SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal quarter ended June 30, 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 Identification No.)
incorporation or organization)
2501 North Lamar Blvd., Austin TX 78705
---------------------------------------
(Address of principal executive offices)
(512) 476-5141
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES [ ] NO [ X ]
As of June 30, 2007, the Issuer had 11,298,404 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 June 30, 2007
INDEX
Part I. Financial Information
Item 1. Financial Statements
a) Consolidated Statements of Operations for the Three
Months Ended June 30, 2007 and 2006................... 2
b) Consolidated Statements of Operations for the Six
Months Ended June 30, 2007 and 2006................... 4
c) Consolidated Balance Sheet as of June 30, 2007........ 6
Consolidated Statements of Cash Flows for the Six
d) Months Ended June 30, 2007 and 2006................... 7
e) Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition And Results of Operations................... 15
Item 3 Controls and Procedures 18
Part II. Other Information
Item 1. Legal Proceedings............................ 19
Item 6. Exhibits..................................... 19
Signatures 19
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Littlefield Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended June 30, 2007 2006
---- ----
REVENUES:
Entertainment $2,181,346 $1,996,000
Hospitality 1,474,755 1,622,035
Other 12,069 (3,186)
---------------- ------------------
TOTAL REVENUES 3,668,170 3,614,849
---------------- ------------------
DIRECT COSTS AND EXPENSES:
Direct salaries and other compensation 805,418 786,372
Rent and utilities 642,939 626,303
Other direct operating costs 921,528 925,326
Depreciation and amortization 158,474 165,975
License expense 29,847 30,664
---------------- ------------------
TOTAL COSTS AND EXPENSES 2,558,206 2,534,640
---------------- ------------------
GROSS MARGIN 1,109,964 1,080,209
GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries and other compensation 280,517 142,596
Legal and accounting fees 111,485 62,932
Depreciation and amortization 28,529 26,247
Stock-based compensation expense 14,311 56,400
Other general and administrative 165,310 128,454
---------------- ------------------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 600,152 416,629
GAIN ON DISPOSITION OF FIXED ASSETS 12,098 4,000
---------------- ------------------
OPERATING INCOME 521,910 667,580
OTHER INCOME AND EXPENSES:
Interest and investment income 17,091 11,516
Interest expense ($5,062 and $7,876 respectively
to related parties) (122,282) (51,506)
Other income and (expense) (4,398) 125
---------------- ------------------
TOTAL OTHER INCOME AND EXPENSES (109,589) (39,865)
---------------- ------------------
NET INCOME BEFORE PROVISION FOR INCOME TAXES 412,321 627,715
PROVISION FOR INCOME TAXES 30,203 15,774
---------------- ------------------
NET INCOME 382,118 611,941
OTHER COMPREHENSIVE INCOME 4,680 0
---------------- ------------------
NET COMPREHENSIVE INCOME $ 386,798 $ 611,941
================ ==================
See notes to consolidated financial statements.
2
Littlefield Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended June 30, 2007 2006
---- ----
EARNINGS PER SHARE:
Basic earnings per share $ 0.034 $ 0.057
============== ==============
Diluted earnings per share $ 0.033 $ 0.055
============== ==============
Weighted average shares outstanding - basic 11,276,282 10,756,967
============== ==============
Weighted average shares outstanding - diluted 11,528,617 11,048,517
============== ==============
See notes to consolidated financial statements.
