SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2007
Commission file No. 0-24805
Littlefield Corporation
(Exact name of small business issuer as specified in its charter)
Delaware 74-2723809
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2501 North Lamar Blvd. Austin, Texas 78705
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(Address of principal executive offices)
(512) 476-5141
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(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
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Securities registered under Sections 12(g) of the Exchange Act: Common Stock
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Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. [_]
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [X] NO [_]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S- contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [_]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act. YES [_] NO [X]
Issuer's revenues for its most recent fiscal year: $ 13,428,503
Aggregate market value of the issuer's common stock held by non-affiliates based
on the last sales price as of March 5, 2008 $ 10,118,487
Number of shares of the issuer's common stock outstanding as of March 5, 2008
11,444,060
Documents Incorporated By Reference
The issuer's Proxy Statement for its annual meeting of stockholders to be held
on May 21, 2008, is incorporated by reference in this Form 10-KSB in Part III
Item 9, Item 10, Item 11 and Item 12.
This report contains statements that constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements appear in a number of
places in this Report and include all statements regarding the intent, belief or
current expectations of the Company, its directors or its officers, with respect
to, among other things: (i) the Company's financing plans; (ii) trends affecting
the Company's financial condition or results of operations; (iii) the Company's
growth strategy and operating strategy; and (iv) the declaration and payment of
dividends. Investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in the
forward-looking statements as a result of various factors discussed herein and
those factors discussed in detail in the Company's filings with the Securities
and Exchange Commission.
PART I
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ITEM I: DESCRIPTION OF BUSINESS
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Littlefield Corporation develops, owns and operates charitable bingo halls, and
owns and operates party rental and catering companies. In our Entertainment
division, we operate 31 charitable bingo halls in Texas, Alabama, and South
Carolina. We also own and operate Littlefield Hospitality in Austin, Texas. The
Hospitality division consists of Premiere Events and Rental, a party and tent
rental company, and Word of Mouth Catering, a custom catering company. We were
incorporated in Delaware in 1994.
CURRENT YEAR EVENTS:
During 2007, the Company devoted time and resources related to the growth and
expansion into targeted geographic areas and continued efforts to resolve
certain legal matters:
February 2007 - The Company announced the sale of 400,000 unregistered
shares of its common stock to an institutional investor at a fifteen
percent (15%) premium to the then current market price.
March 2007 - The Company entered into a term loan and refinanced certain
debt. The refinancing provided approximately $400,000 of additional
working capital for operations and acquisition activity.
August 2007 - The Company announced it acquired the stock of two Texas
corporations who each own a commercial license to lease bingo premises.
The acquisitions are complementary to the Company's current portfolio of
Texas bingo licenses.
December 2007 - The Company announced it executed a definitive agreement
to acquire a Florida bingo hall. The acquisition of a bingo hall in
Pensacola, Florida was completed with an effective date of January 1,
2008.
Also during 2007, the Company continued efforts to resolve certain legal
matters:
In February 2007, the case relating to the South Carolina Department of
Revenue issuance of an administrative bingo violation alleging that the
Company has an unlawful number of bingo promoter licenses was continued
and removed from the docket for up to approximately 18 months and a
partial summary judgment was granted dismissing named charities from the
matter. The Company is vigorously defending itself and asserts that it is
not the holder of the promoter licenses but rather that its lawfully
formed subsidiaries are separate corporations that each holds a lawful
number of the promoter licenses.
July 2007 - A subsidiary of the Company licensed by the Texas Lottery
Commission ("Commission") as a commercial lessor pursuant to the Bingo
Enabling Act ("Act"), received a Notice of Opportunity to Show Compliance
("Notice") from the Commission's Charitable Bingo Division ("Division").
The Notice indicated that the Division had reason to believe that Texas
Charities, Inc. had violated the Act by improperly extending credit. Texas
Charities, Inc. disputes the Division's interpretation and intends to
exercise its opportunity to show compliance. However, if the matter cannot
be settled with the Division, it may be referred to the State Office of
Administrative hearings for a hearing on the matter
September 2007 - Several months before the scheduled trial date of the
Furtney case, the defendant passed away. The Company has now substituted
Furtney's estate as the defendant and intends to vigorously pursue the
claim 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.
2
October 2007 - The Company resolved its Lubbock case by the payment by
Littlefield of a total of $25,000 which was divided among the six
plaintiffs. Neither Littlefield nor its subsidiaries admitted any
liability or fault in connection with the settlement. The Company
maintained a vigorous defense in this case because neither the plaintiffs
nor the bingo manager were employees of Littlefield or its subsidiaries or
subject to their control. However, both management of Littlefield and
litigation counsel concluded that the cost of settling this case upon
these terms would be less than trying the case to a completely favorable
verdict.
October 2007 - The Company announced two of its South Carolina bingo halls were
damaged by fire. The two bingo halls are located in Goose Creek in the vicinity
of Charleston, South Carolina and are known as Beacon Beach Bingo Hall and
Beacon Bingo Hall. One hall was subsequently brought back into operations in
December in a temporary location. Both halls began operations in late January
2008 at the original renovated location.
All of the legal matters are discussed more thoroughly in Item 3 - "Legal
Proceedings", Item 6 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Notes to Consolidated Financial
Statements".
PRINCIPAL BUSINESS AND MARKETS
We currently have two distinct and separate business segments.
1. "Littlefield Entertainment" owns and operates 31 charitable bingo
halls. Of these 31 bingo halls, seventeen (17) are in Texas (Austin-1,
Abilene-2, Amarillo-3, McAllen-3, Lubbock-3, Odessa-1, Midland-1, San
Angelo-2 and San Antonio-1), three (3) are in Alabama (Montgomery-2 and
Mobile-1), ten (10) are in South Carolina (Charleston-5, Georgetown-1,
Goose Creek-1, Walterboro-1, Conway-1, and Aiken-1) and one (1) is in
Florida in January 2008. The total segment comprised approximately 63%
of our total revenues in 2007 versus 59% in 2006.
2. "Littlefield Hospitality" consists of Austin Tents and Events which was
acquired in November 2000, Premiere Party Rental which was acquired in
July of 2001, and Word of Mouth Custom Catering which was acquired in
August of 2001. Austin Tents and Events and Premiere Party Rental were
subsequently combined and are now called Premiere Tents and Events.
Revenues in our Hospitality division comprised 36% of total revenues in
2007 compared to 40% in 2006.
LITTLEFIELD ENTERTAINMENT. Our main business is the management of charitable
bingo halls. We might be called a "charitable bingo lessor" or "bingo conductor"
or "bingo promoter" depending upon the jurisdiction in which we are operating.
A new charity bingo hall is created when we contract with a real estate
landlord, through a long-term real estate lease, to rent premises suitable for a
bingo hall. We engage in market, demographic and location research in order to
ensure the suitability of a specific site for the development of a new bingo
hall. We then develop the physical plant for a bingo hall based upon our
expertise; and, attract the requisite number of charities for the use of the
premises and the services provided to support the charities' conduct of bingo
operations.
When we invest in a new start up bingo hall, we anticipate recovering our entire
investment (usually $100,000 to $400,000) within one to two years after the
attainment of a stable and predictable operating environment (typically 6-12
months after the initiation of operations with a full contingent of charities).
In addition to starting up new charitable bingo halls, we may acquire other
companies that also engage in the management of charitable bingo halls. We
anticipate an immediate going in return of 25-35% on our entire investment and
the ability to sustain that level of performance for a ten (10) year period,
absent only regulatory or environmental changes beyond our ability to predict or
control. In the past four years in Texas, we have purchased El Bingo Grande
Bingo Hall, Bingo Idea, Bingo Barn and Strike It Rich in San Angelo. Of these,
Bingo Idea and Bingo Barn were purchased with the knowledge that we would not
attain these goals, as these were strategic purchases that allowed us to take
advantage of our market presence. The El Bingo Grande Hall purchase has produced
a cumulative 87% return since 2002. In 2002, we operated the hall for
approximately one-half year and had a 6% return during this period, in 2003 a
16% return, in 2004 a 16% return, in 2005 a 15% return, in 2006 a 17% return and
in 2007 a 17% return. In October 2005, we obtained the bingo operations of
Strike It Rich Bingo in San Angelo, TX. This was an ongoing bingo hall, but one
that was not operating at its potential. In the three months of 2005 that we
operated the hall, it generated a 5% return and for 2006 it generated a 44%
return. In 2007 we made an additional $450,000 investment at the location and
earned a 29% return.
3
In 2007, our charitable bingo halls raised approximately $3,700,000 in
charitable funding for those charities that operate in our bingo halls. We
helped raise $290,000 for charities in South Carolina, $590,000 for charities in
Alabama, and $2,820,000 for charities in Texas. Since 2001 our company has
helped raise over $24 million for charity.
Competition: The charitable bingo market is a fragmented market, often with
operators who are individuals or partnerships, with no one dominant competitor.
Competition also includes charitable organizations. From region to region there
may be a dominant player in their immediate markets, but we are the only
publicly traded bingo promoter with more than just a regional presence.
Our unit of competition is an individual bingo hall. Competition is further
subdivided by the time of day or night that a bingo hall operates. A bingo hall
could generally be a daytime hall, a nighttime hall or a late night hall. In
certain jurisdictions, we would like to operate at all three times. An
individual bingo hall competes within a trade area of approximately fifteen (15)
miles against other bingo halls operating at the same time. Within a larger
market (e.g. Charleston, South Carolina) the presence of a number of bingo halls
may not give rise to significant competition. In general, we believe that
approximately one to one and a half percent (1-1.5%) of the population in a city
of more than 100,000 are meaningful and consistent bingo players.
The principal methods of competition used, once an ideal location is obtained,
include providing clean, safe and attractive facilities, creating customer
loyalty through various marketing efforts, and other promotional programs to
stimulate interest in not only playing the game of bingo, but in frequenting our
bingo locations specifically. Our combined industry knowledge also gives us a
competitive advantage when negotiating with the various charities to use our
facilities for their operations. Direct advertising is not permitted under the
local bingo regulations by the promoter's organizations in some jurisdictions
and is permitted in others.
Regulation. In 2007, we operated in Texas, Alabama and South Carolina, and each
state regulates bingo operations differently.
In Texas, the Texas Lottery Commission regulates bingo and its rules are uniform
throughout the State. In general, a bingo hall can contain up to seven (7)
charities and can operate seven (7) days per week and conduct as many as
fourteen (14) bingo sessions per week.
In South Carolina, the South Carolina Department of Revenue is the principal
regulator for bingo. Its rules are uniform throughout the State. In general, a
bingo hall can contain a single charity and can only operate five (5) sessions
per week with a Class B license or every day with a Class C license. In general,
a Class C hall is permitted to play more often, but is required to pay out less
money than a Class B hall.
In Alabama, bingo can only be played in counties that have a "local bill"
authorizing bingo that has been passed by the state legislature. The local
county sheriff is the principal regulator of bingo and regulations vary from
county to county. In general, a bingo hall can contain up to ten (10) charities
and can operate seven (7) days per week and conduct up to twenty-one (21) bingo
sessions per week.
LITTLEFIELD HOSPITALITY:
In the last quarter of 2000, we began a diversification of our businesses with
the acquisition of Austin Tents and Events, and with the purchase of Premiere
Party Rental and Word of Mouth Custom Catering in the summer of 2001. Over the
last three years, these combined businesses had average revenue of approximately
$4,800,000 per year and operated in the central Texas area in and around Austin,
Texas. The companies engaged in the party rental business, catering, and
installation of tents for events, parties, weddings, festivals, etc. as well as
a small amount of event planning (music, flowers, catering, etc.).
