SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal quarter ended March 31, 2007
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file No. 0-24805
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Littlefield Corporation
-----------------------
(Exact name of small business issuer as specified in its charter)
Delaware 74-2723809
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2501 North Lamar Blvd., Austin TX 78705
---------------------------------------
(Address of principal executive offices)
(512) 476-5141
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES [ ] NO [ X ]
As of March 31, 2007, the Issuer had 11,217,941 shares of its Common Stock, par
value $0.001 per share outstanding.
Transitional Small Business Disclosure Format: YES [ ] NO [ X ]
Littlefield Corporation
FORM 10-QSB
For the quarter ended March 31, 2007
INDEX
Part I. Financial Information
Item 1. Financial Statements
a) Consolidated Statements of Operations for the Three
Months Ended March 31, 2007 and 2006........................................ 2
b) Consolidated Balance Sheet as of March 31, 2007............................. 4
Consolidated Statements of Cash Flows for the Three
c) Months Ended March 31, 2007 and 2006........................................ 5
d) Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations................................................... 15
Item 3. Controls and Procedures 17
Part II. Other Information
Item 1. Legal Proceedings.................................................. 18
Item 6. Exhibits........................................................... 18
Signatures 18
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Littlefield Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31, 2007 2006
----------- -----------
REVENUES:
Entertainment $2,334,101 $2,172,319
Hospitality 1,143,396 700,848
Other 11,623 46,070
----------- -----------
TOTAL REVENUES 3,489,120 2,919,237
----------- -----------
DIRECT COSTS AND EXPENSES:
Direct salaries and other compensation 768,623 568,518
Rent and utilities 617,201 613,819
Other direct operating costs 801,753 658,442
Depreciation and amortization 156,061 163,617
License expense 30,829 40,226
----------- -----------
TOTAL COSTS AND EXPENSES 2,374,467 2,044,622
----------- -----------
GROSS MARGIN 1,114,653 874,615
GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries and other compensation 273,030 147,854
Legal and accounting fees 110,388 15,379
Depreciation and amortization 28,600 24,396
Stock-based compensation expense 14,311 24,958
Other general and administrative 195,238 111,203
----------- -----------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 621,567 323,790
OPERATING INCOME 493,086 550,825
OTHER INCOME (EXPENSE):
Interest and investment income 14,942 32,452
Interest expense ($5,063 and $7,877 respectively to related parties) (129,888) (56,859)
Gain(loss) on fixed asset sales 0 346
Other income 0 37,402
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (114,946) 13,341
----------- -----------
NET INCOME BEFORE PROVISION FOR INCOME TAXES 378,140 564,166
PROVISION FOR INCOME TAXES 20,000 15,000
----------- -----------
NET INCOME 358,140 549,166
OTHER COMPREHENSIVE INCOME 33 0
----------- -----------
NET COMPREHENSIVE INCOME $ 358,173 $ 549,166
=========== ===========
See notes to consolidated financial statements.
2
Littlefield Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31, 2007, 2007 2006
------------ ------------
EARNINGS PER SHARE:
Basic earnings per share $ 0.033 $ .052
============ ============
Diluted earnings per share $ 0.032 $ .052
============ ============
Weighted average shares outstanding - basic 10,955,719 10,494,921
============ ============
Weighted average shares outstanding - diluted 11,178,523 10,637,927
============ ============
See notes to consolidated financial statements.
3
Littlefield Corporation
CONSOLIDATED BALANCE SHEET (Unaudited)
ASSETS
------
Current Assets: March 31, 2007
-------------------------
Cash and cash equivalents $ 3,198,128
Accounts receivable, net of allowance for doubtful accounts of $166,900 900,555
Equity Securities, available for sale 3,460
Restricted Cash 434,000
Other prepaid expenses and current assets 229,297
Note receivable 6,753
-------------------------
Total Current Assets 4,772,193
-------------------------
Property and Equipment - at cost, net of accumulated depreciation and amortization 6,005,394
Other Assets:
Goodwill 4,905,111
Intangible assets, net 616,321
Other non-current assets 200,799
-------------------------
Total Other Assets 5,722,231
-------------------------
TOTAL ASSETS $ 16,499,818
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Long term debt, current portion 224,515
Long term debt, legal settlements, current portion 279,885
Trade accounts payable 109,005
Accrued expenses 768,285
Other current liabilities - related party 391,121
-------------------------
Total Current Liabilities 1,772,811
-------------------------
Long-term Liabilities:
Long term debt, net of current portion 4,008,157
Long term debt, legal settlements, net of current portion 563,772
Long term debt-related party 30,000
-------------------------
Total Long-term Liabilities 4,601,929
-------------------------
Total Liabilities 6,374,740
-------------------------
Stockholders' Equity:
Common stock, $0.001 par value, (authorized 20,000,000 shares, issued 12,344,139 shares,
outstanding 11,217,941 shares) 12,344
Additional paid-in-capital 23,857,649
Treasury stock - 1,126,198 shares, at cost (1,433,809)
Accumulated Comprehensive Income (4,680)
Accumulated deficit (12,306,426)
-------------------------
Total Stockholders' Equity 10,125,078
-------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,499,818
=========================
See notes to consolidated financial statements.