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Littlefield Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Six Months Ended June 30, 2007 2006
---- ----
REVENUES:
Entertainment $4,515,447 $4,168,319
Hospitality 2,618,151 2,322,883
Other 23,692 42,884
------------- ------------
TOTAL REVENUES 7,157,290 6,534,086
------------- ------------
DIRECT COSTS AND EXPENSES:
Direct salaries and other compensation 1,574,041 1,371,507
Rent and utilities 1,260,140 1,240,122
Other direct operating costs 1,723,281 1,567,151
Depreciation and amortization 314,535 329,592
License expense 60,676 70,890
------------- ------------
TOTAL COSTS AND EXPENSES 4,932,673 4,579,262
------------- ------------
GROSS MARGIN 2,224,617 1,954,824
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and other compensation 553,547 290,450
Legal and accounting fees 221,873 78,311
Depreciation and amortization 57,129 50,643
Compensation expense related to options 28,622 81,358
Other general and administrative 360,548 239,657
------------- ------------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 1,221,719 740,419
GAIN ON DISPOSTION OF FIXED ASSETS 12,098 4,346
------------- ------------
OPERATING INCOME 1,014,996 1,218,751
OTHER INCOME AND EXPENSES:
Interest and investment income 32,033 43,968
Interest expense ($10,125 and $15,753
respectively to related parties) (252,170) (108,365)
Other income and (expense) (4,398) 37,527
------------- ------------
TOTAL OTHER INCOME AND EXPENSES (224,535) (26,870)
------------- ------------
NET INCOME BEFORE PROVISION FOR INCOME TAXES 790,461 1,191,881
PROVISION FOR INCOME TAXES 50,203 30,774
------------- ------------
NET INCOME 740,258 1,161,107
OTHER COMPREHENSIVE INCOME 4,713 0
------------- ------------
NET COMPREHENSIVE INCOME $744,971 $1,161,107
============= ============
See notes to consolidated financial statements.
4
Littlefield Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Six Months Ended June 30, 2007 2006
---- ----
EARNINGS PER SHARE:
Basic earnings per share $ 0.067 $ 0.109
============== =============
Diluted earnings per share $ 0.065 $ 0.107
============== =============
Weighted average shares outstanding - basic 11,116,886 10,626,668
============== =============
Weighted average shares outstanding - diluted 11,354,456 10,843,946
============== =============
5
Littlefield Corporation
CONSOLIDATED BALANCE SHEET (Unaudited)
ASSETS
------
June 30, 2007
----------------
Current Assets:
Cash and cash equivalents $ 3,484,012
Accounts receivable, net of allowance for
doubtful accounts of $157,784 759,323
Other prepaid expenses and current assets 310,318
Note receivable 6,088
----------------
Total Current Assets 4,559,741
----------------
Property and Equipment - at cost, net of accumulated
depreciation and amortization 6,203,108
Other Assets:
Goodwill 4,905,111
Intangible assets, net 608,946
Other non-current assets 199,129
----------------
Total Other Assets 5,713,186
----------------
TOTAL ASSETS $16,476,035
================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Long term debt, current portion 185,620
Long term debt, legal settlements, current portion 275,725
Trade accounts payable 124,983
Accrued expenses 877,528
Other current liabilities - related party 396,183
----------------
Total Current Liabilities 1,860,039
----------------
Long-term Liabilities:
Long term debt, net of current portion 3,542,528
Long term debt, legal settlements, net of current portion 488,532
Long term debt-related party 36,000
----------------
Total Long-term Liabilities 4,067,060
----------------
Total Liabilities 5,927,099
----------------
Stockholders' Equity:
Common stock, $0.001 par value, (authorized 20,000,000
shares, issued 12,344,139 shares, outstanding
11,298,404 shares) 12,344
Additional paid-in-capital 23,792,521
Treasury stock - 1,045,735 shares, at cost (1,331,621)
Accumulated deficit (11,924,308)
----------------
Total Stockholders' Equity 10,548,936
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $16,476,035
================
See notes to consolidated financial statements.
6
Littlefield Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six months Ended June 30, 2007 2006
--------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $740,258 $1,161,107
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 371,664 380,235
Stock based compensation expense 28,622 81,358
Gain on disposition of fixed assets (12,098) --
Increase (decrease) in cash flows as a result of changes in asset
and liability account balances:
Accounts receivable 329,417 146,051
Other assets and licenses 314,309 (41,980)
Trade accounts payable (139,655) (358,443)
Accrued expenses and other current liabilities 3,136 (241,101)
--------------------- --------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,635,653 1,127,227
--------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures (509,512) (175,727)
Proceeds from the sale of property and equipment 18,250 --
Proceeds form the sale of investments 3,741 --
Proceeds from collection of Note Receivable 1,103 1,184,214
--------------------- --------------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (486,418) 1,008,487
--------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations -- (65,668)
Payments on notes payable and legal settlement obligations (1,093,307) (374,704)
Proceeds from issued shares 476,560
Proceeds from note payable 401,958
Collections of Subscription receivable -- 46,000
Proceeds from options exercised -- 158,000
--------------------- --------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (214,789) (236,372)
--------------------- --------------------
NET INCREASE IN CASH 934,446 1,899,342
CASH AT BEGINNING OF PERIOD 2,549,566 618,972
--------------------- --------------------
CASH AT END OF PERIOD $3,484,012 $2,518,314
===================== ====================
See notes to consolidated financial statements.
