10-Q 1 littlefield10q063011.htm littlefield10q063011.htm


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 June 30, 2011
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 78705
(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 August 3, 2011, 17,324,439 shares of our Common Stock, par value $0.001 per share, were outstanding.
 
 
Littlefield Corporation

FORM 10-Q

For the quarter ended June 30, 2011

TABLE OF CONTENTS



Part I.  FINANCIAL INFORMATION
       
 
Item 1
2
       
 
a)
2
       
 
b)
3
       
 
c)
5
       
 
d)
7
       
 
e)
9
       
 
Item 2
18
       
 
Item 3
23
       
 
Item 4
23
       
Part II.  OTHER INFORMATION
 
 
Item 1
24
       
 
Item 2
24
       
 
Item 6
24
       
 
 
25
 
 
PART I – FINANCIAL INFORMATION

Item 1.   Financial Statements
Littlefield Corporation
CONSOLIDATED BALANCE SHEETS
        
   
June 30, 2011
   
December 31, 2010
 
   
(unaudited)
       
ASSETS
           
             
Current Assets:
           
Cash and cash equivalents
  $ 2,363,135     $ 2,915,115  
Accounts receivable, net of allowance for doubtful accounts of $22,200 and $22,200, respectively
    461,446       524,755  
Other current assets
    355,433       218,046  
Note receivable – current portion
    75,000       75,000  
Total Current Assets
    3,255,014       3,732,916  
                 
Property and Equipment – at cost, net of accumulated depreciation and amortization
    7,416,232       7,259,822  
                 
Other Assets:
               
Goodwill, net
    5,976,829       5,474,147  
Intangible assets, net
    1,413,185       939,990  
Note receivable, net
    215,872       268,463  
Other non-current assets
    337,532       290,163  
Total Other Assets
    7,943,418       6,972,763  
                 
TOTAL ASSETS
  $ 18,614,664     $ 17,965,501  
                 
LIABILITIES AND STOCKHOLDERS'  EQUITY
               
                 
Current Liabilities:
               
Long term debt, current portion
  $ 913,111     $ 563,105  
Trade accounts payable
    149,312       305,361  
Accrued expenses
    922,721       873,161  
Total Current Liabilities
    1,985,144       1,741,627  
                 
Long-term Liabilities:
               
Long term debt, net of current portion
    3,146,884       2,891,445  
Other liabilities, related party
    122,757       110,352  
Total Long-term Liabilities
    3,269,641       3,001,797  
Total Liabilities
    5,254,785       4,743,424  
                 
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 17,324,439 shares and 17,324,439 shares, respectively)
    18,818       18,818  
Additional paid-in-capital
    31,280,483       31,214,949  
Treasury stock – 1,492,967 and 1,492,967 shares, at cost
    (1,422,355 )     (1,422,355 )
Accumulated deficit
    (16,517,067 )     (16,589,335 )
Total Stockholders' Equity
    13,359,879       13,222,077  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 18,614,664     $ 17,965,501  

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

   
Three Months Ended June 30,
 
   
2011
   
2010
 
REVENUES:
           
Entertainment
  $ 2,175,756     $ 2,281,747  
Other
    21,254       19,367  
TOTAL REVENUES
    2,197,010       2,301,114  
                 
DIRECT COSTS AND EXPENSES:
               
Direct salaries and other compensation
    186,541       216,734  
Rent and utilities
    744,061       676,504  
Other direct operating costs
    463,874       478,529  
Depreciation and amortization
    236,714       197,825  
License expense
    31,071       40,210  
TOTAL COSTS AND EXPENSES
    1,662,261       1,609,802  
                 
GROSS MARGIN
    534,749       691,312  
                 
GENERAL AND ADMINISTRATIVE EXPENSES:
               
Salaries and other compensation
    334,257       355,206  
Legal and accounting fees
    181,723       238,563  
Depreciation and amortization
    20,130       19,538  
Share-based compensation expense
    40,217       26,855  
Other general and administrative
    245,086       185,535  
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES
    821,413       825,697  
                 
                 
OPERATING INCOME (LOSS)
    (286,664 )     (134,385 )
                 
OTHER INCOME AND EXPENSES:
               
         Interest income
    4,062       8,428  
Interest expense
    (37,471 )     (45,706 )
         Other income and expenses
    ---       (2,289 )
TOTAL OTHER INCOME AND EXPENSES
    (33,409 )     (39,567 )
                 
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES
    (320,073 )     (173,952 )
                 
PROVISION FOR INCOME TAXES
    18,345       27,114  
                 
INCOME (LOSS) FROM CONTINUING OPERATIONS
    (338,418 )     (201,066 )
                 
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
    ---       ---  
                 
NET INCOME (LOSS)
  $ (338,418 )   $ (201,066 )

See notes to consolidated financial statements.
 
 
Littlefield Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
    Three Months Ended June 30,  
   
2011
   
2010
 
EARNINGS (LOSS) PER SHARE:            
Basic earnings (loss) per share
           
     Continuing operations
  $ (0.02 )   $ (0.01 )
     Discontinued operations
    0.00       0.00  
     Total
  $ ( 0.02 )   $ ( 0.01 )
                 
Diluted earnings (loss) per share
               
     Continuing operations
  $ (0.02 )   $ (0.01 )
     Discontinued operations
    0.00       0.00  
     Total
  $ ( 0.02 )   $ ( 0.01 )
                 
Weighted average shares outstanding – basic
    17,324,439       17,880,653  
                 
Weighted average shares outstanding – diluted
    17,324,439       17,880,653  
 
Amounts may not add due to rounding.