4
Littlefield Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three months Ended March 31, 2007 2006
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 358,140 $ 549,166
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 184,661 188,012
Stock based compensation expense 14,311 24,958
Increase (decrease) in cash flows as a result of changes in asset and liability account
balances:
Accounts receivable 188,185 259,416
Other assets and licenses (44,301) (27,801)
Trade accounts payable (155,633) (290,849)
Accrued expenses and other current liabilities (139,918) (297,588)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 405,445 405,314
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures (126,018) (85,400)
Proceeds from collection of Note Receivable 0 1,184,214
-----------------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (126,018) 1,098,814
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations -- (18,537)
Payments on notes payable and legal settlement obligations (107,425) (146,221)
Proceeds from issued shares 476,560
Collections of Subscription receivable -- 46,000
Proceeds from options exercised -- 66,000
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 369,135 (52,758)
----------- -----------
NET INCREASE IN CASH 648,562 1,451,370
CASH AT BEGINNING OF PERIOD 2,549,566 618,972
----------- -----------
CASH AT END OF PERIOD $3,198,128 $2,070,342
=========== ===========
See notes to consolidated financial statements.
5
Littlefield Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three months Ended March 31, 2007 2006
--------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments:
Interest $124,819 $50,736
========= ========
Income taxes $ 275 $ 0
========= ========
Non-cash transactions:
Issuance of treasury stock for deferred compensation and 401K plan $ 0 $24,403
========= ========
See notes to consolidated financial statements.
6
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2007
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NOTE 1 - PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION.
--------------------------------------------------------------------------------
The unaudited consolidated financial statements include the accounts of
Littlefield Corporation and its wholly owned subsidiaries (the "Company"). The
financial statements contained herein are unaudited and, in the opinion of
management, contain all adjustments necessary for a fair presentation of
financial position, results of operations and cash flows for the periods
presented. The preparation of the condensed consolidated financial statements in
conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and liabilities and the
reported amount of revenue and expenses during the reported period. Actual
results could differ from these estimates. Where appropriate, items within the
consolidated condensed financial statements have been reclassified to maintain
consistency and comparability for all periods presented.
The operating results for the three-month period ended March 31, 2007 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2007. Except for historical information contained herein,
certain matters set forth in this report are forward looking statements that are
subject to substantial risks and uncertainties, including the impact of
government regulation and taxation, customer attendance and spending,
competition, and general economic conditions, among others. This Quarterly
Report on Form 10-QSB contains "forward-looking" statements as such term is
defined in the Private Securities Litigation Reform Act of 1995 and information
relating to the Company and its subsidiaries that are based on the beliefs of
the Company's management. When used in this report, the words "anticipate,"
"believe," "estimate," "expect," and "intend" and words or phrases of similar
import, as they relate to the Company or its subsidiaries or Company management,
are intended to identify forward-looking statements. Such statements reflect the
current risks, uncertainties and assumptions related to certain factors
including, without limitations, competitive factors, general economic
conditions, customer relations, relationships with vendors, the interest rate
environment, governmental regulation and supervision, seasonality, distribution
networks, product introductions and acceptance, technological change, changes in
industry practices, onetime events and other factors described herein and in
other filings made by the company with the Securities and Exchange Commission,
based upon changing conditions, should any one or more of these risks or
uncertainties materialize, or should any underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. The Company does not intend to update
these forward-looking statements.
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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-QSB 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 restated financial statements for the first quarter of 2006 are contained in
Amendment No. 1 to the Company's report on Form 10-QSB/A for the period ended
March 31, 2006, filed with the SEC on August 22, 2006. The Company filed
Amendment No. 1 to its 2005 financial statements on Form 10-KSB/A on August 31,
2006. References in this 10-QSB to our operations, assets, liabilities and cash
flows for the first quarter 2006 include the previously reported revisions to
financial information for the period ended March 31, 2006.
