SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2008 Commission File No. 0-24805
LITTLEFIELD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-2723809
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2501 N. Lamar Blvd.
Austin, Texas 78701
(Address of principal executive offices)
Registrant's telephone number: 512-476-5141
Securities registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes [X] No [ ]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not 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-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer or a smaller reporting company.
See the definitions of "large accelerated filer ", "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ]
Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of voting and non-voting common equity held by
non-affiliates of the registrant at the close of business on March 4, 2009, was
$2,150,986 based upon the last sales price reported for such date on the OTC
Bulletin Board.
At the close of business on March 4, 2009 registrant had outstanding
16,754,901 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the definitive
proxy statement to be filed by the registrant for its Annual Meeting of
Stockholders to be held on May 20, 2009 (the "Proxy Statement").
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
------
ITEM I: BUSINESS
----------------
Littlefield Corporation develops, owns and operates charitable bingo halls, and
owns and operates an event rental company. In our Entertainment division, we
operate 37 charitable bingo halls in Texas, Alabama, Florida and South Carolina.
We also own and operate Littlefield Hospitality in Austin, Texas. The
Hospitality division consists of Premiere Tents and Events, a party and tent
rental company. We were incorporated in Delaware in 1994.
CURRENT YEAR EVENTS:
During 2008, the Company devoted time and resources related to the growth and
expansion into targeted geographic areas and continued efforts to resolve
certain legal matters.
The Company operated at approximately breakeven excluding the significant
unfavorable impact on earnings of fourth quarter charges associated with a
write-down of the carrying value of goodwill and other assets in addition to
certain contract termination costs, renovations, re-openings and the start-up of
new halls in Texas, stock-based compensation and ongoing legal expenses. In
light of actual financial performance, changed economic conditions and certain
specific underperforming bingo hall closures the Company wrote-down the carrying
value of goodwill and other assets. In addition the Company recorded certain
contract termination costs associated with certain underperforming bingo hall
closures.
Growth and expansion
During 2008, nine (9) Texas halls were affected by re-openings (Abilene - 2),
mergers (Odessa - 2) or start-ups (San Angelo - 2, Corpus Christi - 1, El Paso
-1 and McAllen -1). These activities had a measurable unfavorable impact on
earnings of $1,811,000. As a result of the national economic downturn, start-ups
in El Paso and McAllen, Texas were suspended.
In December 2007, the Company had announced it executed a definitive agreement
to acquire a Florida bingo hall. The acquisition of the bingo hall in Pensacola,
Florida was completed with an effective date of January 1, 2008.
In March 2008, the Company completed a private placement of 5,190,568 shares of
common stock for $7,000,000.
In April 2008, the Company sold its catering unit to strategically focus on its
Entertainment segment and recorded a gain on the sale of approximately $474,000.
In July 2008, we completed the acquisition of 6 halls in South Carolina for
$1,800,000; this amount was reduced to $1,500,000 when the note was paid in full
in January 2009. The anticipated early payoff of $500,000 is shown as a current
liability as of December 31, 2008.
Asset impairments and contract termination costs
As a result of its annual asset impairment review the Company wrote-down
goodwill and certain assets and recorded contract termination costs associated
with hall closures; these special charges totaled approximately $2,390,000.
2
Legal matters
Also during 2008, the Company continued efforts to resolve certain legal
matters:
The Company resolved a Notice of Opportunity to Show Compliance ("Notice") from
the Texas Lottery Commission's Charitable Bingo Division ("Division"). The
Company vigorously defended itself and the Division sent two separate letters
one to Texas Charities, Inc. in connection with an "extension of credit issue"
and one to Ambler Bingo, Inc. in connection with an "bingo equipment issue"
indicating that no further administrative action would be taken.
Early in 2009 and largely through continuing efforts during 2008, the Company
resolved two cases with the South Carolina Department of Revenue: South Carolina
Department of Revenue v. Littlefield Corporation, Midlands Promotions, Inc., Low
Country Promotions, Inc., and Gamecock Promotions, Inc., 05-ALJ-17-0413-CC and
Littlefield Corporation, Gamecock Promotions Inc., Palmetto Upstate Promotions
Inc., and Midlands Promotions Inc. v. South Carolina Department of Revenue,
07-ALJ-17-623-CC. In these cases, the Department of Revenue sought to revoke all
bingo promoter licenses held by the Company's South Carolina subsidiaries and
sought a $5,000 penalty and the denial of six additional promoters licenses,
related to the Company's planned South Carolina acquisition.
The Company and its subsidiaries vigorously defended the revocation proceeding
and the right to hold the additional licenses for which the subsidiaries applied
and asserted that Littlefield Corporation is not the holder of these promoter
licenses, but rather that its lawfully formed subsidiaries are separate
corporations that each hold a lawful number of the promoter licenses. A final
agreement was reached within which the subsidiaries, without a fine or penalty,
will continue as bingo promoters and for a period of two years the Company and
its subsidiaries are to provide the Department with certain quarterly and annual
information pertaining to its subsidiaries. In March 2009, both matters were
dismissed, with prejudice by an Administrative Law Judge.
All of the legal matters are discussed more thoroughly in Item 3 - "Legal
Proceedings" and in "Notes to Consolidated Financial Statements" of Item 8.
PRINCIPAL BUSINESS AND MARKETS
We currently have two distinct and separate business segments.
1. "Littlefield Entertainment" owns and operates 37 charitable bingo
halls. Of these 37 bingo halls, seventeen (17) are in Texas (Austin-1,
Abilene-1, Amarillo-3, Corpus Christi-1, 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), sixteen (16) are in South
Carolina (Charleston-5, Georgetown-1, Goose Creek-2, Walterboro-1,
Conway-1, Aiken-1, Greer-2, Columbia metro-3) and one (1) is in
Florida. The total segment comprised approximately 79% of our total
revenues in 2008 versus 77% in 2007.
2. "Littlefield Hospitality" consists of Austin Tents and Events which
was acquired in November 2000 and Premiere Party Rental which was
acquired in July 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 20% of
total revenues in 2008 compared to 22% in 2007. The Word of Mouth
Custom Catering unit was sold in April 2008.
LITTLEFIELD ENTERTAINMENT. Our main business is the management of charitable
bingo halls. We might be called a "commercial lessor", "charitable bingo
lessor", "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.
3
In 2008, we acquired a hall in Florida; during the first year the hall
generated a return on investment of approximately 59%.
In the past five 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 101% return since 2002. The returns were as
follows: 2002 - a 6% return during the first five months, 2003 - 16%, 2004
- 16%, 2005 - 15%, 2006 - 17%, 2007 - 17% and in 2008 a 15% return.
In October 2005, we acquired 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. Since late 2005, additional investments
totaling approximately $1 million have been made including adding another
hall in the vicinity. San Angelo has produced a cumulative 53% return since
late 2005 including these additional investments. In the three months of
2005 that we operated the hall, it generated a 5% return, 2006 - 44%, 2007
- 29% and in 2008 a 19% return.
In 2008, our charitable bingo halls raised approximately $3,900,000 in
charitable funding for those charities that operate in our bingo halls. We
helped raise $340,000 for charities in South Carolina, $590,000 for charities in
Alabama, $50,000 in Florida and $2,920,000 for charities in Texas. Since 2001
our company has helped raise over $28 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 2008, we operated in Texas, Alabama, Florida 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.
4
In Florida, charitable bingo is authorized by the Florida Statutes. The local
state attorney or county sheriff is the principal regulator of bingo.
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 which combined are named Premier Tents and Events. In addition we
purchased Word of Mouth Custom Catering in the summer of 2001, this unit was
subsequently sold in April 2008. Over the last three years, Premiere Tents and
Events had average revenue of approximately $2,500,000 per year and operated in
the central Texas area in and around Austin, Texas. The unit engaged in the
party rental business, and installation of tents for events, parties, weddings,
festivals, etc. as well as a small amount of event planning.
Competition: The party rental, tent installation, and event coordination market
is very fragmented, especially in the local Austin area. There are numerous
party rental companies in the Austin area. 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 and Premiere Party Rental provide 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 eighty (80) employees and six (6)
directors, of which one is a full time employee. Of the current employment
level, thirty five (35) are with Littlefield Entertainment, thirty-three (33)
are with Littlefield Hospitality and twelve (12) are at corporate headquarters
in Austin, Texas. Littlefield Entertainment consists of sixteen (16) full time
employees and nineteen (19) part time employees. Littlefield Hospitality
consists of thirty-two (32) full time employees and one part time employee.