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

   
Six Months Ended June 30,
 
   
2011
   
2010
 
REVENUES:
           
Entertainment
  $ 5,004,487     $ 5,308,964  
Other
    44,332       38,470  
TOTAL REVENUES
    5,048,819       5,347,434  
                 
DIRECT COSTS AND EXPENSES:
               
Direct salaries and other compensation
    382,930       428,805  
Rent and utilities
    1,481,500       1,368,759  
Other direct operating costs
    932,589       883,521  
Depreciation and amortization
    460,765       384,790  
License expense
    49,357       60,773  
TOTAL COSTS AND EXPENSES
    3,307,141       3,126,648  
                 
GROSS MARGIN
    1,741,678       2,220,786  
                 
GENERAL AND ADMINISTRATIVE EXPENSES:
               
Salaries and other compensation
    689,034       688,315  
Legal and accounting fees
    315,600       407,725  
Depreciation and amortization
    39,907       37,975  
Share-based compensation expense
    65,534       52,031  
Other general and administrative
    456,357       348,571  
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES
    1,566,432       1,534,617  
                 
ARBITRATION JUDGEMENT
    ---       122,449  
                 
OPERATING INCOME (LOSS)
    175,246       563,720  
                 
OTHER INCOME AND EXPENSES:
               
Interest income
    8,973       16,914  
Interest expense
    (72,723 )     (92,267 )
        Other
    (1,549 )     (15,190 )
TOTAL OTHER INCOME AND EXPENSES
    (65,299 )     (90,543 )
                 
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES
    109,947       473,177  
                 
PROVISION FOR INCOME TAXES
    37,679       54,041  
                 
INCOME (LOSS) FROM CONTINUING OPERATIONS
    72,268       419,136  
                 
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
    ---       ---  
                 
NET INCOME (LOSS)
  $ 72,268     $ 419,136  

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


 

    Six Months Ended June 30,  
   
2011
   
2010
 
EARNINGS (LOSS) PER SHARE:
           
Basic earnings (loss) per share
           
     Continuing operations
  $ 0.00     $ 0.02  
     Discontinued operations
    0.00       0.00  
     Total
  $ 0.00     $ 0.02  
                 
Diluted earnings (loss) per share
               
     Continuing operations
  $ 0.00     $ 0.02  
     Discontinued operations
    0.00       0.00  
     Total
  $ 0.00     $ 0.02  
                 
Weighted average shares outstanding – basic
    17,324,439       17,898,854  
                 
Weighted average shares outstanding – diluted
    17,792,261       18,327,548  
 
Amounts may not add due to rounding.

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


   
Six Months Ended June 30,
 
   
2011
   
2010
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income (loss)
  $ 72,268     $ 419,136  
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
               
Depreciation and amortization
    500,672       422,764  
Stock-based compensation expense
    65,534       52,031  
(Gain) loss on disposals of equipment
    1,549       25,347  
                 
       Increase (decrease) in cash flows as a result of changes in asset and liability
       account balances:
               
Accounts receivable
    63,309       18,988  
Other assets
    (181,757 )     (77,587 )
Trade accounts payable
    (156,049 )     (159,707 )
Accrued expenses and other current liabilities
    61,965       (115,845 )
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
    427,491       585,127  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of property and equipment
    (590,699 )     (367,008 )
Purchase of goodwill and intangibles
    (409,752 )     (164,218 )
       Proceeds from repayment of notes receivable, net
    52,591       52,591  
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
    (947,860 )     (478,635 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Payments on notes payable, legal settlements and capital leases
    (241,611 )     (286,444 )
Proceeds from note payable
    210,000       ---  
Repurchase of common stock
    ---       (73,885 )
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
    (31,611 )     (360,329 )
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    (551,980 )     (253,837 )
                 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    2,915,115       3,734,712  
                 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 2,363,135     $ 3,480,875  

See notes to consolidated financial statements.
 
 
Littlefield Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

   
Six Months Ended June 30,
 
   
2011
   
2010
 
             
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
           
             
Cash payments:
           
             
Interest
  $ 72,723     $ 92,266  
                 
                 
Income taxes
  $ 65,158     $ 63,888  
                 
                 
Non-cash transactions:
               
                 
Issuance of treasury stock under deferred compensation plan
  $ ---     $ 15,827  
                 
Issuance of treasury stock under employee stock purchase plan
  $ ---     $ 14,268  
                 
Purchase of acquisition assets in exchange for notes payable
  $ 637,057     $ 126,900  
 
See notes to consolidated financial statements.
 
 
 
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2011




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 six month period ended June 30, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2011.  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, 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.
 
 

 
NOTE 2 – MATERIAL ACQUISITIONS, REORGANIZATIONS AND OTHER TRANSACTIONS
 

 
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.
 
 
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2011
 
 


NOTE 2 – MATERIAL ACQUISITIONS, REORGANIZATIONS AND OTHER TRANSACTIONS (continued)
 


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 January 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 January 6, 2011.

