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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-Q
 

 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2012
Commission file number 0-24805


LITTLEFIELD CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
74-2723809
(I.R.S. Employer
Identification No.)
 
2501 N. Lamar Blvd.
Austin, Texas 78701
(Address of principal executive offices)
 
Registrant's telephone number:   (512) 476-5141
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x  No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.  (Check one):
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  No  x
 
On May 3, 2012, 17,337,901 shares of our Common Stock, par value $0.001 per share, were outstanding.
 
 
Littlefield Corporation

FORM 10-Q

For the quarter ended March 31, 2012

TABLE OF CONTENTS
 
Part I.  FINANCIAL INFORMATION
     
Item 1
 
2
a)      
2
     
b)      
3
     
c)      
5
     
d)      
7
     
Item 2
13
     
Item 3
16
     
Item 4
17
     
Part II.  OTHER INFORMATION
 
Item 1
18
     
Item 2
18
     
Item 6
18
     
 
19
 
 
PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements
 
Littlefield Corporation
CONSOLIDATED BALANCE SHEETS

ASSETS            
   
March 31, 2012
   
December 31, 2011
 
   
(unaudited)
       
Current Assets:
           
Cash and cash equivalents
  $ 1,580,193     $ 1,650,634  
Accounts receivable, net of allowance for doubtful accounts of $22,200 and $22,200, respectively
    661,391       548,338  
Other current assets
    391,548       233,984  
Note receivable – current portion
    75,000       75,000  
Total Current Assets
    2,708,132       2,507,956  
                 
Property and Equipment – at cost, net of accumulated depreciation and amortization
    7,290,763       7,299,125  
                 
Other Assets:
               
Goodwill
    5,921,890       5,921,890  
Intangible assets, net
    1,355,268       1,392,351  
Note receivable, net
    136,995       163,290  
Other non-current assets
    283,472       315,004  
Total Other Assets
    7,697,625       7,792,535  
                 
TOTAL ASSETS
  $ 17,696,520     $ 17,599,616  
                 
LIABILITIES AND STOCKHOLDERS'  EQUITY
               
                 
Current Liabilities:
               
Long term debt, current portion
  $ 532,006     $ 525,939  
Trade accounts payable
    203,021       250,893  
Accrued expenses
    1,103,992       1,046,904  
Total Current Liabilities
    1,839,019       1,823,736  
                 
Long-term Liabilities:
               
Long term debt, net of current portion
    3,105,198       3,268,643  
Other liabilities, related party
    106,043       130,224  
Total Long-term Liabilities
    3,211,241       3,398,867  
Total Liabilities
    5,050,260       5,222,603  
                 
Stockholders' Equity:
               
Common stock, $0.001 par value, (authorized 40,000,000 shares, issued 18,817,406 shares and 18,817,406 shares, respectively, outstanding 17,337,901 shares and 17,337,901 shares, respectively)
    18,818       18,818  
Additional paid-in-capital
    31,341,345       31,310,859  
Treasury stock – 1,479,505 and 1,479,505 shares, at cost
    (1,409,566 )     (1,409,566 )
Accumulated deficit
    (17,304,337 )     (17,543,098 )
Total Stockholders' Equity
    12,646,260       12,377,013  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 17,696,520     $ 17,599,616  

See notes to consolidated financial statements.
 
 
Littlefield Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

   
Three Months Ended
March 31,
 
   
2012
   
2011
 
REVENUES:
           
Entertainment
  $ 2,849,939     $ 2,828,731  
Other
    26,454       23,078  
TOTAL REVENUES
    2,876,393       2,851,809  
                 
DIRECT COSTS AND EXPENSES:
               
Direct salaries and other compensation
    290,860       196,389  
Rent and utilities
    733,887       737,439  
Other direct operating costs
    519,414       468,715  
Depreciation and amortization
    246,563       224,051  
License expense
    22,259       18,286  
TOTAL COSTS AND EXPENSES
    1,812,983       1,644,880  
                 
GROSS MARGIN
    1,063,410       1,206,929  
                 
GENERAL AND ADMINISTRATIVE EXPENSES:
               
