SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal quarter ended June 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file No. 0-13530
Littlefield Corporation
(Exact name of small business issuer as specified in its charter)
Delaware 74-2723809
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
816 Congress Avenue, Suite 1250, Austin TX 78701
(Address of principal executive offices)
(512) 476-5141
(Issuer's telephone number)
American Bingo and Gaming Corporation
(Former name, address and fiscal year, if changed since last report)
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 [ ]
As of August 11, 2000, the Issuer had 7,951,490 shares of its Common
Stock,
par value $.001 per share, issued and outstanding.
Transitional Small Business Disclosure Format: YES [ ] NO [ X ]
Littlefield Corporation
FORM 10-QSB
For the quarter ended June 30, 2000
INDEX
Part I. Financial Information
Item 1. Financial Statements
a) Consolidated Statements of Operations for the Three
Months Ended June 30, 1999 and 2000.........................2
b) Consolidated Statements of Operations for the Six
Months Ended June 30, 1999 and 2000.........................3
c) Consolidated Balance Sheet as of June 30, 2000..................4
d) Consolidated Statements of Cash Flows for the Six
Months Ended June 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..................................14
Part II. Other Information
Item 1. Legal Proceedings.................................................17
Item 6. Exhibits and Reports on Form 8-K..................................17
Signatures
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Littlefield Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended June 30, 2000 1999
REVENUES:
Video Gaming 1,401,772 1,968,310
Bingo 1,311,157 1,286,935
Other 287,921 295,397
TOTAL REVENUES 3,000,850 3,550,642
COSTS AND EXPENSES:
Direct salaries and other compensation 222,401 283,270
Rent and utilities 585,077 410,520
($9,000 and $26,310, respectively
to related parties)
Direct operating costs 366,143 343,341
Depreciation and amortization 535,733 639,913
License expense 375,633 636,302
Severance --- 580,000
General and administrative 415,162 966,155
TOTAL COSTS AND EXPENSES 2,500,149 3,859,501
OPERATING INCOME (LOSS) 500,701 (308,859)
OTHER INCOME AND EXPENSES:
Interest and investment income 56,177 60,250
($0 and $4,472 respectively to
related parties)
Interest expense (31,677) (60,659)
($4,152 and $6,232, respectively to
related parties)
Gain on settlement with a related party --- 53,809
Other income and (expense) --- (2,921)
TOTAL OTHER INCOME AND EXPENSES 24,500 50,479
NET INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 525,201 (258,380)
PROVISION FOR INCOME TAXES 18,037 26,882
NET INCOME (LOSS) 507,164 (285,262)
OTHER COMPREHENSIVE INCOME (LOSS) 45,798 ---
NET COMPREHENSIVE INCOME (LOSS) 552,962 (285,262)
EARNINGS PER SHARE:
Basic .06 (.03)
Diluted .06 (.03)
Weighted average shares outstanding - basic 8,096,820 9,910,590
Weighted average shares outstanding - diluted 8,096,820 9,910,590
See notes to consolidated financial statements.
Littlefield Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Six Months Ended June 30, 2000 1999
REVENUES:
Video Gaming $3,248,625 $3,942,633
Bingo 2,669,382 2,659,297
Other 432,301 569,842
TOTAL REVENUES 6,350,308 7,171,772
COSTS AND EXPENSES:
Direct salaries and other compensation 456,191 572,817
Rent and utilities
($18,000 and $52,620, respectively
to related parties) 1,045,158 946,912
Direct operating costs 713,956 962,479
Depreciation and amortization 1,074,681 1,367,343
License expense 783,288 1,097,793
Severance --- 580,000
General and administrative 696,591 1,851,453
TOTAL COSTS AND EXPENSES 4,769,865 7,378,797
OPERATING INCOME (LOSS) 1,580,443 (207,025)
OTHER INCOME AND EXPENSES:
Interest and investment income ($0 and
$11,737 respectively to related parties) 97,440 119,694
Interest expense ($9,130 and $12,920,
respectively to related parties) (68,336) (131,963)
Gain on settlement with a related party --- 191,127
Other income and (expense) --- 30,077
TOTAL OTHER INCOME AND EXPENSES 29,104 208,935
NET INCOME BEFORE PROVISION FOR INCOME TAXES 1,609,547 1,910
PROVISION FOR INCOME TAXES 27,461 210,950
NET INCOME (LOSS) 1,582,086 ($209,040)
OTHER COMPREHENSIVE INCOME (LOSS) 37,774 ---
NET COMPREHENSIVE INCOME (LOSS) $1,619,860 ($209,040)
EARNINGS PER SHARE:
Basic .18 (.02)
Diluted .18 (.02)
Weighted average shares outstanding - basic 8,616,897 9,863,714
Weighted average shares outstanding - diluted 8,616,897 9,863,714
See notes to consolidated financial statements.