7
Littlefield Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six months Ended June 30, 2007 2006
------------ -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments:
Interest $239,509 $96,718
============ =============
Income taxes $0 $0
============ =============
Non-cash transactions:
Issuance of treasury stock for deferred
compensation and 401K plan $23,656 $24,403
============ =============
See notes to consolidated financial statements.
8
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2007
--------------------------------------------------------------------------------
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 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 financial statements have been reclassified to maintain consistency
and comparability for all periods presented.
The operating results for the six-month period ended June 30, 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.
--------------------------------------------------------------------------------
NOTE 2 - PROPERTY AND EQUIPMENT.
--------------------------------------------------------------------------------
Property and equipment at June 30, 2007 consists of the following:
Land $740,467
Buildings 3,274,925
Leasehold improvements 4,228,573
Rental inventory and bingo equipment 1,806,569
Equipment, furniture and fixtures 2,332,369
Automobiles 451,433
---------------
12,834,336
Less: Accumulated depreciation and amortization (6,631,228)
---------------
Property and equipment, net $6,203,108
===============
Total depreciation expense, for owned and leased assets, charged to operations
for the six months ended June 30, 2007 and 2006 was approximately $356,900 and
$369,000 respectively.
9
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2007
--------------------------------------------------------------------------------
NOTE 3 - GOODWILL & OTHER INTANGIBLE ASSETS.
--------------------------------------------------------------------------------
Goodwill at June 30, 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 June 30, 2007 $4,533,727 $ 371,384 $4,905,111
================== =================== ==================
Intangible assets at June 30, 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 (226,299) $ 71,201
------------------
Intangible Assets, Net of Accumulated Amortization $ 608,946
==================
Amortization expense charged to operations for the six months ended June 30,
2007 and 2006 was approximately $14,800 and $11,000 respectively.
--------------------------------------------------------------------------------
NOTE 4 - SHAREHOLDERS' EQUITY.
--------------------------------------------------------------------------------
At June 30, 2007 the Company holds 1,045,735 treasury shares at an average
purchase cost of $1.27.
10
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2007
--------------------------------------------------------------------------------
NOTE 5 - 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 $28,600 in compensation expense in the six
month period ended June 30, 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 six month
period ended June 30, 2007.
--------------------------------------------------------------------------------
NOTE 6 - EARNINGS PER SHARE.
--------------------------------------------------------------------------------
A reconciliation of basic to diluted earnings per share is as follows:
Six months ended June 30,
------------------------- 2007 2007 2006 2006
Basic Diluted Basic Diluted
------------------- ------------------ ------------------ -------------------
Numerator:
Net income (loss) $740,258 $740,258 $1,161,107 $1,161,107
=================== ================== ================== ===================
Denominator:
Weighted average shares outstanding 11,116,886 11,116,886 10,626,668 10,626,668
Effect of dilutive securities:
Preferred stock --- --- --- ---
Stock options and warrants --- 237,570 --- 217,278
------------------- ------------------ ------------------ -------------------
Weighted average shares outstanding 11,116,886 11,354,456 10,626,668 10,843,946
=================== ================== ================== ===================
Earnings (loss) per share $0.067 $0.065 $0.109 $0.107
=================== ================== ================== ===================
11
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2007
--------------------------------------------------------------------------------
NOTE 7 - 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 six months ended June 30, 2007
and 2006 are as follows:
2007 2006
-------------- --------------
Net income $740,258 $1,161,107
Other comprehensive income
Reclassification adjustment
for loss included in net income 4,713 --
-------------- --------------
4,713 --
-------------- --------------
Total comprehensive income $744,971 $1,161,107
============== ==============
--------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES.
--------------------------------------------------------------------------------
The Company recorded approximately $50,000 and $31,000 of state income tax
expense, respectively, for the six months ended June 30, 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.
--------------------------------------------------------------------------------
NOTE 9 - RELATED PARTY TRANSACTIONS.