Salaries and other compensation
    390,050       354,777  
Legal and accounting fees
    162,254       133,877  
Depreciation and amortization
    19,957       19,777  
Share-based compensation expense
    30,486       25,317  
Other general and administrative
    175,392       211,271  
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES
    778,139       745,019  
                 
                 
OPERATING INCOME (LOSS)
    285,271       461,910  
                 
OTHER INCOME AND EXPENSES:
               
Interest income
    2,071       4,911  
Interest expense
    (37,181 )     (35,252 )
Other expense
    ---       (1,549 )
TOTAL OTHER INCOME AND EXPENSES
    (35,110 )     (31,890 )
                 
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
    250,161       430,020  
                 
PROVISION FOR INCOME TAXES
    11,400       19,334  
                 
NET INCOME (LOSS)
  $ 238,761     $ 410,686  

See notes to consolidated financial statements.
 
 
Littlefield Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
    Three Months Ended
March 31,
 
    2012     2011  
EARNINGS (LOSS) PER SHARE:
           
             
Basic earnings (loss) per share
  $ 0.01     $ 0.02  
                 
                 
Diluted earnings (loss) per share
  $ 0.01     $ 0.02  
                 
                 
                 
                 
Weighted average shares outstanding – basic
    17,337,901       17,324,439  
                 
Weighted average shares outstanding – diluted
    17,558,154       17,778,809  
 
Amounts may not add due to rounding.

See notes to consolidated financial statements.
 
 
Littlefield Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
   
Three Months Ended
March 31,
 
   
2012
   
2011
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income (loss)
  $ 238,761     $ 410,686  
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
               
Depreciation and amortization
    266,520       243,828  
Stock-based compensation expense
    30,486       25,317  
(Gain) loss on disposals of equipment
    ---       1,549  
                 
       Increase (decrease) in cash flows as a result of changes in asset and liability
       account balances:
               
Accounts receivable, net
    (113,054 )     (134,950 )
Other assets
    (159,211 )     (163,354 )
Trade accounts payable
    (47,872 )     (144,488 )
Accrued expenses and other current liabilities
    66,087       26,338  
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
    281,717       264,926  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of property and equipment
    (221,075 )     (250,442 )
Purchase of goodwill and intangibles
    ---       (300,000 )
       Proceeds from repayment of notes receivable, net
    26,295       26,295  
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
    (194,780 )     (524,147 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Payments on notes payable, legal settlements and capital leases
    (157,378 )     (108,113 )
Proceeds from note payable
    ---       210,000  
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
    (157,378 )     101,887  
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    (70,441 )     (157,334 )
                 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    1,650,634       2,915,115  
                 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 1,580,193     $ 2,757,781  
 
See notes to consolidated financial statements.
 
 
Littlefield Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
 
   
Three Months Ended
March 31,
 
   
2012
   
2011
 
             
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
           
             
Cash payments:
           
             
Interest
  $ 37,181     $ 35,252  
                 
                 
Income taxes
  $ 3,153     $ 30,278  
                 
                 
Non-cash transactions:
               
                 
Purchase of acquisition assets in exchange for notes payable
    ---     $ 306,000  
 
See notes to consolidated financial statements.
 
 
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2012


 
NOTE 1 – PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION.
 


The unaudited consolidated financial statements include the accounts of Littlefield Corporation and its wholly owned subsidiaries (the “Company”).  The financial statements contained herein are unaudited and, in the opinion of management, contain all adjustments necessary for a fair presentation of financial position, results of operations and cash flows for the periods presented.  The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities and the reported amount of revenue and expenses during the reported period.  Actual results could differ from these estimates.  Where appropriate, items within the consolidated financial statements have been reclassified to maintain consistency and comparability for all periods presented.

The operating results for the three month period ended March 31, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2012.  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-Q 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, one time events and other factors described herein and in other filings made by the Company with the Securities and Exchange Commission, based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended.  The Company does not intend to update these forward-looking statements.



NOTE 2 –ACQUISITIONS AND REORGANIZATIONS.
 


