compared to 2005 as the segment expensed a $20,000 fee paid to a consultant hired to assist in securing a USDA guaranty in connection with a proposed loan for the Pinnacle Project. Depreciation and amortization was $30,000 greater in 2006 compared to the prior year because of additional equipment purchased for the Pinnacle Plant which commenced production in October of 2006. The 2005 operating loss for the segment was $101,000 greater than that of 2004 largely due to commencement of the Pinnacle Project in the fourth quarter and the resulting increase in SG&A type expenses. Limited lab analysis activity in 2005 also contributed to the higher loss. Except for the aforementioned contract, no new projects were undertaken during the three year period.
It had been contemplated that the Pinnacle Project would begin making a material contribution to the segment’s operating profit in late 2006 or early 2007. This will no longer be the case due to the deconsolidation of BPLLC, which will have a material unfavorable impact in terms of the revenues and cash flow from continuing operations that had been projected from the project.
Despite the loss of the contemplated contribution from the Pinnacle Project, the industry climate has improved during the last three years due to the increase in coal and natural gas prices, and the outlook for the segment has correspondingly improved, with a number of other projects currently under development.
The following table shows the trend in production volume, sales prices and lifting cost for the three years:
As evidenced by the above, revenues, production and sales prices per Mcf are all trending up relatively significantly, while lifting costs per Mcf had remained relatively static until 2007 when the costs associated with an arrangement with a new purchaser increased significantly. More importantly, the operating margin has trended sharply upward until 2007. As a result of additional development drilling currently underway in the field, the increase in oil prices which has increased the demand for CO2, and anticipated continuing improvement in CO2 pricing as a result of the McElmo Dome settlement, we look for continuing improvement in the outlook for the CO2 Segment in 2008. In May of 2007 we committed the approximately 30% of our McElmo Dome production that had been selling at the lowest prices to a new purchaser which began taking such production August 1. The price we receive under this contract tracks the price of crude oil. Negotiations are currently underway for new contracts covering the balance of our production, again geared to the price of crude oil. The net revenues received according to the terms of the contracts dedicated to this entity were greater than they would have been under the terms of the contracts with the prior operator. Additionally, a total of 337,000 Mcf of production has been placed in long-term storage compared to 8,000 Mcf at year-end 2006 and this is the primary reason for the decline in operating profit for the segment.
had been progressing, in 2006 the Company granted the request of starpay’s managing member to spend a portion of his time assisting his spouse in a newly purchased business. Accordingly, he received only half his normal salary from February through September of that year. This was the primary reason the operating loss of starpay decreased $44,000 to $95,000 in 2006 compared to 2005. Legal costs decreased $14,000 from 2006 to 2007 but this was more than offset by a $30,000 increase in salary expenses for the same period as the managing member returned to full time status. Additionally, the segment expensed $13,000 of previously unamortized costs associated with an unsuccessful attempt to gain another patent on its Internet techonology. As a result, the operating loss for the segment increased from $95,000 in 2006 to $125,000 in 2007.
Oil & Gas.In recent years we have acquired federal and state oil and gas leases in several states. Through a farmout arrangement with another entity, eight gas wells were drilled on one of these leases in Colorado and placed in production in the fourth quarter of 2005. We have a 22.5% working interest in seven of these wells and a 3.6% override until payout and a 22.5% working interest after payout in the other well. We also have overriding royalty interests in four wells located in Wyoming which began production in 2005. The segment recorded $147,000 in revenues for 2006 compared to $95,000 for 2005. Both production to the Company’s interest and the prices received for the production decreased in 2007 compared to 2006, falling 45% and $16%, respectively, resulting in a $73,000 decrease in revenue to $74,000. Operating costs totaled $52,000, $51,000 and $72,000 for 2007, 2006 and 2005, respectively. The segment’s depreciation, depletion and amortization of its equipment and oil & gas leases totaled $15,000, $16,000 and $11,000 for 2007, 2006 and 2005, respectively. As a result, the segment contributed operating profits of $7,000, $80,000 and $12,000 for 2007, 2006 and 2005, respectively.