Littlefield Corporation
CONSOLIDATED BALANCE SHEET (Unaudited)
ASSETS
Current Assets: June 30, 2000
Cash and cash equivalents 4,064,050
Accounts receivable, net of allowance for
doubtful accounts of $72,424 374,531
Prepaid license expense - current portion 689,117
Equity Securities, available for sale 550,627
Other prepaid expenses 175,942
Total Current Assets 5,854,267
Property and Equipment - at cost, net of
accumulated depreciation and amortization 3,086,282
Other Assets:
Notes receivable
($52,419 to related parties) 52,419
Prepaid license expense
net of current portion 136,500
Intangible assets, net 3,710,269
Other non-current assets 170,313
Total Other Assets 4,069,501
TOTAL ASSETS 13,010,050
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable - current portion
($105,040 to related parties) 775,355
Capital leases payable - current portion 89,712
Trade accounts payable 146,679
Accrued expenses and other current liabilities 119,838
Total Current Liabilities 1,131,584
Long-term Liabilities:
Notes payable, net of current portion
($94,187 to related parties) 148,516
Capital leases payable, net of current portion 21,806
Total Long-term Liabilities 170,322
Stockholders' Equity:
Common stock, $.001 par value
(authorized 20,000,000 shares, issued
10,177,290 shares, outstanding
7,951,490 shares) 10,177
Additional paid-in-capital 23,658,349
Treasury stock - 2,225,800 shares
at cost (2,742,447)
Accumulated Comprehensive Income 37,774
Accumulated deficit (9,255,709)
Total Stockholders' Equity 11,708,144
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 13,010,050
See notes to consolidated financial statements.
Littlefield Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) 1,582,086 (209,040)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,074,681 1,367,343
Provision for uncollectible receivables --- 75,631
Gain on litigation settlement --- 1,300
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 124,751 (140,740)
Prepaid licenses 693,515 (846,479)
Other non-current assets 9,201 (7,000)
Other prepaid expenses and current assets (42,889) 142,311
Trade accounts payable 82,990 88,461
Accrued expenses and other current liabilities (388,066) 362,042
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,136,269 787,891
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equity securities (512,856) ---
Property and equipment expenditures (262,251) (653,006)
Collections of notes receivable 39,946 599,966
Purchase of Goodwill (75,000) ---
Issuance of notes receivable --- (20,000)
Reductions of notes receivable allowance --- (105,865)
Proceeds from sale of property and equipment --- 24,714
NET CASH USED IN INVESTING ACTIVITIES (810,161) (154,191)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (48,000) (187,671)
Payments on notes payable (140,641) (618,428)
Purchase of treasury stock (1,938,360) ---
Proceeds from issuance of common stock for
employee stock purchase plan --- 3,000
Proceeds from option exercises --- 311,581
Proceeds from margin line of credit --- ---
NET CASH USED IN FINANCING ACTIVITIES (2,127,001) (491,518)
NET INCREASE (DECREASE) IN CASH 199,107 142,182
CASH AT BEGINNING OF PERIOD 3,864,943 3,953,401
CASH AT END OF PERIOD $4,064,050 $4,095,583
See notes to consolidated financial statements.
Littlefield Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended June 30, 2000 1999
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments:
Interest 9,130 131,963
Income taxes 27,460 122,878
Non-cash transactions:
Acquisition of property and equipment in
exchange for notes payable --- 434,415
See notes to consolidated financial statements.
