SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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(Mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal quarter ended September 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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Commission file No. 0-13530
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Littlefield Corporation
(Exact name of small business issuer as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation or organization)
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74-2723809
(I.R.S. Employer Identification No.)
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816 Congress Avenue, Suite 1250, Austin TX 78701
(Address of principal executive offices)
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(512) 476-5141
(Issuer's telephone number)
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N/A
(Former name, address and fiscal year, if changed since last report)
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Indicate by check mark whether the issuer (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 issuer was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES [ X ] NO [ ]
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As of November 2, 2000, the Issuer had 7,977,224 shares of its Common Stock,
par value $.001 per share, issued and outstanding.
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Transitional Small Business Disclosure Format: YES [ ] NO [ X ]
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Littlefield Corporation
FORM 10-QSB
For the quarter ended September 30, 2000
INDEX
Part I. Financial Information
Item 1. Financial Statements
a) Consolidated Statements of Operations for the Three
Months Ended September 30, 1999 and 2000 2
b) Consolidated Statements of Operations for the Nine
Months Ended September 30, 1999 and 2000 3
c) Consolidated Balance Sheet as of September 30, 2000 4
d) Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 2000 5
e) Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition And Results of Operations 15
Part II. Other Information
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Littlefield Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended September 30, 2000 1999
REVENUES:
Amusements $149,356 $1,366,613
Bingo 1,350,311 1,351,057
Other 156,399 323,975
----------- -----------
TOTAL REVENUES 1,656,066 3,041,645
----------- -----------
COSTS AND EXPENSES:
Direct salaries and other compensation 595,747 359,173
Rent and utilities
($9,000 and $26,310, respectively to
related parties) 504,886 623,116
Direct operating costs 546,703 598,859
Depreciation and amortization 620,918 673,051
License expense (9,351) 464,576
Severance 200,351 402,122
General and administrative 278,161 382,857
----------- -----------
TOTAL COSTS AND EXPENSES 2,737,415 3,503,754
----------- -----------
OPERATING INCOME (LOSS) (1,081,349) (462,109)
OTHER INCOME AND EXPENSES:
Interest and investment income 78,295 37,488
Interest expense ($3,815 and $5,769,
respectively to related parties) (15,709) (47,033)
Loss on write-off of abandoned assets (723,640) ---
Reserve for legal settlements (162,500) ---
Other income and (expense) (52,744) (3,074)
----------- -----------
TOTAL OTHER INCOME AND EXPENSES (876,298) (12,619)
----------- -----------
NET INCOME (LOSS)
BEFORE PROVISION FOR INCOME TAXES (1,957,647) (474,728)
PROVISION FOR INCOME TAXES 32,973 37,322
----------- -----------
NET INCOME (LOSS) BEFORE EXTRAORDINARY GAIN ($1,990,620) ($512,050)
Extra-ordinary gain on settlement with
equipment lessors, net of income taxes 240,960 ---
----------- -----------
NET INCOME (LOSS) ($1,749,660) ---
OTHER COMPREHENSIVE INCOME (LOSS) 18,646 ---
----------- -----------
NET COMPREHENSIVE INCOME (LOSS) ($1,731,014) ($512,050)
=========== ===========
EARNINGS PER SHARE:
Basic
($.22) ($.05)
=========== ===========
Diluted ($.22) ($.05)
=========== ===========
Weighted average shares outstanding - basic 7,923,302 9,910,590
Weighted average shares outstanding - diluted 7,923,302 9,910,590
See notes to consolidated financial statements.
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Littlefield Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Nine months Ended September 30, 2000 1999
REVENUES:
Amusements $3,397,981 $5,309,246
Bingo 4,019,693 4,010,353
Other 588,700 893,817
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TOTAL REVENUES 8,006,374 10,213,416
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COSTS AND EXPENSES:
Direct salaries and other compensation 1,319,809 1,905,274
Rent and utilities ($18,000 and $52,620,
respectively to related parties) 1,565,620 1,569,251
Direct operating costs 1,417,431 1,771,141
Depreciation and amortization 1,695,599 2,040,394
License expense 773,937 1,562,368
Severance 200,351 982,122
General and administrative 534,495 1,051,881
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TOTAL COSTS AND EXPENSES 7,507,242 10,882,431
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OPERATING INCOME (LOSS) 499,132 (669,015)
OTHER INCOME AND EXPENSES:
Interest and investment income 175,735 157,182
Interest expense ($12,945 and $18,708
respectively to related parties) (84,046) (178,996)
Gain on settlement with a related party,
net of legal expenses of $100,000 --- 191,127
Loss on write-off of abandoned assets (723,640) ---
Reserve for legal settlement (162,500) ---
Other income and (expense) (52,744) 27,003
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TOTAL OTHER INCOME AND EXPENSES (847,195) 196,316
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NET INCOME BEFORE PROVISION FOR INCOME TAXES (348,063) (472,699)
PROVISION FOR INCOME TAXES 60,434 248,272
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NET INCOME (LOSS) BEFORE EXTRAORDINARY GAIN ($408,497) ($720,971)
Extra-ordinary gain on settlement with
equipment lessors 240,960 ---
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NET INCOME (LOSS) ($167,537) ($720,971)
OTHER COMPREHENSIVE INCOME (LOSS) 56,420 ---
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NET COMPREHENSIVE INCOME (LOSS) ($111,117) ($720,971)
=========== ===========
EARNINGS PER SHARE:
Basic ($.02) ($.07)
=========== ===========
Diluted ($.02) ($.07)
=========== ===========
Weighted average shares outstanding - basic 8,384,011 9,886,066
Weighted average shares outstanding - diluted 8,384,011 9,886,066
See notes to consolidated financial statements.
