SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2006
Commission file No. 0-24805
Littlefield Corporation
(Exact name of small business issuer as specified in its charter)
Delaware 74-2723809
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2501 North Lamar Blvd. Austin, Texas 78705
(Address of principal executive offices)
(512) 476-5141
(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 or any
amendment to this Form 10-KSB. [ ]
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: $ 13,401,172
Aggregate market value of the issuer's common stock held by non-affiliates based
on the last sales price as of March 5, 2007 $ 7,284,341
Number of shares of the issuer's common stock outstanding as of March 5, 2007
11,217,941
Documents Incorporated By Reference
The issuer's Proxy Statement for its annual meeting of stockholders to be held
on May 16, 2007, is incorporated by reference in this Form 10-KSB 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
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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. In our Entertainment
division, we operate 29 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.
CURRENT YEAR EVENTS:
During 2006, the Company arrived at settlements for three long outstanding legal
cases:
January 2006 - A final settlement was reached in the case of Lenrich
Associates. In the settlement reached between the two parties, Littlefield
will pay a sum of $500,000 relating to this early 2000s case. The Company
accrued for the remaining balance of approximately $353,000 in the 2005
financial statements. The payments included a one lump sum payment of
$250,000 due January 3, 2006 and then $10,000 a month for 25 months.
August 2006 - A final settlement was reached in the case with Collins
Entertainment Corp. This case related to events which took place during the
mid-1990s. The total settlement reached included an initial payment of
$1,025,000 due upon execution of the settlement agreement plus 46
consecutive monthly payments of $25,000 commencing October 1, 2006, for a
total settlement of $2,175,000 payable over 46 months. In recognition of
the fair value of the settlement, the Company, in its third quarter of
2006, recorded an additional $184,000 in legal expense.
November 2006 - A final decision was reached in the cases of Pondella and
Ontario. These two related cases arise from a transaction carried out by a
predecessor, American Bingo & Gaming Corporation ("American Bingo") from
1995. In its fourth quarter of 2006, the Company recorded an additional
charge to earnings in the amount of $175,000 in addition to $1,610,000
charged to earnings in prior years and funded the amount paid in the
settlement including certain legal expenses totaling $1,785,000 through a
bank loan collateralized by certain real estate assets.
In January 2006, the Company filed for a summary judgment relating to the South
Carolina Department of Revenue issuance of an administrative bingo violation
alleging that the Company has an unlawful number of bingo promoter licenses. In
February 2007, the case was continued and removed from the docket for up to
approximately 18 months and a partial summary judgment was granted dismissing
named charities from the matter. The Company is vigorously defending itself and
asserts that it is not the holder of the promoter licenses but rather that its
lawfully formed subsidiaries are separate corporations that each holds a lawful
number of the promoter licenses.
In March 2006, the Company announced a twenty percent (20%) stock dividend.
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In July 2006, the Company announced restatements relating to the accounting for
stock-based compensation affecting its Q1 2006 results and subsequently in
August 2006 announced the restatement of its 2005 results.
In July 2006, the Company appointed a new Executive Vice President and Chief
Financial Officer and added a Senior Vice President and Director of Capital
Transactions.
In August 2006, the Company announced development of a new Texas Bingo hall in
San Angelo, Texas adjacent to its hall purchased in 2005. The hall is planned to
open in Q2 2007.
In November 2006, the Company received notification of a trial date, with the
Company as Plaintiff, in the Furtney, Case. A trial date is expected in May
2007.
In February 2007, the Company announced the sale of 400,000 unregistered shares
of its common stock to an institutional investor at a fifteen percent (15%)
premium to the then current market price.
All of these events are discussed more thoroughly in Item 3 - "Legal
Proceedings", Item 6 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Notes to Consolidated Financial
Statements".
PRINCIPLE BUSINESS AND MARKETS
We currently have two distinct and separate business segments.
1. "Littlefield Entertainment" owns and operates 29 charitable bingo
halls. Of these 29 bingo halls, sixteen (16) are in Texas (Austin-1,
Abilene-2, Amarillo-2, 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 ten (10) are in South Carolina (Charleston-5,
Georgetown-1, Goose Creek-1, Walterboro-1, Conway-1, and Aiken-1). The
total segment comprised approximately 59% of our total revenues in
2006.
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 40% of
total revenues in 2006.
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.
When we invest in a new start up bingo hall, we anticipate 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
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control. In the past three years we have purchased El Bingo Grande Bingo Hall,
Bingo Idea, Bingo Barn and Strike It Rich in San Angelo. 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 Hall purchase has produced a 92% 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, in 2005 a 20% return and in 2006 a 23%
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 its potential. In the three months of 2005 that we operated the
hall, it generated a 5% return and for 2006 it generated a 46% return.
In 2006, our charitable bingo halls raised approximately $4,285,000 in
charitable funding for those charities that operate in our bingo halls. We
helped raise $470,000 for charities in South Carolina, $510,000 for charities in
Alabama, and $3,305,000 for charities in Texas. Since 2001 our company has
helped raise well over $20 million for charity.
Competition: The charitable bingo market is a fragmented market, 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 jurisdictions
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
the "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 four hundred twenty five (425)
employees and four (4) directors, of which one is a full time employee. Of the
current employment level, twelve (12) are at our headquarters in Austin, Texas,
twenty eight (28) are engaged in bingo operations, and three hundred eighty four
(384) are with Littlefield Hospitality. Littlefield Hospitality consists of one
hundred (100) full time employees and two hundred eighty four (284) 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 three 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 (1) Bingo Halls (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
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.
Settled. These two related cases have been settled and 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 was $450,000 and
with interest and attorney's fees totals $808,996. The Company appealed these
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judgments to the Florida Second District Court of Appeal and vigorously pursued
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
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. In November, 2006 a final decision was reached for
the plaintiffs. As a result, the Company recorded an additional $175,000 legal
expense in its fourth quarter. The Company funded the amount paid including
certain attorney fees through a bank loan collateralized by certain real estate.
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.
Littlefield is the Plaintiff in this case which is still pending. 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. The Company expects a trial date in May
2007.
Lenrich Associates LLC v. Littlefield Corporation, et al; Civil Action No.
00-CP-10-4742, South Carolina Court of Common Pleas, County of Charleston.
Settled. Lenrich Associates brought this action against the Company based on a
commercial lease guaranty that was signed by the Company. The tenant on the
lease was Concessions Corp., a subsidiary of the Company and had been used as
the location of the "Lucky II" facility, which was closed in early 2000. The
lease expired in February 2003. Because rental payments under the lease were in
arrears, Lenrich Associates sought to enforce the guaranty against the Company.
The Company's liability under the guaranty was capped at the lesser of two years
of fixed and additional rent or the amount of fixed and additional rent
corresponding to the time period mandated by South Carolina law. A settlement
agreement had been reached for $147,500, which has been accrued for by the
Company in June 2002. However, the plaintiff withdrew their support of the
settlement agreement shortly thereafter. Effective January 1, 2006 a settlement
was reached between the two parties in which Littlefield will pay a sum of
$500,000. The Company accrued for the remaining balance of approximately
$353,000 in the 2005 financial statements. A payment was made in one lump sum
payment of $250,000 on January 3, 2006 and additional payment have been made in
the amount of $10,000 a month and will continue for the next 25 months, final
payment to be made January 5, 2008.
Littlefield Corp. v. Dye, Civil Action No. 2002-cp-08-478.
Settled. 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 alleged
that Dye owed $58,481 toward the principal 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 alleged that the Company owed him $375,000 in unpaid salary
and sought treble damages under the Payment of Wages Act for a total amount of
$1,250,000 in damages. On September 19, 2005, the parties agreed to voluntarily
dismiss their claims pursuant to South Carolina Rule of Civil Procedure 40(j).
Rule 40(j) permits parties to voluntarily dismiss claims with leave to restore
the case to the active trial roster within one year of dismissal. If the parties
do not restore the case to the trial roster within one year, all claims are
dismissed with prejudice. Neither Mr. Dye nor the Company elected to restore
this case to the trial roster within the one year period and thus the claims of
both parties are now dismissed with prejudice.
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Collins Entertainment Corp. v. Coats and Coats Rental Amusement, d/b/a Ponderosa
Bingo and Shipwatch Bingo, Wayne Coats, individually, and American Bingo &
Gaming Corp., Civil Action No. 97-CP-10-4685.
Settled. After a split, adverse decision by the South Carolina Supreme Court,
the Company entered into settlement negotiations while also preserving its right
to further review with the United States Supreme Court on the issue of punitive
damages. Subsequent to the filing of the Company's petition for a writ of
certiorari with the United States Supreme Court, the matter was settled on
August 25, 2006. At the time of settlement, the judgment against the Company,
including principal and interest, totaled $2,792,033. The total settlement
reached included an initial payment of $1,025,000 due upon execution of the
settlement agreement plus 46 consecutive monthly payments of $25,000 commencing
October 1, 2006, for a total settlement of $2,175,000 over the 46 month period.