In January 2011, the Company reached a settlement of its case in Abilene, as described more fully in Note 11 – Commitments and Contingencies.

2010

On January 25, 2010, the Company acquired a bingo hall in South Carolina for cash and a note payable.

On December 6, 2010, the Company converted to a bingo hall a property formerly occupied by its real estate tenant.

On December 20, 2010, the Company purchased a bingo hall in South Carolina.
 
 


NOTE 3 – PROPERTY AND EQUIPMENT.
 


Property and equipment at June 30, 2011 and December 31, 2010 consists of the following:

   
June 30, 2011
   
December 31, 2010
 
Land
  $ 760,467     $ 760,467  
Buildings
    3,563,222       3,557,423  
Leasehold improvements
    6,380,690       5,892,755  
Equipment, furniture and fixtures
    3,687,113       3,768,089  
Automobiles
    155,516       155,516  
      14,547,008       14,134,250  
                 
Less:  Accumulated depreciation and amortization
    (7,130,776 )     (6,874,428 )
                 
Property and equipment, net
  $ 7,416,232     $ 7,259,822  

Total depreciation expense, for owned and leased assets, charged to continuing operations for the six months ended June 30, 2011 and 2010 was approximately $444,000 and $403,000 respectively.
 
 
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2011
 
 

 
NOTE 4 – GOODWILL & OTHER INTANGIBLE ASSETS
 

 
Goodwill at June 30, 2011, was as follows:
 
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
 
Total
 
                   
Goodwill at December 31, 2010
  $ 6,669,963     $ (1,195,816 )   $ 5,474,147  
Goodwill acquired during period
    502,682       ---       502,682  
Goodwill at June 30, 2011
  $ 7,172,645     $ (1,195,816 )   $ 5,976,829  

Intangible assets at June 30, 2011, consisted of the following:

   
Gross 
Carrying 
 Amount
   
Accumulated
Amortization
   
 
Total
 
Intangible Assets with Indefinite Lives:
                 
Bingo licenses at December 31, 2010
  $ 881,339       (51,974 )   $ 829,365  
Licenses acquired during the period
    ---       ---       ---  
Bingo licenses at June 30, 2011
  $ 881,339       (51,974 )   $ 829,365  
                         
Intangible Assets with Finite Lives:
                       
Covenants not to compete at December 31, 2010
  $ 392,500       (281,875 )   $ 110,625  
Change in covenants not to compete
    530,000       (56,805 )     473,195  
Covenants not to compete at June 30, 2011
  $ 922,500       (338,680 )   $ 583,820  
Intangible Assets, Net of Accumulated Amortization
                  $ 1,413,185  


Amortization expense charged to operations for the six months ended June 30, 2011 and 2010 was approximately $57,000 and $20,000 respectively. The increase in goodwill and covenants not to compete during 2011 resulted from two South Carolina bingo hall acquisitions and settlement described more fully in Note 11 – Commitments and Contingencies.
 
 


NOTE 5 - SHAREHOLDERS’ EQUITY
 

 
At June 30, 2011, the Company held 1,492,967 treasury shares at an average purchase cost of $0.95.



Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2011
 



NOTE 6 – SHARE BASED PAYMENTS
 


The Company recorded approximately $66,000 and $52,000 in compensation expense in the six month periods ended June 30, 2011 and June 30, 2010, respectively, related to options issued under its stock-based incentive compensation plans.  This includes expense related to both options issued in the current year and options issued in prior years for which the requisite service period for those options includes the current year.  The fair value of these options was calculated using the Black-Scholes options pricing model.  There were 425,000 and 25,000 options issued during the six month periods ended June 30, 2011 and 2010, respectively. For options issued in 2011, 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:

Six months ended June 30,
 
2011
   
2011
   
2010
   
2010
 
   
Basic
   
Diluted
   
Basic
   
Diluted
 
Numerator:
                       
Net income (loss)
  $ 72,268     $ 72,268     $ 419,136     $ 419,136  
Denominator:
                               
Weighted average shares outstanding
    17,324,439       17,324,439       17,898,854       17,898,854  
Effect of dilutive securities:
                               
Stock options and warrants
    ---       467,822       ---       428,694  
Weighted average shares outstanding
    17,324,439       17,792,261       17,898,854       18,327,548  
                                 
Earnings (loss) per share
  $ 0.00     $ 0.00     $ 0.02     $ 0.02  

Stock options to acquire 281,268 and 100,750 shares for the six months ended June 30, 2011 and 2010, 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)
June 30, 2011
 



NOTE 8 - ACCOUNTING FOR 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 leaves prior periods unchanged in accounting for its stock options.  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.

Transactions under the stock option plans are summarized below. At June 30, 2011, a total of 1,997,410 options were outstanding under these plans.

   
Employee Stock Plans
 
   
 
 Options
   
Weighted
Average 
Exercise Price
 
Outstanding at 12/31/10
    1,572,410     $ 0.43  
Granted
    425,000       0.56  
Exercised
    ---       ---  
Forfeited
    --       ---  
Outstanding at 6/30/11
    1,997,410     $ 0.46  

The fair value of options granted during the six month period ended June 30, 2011 was approximately $193,800; with 25,000 options vesting upon grant and 400,000 options vesting over four years subject to certain performance criteria.