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Littlefield Corporation
CONSOLIDATED BALANCE SHEET (Unaudited)
ASSETS
Current Assets:
September 30, 2000
Cash and cash equivalents $4,340,373
Accounts receivable,
net of allowance for doubtful accounts of $0 308,219
Equity Securities, available for sale 569,273
Other prepaid expenses 111,013
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Total Current Assets 5,328,878
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Property and Equipment - at cost,
net of accumulated depreciation and amortization 2,537,795
Other Assets:
Notes receivable - ($52,419 to related parties) 52,419
Prepaid license expense - net of current portion 234,720
Intangible assets, net 3,263,052
Other non-current assets 105,931
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Total Other Assets 3,656,122
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TOTAL ASSETS $11,522,795
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable - current portion ($107,155 to related parties) $470,948
Capital leases payable - current portion 135,163
Trade accounts payable 110,845
Accrued expenses and other current liabilities 681,944
-----------
Total Current Liabilities 1,398,900
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Long-term Liabilities:
Notes payable, net of current portion to related parties 66,592
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Total Long-term Liabilities 66,592
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Stockholders' Equity:
Common stock, $.001 par value, (authorized 20,000,000 shares,
issued 10,177,290 shares, outstanding 7,977,224 shares) 10,177
Additional paid-in-capital 23,735,196
Treasury stock - 2,200,066 shares, at cost (2,739,158)
Accumulated Comprehensive Income 56,420
Accumulated deficit (11,005,332)
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Total Stockholders' Equity 10,057,303
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,522,795
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See notes to consolidated financial statements.
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Littlefield Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine months Ended September 30, 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) (167,537) ($720,971)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,695,599 1,485,625
Loss on write-off and disposal of fixed and
intangible assets 723,640 ---
Provision for uncollectible receivables --- 82,841
Gain on litigation settlement --- 1,300
Extra-ordinary gain-debt restructuring (240,960) ---
Compensation paid with Treasury Stock 218,139 ---
Gain on receipt of treasury stock --- (45,938)
Increase (decrease) in cash flows as a result of
changes in asset and liability account balances:
Accounts receivable 191,063 (424,982)
Prepaid licenses 1,284,412 (497,005)
Other non-current assets 73,583 (7,000)
Other prepaid expenses and current assets 20,054 201,769
Trade accounts payable 47,145 110,743
Accrued expenses and other current liabilities 126,590 (286,098)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 3,971,728 (99,716)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equity securities (512,853) ---
Property and equipment expenditures (417,564) (752,658)
Collections of notes receivable 39,946 712,249
Purchase of Goodwill (78,769) ---
Issuance of notes receivable --- (20,000)
Reductions of notes receivable allowance --- (30,234)
Proceeds from sale of property and equipment 12,695 24,714
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NET CASH USED IN INVESTING ACTIVITIES (956,545) (65,929)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (48,000) (251,084)
Payments on notes payable (415,393) (443,111)
Purchase of treasury stock (2,076,360) ---
Proceeds from issuance of common stock for
employee stock purchase plan --- 3,000
Proceeds from option exercises --- 311,581
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NET CASH USED IN FINANCING ACTIVITIES (2,539,753) (379,614)
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NET INCREASE (DECREASE) IN CASH 475,430 (545,259)
CASH AT BEGINNING OF PERIOD 3,864,943 3,953,401
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CASH AT END OF PERIOD $4,340,373 $3,408,142
=========== ===========
See notes to consolidated financial statements.
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Littlefield Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine months Ended September 30, 2000 1999
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments:
Interest $12,945 $178,996
=========== ===========
Income taxes $60,434 $160,200
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Non-cash transactions:
Stock for compensation $218,139 ---
=========== ===========
Acquisition of property and equipment in exchange
for notes payable --- $434,415
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See notes to consolidated financial statements.
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Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2000
NOTE 1 - PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION.
The unaudited consolidated financial statements include the accounts of
Littlefield Corporation and its wholly owned subsidiaries (the "Company"). The
financial statements contained herein are unaudited and, in the opinion of
management, contain all adjustments necessary for a fair presentation of
financial position, results of operations and cash flows for the periods
presented. The Company's accounting policies and certain other disclosures are
set forth in the notes to the consolidated financial statements contained in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1999. The financial statements contained herein should be read in conjunction
with the notes to the Company's audited consolidated financial statements
included in the Annual Report on Form 10-KSB for the fiscal year ended December
31, 1999. The preparation of the condensed consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities and the reported
amount of revenue and expenses during the reported period. Actual results could
differ from these estimates. Where appropriate, items within the consolidated
condensed financial statements have been reclassified to maintain consistency
and comparability for all periods presented.