Generally speaking, the Securities and Exchange Commission sets forth guidelines which require a company to report as material certain acquisitions. The acquisitions discussed below do not necessarily meet this threshold, however, they are included in the interest of disclosure. The acquisitions were accounted for as a purchase. Unless otherwise noted, we funded the purchase price from existing cash balances. Our consolidated financial statements include the operating results from the date of acquisition. Unless otherwise noted, pro-forma results of operations have not been presented because the effects of those operations were not material. In accordance with FASB ASC 805, Business Combinations (FASB ASC 805), the total purchase consideration has been allocated to the assets acquired and liabilities assumed, including identifiable assets, based on their respective estimated fair values at the date of acquisition. The Company acquires bingo halls through its appropriately formed and licensed wholly-owned corporate subsidiaries in the states in which it operates.

2011

In January 2011, the Company completed the acquisition of a bingo hall in South Carolina for cash and note payable. The acquired bingo hall commenced operations January 6, 2011.

In June 2011, the Company completed the acquisition of a bingo hall in South Carolina for cash and a note payable. The acquired bingo hall commenced operations effective June 1, 2011.

In November 2011, the Company completed the acquisition of a bingo hall in South Carolina for cash and a note payable. The acquired bingo hall commenced operations effective November 14, 2011.
 
 
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2012



NOTE 3 – PROPERTY AND EQUIPMENT.
 

 
Property and equipment at March 31, 2012 and December 31, 2011, consisted of the following:

   
March 31, 2012
   
December 31, 2011
 
Land
  $ 760,467     $ 760,467  
Buildings
    3,614,439       3,566,950  
Leasehold improvements
    6,106,223       6,048,706  
Equipment, furniture and fixtures
    3,878,467       3,835,901  
Automobiles
    251,665       178,161  
      14,611,261       14,390,185  
                 
Less:  Accumulated depreciation and amortization
    (7,320,498 )     (7,091,060 )
                 
Property and equipment, net
  $ 7,290,763     $ 7,299,125  

Total depreciation expense, for owned and leased assets, charged to continuing operations for the three months ended March 31, 2012 and 2011 was approximately $229,400 and $219,100 respectively.
 


NOTE 4 – GOODWILL & OTHER INTANGIBLE ASSETS.
 

 
Goodwill at March 31, 2012, was as follows:
 
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
 
Total
 
                   
Goodwill at December 31, 2011
  $ 6,970,931     $ (1,049,041 )   $ 5,921,890  
Goodwill acquired during period
    ---       ---       ---  
Goodwill at March 31, 2012
  $ 6,970,931     $ (1,049,041 )   $ 5,921,890  

Intangible assets at March 31, 2012, consisted of the following:

   
Gross 
Carrying 
 Amount
   
Accumulated
Amortization
   
Total
 
Intangible Assets with Indefinite Lives:
                 
Bingo licenses at December 31, 2011
  $ 881,339       (51,974 )   $ 829,365  
Licenses acquired during the period
    ---       ---       ---  
Bingo licenses at March 31, 2012
  $ 881,339       (51,974 )   $ 829,365  
                         
Intangible Assets with Finite Lives:
                       
Covenants not to compete at December 31, 2011
  $ 927,500       (364,514 )     562,986  
Change in covenants not to compete
    ---       (37,083 )     (37,083 )
Covenants not to compete at March 31, 2012
  $ 927,500       (401,597 )   $ 525,903  
Intangible Assets, Net of Accumulated Amortization
                  $ 1,355,268  


Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2012

Amortization expense charged to operations for the three months ended March 31, 2012 and 2011, was approximately $37,000 and $25,000 respectively.



NOTE 5 - SHAREHOLDERS’ EQUITY.


 
At March 31, 2012, the Company held 1,479,505 treasury shares at an average purchase cost of $0.95.



NOTE 6 – SHARE BASED PAYMENTS.