4
Competition: The catering, party rental, tent installation, and event
coordination market is very fragmented, especially in the local Austin area.
There are numerous catering and party rental companies in the Austin area. While
some companies do offer catering services and party rentals, they do not offer
the "one-stop shopping", that our combined companies can provide. The keys to
success in the hospitality industry are to maintain quality-trained labor and to
strive for consistency and excellence in customer service. The hospitality
industry has a tradition of being fragmented and our combined acquisitions of
Austin Tents and Events, Premiere Party Rental, and Word of Mouth Custom
Catering give us a competitive edge in the Austin marketplace.
Regulation: There is no special regulation for this type of business, other than
normal business taxes (sales & use, Texas Alcohol and Beverage Commission,
franchise, property, etc.) and employment issues. Permits are often needed for
certain site locations. We comply with all regulatory issues.
EMPLOYEES:
As of the report date, we had approximately two hundred fifteen (215) employees
and five (5) directors, of which one is a full time employee. Of the current
employment level, fourteen (14) are at our headquarters in Austin, Texas, twenty
five (25) are engaged in bingo operations, and one hundred seventy six (176) are
with Littlefield Hospitality. Littlefield Hospitality consists of forty nine
(49) full time employees and one hundred twenty seven (127) part time employees.
ITEM 2 - DESCRIPTION OF PROPERTY
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Our principal executive offices, which we own, are located at 2501 North Lamar
Boulevard, Austin, Texas 78705. We lease space for the majority of our bingo
operations in Texas, Alabama, South Carolina and Florida and in turn sublease
the bingo centers to various charities. We are responsible for real estate
taxes, insurance, common area maintenance and repair expenses on some of our
leases. We own three bingo centers. We believe the condition of our leased and
owned properties is good. No single property, leased or owned, amounts to 10% or
more of our total assets.
State City Location Purpose Location Name Status
------ ----- ---------------- ------------- ------
Alabama Mobile Bingo Hall Bingo Haven Operating
Montgomery Bingo Hall Winners Operating
Montgomery Bingo Hall Good Times Operating
South Charleston (2) Bingo Halls Beacon Operating
Carolina (B&C)
Charleston (2) Bingo Halls Lucky I Operating
(B&C)
Charleston (1) Bingo Halls Shipwatch Operating
(C)
Georgetown Bingo Hall By George! Bingo Operating
Walterboro Bingo Hall Coverall Bingo Operating
Conway Bingo Hall Mill Pond Bingo Operating
Aiken Bingo Hall Tally Ho! Bingo Operating
Goose Creek Bingo Hall Galley Hall Operating
Texas Abilene Bingo Hall Ambler Bingo Operating
Abilene Bingo Hall Super Bingo Operating
Amarillo Bingo Hall Hi-Plains Bingo Operating
Amarillo Bingo Hall Goldstar II Bingo Operating
Amarillo Bingo Hall Grandview Operating
Austin Corporate Corporate Hdqtrs Occupied
Headquarters
Austin Bingo Hall American Paradise Operating
Lubbock Bingo Hall Lucky Bingo Operating
Lubbock Bingo Hall Goldstar I Bingo Operating
Lubbock Bingo Hall Parkway Bingo Operating
McAllen Bingo Hall Americana I Operating
McAllen/San Bingo Hall Triple City Bingo Operating
Juan
McAllen Bingo Hall El Bingo Grande Operating
Midland Bingo Hall Bingo Barn Operating
Odessa Bingo Hall Strike It Rich Operating
Austin Warehouse Premiere Party Operating
Rental
Austin Kitchen & Word of Mouth Operating
Offices
San Antonio Bingo Hall Blanco Bingo Operating
San Angelo Bingo Hall Strike It Rich Operating
San Angelo Bingo Hall Let It Ride Operating
Florida Pensacola Bingo Hall Town & Country Operating
5
ITEM 3 - LEGAL PROCEEDINGS
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Generally speaking, the Securities and Exchange Commission guidelines require a
company to report any pending legal and/or regulatory proceedings that involves
a claim for damages in excess of ten percent (10%) of its current assets. The
litigation and proceedings discussed below do not necessarily meet this
threshold, but are included in the interest of full disclosure. In general, the
Company will vigorously defend itself against all claims to the fullest extent
possible:
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.
In this case, Littlefield initially sought recovery from Philip Furtney
["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 Furtney - Pondella Hall for Hire, Inc., and 800438 Ontario.
Several months after the acquisition of the three centers, the Florida Attorney
General obtained an indictment for alleged racketeering against two American
Bingo subsidiaries that operated two of the centers and brought a civil
proceeding against the same two subsidiaries and American Bingo based upon the
same allegations. 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 in finally serving Furtney when he was in
the United States in 2005 to attend related litigation.
Furtney passed away in September 2007, several months before the scheduled trial
date. In the event a defendant dies following the commencement of litigation,
the Florida Rules of Civil Procedure provides that a plaintiff may substitute
the defendant's estate as the defendant and continue to pursue the claim to
judgment. Furtney's estate has now been substituted as the defendant and
Littlefield intends to vigorously pursue the claim for all damages related to
the purchase of the Florida centers from Furtney's estate, 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.
Hamby Volunteer Fire Department, Trustee of the Ambler Charities Unit Trust
v. Littlefield Corporation, d/b/a Ambler Bingo, Inc ; Cause No. 24140-B;
104th Judicial District Court of Taylor County, Texas.
Plaintiff filed suit against the Corporation alleging breach of contract and
violation of the Bingo Enabling Act ("Act"). The Corporation filed an answer
denying all of the Plaintiff's claims. Plaintiff and the Corporation have
reached a confidential settlement agreement, which amount is immaterial to the
Company, and the parties have agreed to seek dismissal of the case.
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 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.
6
Texas Lottery Commission Notice of the Opportunity to Show Compliance.
Texas Charities, Inc., a subsidiary of the Company licensed by the Texas Lottery
Commission ("Commission") as a commercial lessor pursuant to the Bingo Enabling
Act, received a Notice of Opportunity to Show Compliance ("Notice") from the
Commission's Charitable Bingo Division ("Division") dated July 27, 2007. The
Notice indicated that the Division intended to initiate administrative
disciplinary action against Texas Charities, Inc. because it believed that Texas
Charities, Inc. violated the Act by improperly extending credit. On January 16,
2008, the Division amended the Notice to indicate that the Division also had
reason to believe that Texas Charities, Inc. violated the Act by including a
provision in its commercial lease agreement that required the lessee to sell
certain bingo equipment to third parties under certain circumstances. Texas
Charities, Inc. disputes the Division's interpretation of the Act and, if
necessary, intends to exercise its opportunity to show compliance. However, if
the matters cannot be settled with the Division, they may be referred to the
State Office of the Administrative Hearings for a hearing.
Amy Ramon, et al v. Clark C. Lilly, et al; Cause No. 2006-535,397 in the 237th
District Court of Lubbock County, Texas.
Settled. This case has been resolved by the payment by Littlefield of a total of
$25,000 which was divided among the six plaintiffs. The plaintiffs have executed
comprehensive releases and the litigation against Littlefield and its
subsidiaries has been dismissed with prejudice. Neither Littlefield nor its
subsidiaries admitted any liability or fault in connection with the settlement.
Settlement was reached during the week before scheduled October 15, 2007 trial
after the Court had denied two motions filed by Littlefield and its subsidiaries
for summary judgment. Littlefield had maintained a vigorous defense in this case
because neither the plaintiffs nor the bingo manager were employees of
Littlefield or its subsidiaries or subject to their control. However, both
management of Littlefield and litigation counsel concluded that the cost of
settling this case upon these terms would be less than trying the case to a
completely favorable verdict. Littlefield intends to attempt to recover its
attorneys fees and the amount paid in settlement from the charities which were
the employers of the plaintiffs. These efforts are in a very early stage. The
charities named as defendants settled with the plaintiffs prior to Littlefield's
settlement.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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There were no matters submitted to a vote of the stockholders during the fourth
quarter of the fiscal year covered by this report.
7
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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Market Information
Our common stock is traded on the OTC Bulletin Board under the symbol "LTFD".
The following table shows the range of reported high and low closing prices for
our common stock for the periods indicated as reported on a daily basis by the
OTC Bulletin Board.
2007: High Low 2006: High Low
----- ---- --- ----- ---- ---
First Quarter $1.22 $0.81 First $1.34 $0.47
Quarter
Second $1.27 $1.01 Second $1.92 $1.10
Quarter Quarter
Third Quarter $1.40 $1.11 Third $1.32 $1.01
Quarter
Fourth $1.50 $1.26 Fourth $1.10 $0.79
Quarter Quarter
High and low closing prices presented have been adjusted for a 20% stock
dividend in April 2006.
Security Holders
As of March 5, 2008, our common stock was held by approximately 748 beneficial
shareholders.
Dividends
We have not paid, and currently have no intention to pay, any cash dividends on
our common stock. In the second quarter of 2006 we issued a stock dividend of
20% of our outstanding common stock.
Securities Authorized For Issuance Under Equity Compensation Plans
Number of securities to Weighted average
be issued upon exercise exercise price of Number of securities
of outstanding options, outstanding options, remaining available for
Plan Category warrants and rights warrants and rights future issuance
(a) (b) (c)
--------------------- ------------------------- --------------------- ---------------------------
Equity compensation
plans approved by
security holders 617,910 0.74 1,391,474
Equity compensation NA NA NA
plans not approved
by security holders
Total 617,910 0.74 1,391,474
Recent Sales of Unregistered Securities
In March 2007, the Company sold 400,000 unregistered shares of its common stock
for proceeds of $476,560 to an institutional investor at a fifteen percent (15%)
premium.
8
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-----------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Overview
Our Company was formed in 1994 as a Delaware corporation to consummate the
acquisition of charitable bingo centers and video gaming operations, and
completed an initial public offering in December of 1994. We operate primarily
through wholly owned subsidiaries in Texas, Alabama and South Carolina and have
two operating segments - Littlefield Entertainment and Littlefield Hospitality.
We intend to grow our business through acquisitions and the selective start up
of charitable bingo halls in markets in which we currently operate and other
attractive markets.
The statements in this Annual Report on Form 10-KSB relating to matters that are
not historical facts, including, but not limited to statements found in this
"Management Discussion and Analysis of Financial Condition and Results of
Operations", are forward-looking statements that involve a number of risks and
uncertainties. Factors that could cause actual future results to differ
materially from those expressed in such forward-looking statements include, but
are not limited to the impact of government regulation and taxation, customer
attendance, spending, competition, general economic conditions, and other risks
and uncertainties as discussed in this Annual Report.
Results of Operations
---------------------
In 2007, the Company slightly exceeded last year's record revenue level and
posted the second highest level of gross profit in the last five years.
Full year 2007 earnings included the effects of approximately $1,120,000 of
notable items: $633,000 from renovating and reopening a hall in Texas and lower
revenue from a major Hospitality customer, $430,000 of legal expenses and
$57,000 of non-cash expenses for stock-based compensation. The legal expenses
mainly include costs from our expansion plans and operations in South Carolina,
Florida, Arkansas and Texas, settlement of a claim in Texas and our litigation
with Furtney seeking recovery of prior settlements and other damages.
Full year 2006 earnings included approximately $493,000 of notable charges:
$420,000 associated with legal settlements, $110,000 of non-cash expenses for
stock-based compensation offset by an insurance claim and asset disposal of
$37,000.