Other corporate activities. Other corporate activities include general and corporate operations, as well as assets unrelated to our operating segments or held for investment. These activities generated operating losses of $818,000 in 2007, $938,000 in 2006 and $969,000 in 2005. The $120,000 decrease in operating loss for 2007 compared to 2006 was due primarily to the Company’s practice, begun in the latter part of 2006, of charging related entities for certain overhead items pertaining to their operations and incurred by the Company. Such charges amounted to $228,000 in 2007. This was offset by increases in salary expenses and related costs, data processing fees, net accounting and other professional fees, DD&A and insurance costs of $32,000, $4,000, $7,000, $12,000 and $17,000, respectively. The $31,000 reduction in the operating loss for 2006 compared to 2005 was primarily the result of a $37,000 reduction in amortization of intangibles.
Selling, general and administrative expenses. Selling, general and administrative expenses (“SG&A”) decreased to $732,000 in 2007 after increasing slightly to $863,000 in 2006 from $861,000 in 2005. There were numerous minor increases and decreases in SG&A accounts resulting in the net $131,000 decrease when comparing 2007 to 2006. The primary reason for the decrease is the practice, which we began in late 2006, of charging related entities for accounting and other overhead type items that the parent provides. See “Other corporate activities” above. The $2,000 increase for 2006 compared to 2005 was the net result of increases and decreases in numerous types of expenses with the largest increase being a $40,000 charge for accounting fees in connection with the audit of Cibola in 2006. This was offset by a net decrease in numerous other SG&A expenses.
Depreciation, depletion and amortization. Depreciation, depletion and amortization expenses decreased to $174,000 in 2007 after increasing to $178,000 in 2006 from $173,000 in 2005. The increases in 2006 were due to increased amortization expense associated with the issuance of debt in 2005 and 2006.
Interest income. Interest income decreased to $8,000 in 2007 after increasing to $25,000 in 2006 from $18,000 in 2005. The decrease in 2007 reflects the tight cash position of the Company and the lack of funds available for short-term investments during the period. The increase in 2006 is from short-term investments associated with increased levels of cash on hand as a result of our debt offerings during that period.
Interest expense. Interest expense decreased to $892,000 in 2007 from $959,000 in 2006 and from $975,000 in 2005 reflecting the increased level of debt in each year as we borrowed to meet our working capital and operating needs and to fund the activities of the Coal Segment. The years 2005 and 2006 included $220,000 and $202,000, respectively, of amortization of discount associated with our 10% Debt retired or exchanged in November, 2006. Interest expense for 2005 also included $109,000 paid to Cibola Corporation for Beard’s investment in Cibola. There were no such amounts paid in 2006.
Equity in earnings of unconsolidated affiliates. Our equity in earnings of unconsolidated affiliates reflected a loss of $4,000 for 2007 and net earnings of $49,000 and $336,000 for 2006 and 2005, respectively, after the impairments discussed below.
For 2005, the principal component of our earnings in unconsolidated affiliates was our share of the earnings of Cibola Corporation (“Cibola”). Although we owned 80% of the common stock of Cibola, we did not have operating or financial control of this gas marketing subsidiary which was formed in 1996. We recorded $4,803,000 representing our 80% share of the earnings of Cibola for 2005. Due to the terms of an agreement with the minority and preferred shareholders of Cibola, however, that provided that the net worth of Cibola would have to reach $50,000,000 before we could begin to receive our 80% share of any excess over $50,000,000, we also recorded an impairment of $4,451,000 for the year 2005. Beard also wrote off $13,000 of its remaining investment in Cibola in the third quarter of 2005. Cibola, then, contributed a net $230,000 of our financial net income for fiscal year 2005 after netting the interest charges above and this impairment against our 80% share of earnings, pursuant to this agreement. The agreement was terminated, according to its terms, by the minority common and preferred shareholders effective December 1, 2005. Cibola did not reach the aforementioned net worth position and accordingly we received from Cibola only the net amounts recorded above and already distributed. In 2006, we recorded $51,000 of earnings from Cibola according to terms of a negotiated settlement with the minority common and preferred shareholders of Cibola regarding the termination of the agreement above. In addition, we recorded $2,000 of losses for each of the years 2005, 2006 and 2007 from our investment in JMG-15, a real estate partnership in Texas that sold a parcel of land during the year. In 2007, we also recorded a loss of $1,000 from our interest in a drilling partnership also operating in Texas and a $1,000 impairment of an investment in an unsuccessful start-up fertilizer operation in the United States.