The Company recorded approximately $30,000 and $25,000 in compensation expense in the three month periods ended March 31, 2012 and March 31, 2011, respectively, related to options issued under its stock-based incentive compensation plans.  This included expense related to both options issued in the current year and options issued in prior years for which the requisite service period for those options included the current year.  The fair value of these options was calculated using the Black-Scholes options pricing model.  There were 1,512,500 and 12,500 options issued during the three month periods ended March 31, 2012 and 2011, respectively. For options issued in 2012, the following assumptions were used: dividend yield of 0%, expected volatility of 78%, risk free interest rate of 3.5% and an expected life of 10 years.
 


NOTE 7 – EARNINGS PER SHARE.



Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding during each period. Diluted EPS is computed by dividing net income by the weighted average number of common shares and common share equivalents outstanding (if dilutive) during each period. The number of common share equivalents, which include stock options, is computed using the treasury stock method.

A reconciliation of basic to diluted earnings (loss) per share is as follows:

Three months ended March 31,
 
2012
   
2012
   
2011
   
2011
 
   
Basic
   
Diluted
   
Basic
   
Diluted
 
Numerator:
                       
Net income (loss)
  $ 238,761     $ 238,761     $ 410,686     $ 410,686  
Denominator:
                               
Weighted average shares outstanding
    17,337,901       17,337,901       17,324,439       17,324,439  
Effect of dilutive securities:
                               
Stock options and warrants
    ---       220,253       ---       454,370  
Weighted average shares outstanding
    17,337,901       17,558,154       17,324,439       17,778,809  
                                 
Earnings (loss) per share
  $ 0.01     $ 0.01     $ 0.02     $ 0.02  
 
Stock options to acquire 607,660 and 266,750 shares for the three months ended March 31, 2012 and 2011, respectively, were excluded from the computations of diluted EPS because the effect of including the stock options would have been anti-dilutive to a loss per share or the options were out of the money.
 

Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2012



NOTE 8 - STOCK BASED COMPENSATION.
 


The Company applies FASB ASC 718, Compensation – Stock Compensation (FASB ASC 718) and FASB ASC 505, Equity (FASB ASC 505), using the modified prospective method of implementation, whereby the prospective method records the compensation expense from the implementation date forward, however, it leaves prior periods unchanged in accounting for its stock options.  At December 31, 2011, the Company has implemented five shareholder approved stock option plans.  These plans are intended to comply with Section 422 of the Internal Revenue Code of 1986, as amended.  The plans collectively provide for the total issuance of 3,600,000 common shares over ten years from the date of each plan’s approval.  In addition, the plans allow for additional increases of 15% of the then outstanding shares.  Effective January 1, 2012, the plans were increased by an additional 3,600,000 common shares over ten years allowing for additional increases of 15% of the then outstanding shares by unanimous approval of the Board of Directors.

Transactions under the stock option plans are summarized below. At March 31, 2012, a total of 3,534,910 options were outstanding under these plans.

   
Employee Stock Plans
 
   
 
 
 Options
   
Weighted
Average 
Exercise Price
 
Outstanding at 12/31/11
    2,022,410     $ 0.46  
Granted
    1,512,500       0.40  
Exercised
    ---       ---  
Forfeited
    --       ---  
Outstanding at 03/31/12
    3,534,910     $ 0.44  

The fair value of options granted during the three month period ended March 31, 2012, was approximately $488,588; with 12,500 options vested upon grant and 1,500,000 vesting over a five year period.

The aggregate intrinsic value represents the value of the Company’s closing stock price of $0.31 on the last trading day of the period in excess of the exercise price multiplied by the number of options outstanding or exercisable. The total intrinsic value of options exercised during 2012 was $0, as no options were exercised. Total unrecognized stock-based compensation expense related to non-vested stock options was approximately $650,000 as of March 31, 2012, related to approximately 1,844,000 shares with a per share weighted average fair value of  $0.35. We anticipate this expense to be recognized over a weighted average period of approximately 4.4 years.