ITEM IB - UNRESOLVED STAFF COMMENTS
-----------------------------------
None
ITEM 2 - PROPERTIES
-------------------
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. Some of our leases require real estate
taxes, insurance, common area maintenance and repair expenses to be paid in
addition to rent. 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 Carolina Charleston (2) Bingo Halls (B&C) Beacon Operating
Charleston (2) Bingo Halls (B&C) Lucky I Operating
Charleston (1) Bingo Halls (C) Shipwatch Operating
Columbia metro (3) Bingo Halls Mr. Bingo, American, Westside Operating
Georgetown Bingo Hall By George! Bingo Operating
Greer (2) Bingo Halls Mr. Bingo Operating
Walterboro Bingo Hall Coverall Bingo Operating
Conway Bingo Hall Mill Pond Bingo Operating
Aiken Bingo Hall Tally Ho! Bingo Operating
Goose Creek (2) Bingo Halls Galley Hall, B&L Operating
Texas Abilene Bingo Hall Ambler Bingo Operating
Amarillo Bingo Hall Hi-Plains Bingo Operating
Amarillo Bingo Hall Goldstar II Bingo Operating
Amarillo Bingo Hall Grandview Operating
Austin Corporate Headquarters Corporate Hdqtrs Occupied
Austin Bingo Hall American Paradise Operating
Corpus Christi Bingo Hall Crosstown Bingo Operating
Lubbock Bingo Hall Lucky Bingo Operating
Lubbock Bingo Hall Goldstar I Bingo Operating
Lubbock Bingo Hall Parkway Bingo Operating
McAllen Bingo Hall Americana I Operating
McAllen/San Juan Bingo Hall Triple City Bingo Operating
McAllen Bingo Hall El Bingo Grande Operating
Midland Bingo Hall Bingo Barn Operating
Odessa Bingo Hall Strike It Rich Operating
Austin Warehouse Premiere Party Rental Operating
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
In addition, the Company has three non-operating halls in Texas.
ITEM 3 - LEGAL PROCEEDINGS
--------------------------
The information required by this item is incorporated by reference to Note 13 to
the Consolidated Financial Statements set forth on pages F-24 to F-26 hereof.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
There were no matters submitted to a vote of the stockholders during the fourth
quarter of the fiscal year covered by this report.
6
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
------------------------------------------------------------------------------
Market Information
Our common stock is traded on the OTC Bulletin Board under the symbol "LTFD".
The following table shows the range of reported high and low closing prices for
our common stock for the periods indicated as reported on a daily basis by the
OTC Bulletin Board.
2008: High Low 2007: High Low
----- ---- --- ----- ---- ---
First Quarter $1.50 $1.18 First Quarter $1.22 $0.81
Second Quarter $1.18 $0.90 Second Quarter $1.27 $1.01
Third Quarter $1.03 $0.75 Third Quarter $1.40 $1.11
Fourth Quarter $0.98 $0.22 Fourth Quarter $1.50 $1.26
Security Holders
As of March 4, 2009, our common stock was held by approximately 688 beneficial
shareholders.
Dividends
We have not paid, and currently have no intention to pay, any cash dividends on
our common stock.
Securities Authorized For Issuance Under Equity Compensation Plans
Number of securities to be Weighted average exercise
issued upon exercise of price of outstanding Number of securities
outstanding options, options, warrants and remaining available for
Plan Category warrants and rights rights future issuance
(a) (b) (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans
approved by security
holders 445,410 0.53 1,496,474
Equity compensation plans not
not approved by security
holders NA NA NA
Total 445,410 0.53 1,496,474
Forfeited options become available for future issuance under the Company's
equity compensation plans.
7
ITEM 7 - 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 other legal gaming operations, and
completed an initial public offering in December of 1994. We operate primarily
through wholly owned subsidiaries in Texas, Alabama, South Carolina and Florida
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-K 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
---------------------
During 2008, the Company operated at approximately breakeven excluding the
significant unfavorable impact on earnings of fourth quarter charges associated
with a write-down of the carrying value of goodwill and other assets in addition
to certain contract termination costs, renovations, re-openings and the start-up
of new halls in Texas, stock-based compensation and ongoing legal expenses. The
goodwill impairment stems from the Company's normal annual review of goodwill
and other intangible assets in light of actual financial performance and changed
economic conditions and certain specific underperforming bingo hall closures.
The contract termination costs are associated with certain underperforming bingo
hall closures.
Full year 2008 earnings include the effect of approximately $4,732,000 of
notable items: a net gain of $441,000 from the sale and results of the catering
business sold in April 2008, $2,390,000 from goodwill impairments and contract
termination costs, $1,811,000 of expense from renovating, reopening and start-up
of halls in Texas, $588,000 of legal expenses and $384,000 of non-cash expenses
for stock-based compensation. The legal expenses mainly include costs from our
expansion plans and operations in South Carolina, Florida and Texas and our
litigation with Furtney seeking recovery of prior settlements and other damages.
Full year 2007 earnings included the effects of approximately $656,000 of
notable items: $39,000 of catering unit gross profit, $217,000 of expense from
renovating and reopening halls in Texas, $421,000 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 frivolous claim in Texas and our
litigation with Furtney seeking recovery of prior settlements and other damages.
Revenues
--------
The following table sets forth the Company's revenues by segment for the twelve
months ended December 31, 2008 and 2007, adjusted for the sale of the catering
business unit at the beginning of the second quarter of 2008:
2008 2007 $ Change % Change
-------------- -------------- -------------- --------------
Total Revenues $11,222,000 $13,429,000 $(2,207,000) (16%)
Less: Catering 497,000 2,365,000 (1,868,000) (79%)
Adjusted revenue 10,725,000 11,064,000 (339,000) (3%)
Entertainment 8,494,000 8,526,000 (32,000) (0%)
Texas 5,099,000 5,372,000 (273,000) (5%)
South Carolina 1,667,000 1,715,000 (48,000) (3%)
Alabama / Florida 1,728,000 1,439,000 289,000 20%
Hospitality 2,137,000 2,489,000 (352,000) (14%)
Other $ 94,000 $ 49,000 $ 45,000 NM
8
During the twelve months of 2008, total adjusted revenues for the Company
decreased 3% from 2007 with the decline attributed to the Hospitality segment.
Entertainment revenue held steady with the prior year as acquisitions in South
Carolina and Florida offset the unfavorable effect on revenue of hall
renovations and re-openings in Texas. Absent the effects of the strategic
investments to strengthen the long-term position in certain markets by
renovating then reopening and merging certain halls in Texas, the underlying
performance of the Texas portfolio was stable. The Entertainment segment
accounted for 79% of total adjusted revenues compared with 77% of total adjusted
revenues in 2007. By state, Entertainment revenues for Texas, South Carolina and
Alabama / Florida were 60%, 20% and 20% of total Entertainment revenue
respectively compared to 60%, 19% and 21% in 2007. The increase in Alabama /
Florida mainly represented the purchase of a new Florida hall in January 2008.
Hospitality revenue decreased 14% from the prior year reflecting lower revenue
from a major customer whose development project ended and lower event activity.
Hospitality accounted for 20% of total adjusted revenues in 2008, compared to
22% of total adjusted revenues in 2007. Other revenue includes other ancillary
services and miscellaneous revenue not reported as segment revenue.
Gross profit and Costs and Expenses
-----------------------------------
The table below summarizes the Company's gross profit by segment for the twelve
months ended December 31, 2008 and 2007, adjusted for the sale of the catering
business unit at the beginning of the second quarter 2008:
2008 2007 $ Change % Change
-------------- -------------- -------------- --------------
Total Gross Profit $1,132,000 $3,357,000 $(2,225,000) (66%)
Less: Catering gross
profit (loss) (33,000) 39,000 (72,000) NM
Adjusted gross profit 1,165,000 3,318,000 (2,153,000) (65%)
Entertainment 1,403,000 3,491,000 (2,088,000) (60%)
Hospitality (345,000) (222,000) (123,000) (55%)
Other $ 107,000 $ 49,000 $ 58,000 NM
The decrease in adjusted gross profit was mainly attributed to the 2008 effects
of: (1) renovations, re-openings and start-ups of several halls in Texas in the
amount of $1,811,000, (2) additional staff and travel related expenses for these
start-up activities and (3) lower hospitality revenue.