--------------------------------------------------------------------------------
In 2002, the President was awarded a $300,000 bonus which is presented on the
balance sheet with accrued interest as Other current liabilities - related
party. The Company accrued $10,125 in interest in 2007 and $12,188 in 2006 on
these liabilities.
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. During the fourth quarter of 2006, the Board
unanimously approved repayment of the loan guarantee and interest thereon and
these amounts were paid in December 2006.
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 six
months ended June 30, 2006 the President was paid interest in the amount of
$3,565. The note was paid in full in December 2006.
During 2006, the Company renewed the employment agreement with its President and
CEO; in accordance with this agreement, the Company accrued $12,000 and $0 of
deferred compensation in the six months ended June 30, 2007 and 2006
respectively.
12
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2007
--------------------------------------------------------------------------------
NOTE 10 - 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.
The Company is obligated to make payments over approximately the next three
years in settlement of litigation that was concluded in prior periods. At June
30, 2007, the carrying value of these obligations was $764,257. The Company is
current in all its settlement payment obligations.
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 suing Philip Furtney for fraud, negligent misrepresentations, and
breach of guaranty. This litigation arises from the 1995 acquisition of three
Florida bingo centers by a predecessor, American Bingo & Gaming Corporation,
from two corporations controlled by Phillip Furtney - Pondella Hall for Hire,
Inc., and 800438 Ontario. Several months after the acquisition of the three
centers, the Florida Attorney General's office obtained an indictment against
two American Bingo subsidiaries and brought a civil proceeding related to two of
the three centers for alleged gambling related offenses. The indictment and
civil litigation were the result of an investigation that had been ongoing for
over one year prior to the acquisition of the centers. Furtney was aware of the
investigation and its serious nature, but did not disclose the investigation to
American Bingo. In fact, the agreements related to the sale specifically and
falsely stated that there were not any ongoing governmental investigations.
American Bingo settled the litigation brought by the Florida Attorney General
and sold its Florida centers as a condition of the settlement. The resolution of
this long pending matter was substantially delayed when Furtney, a citizen of
Canada and part time resident of Mexico would not permit his United States
attorney to accept service of the Complaint. Littlefield was successful finally
serving Furtney when he was in the United States in 2005 to attend related
litigation. The trial against Furtney is scheduled for December 2007, and the
company intends to vigorously pursue Furtney for all damages related to the
purchase of the Florida centers, including all sums paid in the acquisition, all
costs incurred by American Bingo in the litigation with the state of Florida,
and judgments Littlefield was required to pay to Pondella and 800438 Ontario as
a result of related litigation.
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.
The charities and the alleged harasser have settled with the Plaintiffs leaving
Littlefield and its subsidiaries the only remaining defendants.
13
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007
--------------------------------------------------------------------------------
NOTE 10 - COMMITMENTS AND CONTINGENCIES
--------------------------------------------------------------------------------
Littlefield and its named subsidiaries are in the process of preparing to file a
motion for summary judgment on the basis of the lack of an employee-employer or
control 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. ,and Gamecock Promotions, Inc.,
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 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, certain originally 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.
--------------------------------------------------------------------------------
NOTE 11 - 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, 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 for the six
months ended June 30, 2007 and 2006 is as follows:
June 30, 2007
------------- Entertainment Hospitality Adjustment Consolidated
------------- ----------- ---------- ------------
Revenue $4,515,000 $2,618,000 $24,000 $7,157,000
Depreciation and Amortization 198,000 116,000 58,000 372,000
Segment profit (loss) 2,262,000 (61,000) (1,461,000) 740,000
Segment Assets 26,123,000 1,428,000 (11,075,000) 16,476,000
June 30, 2006
------------- Entertainment Hospitality Adjustment Consolidated
------------- ----------- ---------- ------------
Revenue $4,168,000 $2,323,000 $43,000 $6,534,000
Depreciation and Amortization 207,000 123,000 50,000 380,000
Segment profit (loss) 1,932,000 (14,000) (757,000) 1,161,000
Segment Assets 24,193,000 1,462,000 (9,021,000) 16,634,000
14
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007
--------------------------------------------------------------------------------
The adjustments represent other corporate expenses, other income, depreciation
and amortization related to corporate assets, corporate gains and losses on
disposition of assets, inter-company eliminations and corporate capital
expenditures to reconcile segment balances to consolidated balances.