The following table summarizes information about options outstanding at March 31, 2012, under the Employee Stock Plans:
 
         
Options Outstanding
   
Options Exercisable
 
   
 
Range of
Exercise Prices
   
 
Number
Outstanding
 
Weighted Avg.
Remaining
Contractual Life
 
 
Weighted Avg.
Exercise Price
   
 
Number
Exercisable
   
Weighted Avg.
Exercise Price
 
2012:
  $ 1.26 - 1.87       16,500  
4.3 years
  $ 1.32       16,500     $ 1.32  
    $ 0.00 - $1.25       3,518,410  
4.7 years
  $ 0.43       1,674,660     $ 0.43  
Total  
 
      3,534,910  
4.7 years
  $ 0.44       1,691,160     $ 0.43  
                                           
Aggregate intrinsic value         $ 1,800               $ 1,800          

The weighted average remaining contractual life of options exercisable as of March 31, 2012, was 2.4 years.

 
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2012
 


NOTE 9 – INCOME TAXES.



The Company recorded approximately $11,000 and $19,000 of state income tax expense, respectively, for the three months ended March 31, 2012 and 2011.  The Company does not expect to incur significant federal income tax charges until the utilization of its accumulated federal income tax loss carry-forwards, which totaled approximately $13,800,000 at December 31, 2011, and begin expiring in the year 2017.

FASB ASC 740, Income Taxes (FASB ASC 740) addresses the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. If a tax position is more likely than not to be sustained upon examination, then an enterprise would be required to recognize in its financial statements the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. As of March 31, 2012, the Company did not recognize a liability for uncertain tax positions.  We do not expect our unrecognized tax benefits to change significantly over the next twelve months.  The tax years 2007 through 2011 remain open to examination by the major taxing jurisdictions in which we file income tax returns.



NOTE 10 - RELATED PARTY TRANSACTIONS.



In December 2011, the Company renewed and modified a five year employment agreement with its President and CEO for the period January 1, 2012 to December 31, 2016. In accordance with this agreement, the Company accrued as Other liabilities – related party, $9,000 and $6,000 of deferred compensation in the three months ended March 31, 2012 and 2011, respectively.  In January 2012, in accordance with the agreement, the President and CEO was awarded stock options for 1,500,000 shares of common stock with an exercise price of 110% of the fair market value of the Company’s stock on the date of grant and vest ratably over a five year period.
 


NOTE 11 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS.



In September 2011, the FASB updated FASB ASC 350, Goodwill and Other (FASB ASC 350) that gives an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.  The amendments are effective for annual and interim goodwill impairment test performed for fiscal years beginning after December 15, 2011.  We adopted the update as required as of the period ended March 31, 2012 and concluded it did not have a material impact on our consolidated financial position or results of operations.
 
 
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2012



NOTE 12 – LONG TERM DEBT.



During the first quarter of 2011 the Company was advanced $210,000 on a promissory note. The note is secured by certain real estate, subject to certain financial covenants and matures in April 2016.  Interest is indexed at prime plus three-quarter percent and may fluctuate between a four and one-quarter percent and seven and three-quarter percent interest rate.
 


NOTE 13 – SUBSEQUENT EVENTS.



In April 2012, the Company consolidated and refinanced certain notes totaling $778,450 and maturing in August 2012. The new ten year note expires in April 2022 and carries interest at a 5.25% fixed rate with monthly installments of approximately $8,382 and is secured by real estate.


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The first quarter 2012 discussion in this report focuses on the Company’s results of operations which is comprised of the Company’s Entertainment business’ charitable bingo operations in four states: Texas, South Carolina, Alabama and Florida.

Q1 2012 compared to Q1 2011

Results of Operations

During the three months ended March 31, 2012, the Company achieved its second-highest level of quarterly bingo revenue posting revenue of approximately $2,876,000 compared to approximately $2,852,000 in the prior year.  The Company posted net income of approximately $239,000 versus $411,000 in the prior year. Excluding the notable items discussed more fully under Net income below, adjusted net income was approximately $418,000 versus approximately $654,000 in the prior year period.