Revenues
The following table sets forth the Company's revenues by segment for 2007
compared to 2006:
2007 2006 Change % Change
--------------- -------------- --------------- ----------------
Total Revenues $ 13,429,000 $ 13,401,000 $ 28,000 0%
Entertainment 8,526,000 7,909,000 617,000 8%
Texas 5,372,000 4,954,000 418,000 8%
South Carolina 1,715,000 1,498,000 217,000 14%
Alabama 1,439,000 1,457,000 (18,000) (1%)
Hospitality 4,854,000 5,419,000 (565,000) 10%
Other $ 49,000 $ 73,000 $ (24,000) NM
Total revenues for the Company slightly exceeded last year's record revenue
level with Entertainment revenue increases offsetting lower Hospitality revenue
levels. Entertainment revenue rose 8% largely reflecting strong performance in
Texas and South Carolina. The Entertainment segment accounted for 63% of total
revenues compared with 59% of total revenues in 2006. By state, Entertainment
revenues for Texas, South Carolina and Alabama were 63%, 20%, and 17% of total
Entertainment revenue respectively compared to 63%, 19% and 18% in 2006.
Hospitality revenue decreased 10% from the prior year mainly reflecting lower
activity with a major customer. Hospitality accounted for 36% of total revenues
in 2007, compared to 40% of total revenues in 2006. Other revenue included other
ancillary services and miscellaneous revenue not reported as segment revenue.
9
Costs and Expenses
------------------
Cost of services were approximately flat from the prior year despite costs
associated with renovating and reopening a hall in Texas. The steady cost level,
in conjunction with the approximate same year-over-year revenue level resulted
in an approximate equivalent gross profit percent (gross profit as a percent of
sales); 25.0% in 2007 compared to 25.2% in 2006. The table below summarizes
gross profit by segment for 2007 and 2006:
2007 2006 Change % Change
--------------- ------------- -------------- ---------------
Total Gross Profit $ 3,357,000 $ 3,375,000 $ (18,000) (1%)
Entertainment 3,491,000 3,283,000 208,000 6%
Hospitality (183,000) 46,000 (229,000) NM
Other $ 49,000 $ 46,000 $ 3,000 NM
The equivalent gross profit margin can be attributed to management's
concentration on cost containment throughout the organization in response to
changes in differing segment revenue levels. The Entertainment gross profit as a
percent to sales was 40.9% versus 41.5%, respectively, for 2007 and 2006. The
2007 Hospitality gross loss was attributable to the 10% decline in revenue from
the prior year and losses on certain self-promotion events.
Direct salaries and other compensation were about equal to the prior year. Rent
and utilities in 2007 were up approximately 4% over 2006. In 2007 and 2006, we
did not recognize lease costs on a straight-line basis as provided in SFAS 13,
paragraph 15 and FTB 85-3 for leases entered into prior to October 2007.
Instead, lease costs were recognized based on payments made or accrued during
each month. If the Company had recognized lease expense on a straight-line basis
in 2007 and 2006, total lease costs would not have materially changed the
Company's financial results. In general, the Company enters into long term
leases underlying its operations. At the same time, the Company generally enters
into agreements which are renewed annually with its customers. This permits the
Company to adjust its customer agreements in response to general price increases
and limits the effect of lease escalation clauses. Generally, the Company's
leases require payments of rent and a pro-rata share of real estate maintenance,
taxes and insurance.
Other direct operating costs in 2007 were down 2% from the prior year, mainly
due to improved receivable management with corresponding lower bad debt expense
and lower subrentals in the Hospitality segment due to lower sales; these
factors offset higher costs associated with the renovation and reopening of a
hall in Texas and sundry other costs. The change in license expense was mainly a
result of the timing of the payment of licenses.
Depreciation and amortization expense totaled approximately $792,000 ($676,000
Cost of Services plus $116,000 G&A) in 2007, an increase of about $36,000 from
2006. The increase is largely a result of capital spending associated with the
implementation of the Company's Entertainment Destination strategy which
encompasses bettering the infrastructure, interior environment, amenities and
activities of the bingo centers in the Company's portfolio.
General and administrative expenses, excluding related depreciation expense,
stock-based compensation expense and the noted legal expenses totaled
approximately $2,050,000 in 2007, compared to approximately $1,711,000 in 2006,
an increase of about $339,000. The increase mainly related to planned staff
additions in the second half of last year. The 2007 noted legal expenses mainly
included legal costs from our expansion plans and operations in South Carolina,
Florida, Arkansas and Texas, settlement of a claim in Texas and our litigation
with Furtney seeking recovery of prior settlements and other damages. The 2006
noted legal expenses mainly reflected legal and settlement expenses to settle
two nine year old legal disputes.
Other income and expense was an expense of approximately $347,000 for 2007,
compared to approximately $137,000 for 2006. Interest expense was up
approximately $156,000 compared to 2006, reflecting the financing of legal
settlements.
Our income tax expense for 2007 was approximately $79,000 compared to $96,000 in
2006, all of which is related to state income taxes. The higher effective tax
rate reflects new tax code changes in Texas. The Company currently has a net
operating loss available for carryover on its federal income taxes of
approximately $6,700,000.
10
Net Income
----------
We realized net income of approximately $300,000 in 2007; $0.03 per basic share
and $0.03 per fully diluted share. Net income for 2006 was approximately
$786,000; $0.07 per basic share and $0.07 per fully diluted share. The weighted
average number of basic Common Stock shares outstanding totaled 11,228,255 in
2007 compared to 10,726,972 in 2006. The increase in basic shares outstanding
mainly represents the private placement of 400,000 shares to an institutional
investor at a 15% premium.
Full year 2007 earnings included the effects of approximately $1,120,000 of
notable items: $633,000 from renovating and reopening a hall in Texas and lower
revenue from a major Hospitality customer, $430,000 of legal expenses and
$57,000 of non-cash expenses for stock-based compensation. The legal expenses
mainly include costs from our expansion plans and operations in South Carolina,
Florida, Arkansas and Texas, settlement of a claim in Texas and our litigation
with Furtney seeking recovery of prior settlements and other damages.
Full year 2006 earnings included approximately $493,000 of notable charges:
$420,000 associated with legal settlements, $110,000 of non-cash expenses for
stock-based compensation offset by an insurance claim of $37,000.
Adjusted for the noted items above, the adjusted net income was approximately
$1,420,000 and basic earnings per share were $0.13 per share in 2007 versus an
adjusted net income of $1,279,000 and basic earnings per share of $0.12 last
year excluding the noted items in 2006.
Liquidity and Capital Resources
-------------------------------
Cash and cash equivalents at December 31, 2007, totaled approximately $1,966,000
and represented 12% of total assets of approximately $15,788,000. Current assets
totaled approximately $3,040,000 at December 31, 2007. Current liabilities
totaled $1,722,000. Working capital was approximately $1,318,000 and a current
ratio of 1.8 to 1.
The Company has notes and legal settlement payables coming due in the next
twenty four months amounting to $427,000 in 2008 and $476,000 in 2009.
Debt/Lease 12 months 24 Months 36 Months 48 Months 60 Months
Schedule 2008 2009 2010 2011 2012 Thereafter Totals
Notes
Payable $ 195,517 $ 210,462 $ 587,333 $ 2,064,486 $ 580,651 $ ---- $ 3,638,449
Legal
Settlements $ 231,272 265,813 97,151 --- --- --- $ 594,236
Operating
Leases $1,555,914 $1,252,890 $ 980,966 $ 785,307 $ 331,205 $423,066 $ 5,329,348
Obligations $1,982,703 $1,729,165 $1,665,450 $ 2,849,793 $ 911,856 $423,066 $ 9,562,033
Effective January 2008, the Company commenced operations of its hall in Florida;
associated with this hall is an operating lease of approximately $52,000 per
year through 2014.
Cash provided by operating activities for 2007 totaled approximately $1,920,000
compared to cash provided of $1,796,000 during 2006. Cash flows provided by
operating activities in 2007 were increased by net income of approximately
$300,000, non-cash depreciation expense of approximately $792,000, stock-based
compensation of approximately $57,000, and other net changes in asset and
liability accounts of approximately $771,000 mainly from improved receivables
management.
Net cash used in investing activities totaled approximately $1,718,000 for 2007,
compared to net cash provided by investing activities of approximately $723,000
for 2006. In 2007, cash was used in the amount of approximately $1,648,000 for
the purchase of capital assets mainly related to the Company's Entertainment
Destination strategy. In 2007, the Company also purchased additional licenses
for future expansion. In 2006, cash was used in the amount of approximately
$454,000 for the purchase of capital assets and offset by the collection of a
note receivable in the amount of approximately $1,177,000.
11
Cash used in financing activities in 2007 totaled approximately $786,000,
compared to net cash used in financing activities in 2006 of approximately
$589,000. In 2007 approximately $1,739,000 of cash was used for the payment of
notes, related party and legal settlements payable. This was partially offset by
$953,000 of funding received by refinancing certain loans and proceeds from the
sale of common stock and options exercised. In 2006, approximately $1,785,000 of
financing was obtained through a bank note payable and $204,000 was provided by
proceeds from option exercises and the collection of a subscription receivable.
This was offset by $2,414,000 of cash used for the payment of capital leases,
notes payable and legal settlements and $164,000 for net payments to related
parties.
At December 31, 2007, we had approximately $15,788,000 in total assets with
total liabilities of approximately $5,576,000 and approximately $10,212,000 of
shareholders' equity. Total assets include approximately $1,966,000 in cash,
$1,074,000 of other current assets and net account receivables, $6,927,000 of
net property and equipment, $5,604,000 of intangible assets, and $217,000 of
other assets. Total liabilities primarily consist of accounts payable of
approximately $232,000, and notes payable obligations of approximately
$3,639,000, legal settlement obligations of $594,000 and accrued and
related-party liabilities of $1,111,000.
In 2008, we plan to continue to use our cash generated from operations to make
leasehold improvements and renovations in our bingo operations. We also plan to
use advantageous combinations of bank financing, seller financing, treasury
stock, and cash on new bingo hall acquisitions when favorable terms can be
obtained.
Recently Issued Accounting Pronouncements
-----------------------------------------
In September 2006, the FASB issued SFAS 157, Fair Value Measurements. This
standard defines fair value, establishes a framework for measuring fair value in
accounting principles generally accepted in the United States of America, and
expands disclosure about fair value measurements. This pronouncement applies
under other accounting standards that require or permit fair value measurements.
Accordingly, this statement does not require any new fair value measurement. In
February 2008, the FASB issued FASB Staff Position (FSP) SFAS 157-2 delaying the
effective date of SFAS 157, except of items that are recognized or disclosed at
fair value in the financial statements at least annually. FSP SFAS 157-2
deferred the effective date of SFAS 157 to fiscal years beginning after November
15, 2008, and interim periods within those fiscal years. We will be required to
adopt SFAS 157 in the first quarter of fiscal year 2009. We are currently
evaluating the requirements of SFAS 157 and have not yet determined the impact
on our consolidated financial statements.
In March 2006, the Emerging Issues Task Force ("EITF") reached a consensus on
EITF Issue 06-3, How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (that is, Gross versus
Net Presentation). Taxes within the scope of EITF Issue 06-3 include any taxes
assessed by a governmental authority that are directly imposed on a
revenue-producing transaction between a seller and a customer and may include,
but are not limited to, sales taxes, use taxes, value-added taxes, and some
excise taxes. The EITF concluded that the presentation of these taxes on either
a gross (included in revenues and costs) or a net (excluded from revenue) basis
is an accounting policy decision that should be disclosed. For any such taxes
that are reported on a gross basis, a company should disclose the amounts of
those taxes in interim and annual financial statements. Our policy is to exclude
all such taxes from revenue. The provisions of EITF 06-3 are effective for
interim and annual reporting periods beginning after December 15, 2006. The
adoption of EITF 06-3 did not have any effect on our consolidated financial
statements.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities - including an amendment of FASB Statement 115.