Gain on sale of controlling interest in subsidiary. When, in 2006, the investor group in BPLLC exercised their option to assume control of the operations and a 75% ownership interest in the Project, our interest in the LLC was reduced to 25%. We recorded a $383,000 gain in 2006 as a result of being relieved of the debt obligations which had funded the previously recorded losses of $423,000 offset by $40,000 of intangible assets previously capitalized but now written off. There were no other such transactions in either 2007 or 2005.
Gain on sale of assets. Gains from the sale of assets totaled $216,000, $287,000 and $64,000 in 2007, 2006 and 2005, respectively. In October of 2007, the Company sold its interests in the Bravo Dome CO2 field for $300,000 and, after paying a commission of $15,000, recorded a net gain on the sale of $215,000. The large increase in 2006 is attributable to the Coal Segment recording a $280,000 gain resulting from the sale of certain assets to the 25%-owned LLC now operating the coal fines recovery project in West Virginia. The remaining gains for 2007, 2006 and 2005 reflected proceeds from the sale of certain other assets sold in such years.
Gain on settlement. The Company recorded a $96,000 gain as a result of the receipt in 2007 of the fourth installment from the McElmo Dome litigation. (See “Item 3. Legal Proceedings---McElmo Dome Litigation”).
Impairment of investments and other assets. The Company recorded impairments of $0, $0, and $4,465,000, for the years 2007, 2006 and 2005, respectively, which reduced the recorded earnings attributable to the Company’s investment in Cibola to the actual distributions received under the terms of an agreement which was terminated by the minority and preferred shareholders on December 1, 2005.
Income taxes. We have approximately $27.6 million of net operating loss carryforwards and $3 million of depletion carryforwards to reduce future income taxes. Based on our historical results of operations, it is not likely that we will be able to fully realize the benefit of our net operating loss carryforwards which began expiring in 2006 and, of the above amount, $22.8 million will expire in 2008. At December 31, 2007 and 2006, we have not reflected as a deferred tax asset any future benefit we may realize as a result of our tax credits and loss carryforwards. Our future regular taxable income for the next three years will be effectively sheltered from federal income tax as a result of our substantial tax credits and loss carryforwards. Continuing operations reflect foreign and state income and federal alternative minimum tax expense (benefit) of $(1,000), $(17,000) and $35,000 for 2007, 2006 and 2005, respectively. It is anticipated that we may continue to incur minor alternative minimum tax in the future, despite our carryforwards and credits.
Discontinued operations. In December of 2007, our Board elected to discontinue our unprofitable operations in the China Segment. For the years 2007, 2006 and 2005, the losses incurred by the China Segment of $1,068,000, $915,000 and $779,000, respectively, resulted in discontinued operations recording net losses of $1,073,000, $947,000 and $637,000, respectively. The other four discontinued segments recorded losses of $5,000 and $32,000 in 2007 and 2006, respectively. Bolstered by gains totaling $155,000 from the sales of equipment, the other discontinued operations recorded net earnings of $142,000 for the year 2005. As of December 31, 2007, the assets and liabilities of discontinued operations held for resale totaled $487,000 and $1,651,000, respectively. We believe that all of the assets of the discontinued segments have been written down to their realizable value. See Note 4 to the financial statements.
Forward looking statements. The previous discussions include statements that are not purely historical and are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, including statements regarding our expectations, hopes, beliefs, intentions and strategies regarding the future. Our actual results could differ materially from its expectations discussed herein, and particular attention is called to the discussion under “Liquidity and Capital Resources---Effect of Recent Developments on Liquidity” and “Material Trends and Uncertainties” contained in this Item 7.
Impact of Recently Adopted Accounting Standards |
In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“FAS 141R”), which replaces FAS 141. FAS 141R establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS 141R is to be applied prospectively to business combinations for which the acquisition date is on or after an entity’s fiscal year that begins after December 15, 2008 (the Company’s fiscal year ending December 31, 2009). We have not completed its evaluation of the potential impact, if any, of the adoption of FAS 141R on our consolidated financial position, results of operations and cash flows.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160 “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (“FAS 160”). FAS 160 establishes accounting and reporting standards that require the ownership interest in subsidiaries held by parties other than the parent be clearly identified and presented in the consolidated balance sheets within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of earnings; and changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. This statement is effective for fiscal years beginning on or after December 15, 2008, (the Company’s fiscal year ending December 31, 2009). We have not completed its evaluation of the potential impact, if any, of the adoption of FAS 160 on our consolidated financial position, results of operations and cash flows.