Revenues

The following table sets forth the Company’s revenues from continuing operations the three months ended March 31, 2012 and 2011:

   
2012
   
2011
   
Change
   
% Change
 
Total Revenues
  $ 2,876,000     $ 2,852,000     $ 24,000       1 %
Entertainment
    2,850,000       2,829,000       21,000       1 %
   Texas
    1,170,000       1,201,000       (31,000 )     (3 %)
   South Carolina
    1,223,000       1,169,000       54,000       5 %
   Alabama / Florida
    457,000       459,000       (2,000 )     ---  
Other
  $ 26,000     $ 23,000     $ 3,000    
NM
 

The first quarter is seasonally the stronger quarter of the year. During the first three months of 2012, total revenues for the Company increased 1% from 2011. Entertainment revenue increased 1% reflecting the contribution of new halls acquired during last year which offset the effects of two halls closed at the end of 2011 whose leases expired in accordance with the terms of those leases and weakness in one of our regional submarkets. Other revenue reflects ancillary revenue not included in Entertainment.

Entertainment revenues by state were as follows:

   
2012
   
2011
   
Change
 
   Texas
    41 %     43 %     (2 %)
   South Carolina
    43 %     41 %     2 %
   Alabama / Florida
    16 %     16 %     ---  
 

Gross margin and Costs and Expenses

The table below summarizes the Company’s gross margin for the three months ended March 31, 2012 and 2011. Gross margin percent (gross margin as a percent of sales) decreased to 37% from 42% in 2011.

   
2012
   
2011
   
Change
   
% Change
 
Total Gross Margin
  $ 1,063,000     $ 1,207,000     $ (144,000 )     (12 %)
Entertainment
    1,037,000       1,184,000       (147,000 )     (12 %)
Other
  $ 26,000     $ 23,000     $ 3,000    
NM
 

Overall, total costs and expenses increased 10% from the comparable three-month prior year period mainly as a result of increasing the number of managers at the Company to support anticipated future growth in the number of bingo halls and increased marketing expenses in certain regional submarkets.

Direct salaries and other compensation increased approximately $94,000 reflecting the increase in number of managers referred to above.

Rent and utilities in 2012 was approximately at the same level of 2011. We did not recognize lease costs on a straight-line basis as provided in FASB ASC 840, Leases (FASB ASC 840). Instead, lease costs were recognized based on payments made or accrued during each month.  If the Company had recognized lease expense on a straight-line basis in 2012 and 2011, total lease costs would not have materially changed the Company’s financial results. In general, the Company enters into long term leases underlying its operations. At the same time, the Company generally enters into agreements which are renewed annually with its customers. This permits the Company to adjust its customer agreements in response to general price increases and limits the effect of lease escalation clauses.  Generally, the Company’s leases require payments of rent and a pro-rata share of real estate maintenance, taxes and insurance.

Other direct operating costs in 2012 increased approximately $51,000 from the prior year, mainly resulting from relocation costs and higher costs of promotions and other marketing initiatives.

Depreciation and amortization expense totaled approximately $267,000 ($247,000 Direct Costs plus $20,000 G&A) in 2012 versus $244,000 in 2011. The $23,000 increase in depreciation and amortization expense mainly relates to capital spending incurred for bingo hall renovations, including leasehold improvements and acquired assets.

We measure corporate overhead as general and administrative expenses, excluding related depreciation expense, the noted legal fees and stock-based compensation. Corporate overhead totaled approximately $614,000 in 2012, compared to approximately $618,000 in 2011. We measure corporate overhead because it provides management with a tool to assess performance consistently over different financial periods. The following table reconciles general and administrative expenses under GAAP to our corporate overhead measure.
 
Corporate overhead
    Q1 2012       Q1 2011  
General and administrative expenses (GAAP basis)
  $ 778,139     $ 745,019  
Stock-based compensation
    (30,486 )     (25,317 )
Noted legal expenses
    (113,421 )     (82,122 )
Depreciation and amortization
    (19,957 )     (19,777 )
      (163,864 )     (127,216 )
Corporate overhead (non-GAAP basis)
  $ 614,275     $ 617,803  

During 2011, the Company resolved several litigation matters that had been pending. The conclusion of these litigation items some of which had been pending for a number of years, should allow management to devote more time and resources toward business management and should reduce legal expense towards the end of this year. Current year legal expense relates mainly to efforts by the Company to collect delinquent rent and to investigate and pursue other potential legal claims, the effect of which will be included in our financial results when collected or settled.