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 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 six-month period ended June 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.
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2000
NOTE 2 - PROPERTY AND EQUIPMENT.
Property and equipment at June 30, 2000 consists of the following:
Land 189,671
Buildings 379,342
Building and leasehold improvements 3,194,220
Video gaming machines and bingo equipment 4,675,031
Equipment, furniture and fixtures 1,317,433
Automobiles 351,071
Total 10,106,768
Less: Accumulated depreciation and amortization (7,020,486)
Property and equipment, net 3,086,282
Property and equipment at June 30, 2000 includes $1,300,000 of assets
held under capital leases and related accumulated amortization of
$616,000. Related amortization expense charged to operations for the six
months ended June 30, 2000 and 1999 was $108,000 for each period.
Total depreciation expense, for owned and leased assets, charged to
operations for the six months ended June 30, 2000 and 1999 was
approximately $682,000 and $943,000 respectively.
NOTE 3 - INTANGIBLE ASSETS.
Intangible assets at June 30, 2000 consists of the following:
Goodwill 5,170,398
Covenants not to compete 552,895
Total 5,723,293
Less: Accumulated amortization (2,013,024)
Intangible assets, net 3,710,269
Amortization expense charged to operations for the six months ended
June 30, 2000 and 1999 was approximately $392,000 and $424,000,
respectively.
NOTE 4 - SHAREHOLDERS' EQUITY.
The Company repurchased 1,859,500 shares of its common shares in the
first six months of 2000 for $1,938,360 under the current stock buyback
program. The average price to repurchase these shares was $1.04 and at
June 30, 2000 the Company holds 2,225,800 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.
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2000
NOTE 5 - EARNINGS (LOSS) PER SHARE.
A reconciliation of basic to diluted earnings per share is as follows:
Six months ended June 30,
2000 2000 1999 1999
Basic Diluted Basic Diluted
Numerator:
Net income 1,582,086 1,582,086 (285,262) (285,262)
Income (loss)
available to common
stockholders 1,582,086 1,582,086 (285,262) (285,262)
Denominator:
Weighted average
shares outstanding 8,616,897 8,616,897 9,863,714 9,910,590
Effect of dilutive
securities:
Preferred stock --- --- --- ---
Stock options
and warrants --- --- --- ---
Weighted average
shares outstanding 8,616,897 8,616,897 9,863,714 9,863,714
Earnings per share .18 .18 (.03) (.03)
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 June 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 June 30,
2000 and 1999, are as follows:
2000 1999
Net income (loss) 1,582,086 (209,040)
Other comprehensive income (loss)
Net unrealized losses 37,774 ---
Total comprehensive income (loss) 1,619,860 (209,040)
NOTE 7 - INCOME TAXES.
The Company recorded approximately $27,000 and $211,000 of state income
tax expense, respectively, for the six months ended June 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 $3,100,000 at June 30,
2000. The utilization of the net operating loss is subject to limitations
in accordance with section 382 of the Internal Revenue Code.
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2000
NOTE 8 - RELATED PARTY TRANSACTIONS.
Promissory notes receivable from related parties totaled $52,000 and
$109,000, respectively, for the first six months ended June 30, 2000 and
1999. Interest income related to these notes recorded by the Company
was $1,227 and $11,737 for the six months ended June 30, 2000 and 1999,
respectively.
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 six months ended June 30, 2000 and 1999, the Company
recognized $9,129 and $12,920, respectively, of interest expense related to
this obligation.
In June 2000, the Company entered into a warehouse lease agreement for
6,000 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 one-year term and the rate is $1,000 per month. The
warehouse is being used to store Video Gaming Machines (VGMs) that the
Company was forced to move out of South Carolina, as discussed earlier, and
as a technical center to deploy VGMs 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. In 1999, the
Company created a $200,000 accounting reserve to address impending litigation
expenses. During the last 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.
On April 16, 1999, Plaintiffs filed a lawsuit
alleging the Company and a wholly owned subsidiary breached fiduciary
duties, breached or caused the breach of contracts, engaged in various
fraudulent acts, negligently made false statements and engaged in unfair
trade practices. The Plaintiffs seek to recover actual and punitive
damages that include $240,000 of out-of-pocket expenses and lost profits
related to Plaintiffs operation of a nightclub and video casino on the
premises in the amount of approximately $300,000. The Company settled
this matter for $125,000.