This standard permits an entity to measure many financial instruments and
certain other assets and liabilities at fair value on an
instrument-by-instrument basis. We will be required to adopt SFAS 159 in the
first quarter of fiscal year 2008. We do not expect the adoption of SFAS 159 to
have a significant impact on our financial position or results of operations.
In December 2007, the FASB issued SFAS 141 (revised 2007), Business
Combinations. This standard continues use of the acquisition method of
accounting (which Statement 141 called the purchase method) for all business
combinations and for an acquirer to be identified for each combination. SFAS 141
(revised 2007) requires an acquirer to recognize the assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree at the
acquisition date, measured at their fair values as of that date, with limited
exceptions specified in the Statement. The Statement requires
acquisition-related costs to be recognized separately from the acquisition. The
Statement amends SFAS 109, Accounting for Income Taxes to require the acquirer
to recognize changes in the amount of its deferred tax benefits that are
recognizable because of a business combination either in income from continuing
operations in the period of the combination or directly in contributed capital,
depending upon the circumstances. We will be required to adopt SFAS 141 (revised
2007) prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. An entity may not apply it before that date. We are
currently evaluating the requirements of SFAS 141 (revised 2007) and have not
yet determined the impact on our consolidated financial statements.
12
Item 7 - Financial Statements
-----------------------------
The independent auditors' report, consolidated financial statements and notes
thereto included on the following pages are incorporated herein by reference.
Report of Padgett Stratemann & Co. LLP F-2
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4-F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7-F-8
Notes to Consolidated Financial Statements F-9-F-29
Item 8 - Changes in and Disagreements with Accountants on Accounting and
-----------------------------------------------------------------------------
Financial Disclosure
--------------------
There are no disagreements with Accountants on Accounting and Financial
Disclosure.
During the year, the Company's auditors merged with the firm of Padgett,
Stratemann & Co., LLP. On November 6, 2007, the audit committee of Littlefield
Corporation approved a mutual agreement with the Company's independent auditor,
Sprouse & Anderson, LLP, to terminate Sprouse & Anderson's engagement as the
Company's independent auditor and to engage Padgett, Stratemann & Co., LLP as
the Company' s new auditor. Sprouse & Anderson merged with the firm of Padgett,
Stratemann & Co., LLP. and thus agreed to resign as the Company's auditor. At
the same time, the Company's audit committee approved the engagement of Padgett,
Stratemann & Co., LLP as the new auditor and expects to maintain a continuity of
auditing experience and personnel.
At the time of terminating the audit engagement, there were no disagreements
between the company and Sprouse & Anderson on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to Sprouse & Anderson's satisfaction, would
have caused it to make reference to the subject matter of the disagreement in
connection with its report. Sprouse & Anderson reported on the Company's
financial statements for the fiscal years from 1999 through 2006.
The auditor's reports on the financial statements of the Company during the two
most recent fiscal years contained no adverse opinion or disclaimer of opinion
and were not modified as to uncertainty, audit scope, or accounting principles.
13
Item 8A - Controls and Procedures
---------------------------------
Evaluation of Disclosure Controls
The Company's management evaluated, with the participation of the Chief
Executive Officer and Chief Financial Officer, the effectiveness of the
Company's disclosure controls and procedures as of the end of the period covered
by this report. Disclosure controls and procedures are designed with the
objective of ensuring that (i) information required to be disclosed in the
Company's reports filed under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms and (ii) the information is accumulated and communicated
to management, including the principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required
disclosures.
Based upon their evaluation, our management including the Chief Executive
Officer and Chief Financial Officer have concluded that our disclosure controls
and procedures (as defined in Rule 13a-15(e) or 15 d - 15(e) under the
Securities Exchange Act) are effective, as of the end of the period covered by
this report on Form 10-KSB, to ensure that information required to be disclosed
by us in the reports that we file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in the SEC rules and forms.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the company, (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company's assets that could have a
material effect on the financial statements.
Management assessed our internal control over financial reporting as of December
31, 2007, which was the end of our fiscal year. Management based its assessment
on criteria established in the SEC Commission's Guidance Regarding Management's
Report on Internal Control Over Financial Reporting Under Section 13(a) or 15(d)
of the Securities Exchange Act of 1934. The guidance sets forth an approach by
which management can conduct a top-down, risk-based evaluation of internal
control over financial reporting. Management's assessment included an evaluation
of risks to reliable financial reporting, whether controls exist to address
those risks and evaluated evidence about the operation of the controls included
in the evaluation based on its assessment of risk.
Based on our assessment, management has concluded that our internal control over
financial reporting was effective as of the end of the fiscal year to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external reporting purposes in
accordance with generally accepted accounting principles. We reviewed the
results of management's assessment with the Audit Committee of our Board of
Directors.
This annual report does not include an attestation report of the company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the company to provide only management's
report in this annual report.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting
during the quarter ended December 31, 2007, that have materially affected or are
reasonably likely to materially affect, our internal control over financial
reporting.
14
Limitations on the Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our disclosure
controls or our internal controls over financial reporting will prevent all
error and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, but not absolute, assurance that the
objectives of a control system are met. Further, any control system reflects
limitations on resources, and the benefits of a control system must be
considered relative to its costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within Littlefield
Corporation have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns can occur
because of simple error or mistake. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more people, or
by management override of a control. A design of a control system is also based
upon certain assumptions about potential future conditions; over time, controls
may become inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and may not be detected.
PART III
Item 9 - Directors and Executive Officers; Compliance With Section 16(a) of
-----------------------------------------------------------------------------
the Exchange Act
----------------
In response to this item, the information included in our proxy statement for
the annual meeting of stockholders to be held on May 21, 2008, which proxy
statement will be filed with the Securities and Exchange Commission no later
than April 25, 2008, is incorporated herein by reference.
Item 10 - Executive Compensation
--------------------------------
In response to this item, the information included in our proxy statement for
the annual meeting of stockholders to be held on May 21, 2008, which proxy
statement will be filed with the Securities and Exchange Commission no later
than April 25, 2008, is incorporated herein by reference.
Item 11 - Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------
In response to this item, the information included in our proxy statement for
the annual meeting of stockholders to be held on May 21, 2008, which proxy
statement will be filed with the Securities and Exchange Commission no later
than April 25, 2008, is incorporated herein by reference.
Item 12 - Certain Relationships and Related Transactions
--------------------------------------------------------
In response to this item, the information included in our proxy statement for
the annual meeting of stockholders to be held on May 21, 2008, which proxy
statement will be filed with the Securities and Exchange Commission no later
than April 25, 2008, is incorporated herein by reference.
15
Item 13 - Exhibits
------------------
Exhibit Description
3.1 Certificate of Incorporation of the Company dated September 8, 1994, as
amended October 17, 1994, and further amended July 31, 1997 and August
13, 1998, and September 22, 1999 (incorporated by reference to Exhibit
3.1 of the Quarterly Report on Form 10-QSB filed by the Company on
November 15, 1999, for the quarter ended September 30, 1999).
3.2 Amended and Restated Bylaws of the Company (incorporated by reference
to Exhibit 3.2 of the Quarterly Report on Form 10-QSB filed by the
Company on November 15, 1999, for the quarter ended September 30,
1999).
10.1* 2002 Stock Option Plan (incorporated by reference to Exhibit of the
Definitive Proxy Statement Schedule 14A, filed with the SEC on March
22, 2002).
10.2* 2002 Employee Stock Purchase Plan (incorporated by reference to Exhibit
of the Definitive Proxy Statement Schedule 14A, filed with the SEC on
March 22, 2002).
22.1 Subsidiaries of the Company
31.1 Certification Pursuant to Rules 13a-14(a)
32.1 Certification Pursuant to 18 U.S.C. 1350
* Denotes a management contract or compensatory plan or arrangement.
Item 14 Principal Accountant Fees and Services
----------------------------------------------
Audit Fees
The aggregate fees billed to the Company by Padgett Stratemann & Co. LLP for the
audit of Littlefield Corporation and Subsidiaries' annual financial statements
included in the 10KSB and for the review of the financial statements included in
its quarterly reports on Form 10-Q for the fiscal years ended December 31, 2007
and 2006 totaled $60,000 and $67,800 respectively. In addition, $9,775 was
incurred in 2007 for other services and $41,500 was incurred in connection with
restatements during 2006.
Tax Fees
The aggregate fees billed to the Company by Padgett Stratemann & Co. LLP for
services rendered to the Company during the fiscal years ended December 31, 2007
and 2006 for tax compliance, tax advice or tax planning was $30,393 and $25,225
respectively.
It is the audit committee's policy to pre-approve all services provided by
Padgett Stratemann & Co. LLP. All services provided by Padgett Stratemann & Co.
LLP during the years ended December 31, 2007 and 2006 were pre-approved by the
audit committee.
16
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: March 31, 2008
LITTLEFIELD CORPORATION
-----------------------
(Registrant)
By: /s/ Jeffrey L. Minch
--------------------
Jeffrey L. Minch
President and CEO
By: /s/ Richard S. Chilinski
------------------------
Richard S. Chilinski
Chief Financial Officer
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
--------------------- ----------------------------------------- ----------------
/s/Jeffrey L. Minch President and Chief Executive Officer, March 31, 2008
-------------------
Jeffrey L. Minch Director
/s/Carlton Williams Chairman of the Board March 31, 2008
-------------------
Carlton Williams
/s/Lanny Chiu Director March 31, 2008
-------------
Lanny Chiu
/s/Alfred Stanley Director March 31, 2008
-----------------
Alfred Stanley
/s/Michael Wilfley Director March 31, 2008
------------------
Michael Wilfley
17
LITTLEFIELD CORPORATION & SUBSIDIARIES
DECEMBER 31, 2007
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of December 31, 2007 F-3
Consolidated Statements of Operations for the
Years Ended December 31, 2007 and 2006 F-4-F-5
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the
Years Ended December 31, 2007 and 2006 F-6
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2007 and 2006 F-7-F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9-F-29
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
of Littlefield Corporation
We have audited the accompanying consolidated balance sheet of Littlefield
Corporation (the "Company") as of December 31, 2007, and the related
consolidated statements of operations, stockholders' equity and comprehensive
income, and cash flows for each of the years in the two-year period ended
December 31, 2007. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Littlefield
Corporation as of December 31, 2007, and the results of its operations and its
cash flows for each of the years in the two-year period ended December 31, 2007
in conformity with accounting principles generally accepted in the United States
of America.