The year-to-date direct costs and expenses for 2008 and 2007, adjusted for the
sale of the catering business, are set forth in the following table:
2008 2007 $ Change % Change
-------------- -------------- -------------- --------------
Adjusted Revenue $10,725,000 $11,064,000 $ (339,000) (3%)
Adjusted direct costs and expenses
Direct salaries and other
compensation 2,131,000 1,925,000 206,000 11%
Rent and utilities 2,932,000 2,498,000 434,000 17%
Other direct operating costs 3,523,000 2,599,000 924,000 36%
Depreciation and amortization 894,000 634,000 260,000 41%
License expense 80,000 90,000 (10,000) (11%)
-------------- -------------- -------------- --------------
Total adjusted costs and expenses 9,560,000 7,746,000 1,814,000 23%
Adjusted Gross profit $ 1,165,000 $ 3,318,000 $(2,153,000) (65%)
Adjusted cost of services increased 23% over the comparable twelve-month prior
year period mainly as a result of the costs associated with renovations,
re-openings and start-ups of new bingo centers and increased rent associated
with the acquisition of seven halls; six in South Carolina and one in Florida
and the start-up of new halls in Texas. This, in conjunction with lower
revenues, resulted in a decline of gross profit percent (gross profit as a
percent of sales) to 11% from 30% in 2007.
Direct salaries and other compensation were 11% above the prior year. The
increase mainly represented increased staffing, travel and other expenses
related to the renovations and start-ups of bingo halls.
9
Rent and utilities in 2008 were up approximately 17% over 2007, which largely
reflected the addition of our new halls in South Carolina, Florida, Corpus
Christi and El Paso Texas. In 2008 and 2007, we did not recognize lease costs on
a straight-line basis as provided in SFAS 13, paragraph 15 and FTB 85-3.
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 2008 and 2007, 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 2008 were up 36% over the prior year, mainly due
to costs such as advertising, promotions and development expenses of the new
halls and those re-opened after major renovations.
Depreciation and amortization expense totaled approximately $1,020,000 ($894,000
Cost of Services plus $126,000 G&A) versus $751,000 ($634,000 Cost of Services
plus $117,000 G&A) in 2007. The increase was mainly attributed to capital
spending on new halls and renovations.
General and administrative expenses, excluding related depreciation expense, the
noted legal fees and stock-based compensation totaled approximately $2,057,000
in 2008, compared to approximately $2,059,000 in 2007.
Other income and expense was a net expense of approximately $206,000 for 2008,
compared to a net expense of approximately $347,000 in 2007. The difference
mainly stems from lower interest expense from the refinancing of legal
settlements and certain notes payable and lower interest rates.
Our income tax expense for 2008 was approximately $105,000 compared to $79,000
in 2007, all of which is related to the expected effective tax rate for state
income taxes. The increase reflects a new higher margins tax in Texas. As of
December 31, 2008, the Company had a net operating loss available for carryover
on its federal income taxes of approximately $9,200,000.
Net Income (Loss)
-----------------
During 2008, we realized a net loss of approximately $4,252,000; ($0.27) per
basic share and ($0.27) per fully diluted share. Net income for 2007 was
approximately $300,000; $0.03 per basic share and $0.03 per fully diluted share.
The weighted average number of basic Common Stock shares outstanding totaled
15,499,981 in 2008 compared to 11,228,255 in 2007. The increase in shares
outstanding mainly represents the sale of 5,190,568 shares of common stock on
March 27, 2008.
Full year 2008 earnings include the effect of approximately $4,732,000 of
notable items: a net gain of $441,000 from the sale and results of the catering
business sold in April 2008, $2,390,000 from goodwill impairments and contract
termination costs, $1,811,000 of expense from renovating, reopening and start-up
of halls in Texas, $588,000 of legal expenses and $384,000 of non-cash expenses
for stock-based compensation, mainly related to terms of an employment
agreement. The legal expenses mainly include costs from our expansion plans and
operations in South Carolina, Florida and Texas and our litigation with Furtney
seeking recovery of prior settlements and other damages.
Full year 2007 earnings included the effects of approximately $656,000 of
notable items: $39,000 of catering unit gross profit, $217,000 of expense from
renovating and reopening halls in Texas, $421,000 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 frivolous claim in Texas and our
litigation with Furtney seeking recovery of prior settlements and other damages.
Adjusted for the noted items above, the adjusted net income during the twelve
months of 2008 was approximately $480,000 and basic earnings per share were
$0.03 per share in 2008 versus an adjusted net income of $956,000 and basic
earnings per share of $0.09 last year.
10
Liquidity and Capital Resources
-------------------------------
Cash and cash equivalents at December 31, 2008, totaled approximately $4,426,000
and represented 23% of total assets of approximately $19,526,000. Current assets
totaled approximately $5,343,000 at December 31, 2008. Current liabilities
totaled $3,076,000. Working capital was approximately $2,266,000 with a current
ratio of 1.7 to 1.
The Company has notes and legal settlement payables coming due in the next
twenty four months amounting to $1,013,000 in 2009 and $385,000 in 2010. The
2009 notes payable maturity includes $500,000 to payoff early the remaining
amount payable on the purchase price of the South Carolina acquisition to
realize a $300,000 discount on the purchase price. The amount was paid in early
January 2009 and reduced the purchase price to $1.5 million.
Debt/Lease 12 Months 24 Months 36 Months 48 Months 60 Months
Schedule 2009 2010 2011 2012 2013 Thereafter Totals
Notes Payable $ 749,786 $ 264,588 $ 2,079,014 $ 544,308 $ 46,325 $ 232,280 $ 3,916,301
Legal
Settlements $ 262,748 $ 120,742 --- --- --- --- $ 383,490
Operating
Leases $ 2,282,741 $ 2,142,294 $ 1,984,512 $ 1,423,910 $ 968,795 $ 1,555,763 $10,358,015
-------------- -------------- -------------- -------------- -------------- -------------- --------------
Total
Obligations $ 3,295,275 $ 2,527,624 $ 4,063,526 $ 1,968,218 $ 1,015,120 $ 1,788,043 $14,657,806
============== ============== ============== ============== ============== ============== ==============
Cash used by operating activities for 2008 totaled approximately $997,000
compared to cash provided of $1,920,000 during 2007. Cash flows from operating
activities in 2008 were decreased by a net loss of approximately $4,252,000 and
increased by non-cash depreciation expense of approximately $1,032,000, goodwill
impairment and contract termination costs of $2,390,000 and stock-based
compensation of approximately $385,000. In addition, cash flow from operations
was reduced by the gain on disposals of $473,000 mainly from the sale of the
catering unit and other net changes in asset and liability accounts of
approximately $79,000. 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 $3,144,000 for 2008,
compared to net cash used in investing activities of approximately $1,718,000
for 2007. In 2008, cash was used in the amount of approximately $1,800,000 for
acquisitions of which $500,000 was financed by a seller note payable, and
$2,479,000 for the purchase of capital assets mainly related to the Company's
renovations and start-ups and additional licenses purchased for future
expansion; these expenditures were partially offset by $635,000 mainly from the
sale of fixed assets, including the sale of the catering unit. 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 hall renovations. In 2007, the Company
also purchased additional licenses for future expansion.
Cash provided by financing activities in 2008 totaled approximately $6,601,000,
compared to net cash used in financing activities in 2007 of approximately
$786,000. In 2008 approximately $7,000,000 was provided by the sale of stock and
$34,000 from options exercised; this was partially offset by $433,000 of cash
used for the payment of notes, related party and legal settlements payable. 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.
At December 31, 2008, we had approximately $19,526,000 in total assets with
total liabilities of approximately $6,436,000 and approximately $13,090,000 of
shareholders' equity. Total assets include approximately $4,426,000 in cash,
$917,000 of other current assets and net account receivables, $7,978,000 of net
property and equipment, $5,958,000 of intangible assets, and $247,000 of other
assets. Total liabilities primarily consist of accounts payable of approximately
$316,000, and notes payable obligations of approximately $3,917,000, legal
settlement obligations of $383,000 and accrued and related-party liabilities of
$1,748,000 and $72,000, respectively.
In 2009, we plan to continue to use our cash generated from operations to make
leasehold improvements and renovations in certain bingo operations. We also plan
to use advantageous combinations of bank financing, seller financing, treasury
stock, and cash on hand for new bingo hall acquisitions when favorable terms can
be obtained.
11
Financial Risk Management
Off-Balance Sheet Arrangements. We have no off-balance sheet debt.