7
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2007
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NOTE 3 - PROPERTY AND EQUIPMENT.
--------------------------------------------------------------------------------
Property and equipment at March 31, 2007 consists of the following:
Land $ 742,843
Buildings 3,274,925
Leasehold improvements 3,918,836
Rental inventory and bingo equipment 1,799,609
Equipment, furniture and fixtures 2,409,256
Automobiles 451,433
------------
12,596,902
Less: Accumulated depreciation and amortization (6,591,508)
------------
Property and equipment, net $ 6,005,394
============
Total depreciation expense, for owned and leased assets, charged to operations
for the three months ended March 31, 2007 and 2006 was approximately $177,300
and $182,000 respectively.
--------------------------------------------------------------------------------
NOTE 4 - GOODWILL & OTHER INTANGIBLE ASSETS.
--------------------------------------------------------------------------------
Goodwill at March 31, 2007 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, 2006 $ 4,533,727 $ 371,384 $4,905,111
Goodwill acquired during the year --- --- ---
Impairment losses --- --- ---
Goodwill disposed during the year --- --- ---
------------- ------------ -----------
Balance at March 31, 2007 $ 4,533,727 $ 371,384 $4,905,111
============= ============ ===========
8
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2007
Intangible assets at March 31, 2007 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 $(218,924) $ 78,576
---------
Intangible Assets, Net of Accumulated Amortization $616,321
=========
Amortization expense charged to operations for the three months ended March 31,
2007 and 2006 was approximately $7,400 and $6,400 respectively.
--------------------------------------------------------------------------------
NOTE 5 - SHAREHOLDERS' EQUITY.
--------------------------------------------------------------------------------
At March 31, 2007 the Company holds 1,126,198 treasury shares at an average
purchase cost of $1.27.
--------------------------------------------------------------------------------
NOTE 6 - SHARE BASED PAYMENTS.
--------------------------------------------------------------------------------
Effective January 1, 2006, the Company adopted FASB Statement of Financial
Accounting Standards No. 123R (Revised 2004), Share-Based Payment, which
requires that the compensation cost relating to share-based payment transactions
be recognized in financial statements based on the provisions of SFAS 123 issued
in 1995. We have adopted this statement using the modified prospective method of
implementation, whereby the prospective method records the compensation expense
from the implementation date forward, but leaves prior periods unchanged.
The Company recorded approximately $14,000 in compensation expense in the period
ended March 31, 2007 related to options issued under its stock-based incentive
compensation plans. This includes expense related to both options issued in the
current year and options issued in prior years for which the requisite service
period for those options includes the current year. The fair value of these
options was calculated using the Black-Scholes options pricing model. 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. There were no options issued in the three month period
ended March 31, 2007.
9
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2007
--------------------------------------------------------------------------------
NOTE 7 - EARNINGS (LOSS) PER SHARE.
--------------------------------------------------------------------------------
A reconciliation of basic to diluted earnings per share is as follows:
Three months ended March 31, 2007 2007 2006 2006
---------------------------- Basic Diluted Basic Diluted
------------ ------------ ------------ ------------
Numerator:
----------
Net income (loss) $ 358,140 $ 358,140 $ 549,166 $ 549,166
============ ============ ============ ============
Denominator:
------------
Weighted average shares outstanding 10,955,719 10,955,719 10,494,921 10,494,921
Effect of dilutive securities:
Preferred stock --- --- --- ---
Stock options and warrants --- 222,804 --- 143,006
------------ ------------ ------------ ------------
Weighted average shares outstanding 10,955,719 11,178,523 10,494,921 10,637,927
============ ============ ============ ============
Earnings (loss) per share $ 0.033 $ 0.032 $ 0.052 $ 0.052
============ ============ ============ ============
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NOTE 8 - COMPREHENSIVE INCOME.
--------------------------------------------------------------------------------
The Company has adopted Financial Accounting Standards Board Statement No.
130, Reporting Comprehensive Income. Statement No. 130 establishes new rules for
the reporting and display of comprehensive income and its components; however,
the adoption of this Statement has no impact on net income or shareholders'
equity. Statement No. 130 requires unrealized gains or losses to be included in
other comprehensive income.