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.
In this lawsuit filed in July 1999, Roy Stevens, a
former employee and shareholder of the Company, alleges that the Company
had withheld monies due under a promissory note totaling approximately
$40,000 and prevented him from selling shares of common stock that
resulted in losses of over $200,000. Mr. Stevens sought to recover lost
profits for the diminution of stock value, the amount due under the
promissory note and an unspecified amount of punitive damages. 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.
Hermalink v. American Bingo & Gaming Corp and Michael Mims, Civil
Action No. 99-CP-32-1793, South Carolina Court of Common Pleas, Richland
County. On July 8, 1999, Plaintiff, a former employee, accused the
Company and Michael Mims, a former officer and director of the Company, of
defamation based upon comments Mr. Mims made in a newspaper article prior
to the Company's annual meeting in 1999. The Company settled this
matter for $5,000.
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 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 VGM 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 VGM 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 VGM
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 when the cessation of gaming occurred on June 30, 2000.
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. 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 should render an opinion within 45
days. The Company plans to pursue this course of action vigorously,
but the likelihood of success is unpredictable.
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 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 video gaming 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 gaming in South Carolina will have some effect on this matter.
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 will defend itself vigorously
at trial in September. 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 VGMs will be illegal in
South Carolina after June 30, 2000. The Company successfully removed all
VGMs and related equipment from South Carolina before June 30 and is
actively pursuing the deployment of these units in other jurisdictions.
SCDOR v. Darlington Music Company, Inc. ("Darlington") On July 7, 2000,
the SCDOR assessed Darlington $25,000 for the underpayment of sales
and/or use tax for the periods from July 1, 1997 to December 31, 1999.
The Company is actively protesting this assessment.
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.
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 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 video gaming segment
represents operations of the Company's video gaming machines in South
Carolina. 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:
June 30, 2000
Video Gaming Bingo Adjustment Consolidated
Revenue 3,248,625 2,669,382 432,301 6,350,308
Depreciation
and
Amortization 381,961 659,671 33,049 1,074,681
Segment profit
(loss) 1,637,534 526,326 (581,774) 1,582,086
Segment Assets 2,299,899 14,846,861 (4,136,710) 13,010,050
June 30, 1999
Video Gaming Bingo Adjustment Consolidated
Revenue 3,942,633 2,659,297 569,842 7,171,772
Depreciation
and
Amortization 473,742 257,005 (157,220) 1,367,343
Segment profit
(loss) 1,113,118 431,022 (1,753,180) (209,040)
Segment Assets 6,996,274 11,571,174 565,325 19,132,773
The adjustments represent video gaming and bingo concession and other
income, depreciation and amortization related to corporate assets,
corporate losses, corporate assets and corporate capital expenditures 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 fourth
quarter of 2000.
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 VGMs. The effective
date of both actions was April 10, 2000. The new contract with CGC
provides for a revenue sharing arrangement dependent solely upon CGC's
ability to increase revenue and reduce expenses. The new contract contains
several important elements as follows; (1) a right granted to CGC to
acquire the Company's VGMs as they cease to be operated at a negotiated
market rate; (2) a right to broker the sale of the Company's VGMs to
third parties; and (3) the duty to deliver and store the Company's VGMs as
directed.
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 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 approximates the
estimated quarterly earnings to be received by the Company.
NOTE 12 - SUBSEQUENT EVENTS.
None
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 video gaming
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 Form 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, 1999, June 30, 1999 and September 30, 1999; and
the consolidated financial statements and related notes for the quarter
ended March 31, 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 American Bingo 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 July 28, 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 is the
cessation of video gaming in South Carolina on June 30, 2000. This may
have a negative impact upon the Company's financial performance.