Aggregate intrinsic value represents the value of the Company’s closing stock price 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 2011 was $0, as no options were exercised. Total unrecognized stock-based compensation expense related to non-vested stock options was approximately $206,150 as of June 30, 2011, related to approximately 528,000 shares with a per share weighted average fair value of  $0.39. We anticipate this expense to be recognized over a weighted average period of approximately 2.6 years.

The following table summarizes information about options outstanding at June 30, 2011 under the Employee Stock Plan:

         
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
 
2011:
  $ 1.26 - 1.87       16,500  
4.9 years
  $ 1.32       16,500     $ 1.32  
    $ 0.00 - $1.25       1,980,910  
7.3 years
  $ 0.45       1,452,785     $ 0.44  
   
Total
      1,997,410  
7.3 years
  $ 0.46       1,469,285     $ 0.45  
                                           
   
Aggregate
intrinsic value
    $ 502,539               $ 390,676          
 
The weighted average remaining contractual life of options exercisable as of June 30, 2011 was 6.4 years.


Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2011




NOTE 9 – INCOME TAXES



The Company recorded approximately $38,000 and $54,000 of state income tax expense, respectively, for the six months ended June 30, 2011 and 2010.  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 $13,200,000 at December 31, 2010, and begin expiring in the year 2016.

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 June 30, 2011, 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 2006 through 2010 remain open to examination by the taxing jurisdictions in which we file income tax returns.
 
 


NOTE 10 - RELATED PARTY TRANSACTIONS
 


During 2009, the Company renewed the employment agreement with its President and CEO; in accordance with this agreement, the Company accrued $12,000 and $12,000 of deferred compensation in the six months ended June 30, 2011 and 2010, respectively.
 
 


NOTE 11 – COMMITMENTS AND CONTINGENCIES
 


Generally speaking, the Securities and Exchange Commission guidelines require a company to report any pending legal and/or regulatory proceedings that involve 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 disclosure.  The Company is also sometimes engaged in routine litigation incidental to its business. In general, the Company will vigorously defend itself against all claims to the fullest extent possible. The legal proceedings exclude certain insurance claims for which the Company believes are covered and defended by existing insurance policies and ordinary and incidental matters.

Littlefield Corporation f/k/a/ American Bingo and Gaming v. Philip Furtney, Case No.: 2001 CA 4000, Circuit Court of the Twelfth Judicial Circuit in and for Manatee County, Florida.
 
In this case, Littlefield is Plaintiff and seeks recovery from the estate of Philip Furtney [“Furtney”] for fraud and negligent misrepresentations.  This litigation arises from the 1995 acquisition of three Florida bingo centers by a predecessor, American Bingo & Gaming Corporation, from two corporations controlled by Furtney – Pondella Hall for Hire, Inc., [“Pondella”] and 800438 Ontario. 
 
Several months after the acquisition of the three centers, the Florida Office of Statewide Prosecution obtained an indictment for alleged racketeering against two American Bingo subsidiaries that operated two of the centers and the Florida Attorney General brought a civil proceeding for racketeering against the same two subsidiaries and American Bingo based upon the same allegations.  The indictment and civil litigation were the result of an investigation that had been ongoing for over one year prior to the acquisition of the centers.  Furtney was aware of the investigation and its serious nature, but did not disclose the investigation to American Bingo.  In fact, even though Furtney was aware of the investigation, the acquisition agreements related to the sales specifically and falsely stated that there were not any ongoing governmental investigations.  Furtney was admittedly divesting himself of his interests in these and other bingo operations because of the investigation. 
 
 
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2011
 



NOTE 11 – COMMITMENTS AND CONTINGENCIES (continued).
 

 
American Bingo won the dismissal of the civil action, settled the criminal case, and sold its Florida centers as a condition of the settlement.  Nonetheless, American Bingo suffered significant damages as a result of Furtney’s conduct.
 
The resolution of this long pending matter was substantially delayed when Furtney, a citizen of Canada and part time resident of Mexico, avoided service of the Complaint for several years.  Littlefield was finally successful in serving Furtney when he was in the United States in 2005, to attend related litigation.   However, Furtney passed away in September 2007, several months before the scheduled trial date.  In the event a defendant dies following the commencement of litigation, the Florida Rules of Civil Procedure provides that a plaintiff may substitute the “proper parties” as the defendant and continue to pursue the claim to judgment.  Furtney’s Estate Trustee, Bruce Furtney, was substituted as the defendant and Littlefield has continued to pursue its claims for damages from Furtney’s Estate, including all sums paid in the acquisition of the three centers, all costs incurred by American Bingo in the litigation with the state of Florida, and the amount of judgments Littlefield was required to pay to Pondella and 800438 Ontario as a result of related litigation. 
 
After the substitution of Estate Trustee Bruce Furtney as the defendant, he discharged Furtney’s previous counsel and retained his own counsel which resulted in additional delay.  Prior to his dismissal, Furtney’s counsel filed a motion for summary judgment seeking the dismissal of the claims, arguing that the claims were barred by the previous judgments in the related litigation with Pondella and Ontario; he also argued that the claims against Furtney were time-barred by the statute of limitations.  The attorney retained by Bruce Furtney continued in raising these arguments and a hearing on the motion was conducted in July 2009.  The Court entered an order in March 2010, denying the motion for summary judgment and rejecting the arguments in their entirety; the case was then scheduled for trial. 
 