The operating results for the nine-month period ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2000. Except for historical information contained herein,
certain matters set forth in this report are forward looking statements that are
subject to substantial risks and uncertainties, including the impact of
government regulation and taxation, customer attendance and spending,
competition, and general economic conditions, among others. This Quarterly
Report on Form 10-QSB contains "forward-looking" statements as such term is
defined in the Private Securities Litigation Reform Act of 1995 and information
relating to the Company and its subsidiaries that are based on the beliefs of
the Company's management. When used in this report, the words "anticipate,"
believe," "estimate," "expect," and "intend" and words or phrases of similar
import, as they relate to the company or its subsidiaries or Company management,
are intended to identify forward-looking statements. Such statements reflect
the current risks, uncertainties and assumptions related to certain factors
including, without limitations, competitive factors, general economic
conditions, customer relations, relationships with vendors, the interest rate
environment, governmental regulation and supervision, seasonality, distribution
networks, product introductions and acceptance, technological change, changes in
industry practices, onetime events and other factors described herein and in
other filings made by the company with the Securities and Exchange Commission,
based upon changing conditions, should any one or more of these risks or
uncertainties materialize, or should any underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. The company does not intend to
update these forward-looking statements.
Certain expenses from the September 30, 1999 financial statements have been
reclassified for presentation purposes.
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Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2000
NOTE 2 - PROPERTY AND EQUIPMENT.
Property and equipment at September 30, 2000 consists of the following:
Land $189,671
Buildings 381,342
Building and leasehold improvements 2,536,620
Amusements machines and bingo equipment 2,352,023
Equipment, furniture and fixtures 1,118,852
Automobiles 160,678
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6,739,186
Less: Accumulated depreciation and amortization (4,201,391)
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Property and equipment, net $2,537,795
===========
Property and equipment at September 30, 2000 includes approximately $785,000 of
assets held under capital leases and related accumulated amortization of
$373,000. Related amortization expense charged to operations for the nine
months ended September 30, 2000 and 1999 was approximately $97,000 and $162,000
for each period.
Total depreciation expense, for owned and leased assets, charged to operations
for the nine months ended September 30, 2000 and 1999 was approximately $963,000
and $1,428,000 respectively.
NOTE 3 - INTANGIBLE ASSETS.
Intangible assets at September 30, 2000 consists of the following:
Goodwill $5,174,205
Covenants not to compete 385,000
-----------
5,559,205
Less: Accumulated amortization (2,296,153)
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Intangible assets, net $3,263,052
===========
Amortization expense charged to operations for the nine months ended September
30, 2000 and 1999 was approximately $732,000 and $619,000 respectively.
NOTE 4 - SHAREHOLDERS' EQUITY.
The Company repurchased 1,951,500 shares of its common shares in the first nine
months of 2000 for $2,076,360 under the current stock buyback program. The
average price to repurchase these shares was $1.06 and at September 30, 2000 the
Company holds 2,200,066 treasury shares. On May 25, 2000 the Board of Directors
authorized the Company to increase the targeted amount of stock to be
repurchased by the Company to 3,000,000 shares. 117,734 treasury shares were
issued as bonus compensation to employees and directors in the amount of
approximately $218,000.
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Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2000
NOTE 5 - EARNINGS (LOSS) PER SHARE.
A reconciliation of basic to diluted earnings per share is as follows:
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Nine months ended September 30, 2000 2000 1999 1999
Basic Diluted Basic Diluted
Numerator:
Net income (loss) ($167,537) ($167,537) ($720,971) ($720,971)
Income (loss) available to ---------- ---------- ---------- ---------
common stockholders ($167,537) ($167,537) ($720,971) ($720,971)
========== ========== ========== ==========
Denominator:
Weighted average shares
outstanding 8,384,011 8,384,011 9,886,066 9,886,066
========== ========== ========== ==========
Effect of dilutive
securities:
Preferred stock --- --- --- ---
Stock options and warrants --- --- --- ---
---------- ---------- ---------- ---------
Weighted average shares
outstanding 8,384,011 8,384,011 9,886,066 9,886,066
Earnings per share ($.02) ($.02) ($ .07) ($.07)
========== ========== ========== ==========
NOTE 6 - 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 Company did not own any fixed maturities or available
for sale securities at September 30, 1999, thereby not requiring any prior
period reclassification to conform to the requirements of Statement No. 130.
The components of comprehensive income for the quarters ended September 30, 2000
and 1999 are as follows:
2000 1999
Net income (loss) ($167,537) ($720,971)
Other comprehensive income (loss)
Net unrealized gains 56,420 ---
----------- -----------
Total comprehensive income (loss) ($111,117) ($720,971)
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NOTE 7 - INCOME TAXES.
The Company recorded approximately $60,000 and $248,000 of state income tax
expense, respectively, for the nine months ended September 30, 2000 and 1999.
The Company does not expect to incur material federal income tax charges until
the depletion of its accumulated federal income tax loss carry-forwards, which
totaled approximately $4,000,000 at September 30, 2000. The utilization of the
net operating loss is subject to limitations in accordance with Section 382 of
the Internal Revenue Code.
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Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2000
NOTE 8 - RELATED PARTY TRANSACTIONS.
Promissory notes receivable from related parties totaled approximately $52,000
and $109,000, respectively, for the first nine months ended September 30, 2000
and 1999. Interest income related to these notes recorded by the Company was
$11,737 for the nine months ended September 30, 1999.
In March 1998, the Company acquired Ambler Bingo. In conjunction with this
purchase, the Company issued a promissory note payable in the amount of $400,000
to the seller (a related party), as partial consideration for this purchase.
This note payable is due in monthly installments of $9,765, with an interest
rate of 8.0% and a maturity date of May 2002. For the nine months ended
September 30, 2000 and 1999, the Company recognized $12,945 and $18,708,
respectively, of interest expense related to this obligation.