In the event of a default of payment of the remaining amounts due, the original
judgment amount less amounts previously paid shall be due and payable. In
recognition of the present value of the settlement, the Company, in its third
quarter of 2006, recorded an additional $184,000 in legal expense in addition to
previously recognized legal expense of $1,727,000 in prior years. The carrying
amount of the settlement liability outstanding as of December 31, 2006 was
$801,004 for 41 remaining payments. The Company withdrew the petition to the
United States Supreme Court and will receive a full release of all claims and a
satisfaction of the judgment upon the record when payments are completed.
Amy Ramon, et al v. Clark C. Lilly, et al; Cause No. 2006-535,397 in the 237th
District Court of Lubbock County, Texas.
This case is still pending. This proceeding is the result of the consolidation
of four separate lawsuits. Littlefield Corporation, Meeks Management Company
(sued as Meeks Management Corporation), and Littlefield Charitable Bingo
Management Consulting, Inc., (and other non-related parties including the
charities) are defendants in this case. The Plaintiffs are six former employees
of various charities which operate from a bingo hall leased to the charities by
Meeks Management Company. Plaintiffs have sued, among others, Littlefield
Corporation, and two of its subsidiaries, Meeks Management Company (sued as
Meeks Management Corporation) and Littlefield Charitable Bingo Management
Consulting, Inc.
The plaintiffs claim that the bingo hall manager sexually harassed them and
terminated them in violation of their rights under nondiscrimination provisions
of the Texas Labor Code and also assert various tort claims against the
defendants under state law, including, but not limited to, claims for negligent
hiring, supervision, and retention of the alleged harasser. Plaintiffs allege
that the defendants (other than the bingo hall manager), including Littlefield
and its named subsidiaries, were their employers and the employers of the
accused harasser. All of the plaintiffs claim that Littlefield (and subs) as
well as the charities were their employers and that of Clark Lilly and liable
for his harassing and other tortuous conduct. Various claims are also made for
negligence in hiring, supervision, and retention of Mr. Lilly and other state
law tort claims which are not technically dependent upon the status of
Littlefield as an employer under the state discrimination law. The plaintiffs
also claimed they were terminated in retaliation for making their claims of
discrimination. Some of the plaintiffs have also claimed sexual discrimination
in compensation. The depositions of some, but not all, of the plaintiffs have
been taken. None of the depositions of the defendants have been taken.
Littlefield and named subsidiaries intend to seek a summary judgment soon after
the depositions of the defendants are taken on the basis of the lack of an
employee-employer relationship with either the plaintiffs or Mr. Lilly.
Littlefield and its named subsidiaries intend to vigorously defend this case
because the plaintiffs and the alleged harasser were not their employees. Trial
is scheduled for October 15, 2007.
South Carolina Department of Revenue v. Littlefield Corporation, Midlands
Promotions, Inc., Low Country Promotions, Inc., Gamecock Promotions, Inc., H.F.
Help, Inc., United Black Fund of Midlands, Berkeley County SPCA, S.C.
Battleground Pres. Trust, Charleston County FOP, Coastal Carolina FOP Lodge#12,
Humane Net Inc., Gamecock Promotions, Fraternal Order of Police Lodge #19; Hejaz
Shrine Temple, Pet Helpers, Inc., Cannon Street YMCA and Low Country Food Bank,
05-ALJ-17-0413-CC
This case is still pending. In January 2006, the Company filed for a summary
judgment relating to the South Carolina Department of Revenue issuance of an
administrative bingo violation alleging that the Company has an unlawful number
of bingo promoter licenses. The Department of Revenue seeks to revoke all but 5
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bingo promoter licenses held by the Company's South Carolina subsidiaries and
seeks a $5,000.00 penalty. The Department of Revenue's theory is that the three
South Carolina subsidiaries are invalid corporations and that as a matter of law
the Company is the holder of the 12 promoter licenses at issue. South Carolina
law provides that a promoter may only have 5 licenses. The South Carolina
Department of Revenue has moved to pierce the corporate veil of the Company to
thereby attribute the promoter licenses to the Company. In February 2007, the
case was continued and removed from the docket for up to approximately 18 months
and a partial summary judgment was granted dismissing named charities from the
matter. The Company is vigorously defending itself and asserts that it is not
the holder of the promoter licenses but rather that its lawfully formed
subsidiaries are separate corporations that each holds a lawful number of the
promoter licenses.
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 the fiscal year covered by this report.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------------
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 prices for
our common stock for the periods indicated as reported on a daily basis by the
OTC Bulletin Board.
2006: High Low 2005: High Low
----- ---- --- ----- ---- ---
First Quarter $1.34 $0.47 First Quarter $0.63 $0.48
Second Quarter $1.92 $1.10 Second Quarter $0.63 $0.47
Third Quarter $1.32 $1.01 Third Quarter $0.60 $0.50
Fourth Quarter $1.10 $0.79 Fourth Quarter $0.61 $0.48
High and low closing prices presented have been adjusted for a 20% stock
dividend in April, 2006.
Security Holders
As of March 5, 2007, our common stock was held by approximately 1,045 beneficial
shareholders.
Dividends
We have not paid, and currently have no intention to pay, any cash dividends on
our common stock. In the second quarter of 2006 we issued a stock dividend of
20% of our outstanding common stock.
9
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 763,566 0.70 1,391,474
Equity compensation plans not
approved by security holders NA NA NA
Total 763,566 0.70 1,391,474
Recent Sales of Unregistered Securities
There were no sales of unregistered securities in 2006. Also see subsequent
event footnote.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF OPERATIONS
-------------
Overview
Our Company was formed in 1994 as a Delaware corporation to consummate the
acquisition of charitable bingo centers and video gaming operations, and
completed an initial public offering in December of 1994. We operate primarily
through wholly owned subsidiaries in Texas, Alabama and South Carolina and have
two operating segments - Littlefield Entertainment and Littlefield Hospitality.
We intend to grow our business through acquisitions and the selective start up
of charitable bingo halls in markets in which we currently operate and other
attractive markets.
The statements in this Annual Report on Form 10-KSB relating to matters that are
not historical facts, including, but not limited to statements found in this
"Management Discussion and Analysis of Financial Condition and Results of
Operations", are forward-looking statements that involve a number of risks and
uncertainties. Factors that could cause actual future results to differ
materially from those expressed in such forward-looking statements include, but
are not limited to the impact of government regulation and taxation, customer
attendance, spending, competition, general economic conditions, and other risks
and uncertainties as discussed in this Annual Report.
In August 2006, we restated our financial statements for the year ended December
31, 2005 to correct errors in reporting share based compensation. The amended
Form 10-KSB/A for the year ended December 31, 2005 was filed on August 31, 2006.
References in this 10-KSB to our operations, assets, liabilities and cash flows
for the full year 2005 include the previously reported revisions to financial
information for the period ended December 31, 2005.
Results of Operations
---------------------
In 2006, we continued growth in our Entertainment division and we achieved
profitability in our Hospitality division. We also concluded three long
outstanding legal cases. Full Year 2006 earnings included approximately $434,000
of notable items: $358,000 associated with legal settlement expenses, $110,000
of non cash expenses for stock-based compensation and a $34,000 insurance
payment. Full Year 2005 earnings included a net gain of $1,025,000 mainly from a
gain on the sale of real property assets in South Carolina of $996,000, income
from the settlement of a promissory note for $544,000 and asset sales of
$15,000. These were partially offset by $463,000 for legal settlements and
$67,000 of stock based compensation.
10
Revenues
--------
The following table sets forth the Company's revenues by segment for 2006
compared to 2005:
2006 2005 Change % Change
---- ---- ------ --------
Total Revenues $13,401,000 $11,331,000 $2,070,000 18%
Entertainment 7,909,000 6,908,000 1,001,000 14%
Texas 4,954,000 3,939,000 1,015,000 26%
South Carolina 1,498,000 1,439,000 59,000 4%
Alabama 1,457,000 1,530,000 (73,000) (5%)
Hospitality $ 5,419,000 4,327,000 $1,092,000 25%
Total revenues for the Company increased 18% over 2005 with both Entertainment
and Hospitality segments contributing to the increase in revenue. Entertainment
revenue rose 14% largely reflecting the October 2005 purchase of an additional
bingo hall in Texas. Alabama operations were affected 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. The Entertainment segment
accounted for 59% of total revenues compared with 61% of total revenues in 2005.
By state, Entertainment revenues for Texas, South Carolina and Alabama were 63%,
19%, and 18% of total Entertainment revenue respectively compared to 57%, 21%
and 22% in 2005. Hospitality revenue increased 25% over the prior year
reflecting the contribution of larger customers and events. Hospitality
accounted for 40% of total revenues in 2006, compared to 38% of total revenues
in 2005.