Market Risk. In the normal course of business, we employ established procedures
to manage our exposure to changes in the market value of our investments. There
were no significant investments in marketable securities at December 31, 2008 or
2007. The Company holds its funds in cash and certificates of deposit generally
insured by the FDIC with uninsured amounts setting off loans payable.
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.
This statement is effective for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. However, SFAS 157 is amended by
Financial Statement Position ("FSP") FAS 157-1, Application of FASB Statement
157 to FASB Statement 13 and Other Accounting Pronouncements That Address Fair
Value Measurements for Purposes of Lease Classification or Measurement under
Statement 13 , which excludes from the scope of this provision arrangements
accounted for under SFAS 13, Accounting for Leases. SFAS 157 is also amended by
FSP FAS 157-2, Effective Date of FASB Statement No. 157, which delays the
effective date of SFAS 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). This FSP
partially defers the effective date of Statement 157 to fiscal years beginning
after November 15, 2008, and interim periods within those fiscal years for items
within the scope of this FSP. We adopted SFAS 157 on January 1, 2008, except as
it applies to those nonfinancial assets and nonfinancial liabilities as noted in
FSP FAS 157-2. The partial adoption of SFAS 157 did not have a material impact
on our consolidated financial position or results of operations.
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. This statement is effective for fiscal years
beginning after November 15, 2007. We adopted SFAS 159 on January 1, 2008, as
required. The adoption of SFAS 159 did not have a significant impact on our
financial position or results of operations.
In December 2007, the FASB issued SFAS 141(R), Business Combinations--a
replacement of FASB Statement No. 141, which significantly changes the
principles and requirements for how the acquirer of a business recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree. The
statement also provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what information to disclose
to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. This statement is effective prospectively,
except for certain retrospective adjustments to deferred tax balances, for
fiscal years beginning after December 15, 2008. We are currently evaluating the
requirements of SFAS 141(R) and have not yet determined the impact on our
consolidated financial statements.
In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life
of Intangible Assets. FSP FAS 142-3 amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible
Assets. The intent of the position is to improve the consistency between the
useful life of a recognized intangible asset under SFAS 142 and the period of
expected cash flows used to measure the fair value of the asset under SFAS 141R,
Business Combinations , and other U.S. generally accepted accounting principles.
The provisions of FSP FAS 142-3 are effective for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early adoption
is prohibited. We are currently evaluating the requirements of FSP FAS 142-3 and
have not yet determined the impact on our consolidated financial statements.
12
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------------
Response to this item is included in "Item 7 - Management's Discussion and
Analysis of Financial Conditions and Results of Operations - Market Risk" above.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
The information required by this item is incorporated by reference to the
Consolidated Financial Statements set forth on pages F-1 to F-29 hereof.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
There are no disagreements with accountants on accounting and financial
disclosure.
ITEM 9A - 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-K, 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, 2008, 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.
13
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, 2008, that have materially affected or are
reasonably likely to materially affect, our internal control over financial
reporting.
Limitations on the Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our disclosure
controls or our internal controls over financial reporting will prevent all
error and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, but not absolute, assurance that the
objectives of a control system are met. Further, any control system reflects
limitations on resources, and the benefits of a control system must be
considered relative to its costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within Littlefield
Corporation have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns can occur
because of simple error or mistake. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more people, or
by management override of a control. A design of a control system is also based
upon certain assumptions about potential future conditions; over time, controls
may become inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and may not be detected.
ITEM 9B - OTHER INFORMATION
---------------------------
None
14
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------
In response to this item, the information included in our proxy statement for
the annual meeting of stockholders to be held on May 20, 2009, which proxy
statement will be filed with the Securities and Exchange Commission no later
than April 24, 2009, is incorporated herein by reference.
ITEM 11 - 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 20, 2009, which proxy
statement will be filed with the Securities and Exchange Commission no later
than April 24, 2009, is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
----------------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS
---------------------------
In response to this item, the information included in our proxy statement for
the annual meeting of stockholders to be held on May 20, 2009, which proxy
statement will be filed with the Securities and Exchange Commission no later
than April 24, 2009, is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
----------------------------------------------------------------------
INDEPENDENCE
------------
In response to this item, the information included in our proxy statement for
the annual meeting of stockholders to be held on May 20, 2009, which proxy
statement will be filed with the Securities and Exchange Commission no later
than April 24, 2009, is incorporated herein by reference.
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 Form 10-K and for the review of the financial statements
included in its quarterly reports on Form 10-Q for the fiscal years ended
December 31, 2008 and 2007 totaled $68,000 and $60,000 respectively. In
addition, $39,335 was incurred in 2008 for other services mainly in conjunction
with acquisition related activity. In 2007, $9,775 was incurred for other
services.
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, 2008
and 2007 for tax compliance, tax research or tax planning was $44,395 and
$30,393 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, 2008 and 2007 were pre-approved by the
audit committee.
15
PART IV
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
----------------------------------------------------
(a) Documents Filed with Report
1. Financial Statements.
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
2. Financial Statement Schedules.
None
3. 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).
10.3* 2009 Employment Agreement.
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.
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, 2009
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 March 31, 2009
Jeffrey L. Minch Officer, Director
/s/ Carlton Williams
--------------------
Carlton Williams Chairman of the Board March 31, 2009
/s/ Charles Gillman
-------------------
Charles Gillman Director March 31, 2009
/s/ Lanny Chiu
--------------
Lanny Chiu Director March 31, 2009
/s/ Alfred Stanley
------------------
Alfred Stanley Director March 31, 2009
/s/ Michael Wilfley
-------------------
Michael Wilfley Director March 31, 2009
17
LITTLEFIELD CORPORATION & SUBSIDIARIES
DECEMBER 31, 2008
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 2008
and 2007 F-3
Consolidated Statements of Operations for the Years
Ended December 31, 2008 and 2007 F-4 - F-5
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the Years Ended December 31,
2008 and 2007 F-6
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2008 and 2007 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 sheets of Littlefield
Corporation (the "Company") as of December 31, 2008 and 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, 2008. 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, 2008 and 2007, and the results of its operations
and its cash flows for each of the years in the two-year period ended December
31, 2008 in conformity with accounting principles generally accepted in the
United States of America.