--------------------------------------------------------------------------------
NOTE 12 - SUBSEQUENT EVENTS.
--------------------------------------------------------------------------------
In August 2007, the Board of Directors approved and payment was made to the
President and CEO for all amounts as of June 30, 2007 shown as Other current
liabilities - related party as more fully described in Note 9 - Related Party
Transactions.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
During the first six months of 2007, we continued to improve revenue and gross
profit in our Entertainment and Hospitality segments. These improvements were
partially offset by certain increases in General and Administrative expenses and
interest expense. Earnings in the first six months of 2007 included
approximately $208,000 of notable items: $75,000 related to business development
expenses associated with opening a new market, $104,000 for legal expenses and
$29,000 of non-cash expenses related to stock-based compensation. Earnings in
the first six months of 2006 included approximately $81,000 of non-cash expenses
related to stock-based compensation, $36,000 for legal expenses 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 six
months ended June 30, 2007 and 2006:
2007 2006 Change % Change
---- ---- ------ --------
Total Revenues $ 7,157,000 $ 6,534,000 $623,000 10%
Entertainment 4,515,000 4,168,000 347,000 8%
Texas 2,751,000 2,421,000 330,000 14%
South Carolina 978,000 901,000 77,000 9%
Alabama 786,000 846,000 (60,000) (7%)
Hospitality 2,618,000 $ 2,323,000 $295,000 13%
During the first six months of 2007, total revenues for the Company increased
10% over 2006 with both Entertainment and Hospitality segments contributing to
the increase in revenue. Entertainment revenue rose 8% 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 63% of total revenues compared with 64% of
total revenues in 2006. By state, Entertainment revenues for Texas, South
Carolina and Alabama were 61%, 22%, and 17% of total Entertainment revenue
respectively compared to 58%, 22% and 20% in 2006. Hospitality revenue increased
13% over the prior year reflecting the contribution of larger customers and
events. Hospitality accounted for 37% of total revenues in 2007, compared to 36%
of total revenues in 2006.
15
Costs and Expenses
------------------
Cost of services increased 8% over the comparable prior year period. This, in
conjunction with the higher revenue growth of 10%, resulted in an improvement of
gross profit percent (gross profit as a percent of sales) to 31.1% from 29.9% in
2006. Overall, total gross profit increased 14% or $270,000 over the prior year.
The table below summarizes gross profit by segment for the six months ended June
30, 2007 and 2006:
2007 2006 Change % Change
---- ---- ------ --------
Total Gross Profit $2,225,000 $1,955,000 $270,000 14%
Entertainment 2,262,000 1,932,000 330,000 17%
Hospitality ($61,000) ($14,000) ($47,000) NM
The increase in gross profit was mainly 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 50.1% versus 46.4%
respectively for 2007 and 2006. The 2007 Hospitality gross margin loss widened
largely as a result of a cancellation of a large $100,000 order in June due to
flooding in Central Texas and costs associated with self-promotion events.
Direct salaries and other compensation were up 15% 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 2%
over 2006. Other direct operating costs in 2007 were up 10% over the prior year,
mainly due to higher food and supplies costs associated with the increased
revenue and sub-rental expenses than incurred in 2006. License expense was down
$10,000 as a result of the timing of the payment of licenses. The provision for
doubtful accounts was reduced to 0% versus 1.0% of sales last year.
Depreciation and amortization expense totaled approximately $372,000 ($315,000
Cost of Services plus $57,000 G&A) in 2007 versus $380,000 in the prior year.
General and administrative expenses, excluding related depreciation expense and
the noted business development and legal fees totaled approximately $957,000 in
2007, compared to approximately $572,000 in 2006, an increase of about $385,000.
The increase mainly related to staff additions, compensation adjustments, sundry
expenses and the timing of accrued incentive expenses.
Other income and expense was an expense of approximately $225,000 for 2007,
compared to approximately $27,000 in 2006. The difference mainly stems from
higher interest expense and the noted 2006 insurance proceeds and fixed asset
sales. The higher 2007 interest expense mainly reflects the financing of legal
settlements during 2006.