Costs and Expenses
------------------
Cost of services increased 12% over the prior year. This, in conjunction with
the higher revenue growth of 18%, resulted in an improvement of gross profit
percent (gross profit as a percent of sales) to 25.2% from 20.9% in 2005.
Overall, total gross profit increased $1 million over the prior year. The table
below summarizes gross profit by segment for 2006 and 2005:
2006 2005 Change % Change
---- ---- ------ --------
Total Gross Profit $3,375,000 $2,368,000 $1,007,000 43%
Entertainment 3,283,000 2,510,000 773,000 31%
Hospitality $ 46,000 ($221,000) $267,000 NM
The increases in gross profit margin can be attributed to higher revenues and
management's concentration on cost containment throughout the organization. The
Entertainment gross profit as a percent to sales increased to 41.5% versus 36.3%
respectively for 2006 and 2005. The 2006 Hospitality gross profit was $46,000 an
improvement of $267,000 over the prior year.
Direct salaries and other compensation were up 16% over the prior year
representing staff additions corresponding to the higher revenues. Rent and
utilities in 2006 were up approximately 9% over 2005. This increase is largely
related to a greater number of facilities in 2006 than were present in the same
period of 2005. The remainder of the rent increase is a result of the annual
increases in rent and higher utility costs. Other direct operating costs in 2006
were up 17% over the prior year, mainly due to higher costs associated with the
increased revenue, higher property taxes, and higher repairs and maintenance at
our facilities than occurred in 2005. License expense was up $46,000 as a result
of the timing of the payment of licenses. The provision for doubtful accounts
remained flat at approximately 1.4% to sales.
Depreciation and amortization expense totaled approximately $756,000 ($645,000
Cost of Services plus $111,000 G&A) in 2006, a decrease of about $125,000 from
2005. The decrease is largely a result of the disposition of assets in late
2005.
11
General and administrative expenses, excluding related depreciation expense,
stock based compensation expense and a $358,000 charge associated with the
settlement of two nine year legal disputes totaled approximately $1,774,000 in
2006, compared to approximately $1,973,000 in 2005, a decrease of about
$199,000. The decrease mainly related to lower legal expenses partially offset
by staff additions from 2005.
The $996,000 gain on the disposition of fixed assets in 2005 resulted mainly
from the gain on the sale of a property in South Carolina in September 2005.
Other income and expense was an expense of approximately $137,000 for 2006,
compared to other income of approximately $345,000 for 2005. The other income in
2005 was mainly from a $544,000 gain on settlement of a note receivable. The
remaining expenses were net interest expenses. Interest expense was up
approximately $36,000 compared to 2005, reflecting higher interest rates and
financing of legal settlements.
Our income tax expense for 2006 was approximately $96,000 compared to $77,000 in
2005, 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 $6,800,000.
Net Income
----------
We realized net income of approximately $786,000 in 2006; $0.07 per basic and
$0.07 per fully diluted share. Net income for 2005 was $1,037,000; $0.10 per
basic and $0.10 per fully diluted share. The weighted average number of basic
Common Stock shares outstanding totaled 10,726,972 in 2006 compared to
10,361,910 in 2005. 2005 shares outstanding have been adjusted to reflect the
affect of a 20% stock dividend in Q2 2006.
Full Year 2006 earnings included approximately $434,000 of notable charges:
$358,000 associated with legal settlements, $110,000 of non cash expenses for
stock-based compensation offset by an insurance claim of $34,000.
Full Year 2005 earnings included a net gain of $1,025,000 mainly from a gain on
the sale of real property assets in South Carolina of $996,000, income from the
settlement of a promissory note for $544,000 and asset sales of $15,000. These
were partially offset by $463,000 for legal settlements and $67,000 of stock
based compensation.
Adjusted for the notable and non-recurring items above, the adjusted net income
was $1,220,000 and basic earnings per share were $0.11 per share in 2006 versus
an adjusted net income of $11,000 and basic earnings per share of $0.00 last
year excluding the net favorable affects of the sale of assets and settlement of
a note receivable and other notable items in 2005.
Liquidity and Capital Resources
Cash and cash equivalents at December 31, 2006, totaled approximately $2,550,000
and represented 16% of total assets of approximately $16,054,000. Current assets
totaled approximately $4,267,000 at December 31, 2006. Current liabilities
totaled $2,104,000. Working capital was approximately $2,163,000 and a current
ratio of 2 to 1.
The Company has notes and legal settlement payables coming due in the next
twenty four months amounting to $534,000 in 2007 and $467,000 in 2008. In
addition, in 2007 the Company plans to use its restricted cash in conjunction
with a bank refinancing to payoff an existing bank note.
Debt/Lease 12 months 24 Months 36 Months 48 Months 60 Months 2011
Schedule 2007 2008 2009 2010 Thereafter Totals
Notes Payable $ 224,515 $ 240,819 $ 258,732 $ 277,456 $ 1,643,170 $ 1,618,058 $ 4,262,750
Legal
Settlements $ 309,885 225,971 259,718 125,430 $ 921,004
Operating
Leases $ 1,730,343 $ 1,474,920 $ 1,168,556 $ 896,068 $ 774,466 $ 332,265 $ 6,376,618
Obligations $ 2,264,743 $ 1,941,710 $ 1,687,006 $ 1,298,954 $ 2,417,636 $ 1,950,323 $ 11,560,372
12
Cash provided by operating activities for 2006, totaled approximately $1,796,000
compared to cash provided of $310,000 during 2005. Cash flows provided by
operating activities in 2006 were increased by net income of approximately
$786,000, non-cash depreciation expense of approximately $756,000, stock based
compensation of approximately $110,000, allowance for doubtful accounts of
approximately $100,000 and other net changes in asset and liability accounts of
approximately $44,000.
Net cash provided by investing activities totaled approximately $723,000 for
2006, compared to net cash provided of approximately $952,000 in 2005. In 2006,
cash was used in the amount of approximately $454,000 for the purchase of
capital assets and offset by the collection of a note receivable in the amount
of approximately $1,177,000. In 2005 cash was used for the purchase of capital
assets of approximately $289,000.
Cash used in financing activities in 2006 totaled approximately $589,000,
compared to net cash used in financing activities in 2005 of approximately
$1,170,000. In 2006, approximately $1,785,000 of financing was obtained through
a bank note payable and $204,000 was provided by proceeds from option exercises
and the collection of a subscription receivable. This was offset by $2,414,000
of cash used for the payment of capital leases, notes payable and legal
settlements and $164,000 for net payments to related parties. In March 2006, the
Company announced a twenty percent (20%) stock dividend.
At December 31, 2006, we had approximately $16,054,000 in total assets with
total liabilities of approximately $6,778,000 and approximately $9,276,000 of
shareholders equity. Total assets include approximately $2,550,000 in cash,
$1,283,000 of other current assets and net account receivables and $434,000 of
restricted cash, $6,057,000 of net property and equipment, $5,529,000 of
intangible assets, and $201,000 of other assets. Total liabilities primarily
consist of accounts payable of approximately $265,000, and notes payable
obligations of approximately $4,263,000, legal settlement obligations of
$921,000 and accrued and related-party liabilities of $1,329,000.
In 2007, 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.
Recently Issued Accounting Pronouncements
-----------------------------------------
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. 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 addresses 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.
These financial statements reflect the January 1, 2006 adoption of this
Statement.
In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation ("FIN") 48, Accounting for Uncertainty in Income Taxes - an
interpretation of Statement of Financial Accounting Standards ("SFAS") 109.
13
This interpretation clarifies the accounting for uncertainty in income taxes
recognized in an entity's financial statements in accordance with SFAS 109,
Accounting for Income Taxes . It prescribes a recognition threshold and
measurement attribute for financial statement disclosure of tax positions taken
or expected to be taken on a tax return. This interpretation is effective for
fiscal years beginning after December 15, 2006. The Company does not believe the
adoption of this pronouncement will have a significant impact on its financial
position or results of operations.
In September 2006, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") 108 regarding the process of quantifying financial
statement misstatements. SAB 108 states that registrants should use both a
balance sheet approach and an income statement approach when quantifying and
evaluating the materiality of a misstatement. The interpretations in SAB 108
contain guidance on correcting errors under the dual approach as well as provide
transition guidance for correcting errors. This interpretation does not change
the requirements within SFAS 154, Accounting Changes and Error Corrections - a
replacement of APB 20 and FASB Statement 3 , for the correction of an error on
financial statements. SAB 108 is effective for annual financial statements
covering the first fiscal year ending after November 15, 2006. We adopted this
interpretation on December 31, 2006. The adoption of SAB 108 did not have a
significant effect on our consolidated financial statements.