In June 2000, the Company entered into a warehouse lease agreement for 12,000
sq. ft. of storage space with Flournoy Management Inc. Flournoy Management
Inc.'s majority shareholders are Gene and Scott Flournoy who are employed by the
Company as Regional Bingo Managers in Alabama. The lease has a two-year term
and the rate is $2,000 per month. The warehouse is being used to store
amusements machines that the Company was forced to move out of South Carolina,
as discussed earlier, and as a technical center to deploy amusement machines in
other jurisdictions.
NOTE 9 - COMMITMENTS AND CONTINGENCIES.
Generally speaking, the Securities and Exchange Commission guidelines require a
company to report any pending legal and/or regulatory proceedings that involves
a claim for damages in excess of ten percent (10%) of its current assets. The
litigation and proceedings discussed below do not necessarily meet this
threshold, but are included in the interest of full disclosure. In general, the
Company will vigorously defend itself against all claims to the fullest extent
possible. The Company created a $200,000 accounting reserve in 1999 and an
additional $307,500 in 2000 to address impending litigation and regulatory
expenses. As of 2000 October this accounting reserve is approximately $390,000.
During the second quarter, the Company settled the following matters:
Steve Carroll and Wilson Reed, both individually and on behalf of S.C. Music
Masters, Inc. v. Concessions Corp. and American Bingo and Gaming, Corp., Civil
Action No. 99-CP-10-1420, South Carolina Court of Common Pleas, Charleston
County The Company settled this matter for $125,000 and the Plaintiffs were
seeking more than $500,000 in damages. A more detailed disclosure of this case
is contained in previous Company filings.
Roy Stevens v American Bingo & Gaming Corp and Columbia One Corporation, Civil
Action N. 99-CP-40-1662, South Carolina Court of Common Pleas, Richland County.
The parties settled this matter and the case discussed below for a total of
$100,000, $95,000 for the Steven's case and $5,000 for the Hermalink action. A
more detailed disclosure of these cases is contained in previous Company
filings.
Hermalink v. American Bingo & Gaming Corp and Michael Mims, Civil Action No. 99-
CP-32-1793, South Carolina Court of Common Pleas, Richland County. The
Company settled this matter for $5,000.
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Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2000
NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued).
South Carolina Department of Revenue ("SCDOR") v. Gold Strike, Inc. The Company
settled these administrative and operational assessments related to the
operation of amusement machines casinos by a third party for approximately
$15,000. Per the third party management agreement indemnification provision,
the Company will seek reimbursement. Also, the Company settled these violations
expeditiously because SCDOR would have withheld the Company's amusement machines
license refund of over $700,000 and/or threatened to levy or collect the full-
assessed amount of $50,000.
SCDOR v. Gamecock Promotions, Inc. The Company settled this previously
undisclosed and unknown assessment of a technical violation of the Video Poker
statute regarding utility metering by an independent third party route location
for $12,500. Under the statute, the Department of Revenue had an absolute right
to revoke 25 of the Company's two-year amusement machines licenses and the
Company would have incurred a $50,000 fine. The $50,000 figure is the value of
the refund due the Company for those 25 licenses. Cessation of amusements
occurred on June 30, 2000.
During the third quarter the Company settled the following matter:
SCDOR v. Darlington Music Company, Inc. ("Darlington") On July 7, 2000, the
SCDOR assessed Darlington $25,031.33 for the underpayment of sales and/or use
tax for the periods July 1, 1997 to December 31, 1999. Upon review of all
pertinent documents, the Company has agreed to a complete settlement of this
matter for $25,440.85. This amount is already reflected in the net loss for the
year.
Pondella Hall for Hire, Inc., d/b/a Eight Hundred v. American Bingo and Gaming,
Case No.: 97-2750, Circuit Court of the Twelfth Judicial Circuit in and for
Manatee County, Florida. In July of 1995 the Company bought three Florida bingo
centers from Phillip Furtney and two corporations related to Mr. Furtney (which
corporations and Mr. Furtney are referred to collectively as "Furtney"). On
June 12, 1997, Furtney filed a lawsuit against the Company in Florida, alleging
breach of contract. Furtney alleged that the Company defaulted on its original
purchase note and stock obligations under the purchase agreements. On July 12,
1997, the Company answered this lawsuit and filed a counterclaim against Furtney
alleging, among other things, fraud, negligent misrepresentation, breach of
express warranties, contractual indemnity and tortious interference with
contractual rights. The Company believes that it was materially defrauded in
its purchase of these three Florida bingo centers from Furtney in that Furtney
made no disclosure to the Company of an ongoing criminal investigation of the
operation of these bingo centers by the Florida State Attorney General's Office,
and that Furtney was fully aware of this investigation. The state of Florida
temporarily closed these three bingo centers, as well as several other centers
formerly owned by Mr. Furtney, in November 1995. The Company sold these three
bingo centers in December of 1995. In January of 1997, the Company and the
State of Florida settled all matters regarding the Company's previous ownership
and operation of these bingo centers. The Company believes that Furtney's
lawsuit against the Company is completely without merit and that the Company
will prevail in its counterclaim. The Company completed depositions of Mr.
Furtney and a corporate representative of the Furtney controlled companies
discussed above on September 20, 2000 and plans to pursue and defend this action
vigorously. There can be no assurance of this result and a decision against the
Company could have a material adverse effect on the financial position and
operations of the Company.