The case was set for trial in March 2011.  However, according to court filings by the attorney for Bruce Furtney in the thirty days before the scheduled trial, his client was resigning as Trustee and Furtney’s two sons were being appointed as successor Trustees.  Additionally, Bruce Furtney’s counsel sought to withdraw from the case because Furtney’s sons wanted different counsel to represent them as the Trustees. As a result of these representations, the court permitted Bruce Furtney’s counsel to withdraw and subsequently postponed the trial.  The change of Trustees has not yet occurred, but a new attorney has entered an appearance.  The case is now set for trial during the month of October 2011, and the court has indicated that it will not permit any further delays.
 
Cause No.24, 182-B; West Texas Bingo, Inc. v. Janie Wall, in the 104th Judicial District Court of Taylor County, Texas.   

This suit is no longer pending. In this case, Plaintiff was a wholly-owned subsidiary of the Company. The Plaintiff filed suit against the Defendants alleging the Defendants interfered with the Plaintiff's bingo operations and/or business operations located in Abilene, Texas. The Defendants asserted counterclaims against the Plaintiff alleging that the Plaintiff's claims were harassing and constituted intentional infliction of emotional distress. Defendant's claims were dismissed by the Court via summary judgment in June 2008.
 
Defendants subsequently alleged that the Company and its CEO were the alter-ego of the Plaintiff and asserted third-party claims against them.  These claims were dismissed by the Court via summary judgment in July 2010. 
 
A mediation was conducted in January 2010 and in April 2010, but the case did not settle. In January 2011, this matter was resolved pursuant to the terms and conditions of a confidential settlement agreement entered into by the parties within which for consideration the Defendants surrendered their licenses to play bingo for a specified period of time.
 
 
Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011



NOTE 11 – COMMITMENTS AND CONTINGENCIES (continued)
 


Cause No. 2009-CI-14245, B-Y Mission Plaza CC, Ltd. v. Coastal Bend Bingo, Inc. and Littlefield Corporation, in the 285th District Court of Bexar County, Texas.

This suit is no longer pending.  B-Y Mission, Plaintiff, filed suit against the Company and one of its affiliates, alleging breach of a lease agreement between B-Y Mission, Landlord, and Coastal Bend, Lessee, and seeking to compel arbitration of the dispute. The Company is the Guarantor of the lease entered into by one of its affiliates, Coastal Bend. Coastal Bend attempted to terminate the lease under a clause of the lease that the Company believes permits termination of the lease under the circumstances and tendered the appropriate termination amount. The Company also asserted that B-Y Mission engaged in fraud by, among other things, making material misrepresentations in connection with the lease. The Landlord contended the termination was wrongful and sought recovery of all remaining rental payments.

As a result of an arbitration conducted on March 31 and April 1, 2010, the arbitrator determined that the Company’s affiliate did not have grounds to terminate the lease as alleged.  However, the arbitrator also determined that Company’s affiliate was entitled to a reduction of the amount of common area maintenance, insurance and taxes charged by the Landlord for the remainder of the lease.  The arbitrator awarded the Landlord an amount for past rent and for attorney fees, which has been fully paid by the Company.   The Company recorded a $122,449 charge in its first quarter 2010 results to reflect this judgment. On April 29, 2010, the Court entered its final judgment adopting the decision and award of the arbitrator.   The judgment expressly recites that all monetary awards therein have been fully satisfied by the Company and its affiliate.  Pursuant to the private agreement between the parties, the award of the arbitrator and the judgment adopting the same are not subject to appeal by any party.
 
 

 
NOTE 12 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 

 
Recently Issued Accounting Pronouncements:

In January 2010, the FASB updated FASB ASC 820, Fair Value Measurements and Disclosures (FASB ASC 820) that requires additional disclosures and clarifies existing disclosures regarding fair value measurements. The additional disclosures include 1) transfers in and out of Levels 1 and 2 and 2) activity in Level 3 fair value measurements. The update provides amendments that clarify existing disclosures on 1) level of disaggregation and 2) disclosures about inputs and valuation techniques. This update is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. These disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We adopted the update on January 1, 2010, as required and concluded it did not have a material impact on our consolidated financial position or results of operations.
 



NOTE 13 – SPECIAL CHARGES.



As more fully discussed in Note 11: Commitments and Contingencies, during the first three months of 2010, we recorded a $122,000 charge related to an arbitration judgment.



Littlefield Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2011

 


NOTE 14 – DISCONTINUED OPERATIONS
 

 
This report presents the results of operations of the Company’s Hospitality segment as discontinued operations.  Except for the fourth quarter of 2010 in which the Company incurred additional sales tax expense of $15,251 related to the disposed assets, there were no other results from the discontinued operations during 2011 or 2010. On April 1, 2009, the Company completed the sale of its Premiere Tents and Events (“PTE”) business unit reflecting the Company’s focus on its charitable bingo business in Texas, South Carolina, Alabama and Florida.

 

 
NOTE 15 – 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.