In September 2006, the FASB issued SFAS 157, Fair Value Measurements . This
standard defines fair value, establishes a framework for measuring fair value in
accounting principles generally accepted in the United States of America, and
expands disclosure about fair value measurements. This pronouncement applies
under other accounting standards that require or permit fair value measurements.
Accordingly, this statement does not require any new fair value measurement.
This statement is effective for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. We will be required to adopt SFAS
157 in the first quarter of fiscal year 2008. We are currently evaluating the
requirements of SFAS 157 and have not yet determined the impact on our
consolidated financial statements.
In March 2006, the Emerging Issues Task Force ("EITF") reached a consensus on
EITF Issue 06-3, How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (that is, Gross versus
Net Presentation) . Taxes within the scope of EITF Issue 06-3 include any taxes
assessed by a governmental authority that are directly imposed on a
revenue-producing transaction between a seller and a customer and may include,
but are not limited to, sales taxes, use taxes, value-added taxes, and some
excise taxes. The EITF concluded that the presentation of these taxes on either
a gross (included in revenues and costs) or a net (excluded from revenue) basis
is an accounting policy decision that should be disclosed. For any such taxes
that are reported on a gross basis, a company should disclose the amounts of
those taxes in interim and annual financial statements. Our policy is to exclude
all such taxes from revenue. The provisions of EITF 06-3 are effective for
interim and annual reporting periods beginning after December 15, 2006. The
adoption of EITF 06-3 will not have any effect on our consolidated financial
statements.
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-31
Item 8 - Changes in and Disagreements with Accountants on Accounting and
------------------------------------------------------------------------
Financial Disclosure
--------------------
None
14
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.
Based upon their evaluation, our management including the Chief Executive
Officer and Chief Financial Officer have concluded that our disclosure controls
and procedures (as defined in Rule 13a-15(e) or 15 d - 15(e) under the
Securities Exchange Act) are effective, as of the end of the period covered by
this report on Form 10-KSB, 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.
There have been no changes in our internal control over financial reporting
during the quarter ended December 31, 2006, that have materially affected or are
reasonably likely to materially affect, our internal control over financial
reporting.
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 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
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.
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 to be held on May 16, 2007, which proxy
statement will be filed with the Securities and Exchange Commission no later
than April 25, 2007, 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 to be held on May 16, 2007, which proxy
statement will be filed with the Securities and Exchange Commission no later
than April 25, 2007, is incorporated herein by reference.
15
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 to be held on May 16, 2007, which proxy
statement will be filed with the Securities and Exchange Commission no later
than April 25, 2007, 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 to be held on May 16, 2007, which proxy
statement will be filed with the Securities and Exchange Commission no later
than April 25, 2007, is incorporated herein by reference.
Item 13 - Exhibits
------------------
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* 2002 Stock Option Plan (incorporated by reference to Exhibit of the
Definitive Proxy Statement Schedule 14A, filed with the SEC on March
22, 2002).
10.2* 2002 Employee Stock Purchase Plan (incorporated by reference to
Exhibit of the Definitive Proxy Statement Schedule 14A, filed with
the SEC on March 22, 2002).
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.
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, 2006
and 2005 totaled $67,800 and $63,500 respectively. In addition fees totaling
$41,500 were incurred in connection with restatements during 2006.
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, 2006
and 2005 for tax compliance, tax advice or tax planning was $25,225 and $24,450,
respectively.
16
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, 2006 and 2005 were pre-approved by the audit
committee.
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: March 31, 2007,
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 March 31, 2007
/s/Carlton Williams
-------------------
Carlton Williams Chairman of the Board March 31, 2007
/s/Alfred Stanley
-----------------
Alfred Stanley Director March 31, 2007
/s/Michael Wilfley
------------------
Michael Wilfley Director March 31, 2007
17
LITTLEFIELD CORPORATION & SUBSIDIARIES
DECEMBER 31, 2006
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of December 31, 2006 F-3
Consolidated Statements of Operations for the
Years Ended December 31, 2006 and 2005 F-4-F-5
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the
Years Ended December 31, 2006 and 2005 F-6
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2006 and 2005 F-7-F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9-F-31
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
of Littlefield Corporation
We have audited the accompanying balance sheet of Littlefield Corporation (the
"Company") as of December 31, 2006, and the related statements of operations,
stockholders' equity and comprehensive income, and cash flows for each of the
years in the two-year period ended December 31, 2006. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Littlefield Corporation as of
December 31, 2006, and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 2006 in conformity with
accounting principles generally accepted in the United States of America.
SPROUSE & ANDERSON, L.L.P.
Austin, Texas
March 23, 2007
F-2
Littlefield Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2006
ASSETS
------
Current Assets:
Cash and cash equivalents $2,549,566
Accounts receivable, net of allowance for doubtful accounts of $179,812 1,088,740
Equity securities, available for sale 3,426
Other current assets 184,069
Note Receivable 7,191
Restricted Cash 434,000
--------------
Total Current Assets $4,266,992
--------------
Property and Equipment - at cost, net of accumulated depreciation and
amortization $6,056,662
Other Assets:
Goodwill 4,905,111
Intangible assets, net 623,696
Other non-current assets 201,289
--------------
Total Other Assets $5,730,096
--------------
TOTAL ASSETS $16,053,750
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Long term debt, current portion 224,515
Long term debt, legal settlements, current portion 309,885
Trade accounts payable 264,638
Accrued expenses 919,266
Other current liabilities-related party 386,058
--------------
Total Current Liabilities $2,104,362
--------------
Long-term Liabilities:
Long term debt, net of current portion 4,038,235
Long term debt, legal settlements 611,119
Other liabilities, related party 24,000
--------------
Total Long-term Liabilities $4,673,354
--------------
Total Liabilities $6,777,716
--------------
Stockholders' Equity:
Common stock, $.001 par value, (authorized 20,000,000 shares, issued
11,944,139 shares, outstanding 10,817,941 shares) 11,944
Additional paid-in-capital 23,367,178
Treasury stock - 1,126,198 shares, at cost (1,433,809)
Accumulated other comprehensive income (4,713)
Accumulated deficit (12,664,566)
--------------
Total Stockholders' Equity $9,276,034
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $16,053,750
==============
See notes to consolidated financial statements
F-3
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
2006 2005
-------------------- --------------------
REVENUES:
Entertainment $ 7,908,508 $ 6,908,360
Hospitality 5,419,063 4,326,891
Other 73,601 96,017
-------------------- --------------------
TOTAL REVENUES 13,401,172 11,331,268
==================== ====================
DIRECT COSTS AND EXPENSES:
Direct salaries and other compensation 3,005,657 2,600,475
Rent and utilities 2,514,104 2,301,728
Other direct operating costs 3,749,755 3,207,902
Depreciation and amortization 644,996 787,685
License expense 111,260 65,075
-------------------- --------------------
TOTAL COSTS AND EXPENSES 10,025,772 8,962,865
-------------------- --------------------
GROSS MARGIN 3,375,400 2,368,403
GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries and other compensation 884,310 542,890
Legal and accounting fees 309,671 1,050,549
Reserve for legal settlements 358,000 462,500
Depreciation and amortization 111,112 93,505
Compensation Expense 109,980 66,750
Other general and administrative 579,679 379,645
-------------------- --------------------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 2,352,752 2,595,839
GAIN (LOSS) ON DISPOSITION OF FIXED ASSETS (3,189) 995,838
-------------------- --------------------
OPERATING INCOME 1,019,459 768,402
OTHER INCOME AND EXPENSES:
Interest and investment income 114,197 39,560
Interest expense (289,022) (253,360)
Gain on sale of investment assets --- 14,184
Other Income 37,527 544,429
-------------------- --------------------
TOTAL OTHER INCOME AND EXPENSES (137,298) 344,813
INCOME BEFORE INCOME TAXES 882,161 1,113,215
PROVISION FOR INCOME TAXES 96,411 76,529
-------------------- --------------------
NET INCOME 785,750 1,036,686
Unrealized (Loss) on Marketable Securities (2,613) (1,381)
-------------------- --------------------
OTHER COMPREHENSIVE (LOSS), Net of Tax of $0 and $0 (2,613) (1,381)
-------------------- --------------------
NET COMPREHENSIVE INCOME $ 783,137 $ 1,035,305
==================== ====================
See notes to consolidated financial statements
F-4
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Years Ended December 31,
2006 2005
--------------- ---------------
EARNINGS PER SHARE:
Basic earnings per share $ 0.073 $ 0.100
=============== ===============
Diluted earnings per share $ 0.073 $ 0.099
=============== ===============
Weighted average shares outstanding - basic 10,726,972 10,361,910
Weighted average shares outstanding - diluted 10,835,611 10,425,981
See notes to consolidated financial statements
F-5
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Accumulated
Additional Other
-Common Stock- Paid-in Treasury Subscriptions Accumulated Comprehensive
Description Shares Value Capital Stock Receivable Deficit Income Total
----------- ----------- ------- ----------- ------------ ----------- -------------- ------------- -------------
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 Exercised 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,
2005 8,689,355 $10,177 $23,531,770 $ (1,892,707) $ (46,000) ($ 13,450,316) $ (2,100) $ 8,150,824
=========== ======= =========== ============ =========== ============== ============= =============