The components of comprehensive income for the quarters ended March 31, 2007 and
2006, are as follows:
2007 2006
--------- ---------
Net income $358,140 $549,166
Other comprehensive income
Net unrealized gain $ 33 $ 0
--------- ---------
Total comprehensive income $358,173 $549,166
========= =========
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NOTE 9 - INCOME TAXES.
--------------------------------------------------------------------------------
The Company recorded approximately $20,000 and $15,000 of state income tax
expense, respectively, for the three months ended March 31, 2007 and 2006. The
Company does not expect to incur material federal income tax charges until the
depletion of its accumulated federal income tax loss carry-forwards, which
totaled approximately $6,800,000 at December 31, 2006 that begin expiring in the
year 2015.
10
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2007
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NOTE 10 - RELATED PARTY TRANSACTIONS.
--------------------------------------------------------------------------------
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. During the fourth quarter of 2006,
the Board unanimously approved repayment of the loan guarantee and interest
thereon. The Company accrued $5,063 in interest in 2007 and $6,095 in 2006 on
these liabilities.
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. During the fourth quarter of 2006, the Board
unanimously approved repayment of the office furniture note. During the three
months ended March 31, 2006 the President was paid interest in the amount of
$1,782.
During 2006, the Company renewed the employment agreement with its President and
CEO; in accordance with this agreement, the Company accrued $6,000 and $0 of
deferred compensation in the three months ended March 31, 2007 and 2006
respectively.
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NOTE 11 - COMMITMENTS AND CONTINGENCIES.
--------------------------------------------------------------------------------
Generally speaking, the Securities and Exchange Commission guidelines require a
company to report any pending legal and/or regulatory proceedings that involves
a claim for damages in excess of ten percent (10%) of its current assets. The
litigation and proceedings discussed below do not necessarily meet this
threshold, but are included in the interest of full disclosure. In general, the
Company will vigorously defend itself against all claims to the fullest extent
possible.
Pondella Hall for Hire, Inc., d/b/a Eight Hundred v. American Bingo and
Gaming, Case No. 97-2750, Circuit Court of the Twelfth Judicial Circuit in and
for Manatee County, Florida.
800438 Ontario Ltd v. American Bingo and Gaming Corporation, Case No.
99-1161, Circuit Court of the Twelfth Judicial Circuit in and for Manatee
County, Florida.
Settled. These two related cases were settled in 2006 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.
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. 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 of
2006. 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. A trial is anticipated in late summer or
early fall, 2007.
11
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
--------------------------------------------------------------------------------
NOTE 11 - 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 conducted bingo games in 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 that
they were fired in retaliation for making claims of sexual harassment or
otherwise were fired in violation of their rights under nondiscrimination
provisions of the Texas Labor Code. The Plaintiffs 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 subsidiaries) as well as the charities were their employers and the
employers of Clark Lilly (the alleged harasser) and therefore liable for his
harassing and other tortuous conduct. Various claims are state law tort claims
which are not technically dependent upon the status of Littlefield (or its
subsidiaries) as an employer under the state discrimination law. Some of the
plaintiffs have also claimed sexual discrimination in compensation. The
depositions of some, but not all, of the plaintiffs have been taken. The
depositions of most defendants' representatives have been taken.
Littlefield and its named subsidiaries intend to seek a summary judgment soon
after the depositions of the defendants are completed 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
The South Carolina Department of Revenue issued an administrative bingo
violation against the above referenced parties 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 has moved
to pierce the corporate veil of the Company to thereby attribute the promoter
licenses to the Company. 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 Company moved for
summary judgment and it was denied. However, the named charities were dismissed
from the lawsuit. The case has been stayed until co-counsel returns from active
military duty, which is expected to occur around August of 2008. 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.
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. 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 plus additional payments in the amount of $10,000 a month
through January 5, 2008. At March 31, 2007 the Company had a $90,000 remaining
balance.
12
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
--------------------------------------------------------------------------------
NOTE 11 - COMMITMENTS AND CONTINGENCIES
--------------------------------------------------------------------------------
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. 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 March 31, 2007 was $753,657
with 38 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.
--------------------------------------------------------------------------------
NOTE 12 - SEGMENTS.