In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, with earlier adoption permitted. We are assessing the impact of the adoption of this Statement.
In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Includingan amendment of FASB Statement No. 115” (“SFAS No. 158”). SFAS No. 158 permits entities to choose to measure many financial instruments and certain other items at fair value. It requires companies to provide information helping financial statement users to understand the effect of a company’s choice to use the fair value on its earnings, as well as to display the fair value of the assets and liabilities a company has chosen to use fair value for on the face of the balance sheet. Additionally, SFAS No. 158 establishes presentation and disclosure requirements designed to simplify comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The Statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. We are assessing the impact of this statement.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. For example, unexpected changes in market conditions or a downturn in the economy could adversely affect actual results. Estimates are used in accounting for, among other things, the allowance for doubtful accounts, valuation of long-lived assets, legal liability, depreciation, taxes, and contingencies. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.
Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
Receivables and Credit Policies
Accounts receivable include amounts due from the sale of CO2 from properties in which we own an interest, accrued interest receivable and uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Notes receivable are stated at principal amount plus accrued interest and are normally not collateralized. Payments of accounts receivable are allocated to the specific invoices identified on the customers remittance advice or, if unspecified, are applied to the earliest unpaid invoices. Payments of notes receivable are allocated first to accrued but unpaid interest with the remainder to the outstanding principal balance. Trade accounts and notes receivable are stated at the amount management expects to collect from outstanding balances. The carrying amounts of accounts receivable are reduced by a valuation allowance that reflects management’s best estimate of the amounts that will not be collected. Management individually reviews all notes receivable and accounts receivable balances that exceed 90 days from invoice date and based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. Management provides for probable uncollectible accounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation account and a credit to trade accounts receivable. Changes to the valuation allowance have not been material to the financial statements.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Revenue Recognition
We recognize revenue when it is realized or receivable and earned. Revenue from the CO2 Segment is recognized in the period of production. Revenue from Coal Segment projects is recognized in the period the projects are performed. License fees from the e-Commerce segment are recognized over the term of the agreement.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements.
Contractual Obligations
The table below sets forth our contractual cash obligations (including those in our discontinued segments) as of December 31, 2007:
| | Payments Due By Period | |
Contractual
Obligations | | Total | | 2008 | | 2009-2010 | | 2011-2012 | | 2013 and Beyond | |
Long-term debt Obligations (a) | | $13,027,000 | | $3,508,000 | | $8,669,000 | | $850,000 | | $ - |
Capital lease obligations | | 10,000 | | 6,000 | | 4,000 | | - | | - |
Operating lease obligations | | 331,000 | | 192,000 | | 139,000 | | - | | - |
Purchase obligations | | - | | - | | - | | - | | - |
Other long-term liabilities | | - | | - | | - | | - | | - |
Total | | $13,368,000 | | $3,706,000 | | $8,812,000 | | $850,000 | | $ - |
| | | | | | | | | | | | | | | | | | |
(a) Amounts include interest due to be paid on long-term debt obligations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
At December 31, 2007, we had total debt of $10,651,000, including accrued interest to related parties of $668,000. Debt in the amount of $8,404,000 has fixed interest rates; therefore, our interest expense and operating results would not be affected by an increase in market interest rates for this amount. Another $1,375,000 note is accruing interest at Wall Street Journal Prime plus 1.5%, or 8.75%, at year-end. A 10% increase in market interest rates above the year-end rates would have increased our interest expense by less than $9,000. At December 31, 2007, a 10% increase in market rates above the 10% floor would have reduced the fair value of our long-term debt by $98,000.
| We have no other market risk sensitive instruments. |
Item 8. Financial Statements and Supplementary Data.
The Beard Company and Subsidiaries
Index to Financial Statements
Forming a Part of Form 10-K Annual Report
to the Securities and Exchange Commission
Management’s Annual Report on Internal Control Over Financial Reporting | 45 |
Report of Independent Registered Public Accounting Firm | 46 |
Financial Statements:
| Balance Sheets, December 31, 2007 and 2006 | 47 |
| Statements of Operations, Years ended December 31, 2007, 2006 and 2005 | 48 |
| Statements of Shareholders' Equity (Deficiency), Years ended December 31, 2007, 2006 and 2005 | 49 |
| Statements of Cash Flows, Years ended December 31, 2007, 2006 and 2005 | 50 |
| Notes to Financial Statements, December 31, 2007, 2006 and 2005 | 52 |
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13(a) - 15(f) and 15d - 15(f) of the Securities Exchange Act of 1934, as amended. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, our management has conducted an assessment, including testing, using the criteria in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
| • | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; |
| • | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
| • | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Due to the material weakness described below, Our Chief Executive Officer and Chief Financial Officer have concluded that our internal controls over financial reporting were not effective as of December 31, 2007, based on criteria in Internal Control—Integrated Framework issued by COSO. We believe our consolidated financial statements included in the Annual Report on Form 10-K fairly present in all material respects our financial position, results of operations and cash flows for the periods presented in accordance with United States generally accepted accounting principles.