Stock dividend 1,767,249 1,767 (1,767) ---
Stock-based compensation 109,980 109,980
Issuance of treasury
stock pursuant to
employee stock purchase
plan and employee 401K
deferrals 41,337 (24,405) 52,498 28,093
Collection of
subscription receivable 46,000 46,000
Options Exercised by
employees 320,000 (248,400) 406,400 158,000
Comprehensive income for
the year ended 12/31/06 (2,613) (2,613)
Net income for the year
ended 12/31/06 785,750 785,750
----------- ------- ----------- ------------ ----------- -------------- ------------- -------------
Balance at December 31,
2006 10,817,941 $11,944 $23,367,178 $ (1,433,809) $ --- ($ 12,664,566)$ (4,713)$ 9,276,034
=========================================================================================================
See notes to consolidated financial statements
F-6
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2006 2005
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 785,750 $ 1,036,686
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 756,108 881,189
Bad debt allowance and write-offs 100,357 79,455
Stock based compensation expense 109,980 66,750
(Gain)/loss on sales of investment assets --- (9,312)
(Gain)/loss on disposal of property and equipment 16,913 (995,838)
Increase (decrease) in cash flows as a result of changes
in asset and liability account balances:
Accounts receivable 2,925 (640,743)
Prepaid expenses and other assets 505,079 (757,256)
Trade accounts payable (161,027) 133,758
Accrued expenses and other liabilities (319,772) 515,519
--------------- ---------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,796,313 310,208
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities --- 43,946
Purchase of property and equipment (453,870) (288,573)
Purchase of goodwill/intangibles --- (296,083)
Proceeds from sale of property and equipment --- 631,528
Proceeds from repayment of note receivable, net 1,177,023 860,786
--------------- ---------------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES 723,153 951,604
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable, settlements and capital leases (2,413,717) (1,229,693)
Payments on related party liabilities (164,197)
Proceeds from note payable 1,785,042
Proceeds from options exercised 158,000 59,750
Collection of subscription receivable 46,000 ---
Purchase of Treasury Stock --- ---
--------------- ---------------
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES (588,872) (1,169,943)
--------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,930,594 91,869
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 618,972 527,103
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,549,566 $ 618,972
=============== ===============
See notes to consolidated financial statements
F-7
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2006 2005
--------------- ---------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments:
Interest $ 256,893 $ 243,360
=============== ===============
Income taxes $ 120,712 $ 64,878
=============== ===============
Non-cash transactions:
Acquisition of property and equipment in exchange for notes
payable --- ---
=============== ===============
Acquisition of intangibles in exchange for notes payable --- $ 350,000
=============== ===============
Acquisition of equipment under notes payable --- $ 17,850
=============== ===============
Issuance of treasury stock under deferred compensation plan $ 14,133 $ 25,250
=============== ===============
Issuance of treasury stock under employee stock purchase plan$ 13,960 $ 19,777
=============== ===============
Issuance of treasury stock for stock subscription receivable --- $ 46,000
=============== ===============
See notes to consolidated financial statements
F-8
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
--------------------------------------------------------------------------------
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.
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.
F-9
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
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.
In 2002, Heep Shaffer filed for bankruptcy protection. At that time, the Company
had accrued for $222,603 of interest. 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 receivabFle 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 at its net
realizable value of $1,184,214.
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. 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 2006, the Company had advertising expenses of approximately
$98,845 compared to approximately $159,964 in 2005. At December 31, 2005, the
Company had prepaid advertising costs of approximately $2,800.
F-10
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
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.
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 seven (7) 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
F-11
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
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.
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:
-------------------------
Effective January 1, 2006, the Company adopted FASB Statement of Financial
Accounting Standards No. 123R (Revised 2004), Share-Based Payment, which
requires that the compensation cost relating to share-based payment transactions
be recognized in financial statements based on the provisions of SFAS 123 issued
in 1995. We have adopted this statement using the modified prospective method of
implementation, whereby the prospective method records the compensation expense
from the implementation date forward, but leaves prior periods unchanged. SFAS
123R also requires the cash flows resulting from the tax benefits from tax
deductions in excess of the compensation cost recognized (excess tax benefits)
to be classified as financing cash flows. Prior to the effective date of SFAS
123R, we applied Accounting Principles Board Opinion 25 ("APB 25"), "Accounting
for Stock Issued to Employees" and related interpretations for our stock option
grants. APB 25 provides that the compensation expense relative to our stock
options is measured based on the intrinsic value of the stock option at date of
grant.
The Company recorded approximately $110,000 in compensation expense in the
period ended December 31, 2006 related to options issued under its stock-based
incentive compensation plans. This includes expense related to both options
F-12
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
issued in the current year and options issued in prior years for which the
requisite service period for those options includes the current year. The fair
value of these options was calculated using the Black-Scholes options pricing
model. Information related to the assumptions used in this model is set forth in
the Company's Annual Report on Form 10-KSB/A for the fiscal year ended December
31, 2005. For options issued in 2006, the following assumptions were used:
dividend yield of 10%, expected volatility of 68%, risk free interest rates of
5.0% and an expected life of 7 years.
As of December 31, 2006, the Company had $114,520 of total unrecognized
compensation cost related to stock options which is expected to be recognized
over a weighted average period of 2.02 years.
The following table represents the effect on net income and earnings per share
as if the Company had applied the fair-value recognition provisions of SFAS 123
to all of its share-based compensation awards for the year ending December 31,
2005:
2005
-----------
Net income - as reported $ 1,036,686
Stock-based compensation included in reported net income,
net of related tax effects 66,750
Total stock-based compensation expense determined under the
Fair Value Based method, net of related tax effects (195,967)
-----------
Net income - pro forma 907,469
-----------
Earnings per share
Basic - as reported $0.10
Basic - pro forma $0.09
Diluted - as reported $0.10
Diluted - pro forma $0.09
Pro-forma disclosures for the year ended December 31, 2006 are not presented
because the amounts are recognized in the Consolidated Statements of Income.
Comprehensive Income:
---------------------
The Company has other comprehensive income related to unrealized gains and
losses on available for sale securities.
Recently Issued Accounting Pronouncements
-----------------------------------------
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. 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 addresses transactions in which an entity incurs
F-13
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
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.
These financial statements reflect the January 1, 2006 adoption of this
Statement.
In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation ("FIN") 48, Accounting for Uncertainty in Income Taxes - an
interpretation of Statement of Financial Accounting Standards ("SFAS") 109 .
This interpretation clarifies the accounting for uncertainty in income taxes
recognized in an entity's financial statements in accordance with SFAS 109,
Accounting for Income Taxes . It prescribes a recognition threshold and
measurement attribute for financial statement disclosure of tax positions taken
or expected to be taken on a tax return. This interpretation is effective for
fiscal years beginning after December 15, 2006. The Company does not believe the
adoption of this pronouncement will have a significant impact on its financial
position or results of operations.
In September 2006, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") 108 regarding the process of quantifying financial
statement misstatements. SAB 108 states that registrants should use both a
balance sheet approach and an income statement approach when quantifying and
evaluating the materiality of a misstatement. The interpretations in SAB 108
contain guidance on correcting errors under the dual approach as well as provide
transition guidance for correcting errors. This interpretation does not change
the requirements within SFAS 154, Accounting Changes and Error Corrections - a
replacement of APB 20 and FASB Statement 3 , for the correction of an error on
financial statements. SAB 108 is effective for annual financial statements
covering the first fiscal year ending after November 15, 2006. We adopted this
interpretation on December 31, 2006. The adoption of SAB 108 did not have a
significant effect on our consolidated financial statements.
In September 2006, the FASB issued SFAS 157, Fair Value Measurements . This
standard defines fair value, establishes a framework for measuring fair value in
accounting principles generally accepted in the United States of America, and
expands disclosure about fair value measurements. This pronouncement applies
under other accounting standards that require or permit fair value measurements.
Accordingly, this statement does not require any new fair value measurement.
This statement is effective for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. We will be required to adopt SFAS
157 in the first quarter of fiscal year 2008. We are currently evaluating the
requirements of SFAS 157 and have not yet determined the impact on our
consolidated financial statements.