Padgett Stratemann & Co. LLP
Austin, Texas
March 25, 2008
F-2
Littlefield Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2007
ASSETS
------
Current Assets:
Cash and cash equivalents $ 1,965,624
Accounts receivable, net of allowance for doubtful accounts of $126,309 519,845
Other current assets 549,194
Note Receivable 5,103
----------------
Total Current Assets 3,039,766
----------------
Property and Equipment - at cost, net of accumulated depreciation and
amortization 6,926,559
Other Assets:
Goodwill 4,905,111
Intangible assets, net 699,196
Other non-current assets 217,615
----------------
Total Other Assets 5,821,922
----------------
TOTAL ASSETS $ 15,788,247
================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Long term debt, current portion $ 195,517
Long term debt, legal settlements, current portion 231,272
Trade accounts payable 232,339
Accrued expenses 1,063,053
----------------
Total Current Liabilities 1,722,181
----------------
Long-term Liabilities:
Long term debt, net of current portion 3,442,932
Long term debt, legal settlements 362,964
Other liabilities, related party 48,000
----------------
Total Long-term Liabilities 3,853,896
----------------
Total Liabilities 5,576,077
----------------
Stockholders' Equity:
Common stock, $0.001 par value, (authorized 20,000,000 shares, issued
12,344,139 shares, outstanding 11,444,060 shares) 12,344
Additional paid-in-capital 23,710,845
Treasury stock - 900,079 shares, at cost (1,146,638)
Accumulated deficit (12,364,381)
----------------
Total Stockholders' Equity 10,212,170
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,788,247
================
See notes to consolidated financial statements
F-3
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
2007 2006
------------------ -----------------
REVENUES:
Entertainment $ 8,525,393 $ 7,908,508
Hospitality 4,853,729 5,419,063
Other 49,381 73,601
------------------ -----------------
TOTAL REVENUES 13,428,503 13,401,172
================== =================
DIRECT COSTS AND EXPENSES:
Direct salaries and other compensation 3,146,941 3,140,899
Rent and utilities 2,605,054 2,514,104
Other direct operating costs 3,543,600 3,614,513
Depreciation and amortization 675,943 644,996
License expense 100,261 111,260
------------------ -----------------
TOTAL COSTS AND EXPENSES 10,071,799 10,025,772
------------------ -----------------
GROSS MARGIN 3,356,704 3,375,400
GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries and other compensation 1,240,721 884,310
Legal and accounting fees 539,680 309,671
Reserve for legal settlements --- 358,000
Depreciation and amortization 116,403 111,112
Share-based compensation expense 57,244 109,980
Other general and administrative 700,344 579,679
------------------ -----------------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 2,654,392 2,352,752
GAIN (LOSS) ON DISPOSITION OF FIXED ASSETS 23,100 (3,189)
------------------ -----------------
OPERATING INCOME 725,412 1,019,459
OTHER INCOME AND EXPENSES:
Interest and investment income 103,824 114,197
Interest expense (445,983) (289,022)
Other income (expense) (4,398) 37,527
------------------ -----------------
TOTAL OTHER INCOME AND EXPENSES (346,557) (137,298)
INCOME BEFORE INCOME TAXES
INCOME TAXES iPROVISION FOR INCOME TAXES 378,855 882,161
PROVISION FOR INCOME TAXES 78,670 96,411
------------------ -----------------
NET INCOME 300,185 785,750
OTHER COMPREHENSIVE (LOSS), Net of Tax of $0 and $0 4,713 (2,613)
------------------ -----------------
NET COMPREHENSIVE INCOME $ 304,898 $ 783,137
================== =================
See notes to consolidated financial statements
F-4
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Years Ended December 31,
2007 2006
-------------- ----------------
EARNINGS PER SHARE:
Basic earnings per share $ 0.027 $ 0.073
============== ================
Diluted earnings per share $ 0.026 $ 0.073
============== ================
Weighted average shares outstanding - basic 11,228,255 10,726,972
Weighted average shares outstanding - diluted 11,484,597 10,835,611
See notes to consolidated financial statements
F-5
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Additional Accumulated
-Common Stock- Paid-in Treasury Subscriptions Accumulated Other
Comprehensive
Description Shares Value Capital Stock Receivable Deficit Income Total
-------------------------- ---------- ------- ------------- -------------- ------------- --------------- -------------- ------------
Balance at December 31,
2005 8,689,355 $10,177 $ 23,531,770 ($ 1,892,707) $ (46,000) ($ 13,450,316) $ (2,100) $ 8,150,824
========== ======= ============= ============== ============= =============== ============== ============
Stock dividend 1,767,249 1,767 (1,767) ---
Stock-based compensation 109,980 109,980
Issuance of treasury stock
pursuant to employee
stock purchase plan and
employee 401K deferrals 41,337 (24,405) 52,498 28,093
Collection of subscription
receivable 46,000 46,000
Options exercised by
employees 320,000 (248,400) 406,400 158,000
Comprehensive income for
the year ended 12/31/06 (2,613) (2,613)
Net income for the year
ended 12/31/06 785,750 785,750
_________ _______ __________ __________ ________ ___________ _____________ ____________
Balance at December 31,
2006 10,817,941 $11,944 $ 23,367,178 ($ 1,433,809) $ --- ($ 12,664,566) $ (4,713) $ 9,276,034
========== ======= ============= ============== ============= =============== ============== ============
Sale of common stock 400,000 400 476,160 476,560
Stock-based compensation 57,244 57,244
Issuance of treasury stock
pursuant to employee
stock purchase plan and
employee 401K deferrals 37,868 (25,343) 48,092 22,749
Stock dividend adjustment 42,595 (54,096) 54,096 ---
Options exercised by
employees 145,656 (110,298) 184,983 74,685
Comprehensive income 4,713 4,713
Net income for the year
ended 12/31/07 300,185 300,185
_________ _______ __________ __________ ________ ___________ _____________ ____________
Balance December 31, 2007 11,444,060 $12,344 $ 23,710,845 ($ 1,146,638) $ --- ($ 12,364,381) $ --- $10,212,170
========== ======= ============= ============== ============= =============== ============== ============
F-6
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2007 2006
--------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 300,185 $ 785,750
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 792,346 756,108
Bad debt allowance and write-offs --- 100,357
Stock based compensation expense 57,244 109,980
(Gain)/loss on sale of investment assets 4,398 ---
(Gain)/loss on disposal of property and equipment (23,100) 16,913
Increase (decrease) in cash flows as a result of changes in
asset and liability account balances:
Accounts receivable 568,895 2,925
Prepaid expenses and other assets 61,640 505,079
Trade accounts payable (32,298) (161,027)
Accrued expenses and other liabilities 190,536 (319,772)
--------------- -----------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,919,846 1,796,313
--------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities 3,741 ---
Purchase of property and equipment (1,647,987) (453,870)
Purchase of goodwill/intangibles (105,000) ---
Proceeds from sale of property and equipment 29,252 ---
Proceeds from repayment of note receivable, net 2,088 1,177,023
--------------- -----------------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES (1,717,906) 723,153
--------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable, settlements and capital leases (1,353,027) (2,413,717)
Payments on related party liabilities (386,058) (164,197)
Proceeds from note payable 401,958 1,785,042
Proceeds from options exercised 74,685 158,000
Proceed from sale of common stock 476,560 ---
Collection of subscription receivable --- 46,000
--------------- -----------------
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES (785,882) (588,872)
--------------- -----------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (583,942) 1,930,594
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,549,566 618,972
--------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,965,624 $ 2,549,566
=============== =================
See notes to consolidated financial statements
F-7
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2007 2006
----------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments:
Interest $ 430,393 $ 256,893
=========== ============
Income taxes $ 92,285 $ 120,712
=========== ============
Non-cash transactions:
Issuance of treasury stock under deferred compensation plan $ 5,388 $ 14,133
=========== ============
Issuance of treasury stock under employee stock purchase plan $ 17,361 $ 13,960
=========== ============
See notes to consolidated financial statements
F-8
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
--------------------------------------------------------------------------------
NOTE 1 - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
Littlefield Corporation actively participates in the U.S. charitable bingo
market, and the event planning/hospitality business. The Company's corporate
headquarters is located in Austin, Texas, and the Company operates primarily
through wholly owned subsidiaries in Texas, South Carolina and Alabama. The
Company generates its revenues from bingo centers in all three states and the
event planning/hospitality market in Texas.
Principles of Consolidation:
----------------------------
The accompanying consolidated financial statements include the accounts of
Littlefield Corporation and its subsidiaries (herein collectively referred to as
the "Company"). All significant intercompany accounts and transactions have been
eliminated in the consolidation.
Reclassifications:
------------------
Certain amounts in the prior periods presented have been reclassified to conform
to the current period financial statement presentation. These reclassifications
have no effect on previously reported net income.
Management Estimates:
---------------------
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents:
--------------------------
Cash equivalents consist of funds invested in money market accounts and in
investments with a maturity of ninety days or less when purchased.
Accounts Receivable:
--------------------
Accounts receivable consist of amounts due from charitable organizations that
conduct bingo events at the Company's various bingo centers, and are generally
payable within one month of the event. Receivables also include rent due from
operators of concessions located within bingo centers. Hospitality receivables
are due from businesses, individuals and non-profit organizations and are
generally due immediately after the event. Accounts receivable are not secured.
Management provides an allowance for doubtful accounts, which reflects its
estimate of the uncollectible receivables. In the event of non-performance, the
maximum exposure to the Company is the recorded amount of receivables, net of
allowance for doubtful accounts, at the balance sheet date.
F-9
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
Notes Receivable:
-----------------
In September 2005, the Company entered into an agreement to sell the South
Carolina shopping center, and accepted a note receivable from the purchaser in
the amount of $1,400,000. This was a 5 year note receivable with a 10 year
amortization, at 7.5% interest payable in monthly installments with a one time
$100,000 principal payment due on the first anniversary of the note. This note
was settled in full with a discount of $200,000 in February 2006 at its net
realizable value of $1,184,214.
Property and Equipment:
-----------------------
The cost of equipment, furniture and fixtures is depreciated over the estimated
useful lives of the assets ranging from two to seven years, using the
straight-line method. Leasehold improvements are amortized over the lesser of
the term of the lease or the estimated useful lives. Buildings are amortized
over forty years, which approximates their estimated useful lives. Building
improvements are amortized over their estimated useful lives ranging from seven
to forty years. Upon sale, retirement or abandonment of assets, the related cost
and accumulated depreciation are eliminated from the accounts and gains or
losses are reflected in income. Repairs and maintenance expenses, which do not
extend asset lives, are expensed as incurred.
Investments:
------------
The Company accounts for its investments under Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities. The Company's securities are considered available for sale and are
valued at fair value for financial statement purposes. Fair value is based on
quoted market prices. The Company uses the average cost method for determining
the cost basis on realized gains and losses of investments. The unrealized
holding gain or loss represents the net change in the fair value of those
securities and is shown in other comprehensive income.
Advertising:
------------
Advertising costs are expensed when incurred or the first time the advertising
takes place. During 2007, the Company had advertising expenses of approximately
$158,000 compared to approximately $99,000 in 2006.
Goodwill and Intangible Assets:
-------------------------------
Intangible assets, which primarily consist of goodwill, bingo licenses and
non-compete covenants resulting from the acquisition of bingo entities or
hospitality companies, are periodically reviewed by management to evaluate the
future economic benefits or potential impairments, which may affect their
recorded values. Goodwill, which represents the excess of the cost of assets
acquired over the fair market value of those tangible assets on the date of
their acquisition. Under Statement on Financial Accounting Standard 142,
Goodwill and Other Intangible Assets, goodwill acquired in a business
combination for which the acquisition date is after June 30, 2001, shall not be
amortized, but shall be reviewed for impairment in value.
Since 2002, goodwill and intangible assets with indefinite lives are no longer
amortized. These indefinite-lived assets only pertain to the State of Texas. The
Company has one class of asset that is classified as indefinite and not subject
to periodic amortization. This class of asset is known as a "Grandfathered
License." In discussing these "Grandfathered Licenses", a distinction should be
made as to the types of bingo licenses the Company owns. There are two classes
of commercial lessor licenses in Texas, a "Grandfathered" and a "Tier." The
"Grandfathered" license refers to any license that was in existence prior to
1989 in which a non renewal has not occurred.
F-10
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
A "Grandfathered" license allows the operator to have up to seven (7) charities
in a hall and charge up to $600 per session in rent. These licenses are
regulated by the Texas Lottery Commission and must be renewed each year. There
is an annual fee associated with the renewal of these licenses, which is
expensed throughout the year. There is a limited number of these licenses
available and they are traded between individuals and organizations. They are a
traded commodity, in that they have a cash value which is determined by the
market place. These licenses can only be revoked or canceled by failing to renew
them by the renewal date or for illegal activity.