Padgett Stratemann & Co. LLP
Austin, Texas
March 26, 2009
F-2
Littlefield Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------------------
2008 2007
--------------- ---------------
ASSETS
------
Current Assets:
Cash and cash equivalents $ 4,425,724 $ 1,965,624
Accounts receivable, net of allowance for doubtful accounts of
$109,286 and $126,309 in 2008 and 2007, respectively 687,495 519,845
Other current assets 227,566 549,194
Note Receivable 1,932 5,103
--------------- ---------------
Total Current Assets 5,342,717 3,039,766
--------------- ---------------
Property and Equipment - at cost, net of accumulated depreciation and
amortization 7,978,414 6,926,559
Other Assets:
Goodwill 5,055,534 4,905,111
Intangible assets, net 902,449 699,196
Other non-current assets 246,961 217,615
--------------- ---------------
Total Other Assets 6,204,944 5,821,922
--------------- ---------------
TOTAL ASSETS $ 19,526,075 $ 15,788,247
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Long term debt, current portion $ 749,786 $ 195,517
Long term debt, legal settlements, current portion 262,748 231,272
Trade accounts payable 316,156 232,339
Accrued expenses 1,747,700 1,063,053
--------------- ---------------
Total Current Liabilities 3,076,390 1,722,181
--------------- ---------------
Long-term Liabilities:
Long term debt, net of current portion 3,166,515 3,442,932
Long term debt, legal settlements 120,742 362,964
Other liabilities, related party 72,000 48,000
--------------- ---------------
Total Long-term Liabilities 3,359,257 3,853,896
--------------- ---------------
Total Liabilities 6,435,647 5,576,077
--------------- ---------------
Stockholders' Equity:
Common stock, $0.001 par value, (authorized 40,000,000 shares,
issued 17,534,707 and 12,344,139 shares, outstanding 16,754,901
and 11,444,060 shares) 17,535 12,344
Additional paid-in-capital 30,683,264 23,710,845
Treasury stock - 779,806 and 900,079 shares, at cost (993,891) (1,146,638)
Accumulated deficit (16,616,480) (12,364,381)
--------------- ---------------
Total Stockholders' Equity 13,090,428 10,212,170
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,526,075 $ 15,788,247
=============== ===============
See notes to consolidated financial statements
F-3
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
2008 2007
--------------- ---------------
REVENUES:
Entertainment $ 8,493,899 $ 8,525,393
Hospitality 2,633,763 4,853,729
Other 94,236 49,381
--------------- ---------------
TOTAL REVENUES 11,221,898 13,428,503
--------------- ---------------
DIRECT COSTS AND EXPENSES:
Direct salaries and other compensation 2,431,706 3,146,941
Rent and utilities 2,969,080 2,605,054
Other direct operating costs 3,702,888 3,543,600
Depreciation and amortization 905,815 675,943
License expense 80,175 100,261
--------------- ---------------
TOTAL COSTS AND EXPENSES 10,089,664 10,071,799
--------------- ---------------
GROSS MARGIN 1,132,234 3,356,704
GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries and other compensation 1,303,163 1,240,721
Legal and accounting fees 618,165 539,680
Depreciation and amortization 125,945 116,403
Share-based compensation expense 384,646 57,244
Other general and administrative 723,693 700,344
--------------- ---------------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 3,155,612 2,654,392
GAIN (LOSS) ON DISPOSITION OF FIXED ASSETS 473,217 23,100
ASSET IMPAIRMENTS AND CONTRACT TERMINATION COSTS (2,390,322) ---
--------------- ---------------
OPERATING INCOME (LOSS) (3,940,483) 725,412
OTHER INCOME AND EXPENSES:
Interest and investment income 117,326 103,824
Interest expense (323,591) (445,983)
Other income (expense) --- (4,398)
--------------- ---------------
TOTAL OTHER INCOME AND EXPENSES (206,265) (346,557)
INCOME (LOSS) BEFORE INCOME TAXES (4,146,748) 378,855
PROVISION FOR INCOME TAXES 105,351 78,670
--------------- ---------------
NET INCOME (LOSS) (4,252,099) 300,185
OTHER COMPREHENSIVE INCOME (LOSS), Net of Tax of $0 and $0 --- 4,713
--------------- ---------------
NET COMPREHENSIVE INCOME (LOSS) ($ 4,252,099) $ 304,898
=============== ===============
See notes to consolidated financial statements
F-4
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Years Ended December 31,
2008 2007
--------------- ---------------
EARNINGS PER SHARE:
Basic earnings (loss) per share ($ 0.27) $ 0.03
=============== ===============
Diluted earnings (loss) per share ($ 0.27) $ 0.03
=============== ===============
Weighted average shares outstanding - basic 15,499,981 11,228,255
Weighted average shares outstanding - diluted 15,499,981 11,484,597
See notes to consolidated financial statements
F-5
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Accumulated
Additional Other
-Common Stock- Paid-in Treasury Accumulated Comprehensive
Description Shares Value Capital Stock Deficit Income Total
------------------------- ------------ ------------ ------------ ------------ ------------- --------------- ------------
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
============ ============ ============ ============ ============= =============== ============
Sale of common stock 5,190,568 5,191 6,994,809 7,000,000
Stock-based compensation 53,491 53,491
Issuance of treasury stock
pursuant to employee stock
purchase plan and employee
401K deferrals 52,773 (24,472) 67,022 42,550
Options exercised by employees 67,500 (51,409) 85,725 34,316
Net income (loss) for the year
ended 12/31/08 (4,252,099) (4,252,099)
------------ ------------ ------------ ------------ ------------- --------------- ------------
Balance December 31, 2008 16,754,901 $ 17,535 $30,683,264 ($ 993,891) ($16,616,480) $ --- $13,090,428
============ ============ ============ ============ ============= =============== ============
See notes to consolidated financial statements
F-6
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2008 2007
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 4,252,099) $ 300,185
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 1,031,760 792,346
Asset impairments and contract termination costs 2,390,322 ---
Bad debt allowance and write-offs (17,023) ---
Stock based compensation expense 384,646 57,244
(Gain)/loss on sale of investment assets --- 4,398
(Gain)/loss on disposal of property and equipment (473,217) (23,100)
Increase (decrease) in cash flows as a result of changes in asset
and liability account balances:
Accounts receivable (180,859) 568,895
Prepaid expenses and other assets 287,622 61,640
Trade accounts payable 83,818 (32,298)
Accrued expenses and other liabilities (252,321) 190,536
--------------- ---------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (997,351) 1,919,846
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities --- 3,741
Purchase of property and equipment (2,404,788) (1,647,987)
Purchase of goodwill/intangibles (1,374,704) (105,000)
Proceeds from sale of property and equipment 632,350 29,252
Proceeds from repayment of note receivable, net 3,170 2,088
--------------- ---------------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES (3,143,972) (1,717,906)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable, settlements and capital leases (432,893) (1,353,027)
Payments on related party liabilities --- (386,058)
Proceeds from note payable --- 401,958
Proceeds from options exercised 34,316 74,685
Proceeds from sale of common stock 7,000,000 476,560
--------------- ---------------
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES 6,601,423 (785,882)
--------------- ---------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 2,460,100 (583,942)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,965,624 2,549,566
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,425,724 $ 1,965,624
=============== ===============
See notes to consolidated financial statements
F-7
Littlefield Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2008 2007
--------------- ---------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments:
Interest $ 323,591 $ 430,393
=============== ===============
Income taxes $ 99,239 $ 92,285
=============== ===============
Non-cash transactions:
Issuance of treasury stock under deferred compensation plan $ 25,817 $ 5,388
=============== ===============
Issuance of treasury stock under employee stock purchase plan $ 16,733 $ 17,361
=============== ===============
Purchase of Property and Equipment in exchange for note payable $ 500,000 ---
=============== ===============
See notes to consolidated financial statements
F-8
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
--------------------------------------------------------------------------------
NOTE 1 - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
Littlefield Corporation actively participates in the U.S. charitable bingo
market, and the rental/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, Alabama and Florida.
The Company generates its revenues from bingo centers in all four states and the
rental/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 certificates of deposit and money
market accounts and in investments with a maturity of less than one year 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, 2008
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.
Advertising:
-----------
Advertising costs are expensed when incurred or the first time the advertising
takes place. During 2008, the Company had advertising expenses of approximately
$143,000 compared to approximately $158,000 in 2007.
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, 2008
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, 2008
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 $385,000 and $57,000 in compensation expense
in the periods ended December 31, 2008 and December 31, 2007 related to options
issued under its stock-based incentive compensation plans and a stock grant for
2008. 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 years ended December 31, 2008 and 2007; a stock grant with
a fair value on the date of grant of $331,156 was accrued in 2008 with issuance
of shares to be made in 2009.
As of December 31, 2008, the Company had $3,787 of total unrecognized
compensation cost related to stock options which is expected to be recognized
over a weighted average period of less than 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 of $0 for 2008 and $4,713 for 2007.
F-12
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
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.
This statement is effective for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. However, SFAS 157 is amended by
Financial Statement Position ("FSP") FAS 157-1, Application of FASB Statement
157 to FASB Statement 13 and Other Accounting Pronouncements That Address Fair
Value Measurements for Purposes of Lease Classification or Measurement under
Statement 13 , which excludes from the scope of this provision arrangements
accounted for under SFAS 13, Accounting for Leases. SFAS 157 is also amended by
FSP FAS 157-2, Effective Date of FASB Statement No. 157, which delays the
effective date of SFAS 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). This FSP
partially defers the effective date of Statement 157 to fiscal years beginning
after November 15, 2008, and interim periods within those fiscal years for items
within the scope of this FSP. We adopted SFAS 157 on January 1, 2008, except as
it applies to those nonfinancial assets and nonfinancial liabilities as noted in
FSP FAS 157-2. The partial adoption of SFAS 157 did not have a material impact
on our consolidated financial position or results of operations.
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. This statement is effective for fiscal years
beginning after November 15, 2007. We adopted SFAS 159 on January 1, 2008, as
required. The adoption of SFAS 159 did not have a significant impact on our
financial position or results of operations.
In December 2007, the FASB issued SFAS 141(R), Business Combinations--a
replacement of FASB Statement No. 141, which significantly changes the
principles and requirements for how the acquirer of a business recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree. The
statement also provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what information to disclose
to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. This statement is effective prospectively,
except for certain retrospective adjustments to deferred tax balances, for
fiscal years beginning after December 15, 2008. We are currently evaluating the
requirements of SFAS 141(R) and have not yet determined the impact on our
consolidated financial statements.