In March 2006, the Emerging Issues Task Force ("EITF") reached a consensus on
EITF Issue 06-3, How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (that is, Gross versus
Net Presentation) . Taxes within the scope of EITF Issue 06-3 include any taxes
assessed by a governmental authority that are directly imposed on a
revenue-producing transaction between a seller and a customer and may include,
but are not limited to, sales taxes, use taxes, value-added taxes, and some
excise taxes. The EITF concluded that the presentation of these taxes on either
a gross (included in revenues and costs) or a net (excluded from revenue) basis
is an accounting policy decision that should be disclosed. For any such taxes
that are reported on a gross basis, a company should disclose the amounts of
those taxes in interim and annual financial statements. Our policy is to exclude
all such taxes from revenue. The provisions of EITF 06-3 are effective for
interim and annual reporting periods beginning after December 15, 2006. The
adoption of EITF 06-3 will not have any effect on our consolidated financial
statements.
F-14
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
--------------------------------------------------------------------------------
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 were amended. The Company filed Amendment
No. 1 to its 2005 financial statements on Form 10-KSB/A on August 31, 2006.
References in this 10-KSB to our operations, assets, liabilities and cash flows
for the full year 2005 include the previously reported revisions to financial
information for the period ended December 31, 2005.
--------------------------------------------------------------------------------
NOTE 3 - MATERIAL ACQUISITIONS, OPENINGS, CLOSINGS AND REORGANIZATIONS
--------------------------------------------------------------------------------
2006
In August, 2006, the Company announced development of a new Texas Bingo hall in
San Angelo, Texas adjacent to its hall purchased in 2005. The Hall is planned to
open in Q2 2007.
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.
F-15
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
--------------------------------------------------------------------------------
NOTE 4 - PROPERTY AND EQUIPMENT
--------------------------------------------------------------------------------
Property and equipment at December 31, 2006 consists of the following:
Land $ 764,053
Buildings 3,221,713
Building and leasehold improvements 3,950,838
Bingo, and rental equipment 1,775,574
Equipment, furniture and fixtures 2,379,273
Automobiles 379,433
--------------------
12,470,884
Less: Accumulated depreciation and amortization (6,414,222)
--------------------
Property and equipment, net $ 6,056,662
====================
Depreciation and amortization expense charged to operations for the years ended
December 31, 2006 and 2005 was $756,108 and $881,190 respectively.
--------------------------------------------------------------------------------
NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS
--------------------------------------------------------------------------------
Goodwill at December 31, 2006 is as follows:
Gross
Carrying Accumulated
Amount Amortization Total
--------------- ---------------- ----------------
Goodwill $ 6,704,375 $ (1,799,264) $ 4,905,111
=============== ================ ================
Entertainment Hospitality Total
--------------- ---------------- ----------------
Balance at December 31, 2005 $ 4,533,727 $ 371,384 $ 4,905,111
Goodwill acquired during the year --- --- ---
Impairment losses --- --- ---
Goodwill disposed during the year --- --- ---
--------------- ---------------- ----------------
Balance at December 31, 2006 $ 4,533,727 $ 371,384 $ 4,905,111
=============== ================ ================
F-16
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
Intangible assets at December 31, 2006 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 $ (211,549) $ 85,951
-----------------
Intangible Assets, Net of Accumulated
Amortization $ 623,696
=================
Future amortization on intangible assets with finite lives is as follows:
Year Amount
---- ------
2007 27,500
2008 27,500
2009 15,951
2010 10,000
2011 5,000
Thereafter ---
--------
Total $85,951
========
--------------------------------------------------------------------------------
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, 2006 and 2005, the Company evaluated the
carrying value of goodwill for each reporting unit of the Company and determined
that no impairment of goodwill was necessary.
F-17
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
--------------------------------------------------------------------------------
NOTE 7 - LONG-TERM DEBT
--------------------------------------------------------------------------------
Long-term debt at December 31, 2006 consist of the following:
Note payable to a bank, due in monthly installments of approximately $22,000
including interest at prime plus 0.5%, maturing March 2011, secured by real
estate $ 1,785,042
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 871,344
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 602,668
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 490,827
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 124,284
Installment note payable to a third party, due in monthly installments of
$4,600, including interest at 6%, maturing September 2011, secured by stock 305,729
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 82,856
---------------
4,262,750
Less current maturities (224,515)
---------------
Long-term debt, net of current portion $ 4,038,235
===============
Long-term debt, legal settlements at December 31, 2006 consists of the following:
Installments to a third parties, due monthly in the amount of $10,000 to
$25,000, including interest at 14%, maturing through July 2010, unsecured $ 921,004
Less current maturities (309,885)
---------------
Long-term debt, net of current portion $ 611,119
===============
F-18
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
Payments of notes payable and long term debt, legal settlements for each of the
next five fiscal years and thereafter are as follows:
Years Ending Notes Legal
December 31, Payable Settlements Total
------------- ------------- -------------- --------------
2007 $ 224,515 $ 309,885 $ 534,400
2008 240,819 225,971 466,790
2009 258,732 259,718 518,450
2010 277,456 125,430 402,886
2011 1,643,170 --- 1,643,170
Thereafter 1,618,058 --- 1,618,058
------------- -------------- --------------
$ 4,262,750 $ 921,004 $ 5,183,754
============= ============== ==============
Interest expense for the years ended December 31, 2006 and 2005 were
approximately $289,000 and $253,000 respectively.
--------------------------------------------------------------------------------
NOTE 8 - OBLIGATIONS UNDER CAPITAL LEASES
--------------------------------------------------------------------------------
The Company did not enter into any new capital leases in 2006 and paid off its
capital lease obligations.
--------------------------------------------------------------------------------
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 payable and legal settlements at
December 31, 2006 are as follows:
Carrying Amount Fair Value
--------------- ----------
Notes payable 4,262,750 4,262,750
Long term debt, legal settlements 921,004 921,004
The fair values of the Company's fixed rate notes payable have been estimated
based upon relative changes in the Company's borrowing rates since origination
of the fixed rate debt.
F-19
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
--------------------------------------------------------------------------------
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 2006 and 2005 is as
follows:
2006 2005
-------------- ----------------
Expected income tax (benefit) $ 299,935 $ 378,493
Amounts not deductible for federal income tax purposes 3,514 23,715
State income taxes, net of federal income tax 96,411 76,529
Change in valuation allowance (303,449) (402,208)
-------------- ----------------
$ 96,411 $ 76,529
============== ================
The provision for income taxes consists of the following:
2006 2005
-------------- ----------------
Current year income taxes:
Federal $ -0- $ 10,000
State 96,411 76,529
Deferred income taxes:
Federal -0- (10,000)
State -0- -0-
-------------- ----------------
$ 96,411 $ 76,529
============== ================
Deferred tax assets and liabilities as of December 31, 2006 are as follows:
2006 2005
-------------- ----------------
Deferred tax asset $ 4,529,831 $ 4,843,280
Deferred tax liability --- ---
Valuation allowance for deferred tax asset (4,529,831) (4,833,280)
-------------- ----------------
Net deferred tax asset $ -0- $ 10,000
============== ================
The components of deferred tax assets at December 31, 2006 and 2005 are as follows:
Deferred tax asset 2006 2005
-------------------------------- -------------- ----------------
Net operating loss carryforward $ 2,662,287 $ 2,412,003
Depreciation 644,040 884,258
Allowance for doubtful accounts 70,156 30,987
Accrued expenses 1,133,277 1,506,032
Capital Loss carryforward 20,071 ---
Other --- 10,000
-------------- ----------------
Net deferred tax asset $ 4,529,831 $ 4,843,280
============== ================
F-20
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
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, 2006, the Company has net operating loss carry forwards for
federal income tax purposes of approximately $6.8 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 1,126,198 treasury shares.
In 2006 the Company issued 1,767,249 shares of its stock as a stock dividend.
The Company issued 41,337 shares of treasury stock under the Employee Stock
Purchase Plan and 401K Plan at a cost of $28,093. The Company issued 320,000
shares of treasury stock under options exercised by employees for cash of
$158,000. The Company received payment of $46,000 for a subscription receivable.
In addition, the Company recognized additional compensation expense of $109,980
related to stock-based compensation.
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.