A "Tier" license is deemed by the company to have no value as an asset and are
not carried as an asset on the Company's books. A "Tier" commercial lessor
license is any license issued after 1989 or any license issued prior to 1989 in
which a non renewal occurred. A "Tier" license allows the operator to have one
(1) charity in a hall and charge up to $600 per session in rent. These licenses
are issued, renewed, and applied for through the Texas Lottery Commission. The
only cost associated with obtaining and keeping this type of license is an
annual renewal fee, which is expensed throughout the year. These licenses are
not sold on a negotiated basis, at this time.
In South Carolina there are promoter and solicitor licenses with set fees that
are renewed each year and expensed during the year. In Alabama there is a
business license which is based upon the gross amount of rents, these too are
renewed annually and expensed during the year. These licenses are not recorded
as assets and therefore have no related amortization.
Non-compete covenants are amortized over the periods of the stated benefits,
ranging from one to five years, and are monitored for contractual compliance. If
the projected undiscounted future cash flows related to the intangible assets
are less than the recorded value, the intangible asset is written down to fair
value.
Revenue Recognition:
--------------------
The Company generates revenues from the following sources and recognizes revenue
when earned and collectability is probable:
(i) Bingo:
Bingo rents, paper sales and head tax payments are received from
charitable organizations through various sub-lease agreements of the
Company's bingo centers. Revenues are determined by customer
attendance, spending and prize payouts, profit splits, as well as
state regulations, which may dictate the number of bingo sessions a
charity can conduct and rent limits that can be paid to a commercial
lessor, such as the Company. Revenues are accrued and accounted for
in the month that they are due when realizable. Revenues that are
generated by amounts, such as customer attendance, are recognized in
the month they are earned and collectability is probable.
(ii) Catering and Party Rental:
Revenue is also earned from the Hospitality division which charges
fees for catering, staffing, bar service, event coordination, and
party event and tent rentals. Revenues are accrued and accounted for
in the month in which the services are performed.
(iii) Other:
Other revenues are earned concessions, vending machines, bingo
supplies, and other sources. Other revenues are recognized in the
month they are earned.
F-11
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
Income Taxes:
-------------
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the tax basis and
financial reporting carrying amounts of assets and liabilities. The Company
periodically evaluates its deferred tax assets and adjusts any related valuation
allowance based on the estimate of the amount of such deferred tax assets which
the Company does not believe will meet the "more-likely-than-not" recognition
criteria.
Per Share Data:
---------------
Basic earnings (loss) per share of common stock is calculated by dividing income
(loss) from continuing operations by the weighted average number of common
shares actually outstanding during each period. Diluted earnings (loss) per
share of common stock is calculated by dividing net income (loss) by the fully
diluted weighted average number of common shares outstanding during each period,
which includes dilutive stock options and convertible shares.
Stock-Based Compensation:
-------------------------
Effective January 1, 2006, the Company adopted FASB Statement of Financial
Accounting Standards No. 123R (Revised 2004), Share-Based Payment, which
requires that the compensation cost relating to share-based payment transactions
be recognized in financial statements based on the provisions of SFAS 123 issued
in 1995. We have adopted this statement using the modified prospective method of
implementation, whereby the prospective method records the compensation expense
from the implementation date forward, but leaves prior periods unchanged. SFAS
123R also requires the cash flows resulting from the tax benefits from tax
deductions in excess of the compensation cost recognized (excess tax benefits)
to be classified as financing cash flows. Prior to the effective date of SFAS
123R, we applied Accounting Principles Board Opinion 25 ("APB 25"), Accounting
for Stock Issued to Employees and related interpretations for our stock option
grants. APB 25 provides that the compensation expense relative to our stock
options is measured based on the intrinsic value of the stock option at date of
grant.
The Company recorded approximately $57,000 and $110,000 in compensation expense
in the periods ended December 31, 2007 and December 31, 2006 related to options
issued under its stock-based incentive compensation plans. This includes expense
related to both options issued in the current year and options issued in prior
years for which the requisite service period for those options includes the
current year. The fair value of these options was calculated using the
Black-Scholes options pricing model. Information related to the assumptions used
in this model is set forth in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2006. No options were issued for the fiscal year
ended December 31, 2007.
As of December 31, 2007, the Company had $57,276 of total unrecognized
compensation cost related to stock options which is expected to be recognized
over a weighted average period of one year. Treasury stock is issued upon stock
option exercises.
Comprehensive Income:
---------------------
The Company had other comprehensive income related to realized gains and losses
on available for sale securities.
F-12
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
Recently Issued Accounting Pronouncements
-----------------------------------------
In September 2006, the FASB issued SFAS 157, Fair Value Measurements. This
standard defines fair value, establishes a framework for measuring fair value in
accounting principles generally accepted in the United States of America, and
expands disclosure about fair value measurements. This pronouncement applies
under other accounting standards that require or permit fair value measurements.
Accordingly, this statement does not require any new fair value measurement. In
February 2008, the FASB issued FASB Staff Position (FSP) SFAS 157-2 delaying the
effective date of SFAS 157, except of items that are recognized or disclosed at
fair value in the financial statements at least annually. FSP SFAS 157-2
deferred the effective date of SFAS 157 to fiscal years beginning after November
15, 2008, and interim periods within those fiscal years. We will be required to
adopt SFAS 157 in the first quarter of fiscal year 2009. We are currently
evaluating the requirements of SFAS 157 and have not yet determined the impact
on our consolidated financial statements.
In March 2006, the Emerging Issues Task Force ("EITF") reached a consensus on
EITF Issue 06-3, How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (that is, Gross versus
Net Presentation). Taxes within the scope of EITF Issue 06-3 include any taxes
assessed by a governmental authority that are directly imposed on a
revenue-producing transaction between a seller and a customer and may include,
but are not limited to, sales taxes, use taxes, value-added taxes, and some
excise taxes. The EITF concluded that the presentation of these taxes on either
a gross (included in revenues and costs) or a net (excluded from revenue) basis
is an accounting policy decision that should be disclosed. For any such taxes
that are reported on a gross basis, a company should disclose the amounts of
those taxes in interim and annual financial statements. Our policy is to exclude
all such taxes from revenue. The provisions of EITF 06-3 are effective for
interim and annual reporting periods beginning after December 15, 2006. The
adoption of EITF 06-3 did not have any effect on our consolidated financial
statements.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities - including an amendment of FASB Statement 115.
This standard permits an entity to measure many financial instruments and
certain other assets and liabilities at fair value on an
instrument-by-instrument basis. We will be required to adopt SFAS 159 in the
first quarter of fiscal year 2008. We do not expect the adoption of SFAS 159 to
have a significant impact on our financial position or results of operations.
In December 2007, the FASB issued SFAS 141 (revised 2007), Business
Combinations. This standard continues use of the acquisition method of
accounting (which Statement 141 called the purchase method) for all business
combinations and for an acquirer to be identified for each combination. SFAS 141
(revised 2007) requires an acquirer to recognize the assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree at the
acquisition date, measured at their fair values as of that date, with limited
exceptions specified in the Statement. The Statement requires
acquisition-related costs to be recognized separately from the acquisition. The
Statement amends SFAS 109, Accounting for Income Taxes to require the acquirer
to recognize changes in the amount of its deferred tax benefits that are
recognizable because of a business combination either in income from continuing
operations in the period of the combination or directly in contributed capital,
depending upon the circumstances. We will be required to adopt SFAS 141 (revised
2007) prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. An entity may not apply it before that date. We are
currently evaluating the requirements of SFAS 141 (revised 2007) and have not
yet determined the impact on our consolidated financial statements.
F-13
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
--------------------------------------------------------------------------------
NOTE 2 - MATERIAL ACQUISITIONS, OPENINGS, CLOSINGS AND REORGANIZATIONS
--------------------------------------------------------------------------------
2007
In August 2007 the Company announced it acquired the stock of two Texas
corporations who each own a commercial license to lease bingo premises. The
acquisitions are complementary to the Company's current portfolio of Texas bingo
licenses which are classified as intangible assets.
In December 2007 the Company announced it executed a definitive agreement to
acquire a Florida bingo hall. The acquisition of a bingo hall in Pensacola,
Florida was completed with an effective date of January 1, 2008.
2006
In August, 2006, the Company announced development of a new Texas Bingo hall in
San Angelo, Texas adjacent to its hall purchased in 2005. The Hall is planned to
open in Q1 2008.
The items above, while not necessarily meeting the thresholds of materiality to
the Company, are included in the interest of full disclosure.
--------------------------------------------------------------------------------
NOTE 3 - PROPERTY AND EQUIPMENT
--------------------------------------------------------------------------------
Property and equipment at December 31, 2007 consists of the following:
Land $ 740,467
Buildings 3,404,348
Building and leasehold improvements 4,756,267
Bingo, and rental equipment 1,989,605
Equipment, furniture and fixtures 2,604,406
Automobiles 468,626
-----------------
13,963,719
Less: Accumulated depreciation and amortization (7,037,160)
-----------------
Property and equipment, net $ 6,926,559
=================
Depreciation and amortization expense charged to operations for the years ended
December 31, 2007 and 2006 was $792,346 and $756,108 respectively.
F-14
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
--------------------------------------------------------------------------------
NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS
--------------------------------------------------------------------------------
Goodwill at December 31, 2007 is as follows:
Gross Accumulated
Carrying Amortization Total
Amount
------------------ ---------------- --------------
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 December 31, 2007 $ 4,533,727 $ 371,384 $ 4,905,111
================== ================ ==============
Intangible assets at December 31, 2007 consists of the following:
Gross Accumulated
Carrying Amortization Total
Amount
-------------- -------------- ------------
Intangible Assets with Indefinite Lives:
Bingo licenses $ 694,719 $ (51,974) $ 642,745
Intangible Assets with Finite Lives:
Covenants not to compete $ 297,500 $ (241,049) $ 56,451
------------
Intangible Assets, Net of Accumulated
Amortization $ 699,196
============
Future amortization on intangible assets with finite lives is as follows:
Year Amount
----------------- ------------------
2008 $ 29,500
2009 17,951
2010 9,000
Thereafter ---
------------------
Total $ 56,451
==================
F-15
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
--------------------------------------------------------------------------------
NOTE 5 - WRITE-OFFS AND CHARGES
--------------------------------------------------------------------------------
In accordance with Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets ("SFAS 142"), the Company recognizes impairment
losses when facts and circumstances indicate that the carrying amount of an
asset may not be recoverable. In such cases, an impairment loss is recognized
and measured as the amount by which the carrying value of the asset exceeds the
fair value of the asset.
For the years ended December 31, 2007 and 2006, the Company evaluated the
carrying value of goodwill for each reporting unit of the Company and determined
that no impairment of goodwill was necessary.