State of Florida v. 959 Hall for Hire, Inc. and 6323 Hall for Hire, Inc. Case
No.: 95-2943 F, Circuit Court of the Twelfth Judicial Circuit in and for Manatee
County, Florida; State of Florida, Office of the Attorney General v. 959 Hall
for Hire, Inc., 6323 Hall for Hire, Inc., and American Bingo and Gaming, Case
No. 95-4278, Circuit Court of the Twelfth Judicial Circuit Court in and for
Manatee County, Florida. These proceedings relate to the criminal investigation
undertaken by the Florida State Attorney General's Office with respect to the
bingo centers acquired by the Company from Phillip Furtney as discussed above.
In January of 1997, the Company and the State of Florida settled all matters
regarding the Company's previous ownership and operation of these bingo centers.
Additionally, in light of the recent Florida Supreme Court decision in
Department of Legal Affairs v. Bradenton Group, Inc., 23 FL, Weekly, S485 (Fla,
September 24, 1998), the Company filed a Petition for Coram Nobis in the State
of Florida criminal and civil cases to withdraw its settlement pleas in these
cases or, in the alternative, agree to strike those portions of the State Plea
Agreements which prohibit the Company from carrying out lawful business
operations in the State. The District Court denied the Company's Petition and
the Company is appealing this decision. The Court of Appeals has not issued a
decision as of 2000 October. The Company plans to pursue this course of action
vigorously, but the likelihood of success is unpredictable.
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Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2000
NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued).
Joan Caldwell Johnson, et al v. Collins Music Company, et al, Civil Action No.
3:97-22136-17, United States District Court for the District of South Carolina,
Columbia. In November 1997, one of the Company's subsidiaries was named a
defendant (among many other amusements operators) in a purported class action
brought by Plaintiffs allegedly arising out of fraudulent and unlawful promotion
and operation of video gambling devices. Plaintiffs filed a Motion to Amend the
Complaint to add the Company and several Company subsidiaries as Defendants. As
of this date, the Company and its named subsidiaries have yet to be added to
this lawsuit and the present status of this case is merely one of threatened
litigation. There have been settlement discussions with Plaintiffs counsel for
the purported class but the settlement demand was unreasonable. If the Company
and its subsidiaries were added to this case, the case would be litigated to the
fullest extent possible. In the event that Plaintiffs were to prevail on their
claims, the range of potential loss could exceed several million dollars because
the Plaintiffs seek to recoup all profits Defendants made from 1991 through the
present. The Company believes that this action is completely without merit and
will defend itself vigorously. If this case were to be decided against the
Company, it would likely have a material adverse effect on the financial
position and operations of the Company. Also, the impact of the cessation of
amusements in South Carolina will have some effect on this matter and as of 2000
October the impact has not materialized or been disclosed to the Company.
Collins Entertainment Corp. v. Coats and Coats Rental Amusement, d/b/a Ponderosa
Bingo and Shipwatch Bingo, Wayne Coats, individually, and American Bingo and
Gaming Corp.; American Bingo and Gaming Corp. v. Coats and Coats Rental
Amusement, d/b/a Ponderosa Bingo and Shipwatch Bingo, Wayne Coats, individually,
Civil Action No. 97-CP-10-4685, South Carolina Court of Common Pleas, Charleston
County. On October 9, 1997, Collins Entertainment, Inc., filed a lawsuit
alleging the Defendants had engaged in civil conspiracy and tortiously
interfered with the Plaintiff's contract, violating the South Carolina Unfair
Trade Practices Act. The Plaintiff seeks actual damages in excess of $350,000
and an unspecified amount of punitive damages. The Company believes that this
lawsuit is completely without merit and the Company participated in a two-day
trial on September 18 and 19, 2000. A decision should be issued by 2001
February. If this case were to be decided against the Company, it could have a
material adverse effect on the financial position and operations of the Company.
On October 14, 1999, the South Carolina Supreme Court issued a ruling that
declared the November 2, 1999 referendum unconstitutional, which was to allow
South Carolina voters to decide whether or not video poker payouts should remain
legal. As a result of and pursuant to this ruling, video poker payouts and the
possession of amusement machines will be illegal in South Carolina after June
30, 2000. The Company successfully removed all amusement machines and related
equipment from South Carolina before June 30 and is actively pursuing the
deployment of these units in other jurisdictions.
In the normal course of its business, the Company is subject to litigation and
regulatory assessments and fines. Management of the Company does not believe
any outstanding or known claims, individually or in the aggregate, will have a
material adverse effect on the Company's financial position or operations.
During the third quarter the Company settled the following matter:
SCDOR v. Darlington Music Company, Inc. ("Darlington") On July 7, 2000, the
SCDOR assessed Darlington $25,031.33 for the underpayment of sales and/or use
tax for the periods July 1, 1997 to December 31, 1999. Upon review of all
pertinent documents, the Company has agreed to a complete settlement of this
matter for $25,440.85.
During the third quarter the Company initiated the following matter:
Littlefield Corporation v. Mims & Dye Enterprises, LLC, Michael W. Mims, and
Danny C. Dye, Case No.: 2000CP-40-3859, South Carolina Court of Common Pleas,
Richland County. On September 22, 2000, the Company filed a Complaint against
the Defendants seeking a complete accounting and other causes of action related
to the Defendants' operation of VGM casinos under a Master Agreement executed in
November of 1998 and terminated in April of 2000. There can be no assurance of a
particular result, but an adverse decision against the Company is unlikely.