Our internal control over financial reporting as of December 31, 2007, was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in our annual report.
Material weakness in internal control – We have not made an assessment of internal controls over financial reporting at our China segment, therefore, the design and operating effectiveness of those controls has not been determined. We believe operating results from the China segment, for the year ended December 31, 2007, to be material to the consolidated financial statements taken as a whole. Currently, there are no plans to remediate this material weakness as we intend to reduce our ownership interest in the China segment to a level immaterial to the ongoing operations of the Company.
/s/ The Beard Company
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
The Beard Company
Oklahoma City, Oklahoma
We have audited the accompanying consolidating balance sheets of The Beard Company and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of operations, shareholders’ equity (deficiency) and cash flows for each of the years in the three-year period ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Beard Company and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that The Beard Company and subsidiaries will continue as a going concern. As discussed in Note 2 to the financial statements, The Beard Company and subsidiaries’ recurring losses and negative cash flows from operations raise substantial doubt about its ability to continue as a going concern. Management’s plans as to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.
Oklahoma City, Oklahoma
April 14, 2008
THE BEARD COMPANY AND SUBSIDIARIES |
Balance Sheets |
| | | | | |
| | | | | |
| | | December 31, | | December 31, |
| | Assets | 2007 | | 2006 |
| | | | | |
Current assets: | | | |
| Cash and cash equivalents | $61,000 | | $188,000 |
| Accounts receivable, less allowance for doubtful | | |
| receivables of $31,000 in 2007 and $80,000 in 2006 | 630,000 | | 208,000 |
| Prepaid expenses and other assets | 7,000 | | 10,000 |
| Current maturities of notes receivable (note 6) | 35,000 | | 17,000 |
| Assets of discontinued operations held for resale (note 3) | 487,000 | | 789,000 |
| | Total current assets | 1,220,000 | | 1,212,000 |
| | | | | |
Note receivable (note 6) | - | | 7,000 |
| | | | | |
Restricted certificate of deposit | 50,000 | | 50,000 |
| | | | | |
Investments and other assets | 66,000 | | 58,000 |
| | | | | |
Property, plant and equipment, at cost (note 7) | 2,306,000 | | 2,449,000 |
| Less accumulated depreciation, depletion and amortization | 1,445,000 | | 1,524,000 |
| | Net property, plant and equipment | 861,000 | | 925,000 |
| | | | | |
Intangible assets, at cost (note 8) | 518,000 | | 476,000 |
| Less accumulated amortization | 381,000 | | 306,000 |
| | Net intangible assets | 137,000 | | 170,000 |
| | | | | |
| | | $2,334,000 | | $2,422,000 |
| | | | | |
| | | | | |
| | Liabilities and Shareholders' Equity (Deficiency) | | |
| | | | | |
Current liabilities: | | | |
| Trade accounts payable | $53,000 | | $113,000 |
| Accrued expenses | 440,000 | | 310,000 |
| Short-term debt (note 9) | 45,000 | | - |
| Short-term debt - related entities (note 9) | 158,000 | | 200,000 |
| Current maturities of long-term debt (note 9) | 1,672,000 | | 271,000 |
| Current maturities of long-term debt - related entities (note 9) | 360,000 | | - |
| Liabilities of discontinued operations held for resale (note 3) | 1,651,000 | | 1,464,000 |
| | Total current liabilities | 4,379,000 | | 2,358,000 |
| | | | | |
Long-term debt less current maturities (note 9) | 977,000 | | 1,680,000 |
| | | | | |