--------------------------------------------------------------------------------
NOTE 6 - LONG-TERM DEBT
--------------------------------------------------------------------------------
Long-term debt at December 31, 2007 consist of the following:
Note payable to a bank, due in monthly installments of approximately $22,000
including interest at prime plus 0.5%, maturing March 2011, secured by real estate $2,138,023
Mortgage note payable to a bank, due in monthly installments of $4,394, including interest
at the prime rate, maturing August 2012, secured by a deed of trust on the real estate 599,360
Mortgage note payable to a third party, due in monthly installments of $5,578, including
interest at 8% maturing July 2010, secured by a second lien on the real estate 462,116
Installment note payable to a third party, due in monthly installments of $2,279, including
interest at 5%, maturing March 2012, secured by real estate 102,661
Installment note payable to a third party, due in monthly installments of $4,600, including
interest at 6%, maturing September 2011, secured by stock 267,848
Installment note payable to a third party, due in monthly installments of $1,519, including
interest at 5%, maturing March 2012, secured by bingo hall business 68,441
-----------
3,638,449
Less current maturities (195,517)
-----------
Long-term debt, net of current portion $3,442,932
===========
Long-term debt, legal settlements at December 31, 2007 consist of the following:
Installments to a third party, due monthly in the amount of $25,000,
including interest at 14%, maturing through July 2010, unsecured $ 594,236
Less current maturities (231,272)
-------------
Long-term debt, net of current portion $ 362,964
=============
F-16
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
Payments of notes payable and long term debt, legal settlements for each of the
next five fiscal years and thereafter are as follows:
Years Ending Notes Legal
December 31, Payable Settlements Total
------------- --------- ---------- ----------
2008 195,517 231,272 426,789
2009 210,462 265,813 476,275
2010 587,333 97,151 684,484
2011 2,064,486 --- 2,064,486
2012 580,651 --- 580,651
Thereafter --- --- ---
---------- ---------- ----------
$3,638,449 $ 594,236 $4,232,685
========== ========== ==========
Interest expense for the years ended December 31, 2007 and 2006 were
approximately $446,000 and $289,000 respectively.
--------------------------------------------------------------------------------
NOTE 7 - OBLIGATIONS UNDER CAPITAL LEASES
--------------------------------------------------------------------------------
The Company did not enter into any new capital leases in 2007 and paid off its
capital lease obligations during 2006.
--------------------------------------------------------------------------------
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
--------------------------------------------------------------------------------
SFAS No. 107, Disclosure About Fair Value of Financial Instruments, requires
disclosure about the fair value of all financial assets and liabilities for
which it is practical to estimate. Cash, accounts receivable, accounts payable,
accrued liabilities, notes and legal settlements payable and other liabilities
are carried at amounts that reasonably approximate their fair values.
F-17
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
--------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES
--------------------------------------------------------------------------------
A reconciliation of the expected federal income tax expense (benefit) based on
the U.S. Corporate income tax rate of 34% to actual for 2007 and 2006 is as
follows:
2007 2006
---------------- ----------------
Expected income tax (benefit) $ 128,811 $ 299,935
Amounts not deductible for federal income tax purposes 14,597 3,514
State income taxes, net of federal income tax 51,922 96,411
Change in valuation allowance (116,660) (303,449)
---------------- ----------------
$ 78,670 $ 96,411
================ ================
The provision for income taxes consists of the following:
2007 2006
---------------- ----------------
Current year income taxes:
Federal $ -0- $ -0-
State 78,670 96,411
Deferred income taxes:
Federal -0- -0-
State -0- -0-
---------------- ----------------
$ 78,670 $ 96,411
================ ================
Deferred tax assets and liabilities as of December 31, 2007 are as follows:
2007 2006
---------------- ----------------
Deferred tax asset $ 4,413,171 $ 4,529,831
Deferred tax liability --- ---
Valuation allowance for deferred tax asset (4,413,171) (4,529,831)
---------------- ----------------
Net deferred tax asset $ -0- $ -0-
================ ================
The components of deferred tax assets at December 31, 2007 and 2006 are as
follows:
Deferred tax asset 2007 2006
------------------ ---------------- ----------------
Net operating loss carryforward $ 2,851,669 $ 2,662,287
Depreciation 484,302 644,040
Allowance for doubtful accounts 49,260 70,156
Accrued expenses 963,415 1,133,277
Capital Loss carryforward 20,071 20,071
Other 44,454 ---
---------------- -----------------
Net deferred tax asset $ 4,413,171 $ 4,529,831
================ =================
F-18
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
The non-current deferred tax asset results from differences in depreciation of
fixed assets and legal reserves for financial and federal income tax reporting
purposes and the deferred tax benefit of net operating losses. Due to continuing
operating losses for tax purposes, the deferred tax asset has been allowed for
as it does not meet the "more likely than not" recognition criteria.
At December 31, 2007, the Company has net operating loss carry forwards for
federal income tax purposes of approximately $6.7 million that begin expiring in
the year 2015.
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (FIN
48) on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise's financial statements in accordance
with FASB Statement No. 109, Accounting for Income Taxes, by prescribing a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. If a tax position is more likely than not to be sustained upon
examination, then an enterprise would be required to recognize in its financial
statements the largest amount of benefit that is greater than 50% likely of
being realized upon ultimate settlement. As a result of our implementation of
FIN 48 at the time of adoption and as of December 31, 2007, the Company did not
recognize a liability for uncertain tax positions. We do not expect our
unrecognized tax benefits to change significantly over the next twelve months.
The tax years 2003 through 2007 remain open to examination by the taxing
jurisdictions in which we file income tax returns.
--------------------------------------------------------------------------------
NOTE 10 - STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
The Company acquired, prior to 2002, 2,159,100 shares of its common shares for
$2,337,385 under the current stock buyback program (See Note 14). The average
price to repurchase these shares was $1.27 and at December 31, 2007 the Company
held 900,079 treasury shares.
In 2007 the Company sold 400,000 shares of its common stock for cash of
$476,560. The Company issued 37,868 shares of treasury stock under the Employee
Stock Purchase Plan and 401K Plan at a cost of $22,749. The Company issued
145,656 shares of treasury stock under options exercised by employees for cash
of $74,685. The Company issued 42,595 shares of its stock for stock dividend
adjustments. In addition, the Company recognized additional compensation expense
of $57,244 related to stock-based compensation.
In 2006 the Company issued 1,767,249 shares of its stock as a stock dividend.
The Company issued 41,337 shares of treasury stock under the Employee Stock
Purchase Plan and 401K Plan at a cost of $28,093. The Company issued 320,000
shares of treasury stock under options exercised by employees for cash of
$158,000. The Company received payment of $46,000 for a subscription receivable.
In addition, the Company recognized additional compensation expense of $109,980
related to stock-based compensation.
F-19
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
--------------------------------------------------------------------------------
NOTE 11 - EARNINGS PER SHARE
--------------------------------------------------------------------------------
A reconciliation of basic to diluted earnings (loss) per share is as follows:
2007 2006
------------------------------ -------------------------------
Numerator: Basic Diluted Basic Diluted
----------
Net income $ 300,185 $ 300,185 $ 785,750 $ 785,750
-------------- --------------- --------------- ---------------
Net income available to common
stockholders $ 300,185 $ 300,185 $ 785,750 $ 785,750
-------------- --------------- --------------- ---------------
Denominator:
------------
Weighted average shares
outstanding 11,228,255 11,228,255 10,726,972 10,726,972
Effect of dilutive securities:
Stock options and warrants --- 256,342 --- 108,639
-------------- --------------- --------------- ---------------
Weighted average shares
outstanding 11,228,255 11,484,597 10,726,972 10,835,611
============== =============== =============== ===============
Earnings per share $ 0.03 $ 0.03 $ 0.07 $ 0.07
============== =============== =============== ===============
Stock options to acquire 60,000 and 94,500 shares for the year ended December
31, 2007 and 2006, respectively, were excluded in the computation of diluted
earnings per share because the effect of including the stock options would have
been anti-dilutive.
--------------------------------------------------------------------------------
NOTE 12 - ACCOUNTING FOR STOCK BASED COMPENSATION
--------------------------------------------------------------------------------
The Company applies FASB Statement of Financial Accounting Standards No. 123R
(Revised 2004), Share Based Payment, using the modified prospective method of
implementation, whereby the prospective method records the compensation expense
from the implementation date forward, however leaves prior periods recorded in
accordance with APB Opinion No. 25 Accounting for Stock Issued to Employees
("APB 25") in accounting for its stock options. At December 31, 2007, the
Company has implemented five shareholder approved stock option plans. These
plans are intended to comply with Section 422 of the Internal Revenue Code of
1986, as amended. The plans collectively provide for the total issuance of
3,600,000 common shares, as adjusted for the 20% stock dividend in 2006, over
ten years from the date of each plan's approval. In addition, the plans allow
for additional increases of 15% of the then outstanding shares each year through
2008.
F-20
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
At December 31, 2007, a total of 617,910 options were outstanding under these
plans.
Employee Stock Plans
----------------------------
Weighted
Average
Options Exercise Price
------------ --------------
Outstanding at 12/31/05 1,101,555 $ 1.13
Granted 141,011 0.16
Exercised (320,000) 0.49
Forfeited (159,000) 3.62
------------ --------------
Outstanding at 12/31/06 763,566 $ 0.70
Granted --- ---
Exercised (145,656) 0.51
Forfeited (---) ---
------------ --------------
Outstanding at 12/31/07 617,910 $ 0.74
============ ==============
The fair value of options issued during 2007 and 2006 were approximately $0 and
$9,000, respectively. The 141,011 options granted in 2006 includes the affect of
the stock dividend issued on employee stock plans of 126,011 options and 15,000
options granted at a weighted average exercise price of $1.46.
The following table summarizes information about options outstanding at December
31, 2007 and 2006 under the Employee Stock Plan adjusted for the 2006 stock
dividend:
Options Outstanding Options Exercisable
-------------------------------------------- ------------------------
Weighted
Weighted Avg. Avg.
Range of Number Remaining Weighted Avg. Number Exercise
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Price
----------------- ------------ ---------------- -------------- ------------ -----------
2007: $2.83 - 4.23 --- --- --- --- ---
$1.88 - 2.82 60,000 0.1 years $2.74 60,000 $2.74
$1.26 - 1.87 16,500 8.4 years $1.32 16,500 $1.32
$0.00 - $1.25 541,410 6.8 years $0.51 304,410 $0.50
617,910 6.2 years $0.74 380,910 $0.89
2006: $2.83 - 4.23 --- --- --- --- ---
$1.88 - 2.82 60,000 1.1 years $2.74 60,000 $2.74
$1.26 - 1.87 16,500 9.4 years $1.32 16,500 $1.32
$0.00 - $1.25 687,066 7.8 years $0.51 450,066 $0.51
763,566 7.3 years $0.70 526,566 $0.79
Aggregate
intrinsic value $524,669 $297,149
Aggregate intrinsic value represents the value of the Company's closing stock
price on the last trading day of the year in excess of the exercise price
multiplied by the number of options outstanding or exercisable. The total
intrinsic value of options exercised during the years ended December 31, 2007
and 2006 was $130,481 and $325,575, respectively.
F-21
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
--------------------------------------------------------------------------------
NOTE 13 - RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------
In 2002, the Company's President and CEO was awarded a $300,000 bonus. In August
2007, the Board of Directors approved and payment was made to the President and
CEO for the accrued bonus and accrued interest thereon. The Company accrued
$11,813 in interest in 2007 and $24,376 in 2006 on this liability.
During 2006, the Company renewed the employment agreement with its President and
CEO; in accordance with this agreement, the Company accrued $24,000 and $24,000
of deferred compensation in 2007 and 2006, respectively.
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 fee 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 2006 the
President was paid interest in the amount of $7,131. The note was paid in full
in December 2006.
--------------------------------------------------------------------------------
NOTE 14 - COMMITMENTS AND CONTINGENCIES
--------------------------------------------------------------------------------
(a) Operating Leases:
The Company is obligated under various operating leases. Generally, the leases
provide for minimum annual rentals as well as a proportionate share of the real
estate taxes and certain common area charges. Minimum annual rentals under these
leases are as follows:
Year Ending Minimum
December 31, Rentals
------------ ----------------
2008 $1,555,914
2009 1,252,890
2010 980,966
2011 785,307
2012 331,205
Thereafter 423,066
----------------
Total minimum annual rentals $5,329,348
================
Rent expense for the years ended December 31, 2007 and 2006 amounted to
approximately $1.9 million and $1.8 million, respectively.