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Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2000
NOTE 10 - SEGMENTS.
The Company's Chief Operating Decision Maker ("CODM"), the President and CEO,
evaluates performance and allocates resources based on a measure of segment
profit or loss from operations.
The Company has identified two operating segments based on the different nature
of the services and legislative monitoring and, in general, the type of
customers for those services. The amusements segment represents operations of
the Company's amusements machines in South Carolina and our emerging amusement
operations in Alabama. The bingo segment encompasses bingo center services
provided to charitable organizations in South Carolina, Texas and Alabama.
A summary of the segment financial information reported to the CODM is as
follows:
September 30, 2000 Amusements Bingo Adjustment Consolidated
Revenue $3,619,880 $4,388,494 ($2,000) $8,006,374
Depreciation and Amortization 522,196 1,121,989 51,414 1,695,599
Segment profit (loss) 1,169,037 317,914 (1,654,488) (167,537)
Segment Assets 648,762 5,678,889 5,195,144 11,522,795
September 30, 1999 Amusements Bingo Adjustment Consolidated
Revenue $5,309,246 $4,010,353 $893,817 $10,213,416
Depreciation and Amortization 962,948 1,058,054 19,392 2,040,394
Segment profit (loss) 899,218 642,790 (2,262,979) (720,971)
Segment Assets 7,039,791 11,888,917 (1,267,036) 17,661,672
The adjustments represent amusements and bingo concession and other income,
depreciation and amortization related to corporate assets, corporate losses and
corporate assets to reconcile segment balances to consolidated balances. None
of the other adjustments are significant.
NOTE 11 - ACQUISITIONS, OPENINGS, CLOSINGS AND REORGANIZATIONS.
The Company is in the final process of developing a new bingo hall in
Montgomery, Alabama. It is anticipated that final construction will be
completed and the facilities will become operational during the first quarter of
2001.
The Company terminated its contractual relationship with Mims & Dye Enterprises
and entered a new contract with Consolidated Gaming Company LLC of Columbia
("CGC"), to operate the Company's amusement machines. The effective date of
both actions was April 10, 2000. The new contract with CGC provided for a
revenue sharing arrangement dependent solely upon CGC's ability to increase
revenue and reduce expenses. The new contract contained several important
elements as follows; (1) a right granted to CGC to acquire the Company's
amusement machines as they ceased to be operated at a negotiated market rate;
(2) a right to broker the sale of the Company's amusement machines to third
parties; and (3) the duty to deliver and store the Company's amusement machines
as directed. The agreement with CGC terminated a few months after the cessation
of video poker in South Carolina, which occurred on June 30, 2000.
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Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2000
NOTE 11 - ACQUISITIONS, OPENINGS, CLOSINGS AND REORGANIZATIONS (Continued).
The Company entered into a contract with Prepaid Elite, LLP of Austin, Texas
("PE"), to provide phone card dispensing machines at all of the Company's bingo
halls in Texas. PE is responsible for providing, installing, maintaining and
servicing all machines. The Company received a non-refundable security deposit
of $100,000, which approximated the estimated quarterly earnings to be received
by the Company. The machines were taken out of all the Company's bingo
locations at the request of the Texas Lottery Commission, which oversees all
bingo operations in the State of Texas. The income generated during the second
and third quarter 2000 approximated the security deposit of $100,000.
The Company purchased a "Grandfather" Texas bingo license in the third quarter
2000 for $70,000. The Company is currently searching for a location to use the
license. These types of licenses have not been issued in the State of Texas
since 1989 and are quite valuable. The license enables a single bingo hall to
host as many charities as is feasible. The current "Tier" type licenses being
issued by the Texas Lottery Commission allows a promoter to collect rent on only
three sessions per week, versus up to fourteen sessions per week with a
"Grandfather" license.
NOTE 12 - SUBSEQUENT EVENTS.
On October 25, 2000, The Company (through a wholly-owned subsidiary) purchased
substantially all of the assets of a bingo business known as Bingo Bonanza,
located near Charleston, South Carolina, from Beau Gator's, Inc. for $150,000.
In conjunction with this asset purchase, the Company's wholly owned subsidiary
assumed a real property lease on a bingo hall for approximately $7,300 per
month.
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Littlefield Corporation
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company was formed in 1994 as a Delaware corporation to consummate the
acquisition of charitable bingo centers and amusements operations. The Company
operates primarily through wholly owned subsidiaries in Texas, Alabama and South
Carolina. The Company completed its initial public offering in December of
1994.
The following discussion should be read in conjunction with the Company's For
10-KSB and the consolidated financial statements for the years ended December
31, 1999 and 1998; the Company's Form 10-QSB for the quarters ended March 31,
2000 and June 30, 2000; and the consolidated financial statements and related
notes for the quarters ended March 31 and June 30, 2000. The statements in this
Quarterly Report on Form 10-QSB 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 Quarterly Report and the 1999 Annual report on Form 10-KSB.
In late 1999, Nasdaq notified the Company that its Small Cap Market listing was
in jeopardy because its closing bid price had dropped below the regulatory
minimum price of $1 per share for a protracted period of time. The Company was
given an opportunity to address this matter, in a hearing with the Nasdaq
Qualifications Hearing Panel on February 24, 2000, at which time the Company
presented a plan to regain this regulatory minimum bid price. Nasdaq notified
the Company on March 24, 2000 that the Hearing Panel had decided to continue the
listing of the Company's securities on the Nasdaq Small Cap Market. However,
the Nasdaq Listing and Hearing Council may, on its own motion, decide to review
the Panel decision within forty-five (45) calendar days after issuance of the
written decision. As of October 19, 2000 the Company has not received any
notification that this matter would be called for review.
