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DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">NOTE 1 &#8211; PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The unaudited consolidated financial statements include the accounts of Littlefield Corporation and its wholly owned subsidiaries (the &#8220;Company&#8221;).&#160;&#160;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.&#160;&#160;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.&#160;&#160;Actual results could differ from these estimates.&#160;&#160;Where appropriate, items within the consolidated financial statements have been reclassified to maintain consistency and comparability for all periods presented.</font> </div><br/><div style="TEXT-INDENT: 0pt; 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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. 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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.&#160; We do not expect our unrecognized tax benefits to change significantly over the next twelve months.&#160; The tax years 2006 through 2010 remain open to examination by the taxing jurisdictions in which we file income tax returns.</font> </div><br/> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">NOTE 10 - RELATED PARTY TRANSACTIONS</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">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.</font> </div><br/> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">NOTE 11 &#8211; COMMITMENTS AND CONTINGENCIES</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">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.&#160;&#160;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.</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">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</font>.</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">In this case, Littlefield is Plaintiff and&#160;seeks recovery from the estate of Philip Furtney [&#8220;Furtney&#8221;] for fraud and negligent misrepresentations.&#160; This litigation arises from the 1995 acquisition of three Florida bingo centers by a predecessor, American Bingo &amp; Gaming Corporation, from two corporations controlled by Furtney &#8211; Pondella Hall for Hire, Inc., [&#8220;Pondella&#8221;] and 800438 Ontario.&#160;</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">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.&#160; 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.&#160; Furtney was aware of the investigation and its serious nature, but did not disclose the investigation to American Bingo.&#160; In fact, even though Furtney was aware of the investigation, the acquisition agreements related to the sales specifically and falsely <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">stated that there were not any ongoing governmental investigations.&#160; Furtney was admittedly divesting himself of his interests in these and other bingo operations because of the investigation.&#160;</font></font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">American Bingo won the dismissal of the civil action, settled the criminal case, and sold its Florida centers as a condition of the settlement.&#160; Nonetheless, American Bingo suffered significant damages as a result of Furtney&#8217;s conduct.</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">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.&#160; Littlefield was finally successful in serving Furtney when he was in the United States in 2005, to attend related litigation.&#160;&#160; However, Furtney passed away in September 2007, several months before the scheduled trial date.&#160; In the event a defendant dies following the commencement of litigation, the Florida Rules of Civil Procedure provides that a plaintiff may substitute the &#8220;proper parties&#8221; as the defendant and continue to pursue the claim to judgment.&#160; Furtney&#8217;s Estate Trustee, Bruce Furtney, was substituted as the defendant and Littlefield has continued to pursue its claims for damages from Furtney&#8217;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.&#160;</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">After the substitution of Estate Trustee Bruce Furtney as the defendant, he discharged Furtney&#8217;s previous counsel and retained his own counsel which resulted in additional delay.&#160; Prior to his dismissal, Furtney&#8217;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.&#160; The attorney retained by Bruce Furtney continued in raising these arguments and a hearing on the motion was conducted in July 2009.&#160; 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.&#160;</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The case was set for trial in March 2011.&#160; 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&#8217;s two sons were being appointed as successor Trustees.&#160; Additionally, Bruce Furtney&#8217;s counsel sought to withdraw from the case because Furtney&#8217;s sons wanted different counsel to represent them as the Trustees.&#160;As a result of these representations, the court permitted Bruce Furtney&#8217;s counsel to withdraw and subsequently postponed the trial.&#160; The change of Trustees has not yet occurred, but a new attorney has entered an appearance.&#160; 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.</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Cause No.24, 182-B; <font style="FONT-STYLE: italic; DISPLAY: inline">West Texas Bingo, Inc. v. Janie Wall</font>, in the 104th Judicial District Court of Taylor County, Texas. &#160;&#160;</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">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.</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Defendants subsequently alleged that the Company and its CEO were the alter-ego of the Plaintiff and asserted third-party claims against them.&#160; These claims were dismissed by the Court via summary judgment in July 2010.&#160;</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">A mediation was&#160;conducted&#160;in January 2010<font style="DISPLAY: inline; FONT-WEIGHT: bold">&#160;</font>and in April 2010, but the case did not settle<font style="DISPLAY: inline; FONT-WEIGHT: bold">.</font> 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.</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Cause No. 2009-CI-14245, <font style="FONT-STYLE: italic; DISPLAY: inline">B-Y Mission Plaza CC, Ltd. v. Coastal Bend Bingo, Inc. and Littlefield Corporation</font>, in the 285<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: text-top">th</font>&#160;District Court of Bexar County, Texas.</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">This&#160;suit is no longer pending.&#160; 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.</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">As a result of an arbitration conducted on March 31 and April 1, 2010, the arbitrator determined that the Company&#8217;s affiliate did not have grounds to terminate the lease as alleged.&#160; However, the arbitrator also determined that Company&#8217;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.&#160; The arbitrator awarded the Landlord an amount for past rent and for attorney fees, which has been fully paid by the Company.&#160;&#160; 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.&#160;&#160; The judgment expressly recites that all monetary awards therein have been fully satisfied by the Company and its affiliate.&#160; 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.</font> </div><br/> <div style="TEXT-INDENT: 0pt; DISPLAY: block"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">NOTE 12 &#8211; RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Recently Issued Accounting Pronouncements:</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">In January 2010, the FASB updated FASB ASC 820, <font style="FONT-STYLE: italic; DISPLAY: inline">Fair Value Measurements and Disclosures</font> (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.</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">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, <font style="FONT-STYLE: italic; DISPLAY: inline">Leases</font> (FASB ASC 840).&#160;&#160;Instead, lease costs were recognized based on payments made or accrued during each month.&#160;&#160;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&#8217;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.&#160;&#160;Generally, the Company&#8217;s leases require payments of rent and a pro-rata share of real estate maintenance, taxes and insurance.</font> </div><br/> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">NOTE 13 &#8211; SPECIAL CHARGES.</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">As more fully discussed in <font style="FONT-STYLE: italic; DISPLAY: inline">Note 11: Commitments and Contingencies</font>, during the first three months of 2010, we recorded a $122,000 charge related to an arbitration judgment.</font> </div><br/> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">NOTE 14 &#8211; DISCONTINUED OPERATIONS</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">This report presents the results of operations of the Company&#8217;s Hospitality segment as discontinued operations.&#160;&#160;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 (&#8220;PTE&#8221;) business unit reflecting the Company&#8217;s focus on its charitable bingo business in Texas, South Carolina, Alabama and Florida.</font> </div><br/> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">NOTE 15 &#8211; LONG TERM DEBT</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">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.&#160;&#160;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.</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">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.</font> </div><br/> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">NOTE 16 &#8211; SUBSEQUENT EVENTS</font> </div><br/><div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">None</font> </div><br/>