Other income and expense was an expense of approximately $35,000 for 2012, compared to approximately $32,000 in 2011.

Our income tax expense for 2012 was approximately $11,000 compared to $19,000 in 2011, all of which is related to the expected effective tax rate for state income taxes.  At December 31, 2011, the Company had net operating loss carry forwards for federal income tax purposes of approximately $13.8 million which begin expiring in the year 2017.
 
 
Net Income

During the first three months of 2012, net income was approximately $239,000; $0.01 per basic share and $0.01 per fully diluted share. During the first three months of 2011, net income was approximately $411,000; $0.02 per basic share and $0.02 per fully diluted share. The weighted average number of basic Common Stock shares outstanding totaled 17,337,901 in 2012 compared to 17,324,439 in 2011.

The Q1 2012 results include approximately $179,000 of notable items:
 
·  
$35,000 of expense associated with hall start-ups in Texas
·  
$113,000 of legal expense for Texas and South Carolina, and
·  
$31,000 for non-cash stock-based compensation.

The Q1 2011 results include approximately $244,000 of notable items:
 
·  
$135,000 of expense associated with hall start-ups in Texas
·  
$82,000 of legal expense for South Carolina, Texas and its Furtney litigation,
·  
$25,000 for non-cash stock-based compensation and $2,000 of asset disposals.

Adjusted for the noted items above, the adjusted net income during the first three months of 2012 was approximately $418,000 and basic earnings per share were $0.02 per share in 2012 versus an adjusted net income of approximately $654,000 and basic earnings per share were $0.04 per share last year. Our management uses adjusted net income (loss) to measure performance consistently over different financial periods. The following table reconciles net income (loss under GAAP to our adjusted net income (loss) measure.

Net income (loss)
    Q1 2012       Q1 2011  
Net income (loss) (GAAP basis)
  $ 238,761     $ 410,686  
Hall start-up activities
    34,995       134,633  
Stock-based compensation
    30,486       25,317  
Noted legal expenses
    113,421       82,122  
Other asset disposals
    ---       1,549  
      178,902       243,621  
Net income (loss) excluding noted items (non-GAAP basis)
  $ 417,663     $ 654,307  

Liquidity and Capital Resources

Cash and cash equivalents at March 31, 2012, totaled approximately $1,580,000 and represented 9% of total assets of approximately $17,697,000.  Cash and cash equivalents consist of cash and highly liquid investments with maturities of three months or less at the date of acquisition or which are readily convertible to cash without penalty. Current assets totaled approximately $2,708,000. Current liabilities totaled approximately $1,839,000. Working capital was approximately $869,000 with a current ratio of 1.5 to 1 compared to approximately 1.4 to 1 at December 31, 2011.

Cash provided by operating activities for the three months ended March 31, 2012 totaled approximately $282,000 compared to cash provided of $265,000 during 2011. Cash flows from operating activities in 2012 were increased by net income of approximately $239,000 and provided by non-cash depreciation expense of approximately $267,000, stock based compensation of approximately $30,000, and partially offset by other net changes in asset and liability accounts of $254,000.
 
 
Net cash used in investing activities during the first quarter of 2012 totaled approximately $195,000 mainly for the purchase of capital assets; these were partially offset by note receivable payments of $26,000. This compared to net cash used in investing activities of approximately $524,000 in 2011 mainly for bingo hall renovations and acquisition and settlement activities; these were partially offset by note receivable payments of $26,000.

Net cash used in financing activities in 2012 totaled approximately $157,000, compared to net cash provided by financing activities in 2011 of approximately $102,000. During the first three months of 2012, approximately $157,000 was used for the payment of notes payable. During the first three months of 2011, approximately $108,000 was used for the payment of notes payable and approximately $210,000 was provided by proceeds from a note payable.
 