With the cessation of video gaming in South Carolina on June 30, 2000,
the Company is planning to (i) dispose of its excess machines and
settle all loans and leases on this equipment (approximately $1,000,000)
with the proceeds, (ii) explore expansion opportunities in other
jurisdictions, and (iii) consider all other viable alternatives. The Company
has relocated its video gaming machines to bingo hall locations (new and
existing) in Alabama and Georgia where they will be operated on a
redemption basis in accordance with local regulations. Employment will also
be reduced by the number of employees engaged in video gaming in South
Carolina (approximately nine (9) persons).
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.
The Company intends to grow its business through acquisitions and the
selective "de novo" start up of charitable bingo halls in markets in
which it currently operates and other attractive markets. The Company's
plans are to continue to repurchase its shares as market conditions
warrant such action, although there can be no assurances that such
repurchases will occur.
Results of Operations
Net income for the first six months of 2000 was $1,600,000, which
equated to basic and fully diluted earnings per share of $0.18. Net loss
for the first six months of 1999 was $209,000, which equated to a basic
and fully diluted loss per share of $.03. The weighted average number
of basic Common Stock shares outstanding totaled 8,600,000 in the first
six months of 2000 as compared to 9,900,000 in the first six months of
1999. The change is primarily due to the repurchase of approximately
2,200,000 shares of Common Stock under the Company's buyback program
during the first six months of 2000 and the final nine months of 1999.
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 $3,000,000 during the
quarter ended June 30, 2000 as compared with $3,600,000 in the comparable
period of the prior fiscal year, representing a decrease of $550,000 or
15%. Revenues were led by video gaming operations, which produced
$1,400,000, or 47% of total revenue, for the second quarter of 2000,
compared to $2,000,000, or 55%, in the comparable quarter of the prior year.
The decrease in video gaming revenues was primarily a result of the
ruling issued by the South Carolina Supreme Court concerning the $125 per
day per player gaming payout limitation, the cessation of video gaming
on June 30, 2000 in South Carolina, and the expiration of a large
amount of gaming licenses on May 31, 2000. Bingo rental and other revenues
totaled $1,600,000, or 53% of revenues, for the second quarter of 2000,
as compared to $1,600,000, or 45% of total revenues, for the second
quarter of 1999. During the second quarter of 2000, approximately 11% of
the Company's bingo related revenues were generated in South Carolina,
28% in Alabama and 61% in Texas, compared to 8%, 27% and 65%,
respectively, in the second quarter of 1999.
Costs and expenses
Total costs and expenses were $2,500,000 in the second quarter of 2000
versus $3,800,000 in the second quarter of 1999, a decrease of
$1,300,000 or 34%. The decrease in total costs and expenses is primarily
attributable to operating expense reductions resulting from the
restructuring of the Company and depreciation reductions associated with
impaired assets.
Direct salaries and other compensation totaled $222,000 in the second
quarter of 2000, compared to $283,000 in 1999, a decrease of $61,000, or
21%. The decrease is a direct result in the changes in management,
with the reduction in the number of officers and the consolidation of
accounting functions in the new corporate offices in Texas.
Second quarter 2000 rent and utilities for the Company's freestanding
video game rooms and bingo centers totaled $585,000, compared to
$411,000 for the same period in 1999, an increase of 42%. 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 second quarter of 2000 totaled $366,000,
as compared to $343,000 for the same period in 1999, an increase of
approximately $23,000, or 7%.
Depreciation, amortization and license expense totaled $912,000 in the
second quarter of 2000, a decrease of $364,000 from the second quarter
of 1999. The decrease is a result of the charge made in the fourth
quarter of 1999 of $2,200,000 for the impairment of assets associated with
the Company's video gaming business. Depreciation expense decreased as
a direct result of the reduction in the asset value.
General and administrative expenses totaled $415,000 in the second
quarter of 2000, compared to $966,000 in 1999, a decrease of approximately
$551,000, or 57%. This is a result of the Company's continued plans to
reduce operating expenses.
Other income totaled $24,000 for the second quarter of 2000, as
compared to $50,000 for the second quarter of 1999. Other income for the
second quarter of 2000 was primarily comprised of interest and dividend
income on the Company's short-term investments. Included in operating
income and expenses for the second quarter of 1999 were proceeds received
from the liquidation of Company common stock by the former Company
president, Greg Wilson, and members of his family of $237,000, less related
legal costs of $100,000.