In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life
of Intangible Assets. FSP FAS 142-3 amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible
Assets. The intent of the position is to improve the consistency between the
useful life of a recognized intangible asset under SFAS 142 and the period of
expected cash flows used to measure the fair value of the asset under SFAS 141R,
Business Combinations , and other U.S. generally accepted accounting principles.
The provisions of FSP FAS 142-3 are effective for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early adoption
is prohibited. We are currently evaluating the requirements of FSP FAS 142-3 and
have not yet determined the impact on our consolidated financial statements.
F-13
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
--------------------------------------------------------------------------------
NOTE 2 - MATERIAL ACQUISITIONS, OPENINGS, CLOSINGS AND REORGANIZATIONS
--------------------------------------------------------------------------------
2008
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.
On April 15, 2008, the Company sold the assets of its custom catering business
unit reflecting the Company's focus on its charitable bingo business in Texas,
South Carolina, Alabama and Florida. The asset sale resulted in a gain on sale
of $474,387 resulting from a $650,000 sales price less $175,613 of disposed
assets, at net book value.
The assets of the catering business unit were sold for $650,000 with payment
consisting of $250,000 in cash and a three year $400,000 note receivable at
seven percent (7%). During the third quarter of 2008, the note was paid in full
less a discount of $22,000 granted for the early payoff of the note.
The amounts of sales, gross profit and gross profit on a basic per share basis
of the catering business unit included in the fourth quarter and twelve months
to date of 2008 compared to the comparable prior year periods are as follows:
Q408 Q407 Change 2008 2007 Change
------------ ------------ ------------ ------------ ------------ ------------
Revenue $ --- $ 691,096 $ (691,096) $ 497,039 $2,364,645 $(1,867,606)
Gross profit $ --- $ 95,784 $ (95,784) $ (33,263) $ 38,800 $ (72,063)
Gross profit
per share $ 0.00 $ 0.01 $ (0.00) $ (0.00)
On July 14, 2008, the Company, through a wholly-owned South Carolina subsidiary,
Columbia One Corp. entered into an asset purchase agreement with Kokomos Inc., a
South Carolina corporation, and its sole owner, acquiring all of the assets of
six (6) bingo halls located in Greer (2), Columbia (3) and Goose Creek (1) South
Carolina. The assets were purchased for $1.8 million, consisting of $750,000 in
cash paid at closing and a promissory note for $1,050,000, secured by the assets
being purchased. The original agreement allowed for the purchase price to be
reduced by $300,000 to $1.5 million if a single, lump sum payment of $750,000
was made on or before September 30, 2008, in full satisfaction of the promissory
note. On September 26, 2008 the Company paid an additional $250,000 on the note
and amended the agreement to allow for the reduction in purchase price to $1.5
million if $500,000 is paid on the note by January 6, 2009. The promissory note
bears interest of 6% per annum, matures October 1, 2013 and is payable in
quarterly installments commencing on January 1, 2009. The Company paid the
remaining $500,000 in full satisfaction of the note in January 2009. The
$1,500,000 net purchase price represented the fair value of bingo equipment
assets acquired in the amount of $61,882, a covenant not to compete in the
amount of $50,000 with the remaining $1,388,118 attributed to goodwill and other
intangible assets.
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.
F-14
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
--------------------------------------------------------------------------------
NOTE 3 - PROPERTY AND EQUIPMENT
--------------------------------------------------------------------------------
Property and equipment at December 31, 2008 and 2007 consists of the following:
2008 2007
-------------- --------------
Land $ 740,467 $ 740,467
Buildings 3,395,498 3,404,348
Building and leasehold improvements 5,434,234 4,756,267
Bingo, and rental equipment 2,102,146 1,989,605
Equipment, furniture and fixtures 3,301,562 2,604,406
Automobiles 384,644 468,626
-------------- --------------
15,358,551 13,963,719
Less: Accumulated depreciation and amortization (7,380,137) (7,037,160)
--------------------------------
Property and equipment, net $ 7,978,414 $ 6,926,559
================================
Depreciation expense charged to operations for the years ended December 31, 2008
and 2007 was $998,927 and $762,846 respectively.
--------------------------------------------------------------------------------
NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS
--------------------------------------------------------------------------------
Goodwill at December 31, 2008 and 2007 is as follows:
Gross
Carrying Accumulated
Amount Amortization Total
---------------- ---------------- ----------------
Goodwill at December 31, 2006 $ 6,704,375 $ (1,799,264) $ 4,905,111
Goodwill changes during period --- --- ---
---------------- ---------------- ----------------
Goodwill at December 31, 2007 $ 6,704,375 $ (1,799,264) $ 4,905,111
Goodwill acquired during period 1,638,618 --- 1,638,618
Goodwill impairment losses (2,049,275) 603,448 (1,445,827)
Goodwill disposed of during period (42,368) --- (42,368)
---------------- ---------------- ----------------
Goodwill at December 31, 2008 $ 6,251,350 $ (1,195,816) $ 5,055,534
================ ================ ================
Entertainment Hospitality Total
---------------- ---------------- ----------------
Balance at December 31, 2006 $ 4,533,727 $ 371,384 $ 4,905,111
Goodwill changes during period --- --- ---
---------------- ---------------- ----------------
Balance at December 31, 2007 $ 4,533,727 $ 371,384 $ 4,905,111
Goodwill acquired during the year 1,638,618 --- 1,638,618
Goodwill impairment losses (1,116,811) (329,016) (1,445,827)
Goodwill disposed of during period --- (42,368) (42,368)
---------------- ---------------- ----------------
Balance at December 31, 2008 $ 5,055,534 $ --- $ 5,055,534
================ ================ ================
F-15
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
Intangible assets at December 31, 2008 and 2007 consists of the following:
Gross
Carrying Accumulated
Amount Amortization Total
---------------- ---------------- ----------------
Intangible Assets with Indefinite Lives:
Bingo licenses at December 31, 2006 $ 589,719 (51,974) $ 537,745
Change in bingo licenses 105,000 --- 105,000
---------------- ---------------- ----------------
Bingo licenses at December 31, 2007 $ 694,719 (51,974) $ 642,745
Licenses acquired during the period 186,620 --- 186,620
---------------- ---------------- ----------------
Bingo licenses at December 31, 2008 $ 881,339 (51,974) $ 829,365
================ ================ ================
Intangible Assets with Finite Lives:
Covenants not to compete at December 31, 2006 $ 297,500 (211,549) $ 85,951
Change in covenants not to compete --- (29,490) (29,490)
---------------- ---------------- ----------------
Covenants not to compete at December 31, 2007 $ 297,500 (241,039) $ 56,461
Change in covenants not to compete 50,000 (33,377) 16,623
Asset impairment (65,000) 65,000 ---
---------------- ---------------- ----------------
Covenants not to compete at December 31, 2008 $ 282,500 (209,416) $ 73,084
Intangible Assets, Net of Accumulated
Amortization $ 902,449
================
Amortization expense charged to operations for the twelve months ended December
31, 2008 and 2007, was approximately $32,833 and $29,500, respectively.
Future amortization on intangible assets with finite lives is as follows:
Year Amount
---- ------
2009 $ 27,417
2010 19,000
2011 10,000
2012 10,000
2013 6,667
----------
Total $ 73,084
==========
--------------------------------------------------------------------------------
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.
F-16
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
During 2008, in accordance with Statement on Financial Accounting Standard 142,
Goodwill and Other Intangible Assets and Statement on Financial Accounting
Standard 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
the Company wrote-down the carrying value of goodwill in the amount of
$1,445,827 and leasehold improvements in the amount of $272,132. In accordance
with Statement of Financial Accounting Standards 146, Accounting for Costs
Associated with Exit or Disposal Activities the Company recorded contract
termination costs in the amount of $672,363. The goodwill impairment stems from
the Company's normal annual review of goodwill and other intangible assets in
light of actual financial performance, changed economic conditions and certain
specific underperforming bingo hall closures. The contract termination costs are
associated with certain underperforming bingo hall closures in Texas.