The most important action that will impact the Company in 2000 was the cessation
of amusements in South Carolina on June 30, 2000. This may have a negative
impact upon the Company's financial performance.
With the cessation of amusements in South Carolina on June 30, 2000, the Company
has moved all of its machines to a warehouse in Alabama. The Company was able to
settle approximately half of all loans and leases on this equipment by obtaining
a 50% discount on approximately $418,000 worth of debt and a 30% discount on
approximately $59,000 of debt. The Company is vigorously pursuing settlements
with the note/lease holders on the remaining approximate amount of $533,000 of
debt. The Company currently is operating 30 machines in our bingo hall in
Montgomery, Alabama and is generating an average of $285 net revenue per week
per machine. These machines were converted to redemption type machines, which
awards gift certificates rather than cash, and are completely legal in Alabama.
The Company is pursuing an aggressive strategy to convert existing machines and
purchase new machines with the goal of deploying 1,000 machines by the end of
the first quarter 2001.
American Bingo was relocated from Columbia, South Carolina to Austin, Texas in
2000 and the Company's name was changed to Littlefield Corporation on June 15,
2000. No employees in Columbia relocated to Austin.
Results of Operations
Net loss for the first nine months of 2000 was approximately $167,000, which
equated to basic and fully diluted losses per share of $0.02. Net loss for the
first nine months of 1999 was approximately $721,000, which equated to a basic
and fully diluted loss per share of $.07. The weighted average number of basic
Common Stock shares outstanding totaled 8,384,011 in the first nine months of
2000 as compared to 9,886,066 in the first nine months of 1999. The change is
primarily due to the repurchase of approximately 2,446,000 shares of Common
Stock under the Company's buyback program during the first nine months of 2000
and the final nine months of 1999.
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Littlefield Corporation
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
Revenues
The Company generated consolidated revenues of approximately $1,656,000 during
the quarter ended September 30, 2000 as compared with approximately $3,042,000
in the comparable period of the prior fiscal year, representing a decrease of
approximately $1,386,000 or 46%. Revenues were led by bingo operations, which
produced approximately $1,350,000, or 82% of total revenue, for the third
quarter of 2000, compared to approximately $1,351,000, or 44%, in the comparable
quarter of the prior year. The decrease in overall revenues, due to the
decrease in amusements revenues, was primarily a result of the ruling issued by
the South Carolina Supreme Court concerning the $125 per day per player
amusements payout limitation, the cessation of amusements on June 30, 2000 in
South Carolina, and the expiration of a large amount of amusements licenses on
May 31, 2000. Amusements revenues totaled approximately $149,000, or 9% of
revenues, for the third quarter of 2000, as compared to approximately
$1,366,000, or 45% of total revenues, for the third quarter of 1999.
Costs and expenses
Total costs and expenses were approximately $2,737,000 in the third quarter of
2000 versus approximately $3,504,000 in the third quarter of 1999, a decrease of
approximately $767,000 or 22%. The decrease in total costs and expenses is
primarily attributable to operating expense reductions resulting from the
restructuring of the Company and the elimination of license expense with the
cessation of amusements in South Carolina.
Direct salaries and other compensation totaled approximately $596,000 in the
third quarter of 2000, compared to approximately $359,000 in 1999, an increase
of approximately $237,000, or 66%. The increase represents payment of stock
based bonuses, which were contingent upon the Company's common stock achieving a
$2.00 per share price, which was accomplished in the third quarter.
Third quarter 2000 rent and utilities for the Company's bingo centers and
corporate headquarters totaled approximately $505,000, compared to approximately
$623,000 for the same period in 1999, a decrease of 19%. The Company is
continuing its efforts to minimize rent expenses by subletting, converting, or
terminating leases for idle and under-performing properties.
Direct operating costs for the third quarter of 2000 totaled approximately
$546,000, as compared to approximately $599,000 for the same period in 1999, a
decrease of approximately $53,000, or 9%.
Depreciation, amortization and license expense totaled approximately $612,000 in
the third quarter of 2000, a decrease of approximately $526,000 from the third
quarter of 1999. The decrease is a result of the elimination of license expense
with the cessation of amusements in South Carolina on June 30, 2000.
General and administrative expenses totaled approximately $278,000 in the third
quarter of 2000, compared to approximately $383,000 in 1999, a decrease of
approximately $105,000, or 27%. This is a result of the Company's continued
plans to reduce operating expenses.
Other income and expenses totaled a loss of approximately $876,000 for the third
quarter of 2000, as compared to approximately $13,000 for the same quarter of
1999. Other expenses for the third quarter of 2000 primarily resulted from
writing off abandoned assets with the end of amusements in South Carolina and
the closing of a poorly performing bingo hall in Mobile, Alabama (a combined
total of approximately $723,000), and adding to a reserve for legal settlements
($157,500) plus a $5,000 legal settlement that was finalized. Other income in
the quarter ended September 30, 2000 consisted of interest and investment income
of approximately $78,000 versus approximately $37,000 in the same quarter of
1999.