Liquidity and Capital Resources
Cash and cash equivalents at June 30, 2000 totaled $4,100,000 and
represented approximately 31% of the Company's total assets of $13,100,000.
Cash flows from operating activities for the six months ended June 30,
2000 totaled $3,300,000 compared to $788,000 during the same period of
1999, an increase of approximately 317%. Cash flows from operating
activities in the first six months of 2000 were comprised of the Company's
net income of $1,600,000 adjusted for non-cash amounts of depreciation
expense and intangible asset amortization of approximately $1,100,000,
increased by net changes in operating assets and liabilities of
approximately $480,000.
Littlefield Corporation
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Liquidity and Capital Resources (continued)
Net cash used in investing activities totaled approximately $810,000
for the six-month period ending June 30, 2000, compared to approximately
$154,000 in the six months ended June 30, 1999. Cash used in investing
activities consisted primarily of $262,000 related to property and
equipment purchases and $512,000 related to the acquisition of equity
securities. Cash used in investing activities in the six months ended June
30, 1999 consisted primarily of $653,000 related to property and
equipment purchases, offset by $600,000 from the repayment of notes
receivable.
Cash used in financing activities in the first six months of 2000
totaled $2,127,000, as compared to net cash used in financing activities in
the first six months of 1999 of $491,000. Cash used related to
financing activities in the first six months of 2000 included $1,900,000 of
Company treasury stock purchases and $188,000 of net cash used to reduce
notes payable and capital lease obligations. Cash used related to
financing activities in 1999 included $806,000 of net cash paid to reduce
notes payable and capital lease obligations. Cash received in 1999
relating to financing activities included $312,000 primarily related to
stock options exercised during the second quarter 1999, and stock
purchases under the Employee Stock Purchase Plan.
Current assets totaled $6,000,000 at June 30, 2000, providing the
Company with working capital of approximately $5,000,000 and a current ratio
of 5.3 to 1. At June 30, 2000, the Company had $13,000,000 in total
assets with total liabilities of $1,300,000 and $11,700,000 of
shareholders equity. Total assets include $4,100,000 in cash, $550,000 in
investments, $374,000 of net accounts and notes receivable, $3,100,000 of
property and equipment, $3,700,000 of intangible assets, $689,000 in
prepaid video gaming licenses, and $535,000 of other assets. Total
liabilities primarily consist of notes and capital lease obligations of
$1,000,000.
Net property and equipment totaled $3,100,000 at the end of the second
quarter of 2000. The majority of property and equipment is comprised
of gaming & bingo equipment and building & leasehold improvements.
Intangible assets, net of accumulated amortization, totaled $3,700,000 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 $1,100,000 and long-term liabilities
totaled $170,000 at the end of the second quarter of 2000. The majority of
current liabilities were comprised of $865,000 of notes payable and
capital lease obligations related to the Company's acquisition of video
gaming machines.
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 August 11, 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 August
11, 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.
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 June 30, 2000, the Company filed three reports
on Form 8-K.
On April 11, 2000, the Company filed a Form 8-K to report that on April
10, 2000, the Company terminated its contractual relationship with Mims
& Dye Enterprises and had entered into a new contract with Consolidated
Gaming Company, LLC of Columbia, South Carolina to operate a portion of
the Company's video gaming machines. Also, on April 11, 2000, the
Company announced it had entered into a contract with Prepaid Elite, LLP of
Austin, Texas to provide phone card dispensing machines with a
sweepstakes promotional game at all of its eleven bingo halls in Texas.
Prepaid Elite paid the Company a $100,000 non-refundable security deposit as
a credit against future earnings.
On June 12, 2000, the Company filed a Form 8-K to report the name
change from American Bingo and Gaming Corp to Littlefield Corporation and a
symbol change from BNGO to LTFD on the NASDAQ Exchange.
On July 5, 2000 the Company filed a Form 8-K to describe the legal
process whereby the name change was achieved.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Littlefield Corporation
August 11, 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)
INDEX TO EXHIBITS
Exhibit
Number Description Sequential
Page Number
27.1 Financial Data Schedule
(for SEC use only).
786796.02