For the year ended December 31, 2007, 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, 2008 consist of the following:
Note payable to a bank, due in monthly installments of approximately $18,200
including interest at prime plus 0.5%, maturing March 2011, secured by real estate $ 2,044,977
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 579,449
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 431,022
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 79,933
Installment note payable to a third party, due in monthly installments of $4,600, including
interest at 6%, maturing September 2011, secured by subsidiary stock 227,631
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 53,289
Promissory note payable to a third party bearing interest of 6% payable in quarterly
installments, maturing October 2013. 500,000
--------------
3,916,301
Less current maturities (749,786)
--------------
Long-term debt, net of current portion $ 3,166,515
==============
The current maturities of long-term debt include a $500,000 Promissory Note
payable which was paid in January 2009 to realize a $300,000 reduction in the
purchase price of the Company's South Carolina acquisition.
F-17
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
Long-term debt, legal settlements at December 31, 2008 consists 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 $ 383,490
Less current maturities (262,748)
--------------
Long-term debt, net of current portion $ 120,742
==============
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
------------ ------------- ------------- -------------
2009 749,786 262,748 1,012,534
2010 264,588 120,742 385,330
2011 2,079,014 --- 2,079,014
2012 544,308 --- 544,308
2013 46,325 --- 46,325
Thereafter 232,280 --- 232,280
------------- ------------- -------------
$ 3,916,301 $ 383,490 $ 4,299,791
============= ============= =============
Interest expense for the years ended December 31, 2008 and 2007 were
approximately $324,000 and $446,000 respectively.
--------------------------------------------------------------------------------
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
--------------------------------------------------------------------------------
SFAS No. 107, Disclosure About Fair Value of Financial Instruments, requires
disclosure about the fair value of all financial assets and liabilities for
which it is practical to estimate. Cash, accounts receivable, accounts payable,
accrued liabilities, notes and legal settlements payable and other liabilities
are carried at amounts that reasonably approximate their fair values.
F-18
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
--------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES
--------------------------------------------------------------------------------
A reconciliation of the expected federal income tax expense (benefit) based on
the U.S. Corporate income tax rate of 39% to actual for 2008 and 34% to actual
for 2007 is as follows:
2008 2007
--------------- ---------------
Expected income tax (benefit) ($ 1,617,232) $ 128,811
Amounts not deductible for federal income tax purposes 5,025 14,597
Other 9,040 ---
State income taxes, net of federal income tax 64,264 51,922
Change in valuation allowance 1,644,254 (116,660)
--------------- ---------------
$ 105,351 $ 78,670
=============== ===============
The provision for income taxes consists of the following:
2008 2007
--------------- ---------------
Current year income taxes:
Federal $ -0- $ -0-
State 105,351 78,670
Deferred income taxes:
Federal -0- -0-
State -0- -0-
--------------- ---------------
$ 105,351 $ 78,670
=============== ===============
Deferred tax assets and liabilities as of December 31, 2008 and 2007 are as
follows:
2008 2007
--------------- ---------------
Deferred tax asset $ 6,057,425 $ 4,413,171
Deferred tax liability --- ---
Valuation allowance for deferred tax asset (6,057,425) (4,413,171)
--------------- ---------------
Net deferred tax asset $ -0- $ -0-
=============== ===============
The components of deferred tax assets at December 31, 2008 and 2007 are as
follows:
Deferred tax asset 2008 2007
------------------ --------------- ---------------
Net operating loss carryforward $ 3,598,699 $ 2,851,669
Depreciation 460,212 484,302
Allowance for doubtful accounts 42,621 49,260
Accrued expenses 1,783,045 963,415
Capital Loss carryforward 20,496 20,071
Other 152,352 44,454
--------------- ---------------
Net deferred tax asset $ 6,057,425 $ 4,413,171
=============== ===============
F-19
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
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, 2008, the Company has net operating loss carry forwards for
federal income tax purposes of approximately $9.2 million that begin expiring in
the year 2016.
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, 2008, 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 2005 through 2008 remain open to examination by the taxing
jurisdictions in which we file income tax returns.
--------------------------------------------------------------------------------
NOTE 9 - 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 13). The average
price to repurchase these shares was $1.27 and at December 31, 2008 the Company
held 779,806 treasury shares.
In 2008, the Company sold 5,190,568 shares of its common stock for cash of
$7,000,000. The Company issued 52,773 shares of treasury stock under the
Employee Stock Purchase Plan and 401K Plan at a cost of $42,550. The Company
issued 67,500 shares of treasury stock under options exercised by employees for
cash of $34,316. In addition, the Company recognized additional compensation
expense of $53,491 related to stock-based compensation.
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 $57,244 related to stock-based compensation.
F-20
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
--------------------------------------------------------------------------------
NOTE 10 - EARNINGS PER SHARE
--------------------------------------------------------------------------------
A reconciliation of basic to diluted earnings (loss) per share is as follows:
2008 2007
---- ----
Numerator: Basic Diluted Basic Diluted
----------
Net income (loss) ($ 4,252,099) ($ 4,252,099) $ 300,185 $ 300,185
--------------- --------------- --------------- ---------------
Net income (loss) available to common
stockholders ($ 4,252,099) ($ 4,252,099) $ 300,185 $ 300,185
--------------- --------------- --------------- ---------------
Denominator:
------------
Weighted average shares outstanding 15,499,981 15,499,981 11,228,255 11,228,255
Effect of dilutive securities:
Stock options and warrants --- --- --- 256,342
--------------- --------------- --------------- ---------------
Weighted average shares outstanding 15,499,981 15,499,981 11,228,255 11,484,597
=============== =============== =============== ===============
Earnings (loss) per share ($ 0.27) ($ 0.27) $ 0.03 $ 0.03
=============== =============== =============== ===============
Stock options to acquire 63,396 and 60,000 shares for the year ended December
31, 2008 and 2007, 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 11 - 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, 2008, 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-21
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
Transactions under the stock option plans are summarized below. At December 31,
2008, a total of 445,410 options were outstanding under these plans.
Employee Stock Plans
--------------------------------
Weighted
Average
Options Exercise Price
-------------- --------------
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
Granted --- ---
Exercised (67,500) 0.51
Forfeited (105,000) 1.78
-------------- --------------
Outstanding at 12/31/08 445,410 $ 0.53
============== ==============
The Company did not issue any options in 2008 or 2007.
The following table summarizes information about options outstanding at December
31, 2008 and 2007 under the Employee Stock Plan adjusted for the 2006 stock
dividend:
Options Outstanding Options Exercisable
---------------------------------------------- ---------------------------
Weighted Avg.
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
2008: $1.88 - 2.82 --- --- --- --- ---
$1.26 - 1.87 16,500 7.4 years $1.32 16,500 $1.32
$0.00 - $1.25 428,910 5.7 years $0.50 355,410 $0.50
----------- -----------
445,410 5.8 years $0.53 371,910 $0.54
2007: $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
Aggregate
intrinsic value $ 180 $ 180
Aggregate intrinsic value represents the value of the Company's closing stock
price of $0.35 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, 2008
and 2007 was $43,835 and $130,481, respectively. Total unrecognized stock-based
compensation expense related to non-vested stock options was $3,787 as of
December 31, 2008, related to approximately 73,500 shares with a per share
weighted fair value of $0.48. We anticipate this expense to be recognized over a
weighted average period of approximately 0.25 years.
The weighted average remaining contractual life of options exercisable as of
December 31, 2008 was 5.8 years.
F-22
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
--------------------------------------------------------------------------------
NOTE 12 - 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 on this liability.
During 2006, the Company renewed the three year employment agreement with its
President and CEO; in accordance with this agreement, the Company accrued
$24,000 and $24,000 of deferred compensation in 2008 and 2007, respectively. In
addition, in accordance with this agreement the Company awarded the President
and CEO a stock grant of 1,182,699 shares with a value on the grant date of
$331,156 which was recorded as a liability as of December 31, 2008 with issuance
of shares to be made in 2009.
--------------------------------------------------------------------------------
NOTE 13 - 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
------------ --------------
2009 $ 2,282,741
2010 2,142,294
2011 1,984,512
2012 1,423,910
2013 968,795
Thereafter 1,555,763
--------------
Total minimum annual rentals $ 10,358,015
==============
Rent expense for the years ended December 31, 2008 and 2007 amounted to
approximately $2.3 million and $1.9 million, respectively.
In 2003, the Company leased out Grandview Bingo in Amarillo. The arrangement is
that of a standard monthly sublease and not a per-session lease. The tenant has
put down a $7,800 security deposit. The minimum annual future receipts under
this sublease are as follows:
Year Ending Minimum
December 31, Rent
------------ -----------
2009 93,600
2010 93,600
2011 93,600
2012 93,600
2013 93,600
Thereafter 124,800
-----------
Total minimum annual rentals $ 592,800
===========
F-23
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
--------------------------------------------------------------------------------
NOTE 13 - COMMITMENTS AND CONTINGENCIES (continued)
--------------------------------------------------------------------------------
(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 one and
one-half years in settlement of litigation that was concluded in prior periods.
