstanding under these
plans.
Combined
Employee Stock Plans Other Compensatory Total
---------------------------- ------------------------- -------
Weighted Weighted
Average Average
Options Exercise Price Options Exercise Price Options
---------- -------------- ---------- -------------- -------
Outstanding at 12/31/02 687,000 $ 1.60 100,000 $ 3.88 787,000
Granted 20,055 0.53 -- -- 20,055
Exercised (50,000) (.53) -- -- (50,000)
Forfeited (3,000) -0- -- -- (3,000)
---------- -------------- ---------- ---------- ----------
Outstanding at 12/31/03 654,055 $ 1.70 100,000 $ 3.88 754,055
Granted 530,000 0.53 -- -- 530,000
Exercised (25,000) (.53) -- -- (25,000)
Forfeited (125,000) -0- (100,000) -- (225,000)
---------- -------------- ---------- ---------- ----------
Outstanding at 12/31/04 1,034,055 $ 1.25 -- -- 1,034,055
Granted 425,000 0.61 -- -- 425,000
Exercised (225,000) (.47) -- -- (225,000)
Forfeited (132,500) (1.53) -- -- (132,500)
---------- -------------- -- -- ----------
Outstanding at 12/31/05 1,101,555 $ 1.13 -- -- 1,101,555
========== -------------- ==========
The fair value of options issued during 2005 and 2004 were approximately
$271,000 and $300,000, respectively.
F-21
The following table summarizes information about options outstanding at December
31, 2005 and 2004 under the Employee Stock Plan:
Options Outstanding Options Exercisable
--------------------------------------------- -----------------------------
Weighted Avg.
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- ----------- ---------------- -------------- ----------- ---------------
2005: $3.39---$5.07 150,000 .3 years $3.75 150,000 $3.75
$2.26---$3.38 50,000 2.1 years $3.29 50,000 $3.29
$1.51---$2.25 --- --- years --- --- ---
$0.00---$1.50 901,555 8.4 years $ .58 505,305 $ .58
1,101,555 7.1 years $1.13 705,305 $1.45
2004: $3.39---$5.07 150,000 1.3 years $3.75 150,000 $3.75
$2.26---$3.38 100,000 1.8 years $3.04 100,000 $3.04
$1.51---$2.25 --- --- years --- --- ---
$0.00---$1.50 784,055 8.2 years $ .55 409,680 $ .62
1,034,055 6.6 years $1.25 659,680 $1.70
NOTE 14 - RELATED PARTY TRANSACTIONS
In July 2001, the Company acquired Premiere Party Rentals. In conjunction with
this purchase, the Company issued two promissory notes payable in the amount of
$500,000 each to the seller (a related party), as partial consideration for this
purchase, and entered into a three-year employment agreement with the seller.
The first note payable at an annual rate of 8.0% with a maturity date of July
2005 was paid in full in 2005. The second note originally due and payable in
full, along with accrued interest at 8% annual rate, in July 2004, was paid in
full in August 2004. For the years ended December 31, 2005 and 2004, the Company
recognized $17,700, related to the first note and $34,644 of interest expense
related to both of these obligations.
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 years ended
December 31, 2005 and 2004, the Company recognized $3,000 and $8,441 of interest
expense related to these obligations.
The President and CEO of the Company had personally guaranteed $300,000 to 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 him in 2002.
This amount has been added to the President's bonus amount accrued in 2002 in
the amount of $300,000, plus accrued interest and is presented on the balance
sheet as a current accrued liability - related party. The Company accrued
$24,376 in interest in 2005 and $24,376 in 2004.
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. The President was paid interest in the amount of
$7,131 in 2005 and $7,131 in 2004.
F-22
NOTE 15 - COMMITMENTS AND CONTINGENCIES
(a) Operating Leases:
The Company is obligated under various operating leases. Generally, the leases
provide for minimum annual rentals as well as a proportionate share of the real
estate taxes and certain common area charges. Minimum annual rentals under these
leases are as follows:
Year Ending Minimum
December 31, Rentals
------------ -----------
2006 $1,553,843
2007 1,217,463
2008 952,968
2009 567,751
2010 412,021
Thereafter 1,023,014
---------
Total minimum annual rentals $5,727,060
==========
Rent expense for the years ended December 31, 2005 and 2004 amounted to
approximately $1.6 million and $1.5 million, respectively.