Liquidity and Capital Resources
Cash and cash equivalents at September 30, 2000 totaled approximately $4,300,000
and represented approximately 37% of the Company's total assets of approximately
$11,500,000. Cash flows from operating activities for the nine months ended
September 30, 2000 totaled approximately $4,000,000 compared to a usage of cash
of approximately $100,000 during the same period of 1999, an increase of
approximately $4,100,000. Cash flows from operating activities in the first
nine months of 2000 were comprised of the
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Littlefield Corporation
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liguidity and Capital Resources (continued)
Company's net loss of approximately $167,000 adjusted for non-cash amounts of
depreciation expense and intangible asset amortization of approximately
$1,700,000, the non-cash gain on forgiveness of debt of approximately $240,000,
the payment of compensation with treasury stock of approximately $218,000, and
increased by net changes in operating assets and liabilities of approximately
$1,742,000, as well as the non-cash reduction of income due to the abandonment
of fixed and intangible assets of approximately $724,000.
Net cash used in investing activities totaled approximately $956,000 for the
nine-month period ending September 30, 2000, compared to approximately $66,000
in the nine months ended September 30, 1999. Cash used in investing activities
consisted primarily of approximately $405,000 related to property and equipment
purchases, net of sales, goodwill purchases of approximately $79,000 and
approximately $512,000 related to the acquisition of equity securities. Cash
used in investing activities in the nine months ended September 30, 1999
consisted primarily of approximately $753,000 related to property and equipment
purchases, offset by approximately $712,000 from the repayment of notes
receivable.
Cash used in financing activities in the first nine months of 2000 totaled
approximately $2,540,000, as compared to net cash used in financing activities
in the first nine months of 1999 of approximately $380,000. Cash used related
to financing activities in the first nine months of 2000 included $2,076,000 of
Company treasury stock purchases and approximately $463,000 of net cash used to
reduce notes payable and capital lease obligations. Cash used related to
financing activities in 1999 included approximately $694,000 of net cash paid to
reduce notes payable and capital lease obligations. Cash received in 1999
relating to financing activities included approximately $315,000 primarily
related to stock options exercised during the first quarter of 1999, and stock
purchases under the Employee Stock Purchase Plan.
Current assets totaled approximately $5,300,000 at September 30, 2000, providing
the Company with working capital of approximately $3,900,000 and a current ratio
of 3.8 to 1. At September 30, 2000, the Company had approximately $11,500,000
in total assets with total liabilities of approximately $1,500,000 and
approximately $10,000,000 of shareholders equity. Total assets include
approximately $4,300,000 in cash, $570,000 in investments, $360,000 of net
accounts and notes receivable, $2,500,000 of property and equipment, $3,300,000
of intangible assets, and $452,000 of other assets.
Net property and equipment totaled approximately $2,500,000 at the end of the
third quarter of 2000. The majority of property and equipment is comprised of
amusement machines & bingo equipment and building & leasehold improvements.
Intangible assets, net of accumulated amortization, totaled approximately
$3,300,000 at the end of the second quarter of 2000, and were primarily
comprised of goodwill, and covenants not to compete associated with the
Company's acquisition of seven bingo centers in Texas during 1998.
Current liabilities totaled approximately $1,400,000 and long-term liabilities
totaled approximately $67,000 at the end of the third quarter of 2000. The
majority of current liabilities were comprised of approximately $673,000 of
notes payable and capital lease obligations related to the Company's
acquisition of amusements machines, and accrued expenses and reserves of
approximately $682,000.
Year 2000 Issue
The year 2000 issue relates to computer programs that use only two digits to
identify a year in a date field. Unless corrected, these programs could read
the year 2000 as the year 1900 and likely would adversely affect any number of
calculations that are made using the date field. The Company conducted a
comprehensive review of its computer systems to identify potential problems that
could be caused by the Year 2000 issue. If the Company's computer systems were
subject to undetected system failures or operational problems resultant from the
year 2000 issue, there could be no assurance that any one or more such failures
would not have a material adverse effect on the Company. The Company certified
that the vendors and suppliers of its critical components and services are Year
2000 compliant. The Company relied on Year 2000 compliance on the part of
public utility providers and all state and local regulatory agencies, although
non-compliance by those entities could materially adversely affect the Company's
financial condition and operations.
As of October 19, 2000, the Company has not experienced any significant Year
2000 issues relating to the Company's internal systems, interfaces with third
parties or products or services. In addition, as of October 19, 2000,
information and products from third parties provided to the Company have not had
any adverse effects on the Company's operations as a result of year 2000 issues.
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Littlefield Corporation
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
To date, the costs incurred in connection with Year 2000 compliance projects
have not been material to the Company's results of operations or liquidity. In
addition, the Company does not anticipate incurring any additional significant
costs to remain compliant.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For a discussion of material pending legal proceedings, see Note 9 to the
unaudited Consolidated Financial Statements included in Part I hereof, which
Note 9 is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27.1 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K.
During the quarter ended September 30, 2000, the Company filed no reports on
Form 8-K.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Littlefield Corporation
November 2, 2000
By:
/s/ JEFFREY L MINCH
Jeffrey L. Minch
Vice Chairman of the Board, President and
Chief Executive Officer
/s/ KATHRYN L SCANLON
Kathryn L. Scanlon
Secretary and Treasurer
(Principal financial and accounting officer)
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INDEX TO EXHIBITS
Sequential
Exhibit Number Description Page Number
-------------- ----------------------------------- ------------
27.1 Financial Data Schedule (for SEC use only).
786796.02