--------------------------------------------------------------------------------
NOTE 12 - EARNINGS PER SHARE
--------------------------------------------------------------------------------
A reconciliation of basic to diluted earnings (loss) per share is as follows:
2006 2005
-------------------------- -------------------------
Numerator: Basic Diluted Basic Diluted
---------------------
Net income $785,750 $785,750 $1,036,686 $1,036,686
-------------------------- -------------------------
Net income available to common
stockholders $785,750 $785,750 $1,036,686 $1,036,686
-------------------------- -------------------------
Denominator:
---------------------
Weighted average shares
outstanding 10,726,972 10,726,972 10,361,910 10,361,910
Effect of dilutive securities:
Stock options and warrants --- 108,639 --- 64,071
-------------------------- -------------------------
Weighted average shares
outstanding 10,726,972 10,835,611 10,361,910 10,425,981
========================== =========================
Earnings per share $0.07 $0.07 $0.10 $0.10
========================== =========================
F-21
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
--------------------------------------------------------------------------------
NOTE 13 - ACCOUNTING FOR STOCK BASED COMPENSATION
--------------------------------------------------------------------------------
The Company applies FASB Statement of Financial Accounting Standards No. 123R
(Revised 2004), Share Based Payment using the modified prospective method of
implementation, whereby the prospective method records the compensation expense
from the implementation date forward, however leaves prior periods recorded in
accordance with APB Opinion No. 25 "Accounting for Stock Issued to Employees"
("APB 25") in accounting for its stock options. At December 31, 2006, 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
3,600,000 common shares, as adjusted for the 20% stock dividend in 2006 over ten
years from the date of each plan's approval. In addition, the plans allow for
additional increases of 15% of the then outstanding shares each year through
2008. At December 31, 2006, a total of 763,566 options were outstanding under
these plans.
Employee Stock Plans Other Compensatory Combined Total
--------------------------------------- -------------------------- ------------------
Weighted Weighted
Average Average
Options Exercise Price Options Exercise Price Options
--------------------------------------- -------------------------- ------------------
Outstanding at 12/31/04 1,034,055 $1.25 --- --- 1,034,055
Granted 425,000 0.61 --- --- 425,000
Exercised (225,000) (0.47) --- --- (225,000)
Forfeited (132,500) (1.53) --- --- (132,500)
---------------------------------------- ------------------
Outstanding at 12/31/05 1,101,555 $1.13 --- --- 1,101,555
Granted 141,011 0.16 --- --- 141,011
Exercised (320,000) (0.49) --- --- (320,000)
Forfeited (159,000) (3.62) --- --- (159,000)
---------------------------------------- ------------------
Outstanding at 12/31/06 763,566 $0.70 --- --- 763.566
======================================== ==================
The fair value of options issued during 2006 and 2005 were approximately $9,000
and $247,000, respectively. The 141,011 options granted in 2006 includes the
affect of the stock dividend issued on employee stock plans of 126,011 options
and 15,000 options granted at a weighted average exercise price of $1.46.
F-22
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
The following table summarizes information about options outstanding at December
31, 2006 and 2005 under the Employee Stock Plan adjusted for the 2006 stock
dividend:
Options Outstanding Options Exercisable
------------------------------------------ ----------------------------
Weighted Avg.
Remaining
Range of Number Contractual Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price
--------------- ------------------------------------------ ----------------------------
2006: $2.83 - 4.23 --- --- --- --- ---
$1.88 - 2.82 60,000 1.1 years $2.74 60,000 $2.74
$1.26 - 1.87 16,500 9.4 years $1.32 16,500 $1.32
$0.00 - $1.25 687,066 7.8 years $0.51 450,066 $0.51
763,566 7.3 years $0.70 526,566 $0.79
2005: $3.39 - $5.07 150,000 0.3 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 $0.58 505,305 $0.58
1,101,555 7.1 years $1.13 705,305 $1.45
Aggregate
intrinsic value $212,532 $141,432
Aggregate intrinsic value represents the value of the Company's closing stock
price on the last trading day of the year in excess of the exercise price
multiplied by the number of options outstanding or exercisable. The total
intrinsic value of options exercised during the years ended December 31, 2006
and 2005 was $325,575 and $43,725, respectively.
--------------------------------------------------------------------------------
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.
F-23
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
The President and CEO of the Company had personally guaranteed $300,000 of a
note payable to a third party lender, in the original total amount of $540,000.
The note was paid in full in May 2005. The Company accrued a total of $61,125 in
loan guaranty fees to him in 2002. In 2002, the President was awarded a $300,000
bonus which is presented on the balance sheet with accrued interest as a current
Other current liabilities - related party. The Company accrued $24,376 in
interest in 2006 and $24,376 in 2005 on this liability.
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 2006 and $7,131 in 2005.
During 2006, the Board unanimously approved repayment of the office furniture
note, loan guarantee and interest thereon in the amount of $105,650, $61,125 and
$21,798, respectively.
In accordance with the renewed employment agreement of the President and CEO the
Company accrued $24,000 of deferred compensation.
--------------------------------------------------------------------------------
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
------------ ----------
2007 1,730,343
2008 1,474,920
2009 1,168,556
2010 896,068
2011 774,466
Thereafter 332,265
-------
Total minimum annual rentals $6,376,618
==========
Rent expense for the years ended December 31, 2006 and 2005 amounted to
approximately $1.8 million and $1.6 million, respectively.
F-24
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
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
------------ --------
2007 93,600
2008 93,600
2009 93,600
2010 93,600
2011 93,600
Thereafter 312,000
--------
Total minimum annual rentals $780,000
========
--------------------------------------------------------------------------------
NOTE 15 - COMMITMENTS AND CONTINGENCIES
--------------------------------------------------------------------------------
(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.
Settled. These two related cases have been settled and 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.)
F-25
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
--------------------------------------------------------------------------------
NOTE 15 - COMMITMENTS AND CONTINGENCIES
--------------------------------------------------------------------------------
American Bingo did not pay the remaining amounts under the acquisition contracts
since they believed the sellers breached the contracts and committed fraud by
failing to disclose the ongoing investigation by the Florida Attorney General's
office. Pondella filed a two count Complaint against American Bingo in the
Circuit Court for Manatee County, alleging breach of contract and common law
conversion. At the same time, 800438 Ontario also filed a similar Complaint
against American Bingo for breach of contract. American Bingo answered both
Complaints by denying the essential allegations. Additionally, American Bingo
brought Counterclaims against Pondella and 800438 for fraud, negligent
misrepresentation, breach of warranties, contractual indemnity, breach of
guaranty, deceptive and unfair trade practices, and violation of Chapter 517 of
the Florida Statutes. American Bingo also brought claims against Furtney for his
role. However, Furtney, a Canadian citizen and resident of Canada and Mexico,
would not accept service of American Bingo's Complaints and American Bingo was
unable to obtain service of its Complaints on Furtney. The Complaints against
Furtney were dismissed before trial due to lack of service.
A jury trial on all claims, except American Bingo's claims against Furtney, was
conducted in January 2005. The Jury found for Pondella and 800438 Ontario on all
their claims and against American Bingo on their claims against Pondella and
800438 Ontario. Following trial, the Judge granted American Bingo's motion for a
directed verdict on Pondella's claim for conversion. The principal amount of
Pondella's judgment is $410,000 and with interest and attorney's fees totals
$802,039. The principal amount of 800438 Ontario's judgment was $450,000 and
with interest and attorney's fees totals $808,996. The Company appealed these
judgments to the Florida Second District Court of Appeal and vigorously pursued
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
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. In November, 2006 a final decision was reached for
the plaintiffs. As a result, the Company recorded an additional $175,000 legal
expense in its fourth quarter. The Company funded the amount paid including
certain attorney fees through a bank loan collateralized by certain real estate.
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.
Littlefield is the Plaintiff in this case which is still pending. 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. The Company expects a trial date in May
2007.
F-26
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
--------------------------------------------------------------------------------
NOTE 15 - COMMITMENTS AND CONTINGENCIES
--------------------------------------------------------------------------------
Lenrich Associates LLC v. Littlefield Corporation, et al; Civil Action No.
00-CP-10-4742, South Carolina Court of Common Pleas, County of Charleston.
Settled. Lenrich Associates brought this action against the Company based on a
commercial lease guaranty that was signed by the Company. The tenant on the
lease was Concessions Corp., a subsidiary of the Company and had been used as
the location of the "Lucky II" facility, which was closed in early 2000. The
lease expired in February 2003. Because rental payments under the lease were in
arrears, Lenrich Associates sought to enforce the guaranty against the Company.
The Company's liability under the guaranty was capped at the lesser of two years
of fixed and additional rent or the amount of fixed and additional rent
corresponding to the time period mandated by South Carolina law. A settlement
agreement had been reached for $147,500, which has been accrued for by the
Company in June 2002. However, the plaintiff withdrew their support of the
settlement agreement shortly thereafter. Effective January 1, 2006 a settlement
was reached between the two parties in which Littlefield will pay a sum of
$500,000. The Company accrued for the remaining balance of approximately
$353,000 in the 2005 financial statements. A payment was made in one lump sum
payment of $250,000 on January 3, 2006 and additional payment have been made in
the amount of $10,000 a month and will continue for the next 25 months, final
payment to be made January 5, 2008.
Littlefield Corp. v. Dye, Civil Action No. 2002-cp-08-478.