In 2003, the Company leased out Grandview Bingo in Amarillo. The arrangement is
that of a standard monthly sublease and not a per-session lease. The tenant has
put down a $7,800 security deposit. The minimum annual future receipts under
this sublease are as follows:
Year Ending Minimum
December 31, Rent
------------ --------
2006 $ 93,600
2007 93,600
2008 93,600
2009 93,600
2010 93,600
Thereafter 405,600
-------
Total minimum annual rentals $873,600
========
(b) Legal:
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.)
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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
is awaiting a trial date.
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. The Company has petitioned the court to enforce the
settlement agreement and is currently awaiting this decision. 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. The payments will be
made in one lump sum payment of $250,000 due January 3, 2006 and then $10,000 a
month for 25 months.
F-24
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 the Company is awaiting judgment from the South Carolina
Supreme Court. 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.
George M. Harrison, et al. v. Littlefield Corporation Civil Action No.
4:04-1038-25 This action is currently pending in the United States District
Court for the District of South Carolina, Florence Division. Plaintiffs were the
owners of a parcel of real property in Darlington, South Carolina that was
leased to Darlington Music Company, a former subsidiary of Littlefield
Corporation. In 1990, Plaintiffs, who were also the owners of Darlington Music
Company at that time, caused Darlington Music Company to enter into a 15-year
lease of the real property they owned. Darlington Music Company was later
acquired from Plaintiffs by Littlefield Corporation's predecessor, American
Bingo & Gaming. This business continued to operate as a wholly-owned subsidiary
until such time as changes in South Carolina law regarding video gaming required
that the business be wound down. In May 2001, Plaintiffs later received a
judgment in the amount of $199,148 against Darlington Music Company for
nonpayment of rent. Through this action, Plaintiffs are now attempting to
enforce that judgment against Littlefield Corporation on the basis of various
legal theories. Littlefield intends to vigorously defend this action and will
also ask, if possible, to have the underlying judgment against its former
subsidiary reexamined. This case was settled in June 2005 when Littlefield
agreed to pay $95,000 to the Plaintiffs.
(c) Stock Repurchase Plan:
During the second quarter of 1998, the Company authorized a stock repurchase
program to purchase up to 1,000,000 shares of its common stock. On February 8,
2000 the Company amended the stock repurchase program to permit purchase of up
to 2,000,000 shares of its common stock at such time and prices the Company
deems advantageous. The amount was subsequently increased to 3,000,000 shares.
There is no commitment or obligation on the part of the Company to purchase any
particular number of shares, and the program may be suspended at any time at the
Company's discretion. Any shares so repurchased will be held as treasury shares
and be available for general corporate purposes. No shares were repurchased in
2005 or 2004.
F-25
(d) Concentration of Credit Risk:
The Company maintains its cash in banks which are insured by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000. At December 31, 2005, cash in banks
exceeded FDIC coverage by approximately $557,000.
(e) 401(K) and Employee Stock Ownership Plan
The Company has a 401(K) and Employee Stock Ownership Plan that was instituted
in 2001. In 2005 employees were allowed to defer up to 90% of their wages to a
maximum of $14,000, tax deferred, for retirement purposes. The Company has no
obligation to match any of the employee deferrals and contributions to the plan
are at the discretion of management. At December 31, 2005 and 2004, the Company
contributed $0 and $0 respectively, into the Plan.
(f) Employee Stock Purchase Plan
During 2002, the Company implemented the 2002 Employee Stock Purchase Plan to
allow employees of Littlefield Corporation and any subsidiaries to acquire stock
ownership in the Company. The Company has reserved 250,000 shares under this
plan. Offering of shares under this plan will commence 1) on the first day of
each fiscal year and will end on the last day of the fiscal year or 2) at the
sole discretion of the administrators. Any offerings that remain unsold during
the offering period shall expire and shall be made available for grant in future
offering periods. Eligible employees shall elect to make contributions between
1% and 10% of gross compensation. The exercise price of any shares purchased by
a participant shall be at eighty-five percent (85%) of the lower of the fair
market value of the common stock on the date of the grant or date of exercise.