Our income tax expense for 2007 was approximately $50,000 compared to $31,000 in
2006, all of which is related to the expected effective tax rate for state
income taxes. As of December 31, 2006, the Company had a net operating loss
available for carryover on its federal income taxes of approximately $6,800,000.
Net Income
----------
During the first six months of 2007, we realized net income of approximately
$740,000; $0.07 per basic and $0.07 per fully diluted share. Net income for 2006
was $1,161,000; $0.11 per basic and $0.11 per fully diluted share. The weighted
average number of basic Common Stock shares outstanding totaled 11,116,886 in
2007 compared to 10,626,668 in 2006. The increase in shares outstanding mainly
represents the sale of 400,000 shares of common stock in 2007.
Earnings in the first six months of 2007 included approximately $208,000 of
notable items: $75,000 related to business development expenses associated with
opening a new market, $104,000 for legal expenses related to legal cases and
$29,000 of non-cash expenses related to stock-based compensation.
Earnings in the first six months of 2006 included approximately $81,000 of
non-cash expenses related to stock-based compensation, $36,000 for legal
expenses offset by $38,000 from insurance proceeds and fixed asset sales.
Adjusted for the noted items above, the adjusted net income during the first six
months of 2007 was $948,000 and basic earnings per share were $0.09 per share in
2007 versus an adjusted net income of $1,240,000 and basic earnings per share of
$0.12 last year.
16
Liquidity and Capital Resources
-------------------------------
Cash and cash equivalents at June 30, 2007, totaled approximately $3,484,000 and
represented 21% of total assets of approximately $16,476,000. Current assets
totaled approximately $4,560,000. Current liabilities totaled $1,860,000.
Working capital was approximately $2,700,000 with a current ratio of 2.5 to 1
compared to approximately 1:1 in June 2006.
Cash provided by operating activities for the six months ended June 30, 2007,
totaled approximately $1,636,000 compared to cash provided of $1,127,000 during
2006. Cash flows provided by operating activities in 2007 were increased by net
income of approximately $740,000, non-cash depreciation expense of approximately
$372,000, stock based compensation of approximately $29,000 and by other net
changes in asset and liability accounts and gain on the disposition of fixed
assets of approximately $495,000 which mainly represent improved collections of
accounts receivable and the removal of a restriction on certain assets as a
result of our refinancing.
Net cash used in investing activities totaled approximately $486,000 for capital
expenditures mainly for bingo hall renovations and leasehold improvements during
the six months ended June 30, 2007. This compared to net cash provided by
investing activities of approximately $1,008,000 in 2006. In 2006, cash was used
in the amount of approximately $176,000 for the purchase of capital assets and
offset by the collection of a note receivable in the amount of approximately
$1,184,000.
Cash used in financing activities in 2007 totaled approximately $215,000,
compared to net cash used in financing activities in 2006 of approximately
$236,000. During the first six months of 2007, approximately $477,000 of cash
proceeds were obtained through the sale of common stock, approximately $401,000
obtained from our refinancing and $1,093,000 was used for the payment of notes
payable and legal settlement obligations. In 2006, approximately $204,000 of
financing was obtained from proceeds from options exercised and the collection
of subscription receivable and $440,000 was used for the payment of notes
payable and capital lease obligations.
At June 30, 2007, we had approximately $16,476,000 in total assets with total
liabilities of approximately $5,927,000 and approximately $10,549,000 of
shareholders' equity. Total assets include approximately $3,484,000 in cash,
$759,000 of net accounts receivable, other current assets of $317,000,
$6,203,000 of net property and equipment, $5,514,000 of intangible assets, and
$199,000 of other assets. Total liabilities primarily consist of accounts
payable of approximately $125,000 and notes payable obligations of approximately
$3,728,000, legal settlement obligations of $764,000 and accrued and
related-party liabilities of $1,310,000.
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.
17
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 June 30, 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.
18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For a discussion of material pending legal proceedings, see Note 10 to the
unaudited Consolidated Financial Statements included in Part I hereof, which
Note 10 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
August 14, 2007
By:
/s/ JEFFREY L MINCH
--------------------
Jeffrey L. Minch
President and Chief Executive Officer
/s/ RICHARD S. CHILINSKI
------------------------
Richard S. Chilinski
Chief Financial Officer
19