At March 31, 2012, we had approximately $17,697,000 in total assets with total liabilities of approximately $5,050,000 and approximately $12,646,000 of shareholders’ equity.  Total assets include approximately $1,580,000 in cash, $661,000 of net accounts receivable, other current assets of $467,000, $7,291,000 of net property and equipment, $7,277,000 of intangible assets, $137,000 net note receivable related to the sale of its discontinued Premiere Tents and Events (“PTE”) business unit and $284,000 of other assets.  Total liabilities primarily consist of accounts payable of approximately $203,000 and notes payable obligations of approximately $3,637,000 and accrued and related-party liabilities of $1,104,000 and $106,000 respectively.

In 2012, we plan to continue to use our cash generated from operations to make renovations including leasehold improvements at our bingo operations.  We also plan to use advantageous combinations of bank financing, seller financing and cash on hand to acquire new bingo halls when favorable terms can be obtained.

Financial Risk Management

Off-Balance Sheet Arrangements. We have no off-balance sheet debt.

Market Risk. In the normal course of business, we employ established procedures to manage our exposure to changes in the market value of our investments.  There were no significant investments in marketable securities at March 31, 2012 or 2011. The Company holds its funds in cash and certificates of deposit generally insured by the FDIC with uninsured amounts setting off loans payable.  Generally, the Company minimizes exposure to interest rate fluctuations on its long-term debt arrangements by entering into fixed rate notes payable or establishing interest rate collars within which a variable interest rate on long-term debt may fluctuate. As a result of these terms the market risk associated with interest rate fluctuations on long-term debt is not material.

Recently Issued Accounting Pronouncements

See Note 11 – Recently Issued Accounting Pronouncements in the Consolidated Financial Statements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Response to this item is included in Item 2 – Management’s Discussion and Analysis of Financial Conditions and Results of Operations – Market Risk above.
 

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls

The Company’s management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report.  Disclosure controls and procedures are designed with the objective of ensuring that (i) information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) the information is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Based upon their evaluation, our management including the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15 d – 15(e) under the Securities Exchange Act) are effective at a reasonable assurance level, as of the end of the period covered by this report on Form 10-Q, to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2012, that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
 
Limitations on the Effectiveness of Controls
 
Our management, including our CEO and CFO, does not expect that our disclosure controls or our internal controls over financial reporting will prevent all error and all fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of a control system are met.  Further, any control system reflects limitations on resources, and the benefits of a control system must be considered relative to its costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Littlefield Corporation have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of a control.  A design of a control system is also based upon certain assumptions about potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.


PART II – OTHER INFORMATION

Item 1.  Legal Proceedings

None. The Company concluded its major outstanding litigation during 2011.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 6.  Exhibits
 
Exhibit
Description
3.1
Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 of the Registration Statement on Form S-1 filed by the Company on August 1, 2011).
3.2
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the Quarterly Report on Form 10-QSB filed by the Company on November 15, 1999, for the quarter ended September 30, 1999).
10.1*
2012 Stock Option Plan (incorporated by reference to Exhibit 1 of the Definitive Proxy Statement Schedule 14A, filed with the SEC on April 12, 2012).
10.2*
2012 Employee Stock Purchase Plan (incorporated by reference to Exhibit 2 of the Definitive Proxy Statement Schedule 14A, filed with the SEC on April 12, 2012).
10.3*
2009 Employment Agreement between the Company and Jeffrey L. Minch (incorporated by reference to Exhibit 10.3 of the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2009).
10.4*
2012 Employment Agreement between the Company and Jeffrey L. Minch (incorporated by reference to Exhibit 10.4 of the Company’s Annual Report on Form 10-K filed with the SEC on March 27, 2012).
   
31.1
32.1
   
101.INS
XBRL Instance Document**
 
101.SCH
XBRL Taxonomy Extension Schema Document**
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document**
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document**
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document**
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document**
 
*
Denotes a management contract or compensatory plan or arrangement.
**
In accordance with Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

 

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

May 11, 2012

By:

/s/  JEFFREY L MINCH                             
Jeffrey L. Minch
President and Chief Executive Officer


/s/  RICHARD S. CHILINSKI                  
Richard S. Chilinski
Chief Financial Officer