At December 31, 2008, the carrying value of these obligations was $383,490. 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 is plaintiff. 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 for racketeering 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 sales 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, avoided service of the Complaint and 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. After the
substitution, Furtney's estate discharged Furtney's previous counsel and
retained their own counsel which resulted in additional delay. We expect the
case will go to trial in the fall of 2009.
F-24
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
--------------------------------------------------------------------------------
NOTE 13 - COMMITMENTS AND CONTINGENCIES (continued)
--------------------------------------------------------------------------------
In South Carolina Department of Revenue v. Littlefield Corporation, Midlands
Promotions, Inc., Low Country Promotions, Inc., and Gamecock Promotions, Inc.,
05-ALJ-17-0413-CC,
This case has now been settled. 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 is seeking 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 sham corporations and
that, as a matter of law, the Company should be deemed 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 was stayed until co-counsel returned from active military duty, which
occurred at the end of June 2008.
Additionally, in Littlefield Corporation, Gamecock Promotions Inc., Palmetto
Upstate Promotions Inc., and Midlands Promotions Inc. v. South Carolina
Department of Revenue, 07-ALJ-17-623-CC, the Company and its subsidiaries
protested the South Carolina Department of Revenue's initial denial of six
additional promoters licenses that the Department of Revenue denied on the same
theories upon which they seek to revoke the other subsidiaries' promoter
licenses, as described above. Although both parties' Motions for Summary
Judgment were denied in this proceeding, in June 2008, the administrative law
judge in this protest proceeding ordered that the six licenses be issued pending
trial and resolution of the proceedings between the Department of Revenue and
the Company.
The Company and its subsidiaries will seek to consolidate both of the above
proceedings for discovery and trial, because both proceedings involve the same
legal and factual issues. The Company and its subsidiaries are vigorously
defending the revocation proceeding and the right to hold the additional
licenses for which the subsidiaries applied and assert that Littlefield
Corporation is not the holder of these promoter licenses, but rather that its
lawfully formed subsidiaries are separate corporations that each hold a lawful
number of the promoter licenses.
The Department of Revenue recently indicated that it is interested in settling
all of these matters in a manner that will allow the Company's subsidiaries to
continue as bingo promoters as they have done in the past. As of December 31,
2008 the Department, the Company and its subsidiaries were working on finalizing
the agreement. A final agreement was reached within which the subsidiaries,
without a fine or penalty, will continue as bingo promoters and for a period of
two years the Company and its subsidiaries are to provide the Department with
certain quarterly and annual information pertaining to its subsidiaries. In
March 2009, both matters were dismissed, with prejudice by an Administrative Law
Judge.
Cause No. 8285-D; West Texas Bingo, Inc v. Rodger Hiatt, in the 350th Judicial
District Court of Taylor County, Texas.
In this case, the Company is plaintiff. The Company filed suit against the
Defendant alleging the Defendant interfered with the Company's bingo operations
and/or business operations at Super Bingo, which is located in Abilene, Texas.
The Defendant asserted counterclaims against the Company alleging that the
Company's claims were harassing and constituted intentional infliction of
emotional distress. Defendant's claims were dismissed by the Court via summary
judgment in June 2008, and there are currently no pending claims being asserted
by Defendant against West Texas Bingo, Inc. or Littlefield Corporation. The
lawsuit is ongoing and the parties are currently engaged in discovery. The
matter has not been set for trial, nor have the parties scheduled a pre-trial
mediation.
F-25
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
--------------------------------------------------------------------------------
NOTE 13 - COMMITMENTS AND CONTINGENCIES (continued)
--------------------------------------------------------------------------------
Cause No.24, 182-B; West Texas Bingo, Inc. v. Janie Wall, in the 104th Judicial
District Court of Taylor County, Texas.
In this case, the Company is plaintiff. The Company filed suit against the
Defendant alleging the Defendant interfered with the Company's bingo operations
and/or business operations at Super Bingo, which is located in Abilene, Texas.
The Defendant asserted counterclaims against the Company alleging that the
Company's claims were harassing and constituted intentional infliction of
emotional distress. Defendant's claims were dismissed by the Court via summary
judgment in June 2008, and there are currently no pending claims being asserted
by Defendant against West Texas Bingo, Inc. or Littlefield Corporation. Although
there are pending claims being asserted by Defendant, Defendant recently moved
the Court for leave to assert additional claims against Littlefield Corporation
and its CEO; the Court has not yet ruled upon Defendant's request. The lawsuit
is ongoing and the parties are currently engaged in discovery. The matter has
not been set for trial, nor have the parties scheduled a pre-trial mediation.
(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
2008 or 2007.
(d) Concentration of Credit Risk:
The Company maintains its cash and certificates of deposit in banks which are
insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. At
December 31, 2008, cash in banks exceeded FDIC coverage by approximately
$155,000 with such uninsured amounts setting off loans payable.
(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 2008 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, 2008 and 2007, the Company
contributed $0 and $0 respectively, into the Plan.
F-26
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
--------------------------------------------------------------------------------
NOTE 13 - COMMITMENTS AND CONTINGENCIES (continued)
--------------------------------------------------------------------------------
(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, 2008, 203,081 shares have been purchased through this
program. Of the shares purchased 28,062 shares were purchased in 2008 and 21,619
in 2007.
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 $72,000 and the payment of other stated
benefits earned in cash.
--------------------------------------------------------------------------------
NOTE 14 - 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/expense, 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, Florida 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-27
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
A summary of the segment financial information, separating the catering business
sold in April 2008, reported to the CODM for the twelve months ended December
31, 2008 and 2007, is as follows:
December 31, 2008
-----------------
Entertainment Hospitality Catering Adjustment Consolidated
------------- ----------- -------- ---------- ------------
Revenue $8,494,000 $2,137,000 $497,000 $94,000 $11,222,000
Depreciation and Amortization 663,000 231,000 12,000 126,000 1,032,000
Segment profit (loss) 1,404,000 (345,000) (33,000) (5,278,000) (4,252,000)
Segment Assets 32,272,000 681,000 (13,427,000) 19,526,000
December 31, 2007
-----------------
Entertainment Hospitality Catering Adjustment Consolidated
------------- ----------- -------- ---------- ------------
Revenue $8,526,000 $2,489,000 $2,365,000 $49,000 $13,429,000
Depreciation and Amortization 427,000 207,000 42,000 116,000 792,000
Segment profit (loss) 3,491,000 (222,000) 39,000 (3,008,000) 300,000
Segment Assets $27,928,000 1,228,000 (13,368,000) 15,788,000
The Adjustments generally represent other corporate expenses and revenue, other
income, depreciation and amortization related to corporate assets, impairment
charges, 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:
2008 2007
--------------- ---------------
Gross profit - other revenue $ 107,000 $ 49,000
General and administrative expense (3,157,000) (2,654,000)
Gain (loss) on disposition of fixed assets 473,000 23,000
Asset impairments and termination costs (2,390,000) ---
Other income and expenses (206,000) (347,000)
Provision for income taxes (105,000) (79,000)
--------------- ---------------
Total "Adjustment" $ (5,278,000) $ (3,008,000)
=============== ===============
F-28
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
--------------------------------------------------------------------------------
NOTE 15 - 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, 2008 and
2007 are as follows:
2008 2007
--------------- ---------------
Net income (loss) ($4,252,099) $300,185
Other comprehensive income
Unrealized (loss) on marketable
securities
Reclassification adjustment
for loss on sale of investments
included in net income --- 4,713
--------------- ---------------
--- 4,713
--------------- ---------------
Total comprehensive income ($4,252,099) $304,898
=============== ===============
--------------------------------------------------------------------------------
NOTE 16 - SUBSEQUENT EVENTS
--------------------------------------------------------------------------------
In January 2009, the Company renewed its employment agreement with its President
and CEO.
In February 2009, the Company completed an acquisition of two bingo halls in
South Carolina. The Company commenced operations February 10, 2009.
In late February 2009, the Company entered into an asset purchase agreement for
the sale of its event / rental unit. The agreement allows for a due diligence
period though April 3, 2009 during which time the potential purchaser may
withdraw its offer except for a minimal feasibility fee.
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