F-22
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
In 2003, the Company leased out Grandview Bingo in Amarillo. The arrangement is
that of a standard monthly sublease and not a per-session lease. The tenant has
put down a $7,800 security deposit. The minimum annual future receipts under
this sublease are as follows:
Year Ending Minimum
December 31, Rent
------------ ----------------
2008 93,600
2009 93,600
2010 93,600
2011 93,600
2012 93,600
Thereafter 218,400
----------------
Total minimum annual rentals $686,400
================
(b) Legal:
Generally speaking, the Securities and Exchange Commission guidelines require a
company to report any pending legal and/or regulatory proceedings that involves
a claim for damages in excess of ten percent (10%) of its current assets. The
litigation and proceedings discussed below do not necessarily meet this
threshold, but are included in the interest of full disclosure. In general, the
Company will vigorously defend itself against all claims to the fullest extent
possible.
The Company is obligated to make payments over approximately the next two and
one-half years in settlement of litigation that was concluded in prior periods.
At December 31, 2007, the carrying value of these obligations was $594,236. 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.
In this case, Littlefield initially sought recovery from Philip Furtney
["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 Furtney - Pondella Hall for Hire, Inc., and 800438 Ontario.
Several months after the acquisition of the three centers, the Florida Attorney
General obtained an indictment for alleged racketeering against two American
Bingo subsidiaries that operated two of the centers and brought a civil
proceeding against the same two subsidiaries and American Bingo based upon the
same allegations. 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 in finally serving Furtney when he was in
the United States in 2005 to attend related litigation.
F-23
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
--------------------------------------------------------------------------------
NOTE 14 - COMMITMENTS AND CONTINGENCIES.
--------------------------------------------------------------------------------
Furtney passed away in September 2007, several months before the scheduled trial
date. In the event a defendant dies following the commencement of litigation,
the Florida Rules of Civil Procedure provides that a plaintiff may substitute
the defendant's estate as the defendant and continue to pursue the claim to
judgment. Furtney's estate has now been substituted as the defendant and
Littlefield intends to vigorously pursue the claim for all damages related to
the purchase of the Florida centers from Furtney's estate, 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.
Hamby Volunteer Fire Department, Trustee of the Ambler Charities Unit Trust v.
Littlefield Corporation, d/b/a Ambler Bingo, Inc ; Cause No. 24140-B; 104th
Judicial District Court of Taylor County, Texas.
Plaintiff filed suit against the Corporation alleging breach of contract and
violation of the Bingo Enabling Act ("Act"). The Corporation filed an answer
denying all of the Plaintiff's claims. Plaintiff and the Corporation have
reached a confidential settlement agreement, which amount is immaterial to the
Company, and the parties have agreed to seek dismissal of the case.
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 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.
Texas Lottery Commission Notice of the Opportunity to Show Compliance.
Texas Charities, Inc., a subsidiary of the Company licensed by the Texas Lottery
Commission ("Commission") as a commercial lessor pursuant to the Bingo Enabling
Act, received a Notice of Opportunity to Show Compliance ("Notice") from the
Commission's Charitable Bingo Division ("Division") dated July 27, 2007. The
Notice indicated that the Division intended to initiate administrative
disciplinary action against Texas Charities, Inc. because it believed that Texas
Charities, Inc. violated the Act by improperly extending credit. On January 16,
2008, the Division amended the Notice to indicate that the Division also had
reason to believe that Texas Charities, Inc. violated the Act by including a
provision in its commercial lease agreement that required the lessee to sell
certain bingo equipment to third parties under certain circumstances. Texas
Charities, Inc. disputes the Division's interpretation of the Act and, if
necessary, intends to exercise its opportunity to show compliance. However, if
the matters cannot be settled with the Division, they may be referred to the
State Office of the Administrative Hearings for a hearing.
F-24
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
--------------------------------------------------------------------------------
NOTE 14 - 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.
Settled. This case has been resolved by the payment by Littlefield of a total of
$25,000 which was divided among the six plaintiffs. The plaintiffs have executed
comprehensive releases and the litigation against Littlefield and its
subsidiaries has been dismissed with prejudice. Neither Littlefield nor its
subsidiaries admitted any liability or fault in connection with the settlement.
Settlement was reached during the week before scheduled October 15, 2007 trial
after the Court had denied two motions filed by Littlefield and its subsidiaries
for summary judgment. Littlefield had maintained a vigorous defense in this case
because neither the plaintiffs nor the bingo manager were employees of
Littlefield or its subsidiaries or subject to their control. However, both
management of Littlefield and litigation counsel concluded that the cost of
settling this case upon these terms would be less than trying the case to a
completely favorable verdict. Littlefield intends to attempt to recover its
attorneys fees and the amount paid in settlement from the charities which were
the employers of the plaintiffs. These efforts are in a very early stage. The
charities named as defendants settled with the plaintiffs prior to Littlefield's
settlement.
(c) Stock Repurchase Plan:
During the second quarter of 1998, the Company authorized a stock repurchase
program to purchase up to 1,000,000 shares of its common stock. On February 8,
2000 the Company amended the stock repurchase program to permit purchase of up
to 2,000,000 shares of its common stock at such time and prices the Company
deems advantageous. The amount was subsequently increased to 3,000,000 shares.
There is no commitment or obligation on the part of the Company to purchase any
particular number of shares, and the program may be suspended at any time at the
Company's discretion. Any shares so repurchased will be held as treasury shares
and be available for general corporate purposes. No shares were repurchased in
2007 or 2006.
(d) Concentration of Credit Risk:
The Company maintains its cash in banks which are insured by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000. At December 31, 2007, cash in banks
exceeded FDIC coverage by approximately $232,000.
(e) 401(K) and Employee Stock Ownership Plan
The Company has a 401(K) and Employee Stock Ownership Plan that was instituted
in 2001. In 2007 employees were allowed to defer up to 90% of their wages to a
maximum of $15,500, tax deferred, for retirement purposes. The Company has no
obligation to match any of the employee deferrals and contributions to the plan
are at the discretion of management. At December 31, 2007 and 2006, the Company
contributed $0 and $0 respectively, into the Plan.
F-25
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
(f) Employee Stock Purchase Plan
During 2002, the Company implemented the 2002 Employee Stock Purchase Plan to
allow employees of Littlefield Corporation and any subsidiaries to acquire stock
ownership in the Company. The Company has reserved 250,000 shares under this
plan. Offering of shares under this plan will commence 1) on the first day of
each fiscal year and will end on the last day of the fiscal year or 2) at the
sole discretion of the administrators. Any offerings that remain unsold during
the offering period shall expire and shall be made available for grant in future
offering periods. Eligible employees shall elect to make contributions between
1% and 10% of gross compensation. The exercise price of any shares purchased by
a participant shall be at eighty-five percent (85%) of the lower of the fair
market value of the common stock on the date of the grant or date of exercise.
Through December 31, 2007, 175,019 shares have been purchased through this
program. Of the shares purchased 21,619 shares were purchased in 2007 and 26,984
in 2006.
During 2006, the Company renewed and modified its employment agreement with its
President and CEO to extend through December 31, 2008. Should the Company
terminate the employment agreement without cause, the Company would be liable
for salary compensation of $200,000, the acceleration of unvested stock-based
compensation, deferred compensation of $48,000 and the payment of other stated
benefits earned in cash.
--------------------------------------------------------------------------------
NOTE 15 - SEGMENTS
--------------------------------------------------------------------------------
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information (SFAS 131)
in the fiscal year ended December 31, 1999. SFAS 131 establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS No. 131 also
establishes standards for related disclosures about products and services and
geographic areas.
Operating segments are identified as components of an enterprise about which
separate discrete financial information is available for evaluation by the chief
operating decision maker, or decision-making group, in making decisions how to
allocate resources and assess performance.
The Company's Chief Operating Decision Maker ("CODM"), the President and CEO,
evaluates performance and allocates resources based on a measure of segment
profit or loss from operations. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies except that depreciation and amortization are allocated to
each segment from functional department totals based on certain assumptions
which include, among other things, revenues. Also, the Company's CODM does not
view segment results below 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.
F-26
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
A summary of the segment financial information reported to the
CODM is as follows:
Year Ended December 31, 2007
-------------------------------------------------------------------------------------
Entertainment Hospitality Adjustment Consolidated
------------- --------------- ---------------- -------------
Revenue $ 8,526,000 $ 4,854,000 $ 49,000 $ 13,429,000
Depreciation and
amortization 427,000 249,000 116,000 792,000
Segment profit (loss) 3,491,000 (183,000) (3,008,000) 300,000
Segment Assets $ 27,928,000 $ 1,228,000 (13,368,000) 15,788,000
Year Ended December 31, 2006
------------------------------------------------------------------------------------
Entertainment Hospitality Adjustment Consolidated
------------- -------------- ---------------- -------------
Revenue $ 7,909,000 $ 5,419,000 $ 73,000 $ 13,401,000
Depreciation and
amortization 409,000 236,000 111,000 756,000
Segment profit (loss) 3,283,000 46,000 (2,543,000) 786,000
Segment Assets $ 25,050,000 $ 1,631,000 (10,627,000) 16,054,000
The Adjustments generally represent other corporate expenses and revenue, 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.
A summary of items included in the "Adjustment" follows:
2007 2006
--------------- --------------
Gross profit - other revenue $ 49,000 $ 46,000
General and administrative expense (2,654,000) (2,353,000)
Gain (loss) on disposition of fixed assets 23,000 (3,000)
Other income and expenses (347,000) (137,000)
Provision for income taxes (79,000) (96,000)
--------------- --------------
Total "Adjustment" $ (3,008,000) $ (2,543,000)
=============== ==============
F-27
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
--------------------------------------------------------------------------------
NOTE 16 - 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 year ended December 31, 2007 and
2006 are as follows:
2007 2006
----------- ----------
Net income $ 300,185 $ 785,750
Other comprehensive income
Unrealized (loss) on marketable
Securities (2,613)
Reclassification adjustment
for loss on sale of investments
included in net income 4,713 --
----------- ----------
4,713 (2,613)
----------- ----------
Total comprehensive income $ 304,898 $ 783,137
=========== ==========
--------------------------------------------------------------------------------
NOTE 17 - INVESTMENTS
--------------------------------------------------------------------------------
The Company accounts for its investments under Statement of Financial Accounting
Standards No. 115, Accounting for Investments in Debt and Equity Securities. The
Company's investments consisted of the following:
2006
--------------------------------------------
Unrealized
Basis Fair Value Gain (Loss)
------------- ------------- ------------
Mutual Funds $ 8,139 $ 3,426 $ (4,713)
============= ============= ============
These securities were considered available-for-sale, as defined by SFAS
No. 115, and accordingly, the unrealized holding loss is shown in other
comprehensive income as follows as of December 31, 2006:
Unrealized holding Gain (loss) recognized at year end $(2,613)
Gain(Loss) recognized in prior year earnings (2,100)
Unrealized holding gain (loss) on investments held for sale. $(4,713)
The Company's investments were sold during 2007.
F-28
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
--------------------------------------------------------------------------------
NOTE 18 - SUBSEQUENT EVENTS
--------------------------------------------------------------------------------
In December 2007 the Company announced it executed a definitive agreement to
acquire a Florida bingo hall. The acquisition of a bingo hall in Pensacola,
Florida was completed with an effective date of January 1, 2008. The Company
commenced operations January 1, 2008.
In March 2008 the Company announced it executed a definitive agreement to sell
its Word of Mouth business unit. The contract is subject to a thirty day due
diligence period and a ten day closing period.
In March 2008 the Company sold, at a ten percent (10%) premium, 5,190,568 shares
of its common stock to an institutional investor for $7,000,000.
F-29