In addition, during the six months ended June 30, 2011, the Company purchased acquisition assets in exchange for notes payable of approximately $637,000. The notes bear interest up to three percent and mature through January 2017.
 
 


NOTE 16 – SUBSEQUENT EVENTS
 


None

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

The second quarter 2011 and year-to-date discussion in this report focuses on the Company’s results of continuing operations which is comprised of the Company’s Entertainment business’ charitable bingo operations in four states: Texas, South Carolina, Alabama and Florida.

Q2 2011 compared to Q2 2010
 
Results of Operations

During the second quarter of 2011, the Company achieved the third highest level of second quarter bingo revenue at approximately $2,200,000. Revenue declined 5% from last year. Income (loss) from continuing operations was a loss of approximately $338,000 versus a loss of approximately $201,000 last year. Excluding the notable items discussed more fully under Income (loss) from Continuing Operations below, a net loss from continuing operations was approximately $57,000 versus net income of approximately $156,000 in the prior year period.

Revenues

The following table sets forth the Company’s revenues from continuing operations for the quarters ended June 30, 2011 and 2010:

      Q2 2011       Q2 2010    
Change
   
% Change
 
Total Revenues
  $ 2,197,000     $ 2,301,000     $ (104,000 )     (5 %)
Entertainment
    2,176,000       2,282,000       (106,000 )     (5 %)
   Texas
    1,212,000       1,235,000       (23,000 )     (2 %)
   South Carolina
    619,000       751,000       (132,000 )     (18 %)
   Alabama / Florida
    345,000       296,000       49,000       17 %
Other
  $ 21,000     $ 19,000     $ 2,000    
NM
 

During the second quarter of 2011, total revenues for the Company declined 5% from 2010’s level. The second quarter is typically seasonally a weaker quarter due to weakness during the summer months. The slight decline in Entertainment revenue largely reflects stable revenues at halls in Texas, Alabama, Florida and South Carolina offset by increased competition in two of our regional markets. Other revenue reflects ancillary revenue not included in Entertainment.

Entertainment revenues by state were as follows:

      Q2 2011       Q2 2010    
% Change
 
   Texas
    56 %     54 %     2 %
   South Carolina
    28 %     33 %     (5 %)
   Alabama / Florida
    16 %     13 %     3 %

Gross profit and Costs and Expenses

The table below summarizes the Company’s gross profit from continuing operations for the quarters ended June 30, 2011 and 2010. Gross profit percent (gross profit as a percent of sales) was 24% versus 30% in Q2 2010.

      Q2 2011       Q2 2010    
Change
   
% Change
 
Total Gross Profit
  $ 535,000     $ 691,000     $ (156,000 )     (23 %)
Entertainment
    514,000       672,000       (158,000 )     (24 %)
Other
  $ 21,000     $ 19,000     $ 2,000    
NM
 

Overall, total costs and expenses increased 3% from the comparable prior year quarter primarily as a result of higher costs such as rent expense associated with operating more halls.
 

Direct salaries and other compensation decreased by approximately $30,000 or 14% from the prior year as a result of lower staff levels.

Rent and utilities in the second quarter 2011 rose approximately $68,000 or 10% from 2010, largely due to the addition of new halls. In 2011 and 2010, 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 2011 and 2010, 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 the second quarter 2011 declined approximately $15,000 or 3% from the prior year, an insignificant change.

Depreciation and amortization expense totaled approximately $257,000 ($237,000 Cost of Services plus $20,000 G&A) in 2011 versus $217,000 in the prior year with the increase mainly attributable to hall renovations.

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 $624,000 in Q2 2011, compared to approximately $585,000 in 2010; the $39,000 increase mainly reflected investor relations activities. 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
    Q2 2011       Q2 2010  
General and administrative expenses (GAAP basis)
  $ 821,413     $ 825,697  
Stock-based compensation
    (40,217 )     (26,855 )
Noted legal expenses
    (136,803 )     (194,714 )
Depreciation and amortization
    (20,130 )     (19,538 )
      (197,150 )     (241,107 )
Corporate overhead (non-GAAP basis)
  $ 624,263     $ 584,590  

Other income and expense was an expense of approximately $33,000 for 2011, compared to approximately $40,000 in 2010.

Our income tax expense for 2011 was approximately $18,000 compared to $27,000 in 2010, all of which is related to the expected effective tax rate for state income taxes.  As of December 31, 2010, the Company had a net operating loss available for carryover on its federal income taxes of approximately $13,200,000.
 
Income from continuing operations

The Company incurred a loss from continuing operations of approximately $338,000 during the second quarter of 2011; a loss of ($0.02) per basic share and ($0.02) per fully diluted share.  During the second quarter of 2010, the Company’s loss from continuing operations was approximately $201,000; ($0.01) loss per basic share and a loss of ($0.01) per fully diluted share. The weighted average number of basic common shares outstanding totaled 17,324,439 in 2011 compared to 17,880,653 in 2010.  The decrease in shares outstanding resulted from last year’s share buy-back program.

The Q2 2011 results include approximately $281,000 of notable items:

·  
$104,000 of expense associated with the start-up of new halls and re-openings at halls in Texas,
·  
$137,000 of legal expense for South Carolina, Texas and its Furtney litigation and
·  
$40,000 for non-cash stock-based compensation.
 