--------------------------------------------------------------------------------
The Company's Chief Operating Decision Maker ("CODM"), the President and CEO,
evaluates performance and allocates resources based on a measure of segment
profit or loss from operations. The 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:
March 31, 2007
--------------
Entertainment Hospitality Adjustment Consolidated
------------- ----------- ------------- ------------
Revenue $ 2,334,000 $1,143,000 $ 12,000 $ 3,489,000
Depreciation and Amortization 98,000 58,000 29,000 185,000
Segment profit (loss) 1,244,000 (141,000) (745,000) 358,000
Segment Assets 25,793,000 1,360,000 (10,653,000) 16,500,000
March 31, 2006
--------------
Entertainment Hospitality Adjustment Consolidated
------------- ----------- ------------- ------------
Revenue $ 2,172,000 $ 701,000 $ 46,000 $ 2,919,000
Depreciation and Amortization 102,000 61,000 25,000 188,000
Segment profit (loss) 1,075,000 (247,000) (279,000) 549,000
Segment Assets 23,626,000 1,296,000 (8,761,000) 16,161,000
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.
13
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
--------------------------------------------------------------------------------
NOTE 13 - SUBSEQUENT EVENTS.
--------------------------------------------------------------------------------
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. 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. The Company completed the refinancing in
May 2007.
14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
During the first quarter of 2007, we continued to improve revenue and
profitability in our Entertainment and Hospitality segments. These improvements
were partially offset by certain increases in General and Administrative
expenses. First quarter 2007 earnings included approximately $124,000 of notable
items: $75,000 related to business development expenses associated with opening
a new market, $35,000 for legal expenses and $14,000 of non-cash expenses
related to stock-based compensation. First quarter 2006 earnings included
approximately $25,000 of non-cash expenses related to stock-based compensation
offset by $38,000 from insurance proceeds and fixed asset sales.
Revenues
The following table sets forth the Company's revenues by segment for the three
months ended March 31, 2007 and 2006:
2007 2006 Change % Change
---------------------- --------- ---------
Total Revenues $3,489,000 $2,919,000 $570,000 20%
Entertainment 2,334,000 2,172,000 162,000 7%
Texas 1,379,000 1,171,000 208,000 18%
South Carolina 499,000 486,000 13,000 3%
Alabama 456,000 515,000 (59,000) (11%)
Hospitality $1,143,000 $ 701,000 $442,000 63%
First quarter 2007 total revenues for the Company increased 20% over 2006 with
both Entertainment and Hospitality segments contributing to the increase in
revenue. Entertainment revenue rose 7% with Texas being the most significant
contributor. Alabama operations continued to be affected by 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 67% of total revenues compared with 74% of total revenues in 2006. By state,
Entertainment revenues for Texas, South Carolina and Alabama were 59%, 21%, and
20% of total Entertainment revenue respectively compared to 54%, 22% and 24% in
2006. Hospitality revenue increased 63% over the prior year reflecting the
contribution of larger customers and events. Hospitality accounted for 33% of
total revenues in 2007, compared to 24% of total revenues in 2006.
Costs and Expenses
------------------
Cost of services increased 16% over the prior year's first quarter. This, in
conjunction with the higher revenue growth of 20%, resulted in an improvement of
gross profit percent (gross profit as a percent of sales) to 31.9% from 30.0% in
2006. Overall, total gross profit increased 27% or $240,000 over the prior year.
The table below summarizes gross profit by segment for the three months ended
March 31, 2007 and 2006:
2007 2006 Change % Change
---------- ----------- --------- ---------
Total Gross Profit $1,115,000 $ 875,000 $240,000 27%
Entertainment 1,244,000 1,075,000 169,000 16%
Hospitality ($141,000) ($247,000) $106,000 NM
The increases in gross profit were 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 53.3% versus 49.5%
respectively for 2007 and 2006. The 2007 Hospitality gross margin loss was
reduced by $106,000.
Direct salaries and other compensation were up 35% over the prior year
representing staff additions corresponding to the higher revenues especially in
the Hospitality segment. Rent and utilities in 2007 were up approximately 1%
over 2006. Other direct operating costs in 2007 were up 22% over the prior year,
mainly due to higher food and supplies associated with the increased revenue and
higher property taxes at our facilities than occurred in 2006. License expense
was down $9,000 as a result of the timing of the payment of licenses. The
provision for doubtful accounts was reduced to 0% versus 0.3% of sales last
year.
Depreciation and amortization expense totaled approximately $185,000 ($156,000
Cost of Services plus $29,000 G&A) in 2007 versus $188,000 in the prior year.
General and administrative expenses, excluding related depreciation expense and
the noted business development and legal fees totaled approximately $469,000 in
2007, compared to approximately $274,000 in 2006, an increase of about $195,000.
The increase mainly related to staff additions, compensation adjustments, sundry
expenses and the timing of accrued incentive expenses.