Settled. 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 alleged
that Dye owed $58,481 toward the principal 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 alleged that the Company owed him $375,000 in unpaid salary
and sought treble damages under the Payment of Wages Act for a total amount of
$1,250,000 in damages. On September 19, 2005, the parties agreed to voluntarily
dismiss their claims pursuant to South Carolina Rule of Civil Procedure 40(j).
Rule 40(j) permits parties to voluntarily dismiss claims with leave to restore
the case to the active trial roster within one year of dismissal. If the parties
do not restore the case to the trial roster within one year, all claims are
dismissed with prejudice. Neither Mr. Dye nor the Company elected to restore
this case to the trial roster within the one year period and thus the claims of
both parties are now dismissed with prejudice.
Collins Entertainment Corp. v. Coats and Coats Rental Amusement, d/b/a Ponderosa
Bingo and Shipwatch Bingo, Wayne Coats, individually, and American Bingo &
Gaming Corp., Civil Action No. 97-CP-10-4685.
Settled. This case has been settled. After a split, adverse decision by the
South Carolina Supreme Court, the Company entered into settlement negotiations
while also preserving its right to further review with the United States Supreme
Court on the issue of punitive damages. Subsequent to the filing of the
Company's petition for a writ of certiorari with the United States Supreme
Court, the matter was settled on August 25, 2006. At the time of settlement, the
judgment against the Company, including principal and interest, totaled
$2,792,033. The total settlement reached included an initial payment of
$1,025,000 due upon execution of the settlement agreement plus 46 consecutive
monthly payments of $25,000 commencing October 1, 2006, for a total settlement
of $2,175,000 over the 46 month period. In the event of a default of payment of
the remaining amounts due, the original judgment amount less amounts previously
paid shall be due and payable. In recognition of the present value of the
settlement, the Company, in its third quarter of 2006, recorded an additional
$184,000 in legal expense in addition to previously recognized legal expense of
$1,727,000 in prior years. The carrying amount of the settlement liability
outstanding as of December 31, 2006 was $801,004 for 41 remaining payments. The
Company withdrew the petition to the United States Supreme Court and will
receive a full release of all claims and a satisfaction of the judgment upon the
record when payments are completed.
F-27
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
--------------------------------------------------------------------------------
NOTE 15 - COMMITMENTS AND CONTINGENCIES
--------------------------------------------------------------------------------
Amy Ramon, et al v. Clark C. Lilly, et al; Cause No. 2006-535,397 in the 237th
District Court of Lubbock County, Texas.
This case is still pending. This proceeding is the result of the consolidation
of four separate lawsuits. Littlefield Corporation, Meeks Management Company
(sued as Meeks Management Corporation), and Littlefield Charitable Bingo
Management Consulting, Inc., (and other non-related parties including the
charities) are defendants in this case. The Plaintiffs are six former employees
of various charities which operate from a bingo hall leased to the charities by
Meeks Management Company. Plaintiffs have sued, among others, Littlefield
Corporation, and two of its subsidiaries, Meeks Management Company (sued as
Meeks Management Corporation) and Littlefield Charitable Bingo Management
Consulting, Inc.
The plaintiffs claim that the bingo hall manager sexually harassed them and
terminated them in violation of their rights under nondiscrimination provisions
of the Texas Labor Code and also assert various tort claims against the
defendants under state law, including, but not limited to, claims for negligent
hiring, supervision, and retention of the alleged harasser. Plaintiffs allege
that the defendants (other than the bingo hall manager), including Littlefield
and its named subsidiaries, were their employers and the employers of the
accused harasser. All of the plaintiffs claim that Littlefield (and subs) as
well as the charities were their employers and that of Clark Lilly and liable
for his harassing and other tortuous conduct. Various claims are also made for
negligence in hiring, supervision, and retention of Mr. Lilly and other state
law tort claims which are not technically dependent upon the status of
Littlefield as an employer under the state discrimination law. The plaintiffs
also claimed they were terminated in retaliation for making their claims of
discrimination. Some of the plaintiffs have also claimed sexual discrimination
in compensation. The depositions of some, but not all, of the plaintiffs have
been taken. None of the depositions of the defendants have been taken.
Littlefield and named subsidiaries intend to seek a summary judgment soon after
the depositions of the defendants are taken on the basis of the lack of an
employee-employer relationship with either the plaintiffs or Mr. Lilly.
Littlefield and its named subsidiaries intend to vigorously defend this case
because the plaintiffs and the alleged harasser were not their employees. Trial
is scheduled for October 15, 2007.
South Carolina Department of Revenue v. Littlefield Corporation, Midlands
Promotions, Inc., Low Country Promotions, Inc., Gamecock Promotions, Inc., H.F.
Help, Inc., United Black Fund of Midlands, Berkeley County SPCA, S.C.
Battleground Pres. Trust, Charleston County FOP, Coastal Carolina FOP Lodge#12,
Humane Net Inc., Gamecock Promotions, Fraternal Order of Police Lodge #19; Hejaz
Shrine Temple, Pet Helpers, Inc., Cannon Street YMCA and Low Country Food Bank,
05-ALJ-17-0413-CC
This case is still pending. In January 2006, the Company filed for a summary
judgment relating to the South Carolina Department of Revenue issuance of an
administrative bingo violation alleging that the Company has an unlawful number
of bingo promoter licenses. The Department of Revenue seeks to revoke all but 5
bingo promoter licenses held by the Company's South Carolina subsidiaries and
seeks a $5,000.00 penalty. The Department of Revenue's theory is that the three
South Carolina subsidiaries are invalid corporations and that as a matter of law
the Company is the holder of the 12 promoter licenses at issue. South Carolina
law provides that a promoter may only have 5 licenses. The South Carolina
Department of Revenue has moved to pierce the corporate veil of the Company to
thereby attribute the promoter licenses to the Company. In February 2007, the
case was continued and removed from the docket for up to approximately 18 months
and a partial summary judgment was granted dismissing named charities from the
matter. The Company is vigorously defending itself and asserts that it is not
the holder of the promoter licenses but rather that its lawfully formed
subsidiaries are separate corporations that each holds a lawful number of the
promoter licenses.
F-28
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
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NOTE 15 - COMMITMENTS AND CONTINGENCIES
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(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
2006 or 2005.
(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, 2006, cash in banks
exceeded FDIC coverage by approximately $2.3 million.
(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 2006 employees were allowed to defer up to 90% of their wages to a
maximum of $15,000, 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, 2006 and 2005, 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, 2006, 153,400 shares have been purchased through this
program. Of the shares purchased 26,984 shares were purchased in 2006 and 17,621
in 2005.
F-29
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
During 2006, the Company renewed and modified its employment agreement with its
President and CEO to extend through December 31, 2008. Should the Company
terminate the employment agreement without cause, the Company would be liable
for salary compensation of $200,000, the acceleration of unvested stock-based
compensation, deferred compensation of $24,000 and the payment of other stated
benefits earned in cash.
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NOTE 16 - SEGMENTS
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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 gross profit (loss), therefore, corporate overhead
including general and administrative expenses, 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.
A summary of the segment financial information reported to the CODM is as
follows:
Year Ended December 31, 2006
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Entertainment Hospitality Adjustment Consolidated
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Revenue $7,909,000 $5,419,000 $73,000 $13,401,000
Depreciation and
amortization 409,000 236,000 111,000 756,000
Segment profit (loss) 3,283,000 46,000 (2,543,000) 786,000
Segment Assets $25,050,000 $1,631,000 (10,627,000) 16,054,000
F-30
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
Year Ended December 31, 2005
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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) 2,510,000 (221,000) (1,252,000) 1,037,000
Segment Assets $24,913,000 $1,604,000 (10,289,000) 16,228,000
The adjustments represent other corporate expenses, other income, depreciation
and amortization related to corporate assets, corporate gains and losses on
disposition of assets, and corporate capital expenditures to reconcile segment
balances to consolidated balances.
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NOTE 17 - INVESTMENTS
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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:
2006
---------------------------------------------
Unrealized
Basis Fair Value Gain (Loss)
---------- ------------ ----------------
Mutual Funds $8,139 $3,426 $(4,713)
========== ============ ================
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 $ (2,613)
Gain(Loss) recognized in prior year earnings (2,100)
Unrealized holding gain (loss) on investments held for sale. $ (4,713)
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NOTE 18 - SUBSEQUENT EVENTS
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In March 2007, the Company received a commitment to refinance its obligations
related to certain legal settlements through a bank note payable. The note bears
interest at prime plus one-half percent (0.5%), contains certain loan covenants
and is secured by certain real estate. Associated with the refinancing, the
Company plans to use its restricted cash in conjunction with the bank
refinancing to payoff an existing bank note and remove an existing lien
position.
In March 2007, the Company sold 400,000 unregistered shares of its common stock
for proceeds of $476,560 to an institutional investor at a fifteen percent (15%)
premium.
F-31