 
The Q2 2010 results include approximately $357,000 of notable items:  $133,000 of expense associated with the start-up of new halls and re-openings at halls in Texas, $195,000 of legal expense for South Carolina, Florida, Texas and its Furtney litigation. $27,000 for non-cash stock-based compensation and other asset disposals of $2,000. The Company continues to reduce the negative impact of the Texas start-up operations. Its legal fees are expected to be more manageable upon the conclusion of the Furtney case and other litigation.

Adjusted for the noted items above, the adjusted loss from continuing operations during the second quarter of 2011 was approximately $57,000 and basic loss per share of $0.00 per share versus adjusted income of approximately $156,000 and basic earnings per share of $0.01 last year. Our management uses adjusted income (loss) from continuing operations to measure performance consistently over different financial periods. The following table reconciles operating income (loss) from continuing operations under GAAP to our adjusted income (loss) from continuing operations measure.

Income (loss) from continuing operations
    Q2 2011       Q2 2010  
Income (loss) (GAAP basis)
  $ (338,418 )   $ (201,066 )
Hall start-up activities
    104,379       133,059  
Stock-based compensation
    40,217       26,855  
Noted legal expenses
    136,803       194,714  
Other
    ---       2,289  
      281,399       356,917  
Income (loss) excluding noted items (non-GAAP basis)
  $ (57,019 )   $ 155,851  
 
Six months to date 2011 compared to 2010

During the six months ended June 30, 2011, the Company posted approximately $5,049,000 of revenue from continuing operations; a 6% decrease from the comparable prior year period. The Company’s income from continuing operations was approximately $72,000 versus approximately $419,000 last year. Excluding the notable items discussed more fully under Income (loss) from Continuing Operations below, income from continuing operations was approximately $597,000 versus income of approximately $1,145,000 in the prior year period.

Revenues

The following table sets forth the Company’s revenues from continuing operations in the six months ended June 30, 2011 and 2010:

   
2011
   
2010
   
Change
   
% Change
 
Total Revenues
  $ 5,049,000     $ 5,347,000     $ ( 298,000 )     (6 %)
Entertainment
    5,005,000       5,309,000       (304,000 )     (6 %)
   Texas
    2,413,000       2,508,000       (95,000 )     (4 %)
   South Carolina
    1,788,000       2,049,000       (261,000 )     (13 %)
   Alabama / Florida
    804,000       752,000       52,000       7 %
Other
  $ 44,000     $ 38,000     $ 6,000    
NM
 

During the first six months of 2011, the 6% decline in Entertainment revenue reflects increased competition in two of our regional markets.  Other revenue includes other ancillary services and miscellaneous revenue not reported as Entertainment revenue.


Entertainment revenues by state were as follows:

   
2011
   
2010
   
% Change
 
   Texas
    48 %     47 %     1 %
   South Carolina
    36 %     39 %     (3 %)
   Alabama / Florida
    16 %     14 %     2 %
 
Gross profit and Costs and Expenses

The table below summarizes the Company’s gross profit from continuing operations for the six months ended June 30, 2011 and 2010. Gross profit percent (gross profit as a percent of sales) decreased to 34% from 42% in 2010.

   
2011
   
2010
   
Change
   
% Change
 
Total Gross Profit
  $ 1,742,000     $ 2,221,000     $ (479,000 )     (22 %)
Entertainment
    1,698,000       2,183,000       (485,000 )     (22 %)
Other
  $ 44,000     $ 38,000     $ 6,000    
NM
 

Overall, total costs and expenses increased approximately $180,000 or 6% from the comparable six-month prior year period mainly as a result of operating more halls and hall renovations.

Direct salaries and other compensation were down approximately $46,000 or 11% from reduced staff levels.

Rent and utilities in 2011 increased approximately $113,000 or 8% from 2010, largely due operating more properties. We do 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 2011 and 2010, 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 2011 increased approximately $49,000 or 6% from the prior year, mainly resulting from higher costs of promotions and development expenses associated with new halls and other marketing initiatives.

Depreciation and amortization expense totaled approximately $501,000 ($461,000 Cost of Services plus $40,000 G&A) in 2011 versus $423,000 in the prior year. The increase in depreciation 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 $1,242,000 in 2011, compared to approximately $1,125,000 in 2010, a $117,000 increase. The increase mainly related to additional acquisition related staffing and investor relations programs. 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
 
2011
   
2010
 
General and administrative expenses  (GAAP basis)
  $ 1,566,432     $ 1,534,617  
Stock-based compensation
    (65,534 )     (52,031 )
Noted legal expenses
    (218,925 )     (319,732 )
Depreciation and amortization
    (39,907 )     (37,975 )
Corporate overhead (non-GAAP basis)
  $ 1,242,066     $ 1,124,879  

Other income and expense was an expense of approximately $65,000 for 2011, compared to approximately $91,000 in 2010; reflecting lower interest expense from debt refinancings in 2010.

Our income tax expense for 2011 was approximately $38,000 compared to $54,000 in 2010, all of which is related to the expected effective tax rate for state income taxes.  As of December 31, 2010, the Company had a net operating loss available for carryover on its federal income taxes of approximately $13,200,000.
 