15
Other income and expense was an expense of approximately $115,000 for 2007,
compared to other income of approximately $13,000 for 2006. The other income in
2006 was mainly from $38,000 of insurance proceeds and fixed asset sales. The
remaining expenses were net interest expenses. Interest expense was up
approximately $73,000 compared to 2006, reflecting the financing of legal
settlements during 2006.
Our income tax expense for 2007 was approximately $20,000 compared to $15,000 in
2006, all of which is related to the expected effective tax rate for 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
----------
During the first quarter of 2007, we realized net income of approximately
$358,000; $0.03 per basic and $0.03 per fully diluted share. Net income for 2006
was $549,000; $0.05 per basic and $0.05 per fully diluted share. The weighted
average number of basic Common Stock shares outstanding totaled 10,955,719 in
2007 compared to 10,494,921 in 2006. 2006 shares outstanding have been adjusted
to reflect the affect of a 20% stock dividend in Q2 2006.
First quarter 2007 earnings included approximately $124,000 of notable items:
$75,000 related to business development expenses associated with opening a new
market, $35,000 for legal expenses and $14,000 of non-cash expenses related to
stock-based compensation.
First quarter 2006 earnings included approximately $25,000 of non-cash expenses
related to stock-based compensation offset by $38,000 from insurance proceeds
and fixed asset sales.
Adjusted for the noted items above, the adjusted net income was $482,000 and
basic earnings per share were $0.04 per share in 2007 versus an adjusted net
income of $536,000 and basic earnings per share of $0.05 last year.
Liquidity and Capital Resources
-------------------------------
Cash and cash equivalents at March 31, 2007, totaled approximately $3,198,000
and represented 19% of total assets of approximately $16,500,000. Current assets
totaled approximately $4,772,000. Current liabilities totaled $1,773,000.
Working capital was approximately $2,999,000 with a current ratio of 2.7 to 1
compared to approximately 1:1 in March 2006.
Cash provided by operating activities for the three months ended March 31, 2007,
totaled approximately $405,000 compared to cash provided of $405,000 during
2006. Cash flows provided by operating activities in 2007 were increased by net
income of approximately $358,000, non-cash depreciation expense of approximately
$185,000, stock based compensation of approximately $14,000, offset by other net
changes in asset and liability accounts of approximately $152,000.
Net cash used in investing activities totaled approximately $126,000 for capital
expenditures during the three months ended March 31, 2007, compared to net cash
provided of approximately $1,099,000 in 2006. In 2006, cash was used in the
amount of approximately $85,000 for the purchase of capital assets and offset by
the collection of a note receivable in the amount of approximately $1,184,000.
Cash provided by financing activities in 2007 totaled approximately $369,000,
compared to net cash used in financing activities in 2006 of approximately
$53,000. In 2007, approximately $477,000 of financing was obtained through the
sale of common stock and $107,000 was used for the payment of notes payable and
legal settlement obligations. In 2006, approximately $112,000 of financing was
obtained from proceeds from options exercised and the collection of subscription
receivable and $165,000 was used for the payment of notes payable and capital
lease obligations.
At March 31, 2007, we had approximately $16,500,000 in total assets with total
liabilities of approximately $6,375,000 and approximately $10,125,000 of
shareholders' equity. Total assets include approximately $3,198,000 in cash,
$901,000 of net accounts receivable, other current assets of $240,000, $434,000
of restricted cash, $6,005,000 of net property and equipment, $5,521,000 of
intangible assets, and $201,000 of other assets. Total liabilities primarily
consist of accounts payable of approximately $109,000, and notes payable
obligations of approximately $4,233,000, legal settlement obligations of
$844,000 and accrued and related-party liabilities of $1,189,000.
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.
16
Item 3. 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-QSB, to ensure that information required to be disclosed
by us in the reports that we file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in the SEC rules and forms.
There have been no changes in our internal control over financial reporting
during the quarter ended March 31, 2007, 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.
17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For a discussion of material pending legal proceedings, see Note 11 to the
unaudited Consolidated Financial Statements included in Part I hereof, which
Note 11 is incorporated herein by reference.
Item 6. Exhibits
31.1 Rule 31a-14(a) / 15d-14(a) Certifications
32.1 Section 1350 Certifications
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Littlefield Corporation
May 15, 2007
By:
/s/ JEFFREY L MINCH
--------------------
Jeffrey L. Minch
President and Chief Executive Officer
/s/ RICHARD S. CHILINSKI
------------------------
Richard S. Chilinski
Chief Financial Officer
18