Through December 31, 2005, 80,495 shares have been purchased through this
program. Of the shares purchased 17,621 shares were purchased in 2005 and 31,541
in 2004.
(g) The Company had entered into three-year employment agreements with two
individuals. Should the Company terminate the employment agreements without
cause, the Company would be liable for salary compensation and the cash value of
the Company paid portion of any insurance coverage owed for the remaining term
of employment. As of December 31, 2005, these employee agreements had expired,
the employees left on their own accord and the remaining salary expense
associated with these employment agreements was $0 in 2005 and $0 in 2004.
NOTE 16 - SEGMENTS
The Company adopted Statement of Financial Accounting Standards No. 131,"
Disclosures about Segments of an Enterprise and Related Information" (SFAS 131)
in the fiscal year ended December 31, 1999. SFAS 131 establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS No. 131 also
establishes standards for related disclosures about products and services and
geographic areas.
Operating segments are identified as components of an enterprise about which
separate discrete financial information is available for evaluation by the chief
operating decision maker, or decision-making group, in making decisions how to
allocate resources and assess performance.
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 accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies except that depreciation and amortization are allocated to
each segment from functional department totals based on certain assumptions
which include, among other things, revenues. Also, the Company's CODM does not
view segment results below operating profit (loss), therefore, net interest
income, other income, and the provision for income taxes are not broken out by
segment below.
The entertainment segment encompasses charitable bingo hall operations in Texas,
Alabama, and South Carolina. The hospitality segment includes income from party
and tent rentals, catering services and event planning fees. These segments were
identified based on the different nature of the services and legislative
monitoring and, in general, the type of customers for those services.
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A summary of the segment financial information reported to the CODM is as
follows:
Year Ended December 31, 2005
----------------------------
(Restated)
Entertainment Hospitality Adjustment Consolidated
------------- ----------- ---------- ------------
Revenue $6,908,000 $4,327,000 $96,000 $11,331,000
Depreciation and amortization 472,000 316,000 93,000 881,000
Segment profit (loss) 3,207,000 (250,000) (1,920,000) 1,037,000
Segment Assets $24,913,000 $1,604,000 (10,289,000) 16,228,000
Year Ended December 31, 2004
----------------------------
Entertainment Hospitality Adjustment Consolidated
------------- ----------- ---------- ------------
Revenue $6,484,000 $3,409,000 $35,000 $9,928,000
Depreciation and amortization 497,000 324,000 107,000 928,000
Segment profit (loss) 2,312,000 (489,000) (2,920,000) (1,097,000)
Segment Assets $22,061,000 $1,513,000 (8,296,000) 15,278,000
The adjustments represent other income, depreciation and amortization related to
corporate assets, corporate losses, and corporate capital expenditures to
reconcile segment balances to consolidated balances.
NOTE 17 - INVESTMENTS
The Company accounts for its investments under Statement of Financial Accounting
Standards No. 115, "Accounting for Investments in Debt and Equity Securities".
The Company's investments consist of the following:
2005
-----------------------------------------------
Unrealized
Basis Fair Value Gain (Loss)
------ ----------- -------------
Mutual Funds $5,230 $3,130 $(2,100)
------ ------ --------
Total $5,230 $3,130 $(2,100)
====== ====== ========
These securities are considered available-for-sale, as defined by SFAS No. 115,
and accordingly, the unrealized holding loss is shown in other comprehensive
income as follows:
Unrealized holding Gain (loss) recognized at year end $(1,381)
Gain(Loss) recognized in prior year earnings (719)
-------
Unrealized holding gain (loss) on investments held for sale. $(2,100)
=======
NOTE 18 - SUBSEQUENT EVENTS
January 2006 - The company reached a settlement in the Lenrich Associates LLC
legal proceedings with the Company agreeing to pay $500,000 in total to Lenrich
Associates LLC. The agreement was for a lump sum payment of $250,000 due January
3, 2006 and then installment payments in the amount of $10,000 for 25 months.
The Company accounted for the entire $500,000 balance in the financial
statements ending December 31, 2005.
F-27