 
Income from continuing operations

During the first six months of 2011, income from continuing operations was approximately $72,000; $0.00 per basic share and $0.00 per fully diluted share. During the first six months of 2010, the Company’s income from continuing operations was approximately $419,000; $0.02 per basic share and $0.02 per fully diluted share.  The weighted average number of basic Common Stock shares outstanding totaled 17,324,439 in 2011 compared to 17,898,854 in 2010.  The decrease in shares outstanding resulted from last year’s share buy-back program.

The Q2 2011 YTD results include approximately $525,000 of notable items:
 
·  
$239,000 of expense associated with the start-up of new halls and re-openings at halls in Texas,
·  
$219,000 of legal expense for South Carolina, Florida, Texas and its Furtney litigation,
·  
$66,000 for non-cash stock-based compensation and $1,000 other expense.

The Q2 2010 YTD results include approximately $726,000 of notable items:  $217,000 of expense associated with the start-up of new halls and re-openings at halls in Texas, $320,000 of legal expense for South Carolina, Florida, Texas and its Furtney litigation, $122,000 related to an arbitration judgment, $15,000 other asset disposals and $52,000 for non-cash stock-based compensation.

Adjusted for the noted items above, the adjusted income from continuing operations during the first six months of 2011 was approximately $597,000 and basic earnings per share were $0.03 per share in 2011 versus an adjusted income of approximately $1,145,000 and basic earnings per share were $0.06 per share last year. Our management uses adjusted income (loss) from continuing operations to measure performance consistently over different financial periods. The following table reconciles operating income (loss) from continuing operations under GAAP to our adjusted income (loss) from continuing operations measure.

Income (loss) from continuing operations
 
2011
   
2010
 
Operating income (loss) (GAAP basis)
  $ 72,268     $ 419,136  
Hall start-up activities
    239,012       216,922  
Stock-based compensation
    65,534       52,031  
Noted legal expenses
    218,925       319,732  
Arbitration judgment
    ---       122,449  
Asset disposals
    1,549       15,190  
Income (loss) excluding noted items (non-GAAP basis)
  $ 597,288     $ 1,145,460  

Liquidity and Capital Resources

Cash and cash equivalents at June 30, 2011, totaled approximately $2,363,000 and represented 13% of total assets of approximately $18,615,000.  Current assets totaled approximately $3,255,000 with Current liabilities of $1,985,000. Working capital was approximately $1,270,000 with a current ratio of 1.6 to 1 compared to approximately 2.1 to 1 at December 31,2010.

Cash provided by operating activities for the six months ended June 30, 2011 totaled approximately $427,000 compared to cash provided of $585,000 during 2010. Cash flows from operating activities in 2011 were increased by net income of approximately $72,000 and provided by non-cash depreciation expense of approximately $501,000, stock based compensation of approximately $66,000 and partially offset by other net changes in asset and liability accounts of $212,000.

Net cash used in investing activities in 2011 totaled approximately $948,000 of which $1,001,000 related to bingo hall renovations and acquisition and settlement activities; partially offset by note receivable payments of approximately $53,000 on notes receivable. This compared to cash used in investing activities last year of a net $479,000 of which $532,000 represented capital expenditures mainly for bingo hall renovations, leasehold improvements and acquisitions partially offset by the collection of approximately $53,000 on notes receivable.

Cash used in financing activities in 2011 totaled approximately $32,000, compared to cash used in financing activities in 2010 of approximately $360,000.  In 2011, approximately $242,000 of cash was used for the payment of notes payable and was partially offset by approximately $210,000 provided by proceeds from a note payable.   In 2010, approximately $286,000 of cash was used for the payment of notes payable and $74,000 to repurchase stock.
 
 
At June 30, 2011, we had approximately $18,615,000 in total assets with total liabilities of approximately $5,255,000 and approximately $13,360,000 of shareholders’ equity.  Total assets include approximately $2,363,000 in cash, $461,000 of net accounts receivable, other current assets of $355,000, $7,417,000 of net property and equipment, $7,390,000 of intangible assets, $291,000 note related to the sale of PTE and $338,000 of other assets.  Total liabilities primarily consist of accounts payable of approximately $149,000, notes payable obligations of approximately $4,060,000 and accrued and related-party liabilities of $923,000 and $123,000 respectively.

In 2011, we plan to continue to use our cash generated from operations to make leasehold improvements and renovations in our bingo operations.  We also plan to use advantageous combinations of bank financing, seller financing, treasury stock, and cash on 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 June 30, 2011 or 2010. 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 12 – 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, 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 June 30, 2011, 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

For a discussion of material pending legal proceedings, see Note 11 – Commitments and Contingencies in the unaudited Consolidated Financial Statements.

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 Company’s Registration Statement on Form S-1 filed with the SEC 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*
 
2002 Stock Option Plan (incorporated by reference to Exhibit 1 of the Definitive Proxy Statement Schedule 14A, filed with the SEC on March 22, 2002).
10.2*
 
2002 Employee Stock Purchase Plan (incorporated by reference to Exhibit 2 of the Definitive Proxy Statement Schedule 14A, filed with the SEC on March 22, 2002).
10.3*
 
2009 Employment Agreement (incorporated by reference to Exhibit 10.3 of the Company’s Annual Report on Form 10-K filed with the SEC in March 31, 2009).
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

August 12, 2011

By:

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


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