Long-term debt - related entities (note 9) | 6,012,000 | | 5,599,000 |
| | | | | |
Other long-term liabilities | 151,000 | | 133,000 |
| | | | | |
| | | | | |
| | | | | |
Shareholders' equity (deficiency): | | | |
| Convertible preferred stock of $100 stated value; | | |
| 5,000,000 shares authorized; 27,838 shares issued | | |
| and outstanding | 889,000 | | 889,000 |
| Common stock of $.0006665 par value per share; | | |
| 15,000,000 authorized; 5,657,715 and 5,591,580 shares | | |
| issued and outstanding in 2007 and 2006, respectively | 4,000 | | 4,000 |
| Capital in excess of par value | 38,823,000 | | 38,665,000 |
| Accumulated deficit | (48,954,000) | | (46,928,000) |
| Accumulated other comprehensive loss | 53,000 | | 22,000 |
| | Total shareholders' equity (deficiency) | (9,185,000) | | (7,348,000) |
| | | | | |
Commitments and contingencies (notes 4, 10, and 14) | | | |
| | | $2,334,000 | | $2,422,000 |
| | | | | |
See accompanying notes to financial statements. | | | |
THE BEARD COMPANY AND SUBSIDIARIES |
Statements of Operations |
| | | | | | |
| | | | Year Ended | | |
| | | | December 31, | | |
| | 2007 | | 2006 | | 2005 |
Revenues: | | | | | |
| Coal reclamation | $21,000 | | $25,000 | | $52,000 |
| Carbon dioxide | 1,367,000 | | 1,540,000 | | 1,172,000 |
| e-Commerce | 5,000 | | 5,000 | | 31,000 |
| Oil & gas | 74,000 | | 147,000 | | 95,000 |
| | 1,467,000 | | 1,717,000 | | 1,350,000 |
| | | | | | |
Expenses: | | | | | |
| Coal reclamation | 516,000 | | 764,000 | | 825,000 |
| Carbon dioxide | 254,000 | | 170,000 | | 181,000 |
| e-Commerce | 117,000 | | 100,000 | | 168,000 |
| Oil & gas | 52,000 | | 51,000 | | 72,000 |
| Selling, general and administrative | 732,000 | | 863,000 | | 861,000 |
| Depreciation, depletion and amortization | 174,000 | | 178,000 | | 173,000 |
| | 1,845,000 | | 2,126,000 | | 2,280,000 |
| | | | | | |
Operating profit (loss): | | | | | |
| Coal reclamation | (505,000) | | (780,000) | | (783,000) |
| Carbon dioxide | 1,063,000 | | 1,324,000 | | 949,000 |
| e-Commerce | (125,000) | | (95,000) | | (139,000) |
| Oil & gas | 7,000 | | 80,000 | | 12,000 |
| Other, principally corporate | (818,000) | | (938,000) | | (969,000) |
| | (378,000) | | (409,000) | | (930,000) |
| | | | | | |
Other income (expense): | | | | | |
| Interest income | 8,000 | | 25,000 | | 18,000 |
| Interest expense | (892,000) | | (959,000) | | (975,000) |
| Equity in net earnings (loss) of unconsolidated affiliates | (4,000) | | 49,000 | | 4,801,000 |
| Impairment of investments and other assets (notes 1, 5, 7, 8 and 16) | - | | - | | (4,465,000) |
| Gain on settlement | 96,000 | | - | | - |
| Gain on disposition of controlling interest in subsidiary | - | | 383,000 | | - |
| Gain on sale of assets | 216,000 | | 287,000 | | 64,000 |
| Other | - | | - | | (1,000) |
Loss from continuing operations before income taxes | (954,000) | | (624,000) | | (1,488,000) |
| | | | | | |
Income tax (expense) benefit (note 11) | 1,000 | | 17,000 | | (35,000) |
| | | | | | |
Loss from continuing operations | (953,000) | | (607,000) | | (1,523,000) |
| | | | | | |
Discontinued operations (note 3): | | | | | |
| Earnings (loss) from discontinued brine extraction/iodine manufacturing | | | | | |
| activities | (3,000) | | (3,000) | | 44,000 |
| Loss from discontinued fertilizer manufacturing activities | (1,068,000) | | (915,000) | | (779,000) |
| Earnings (loss) from discontinued natural gas well servicing activities | (2,000) | | (29,000) | | 98,000 |
| Loss from discontinued operations | (1,073,000) | | (947,000) | | (637,000) |
| | | | | | |
Net loss | $(2,026,000) | | $(1,554,000) | | $(2,160,000) |
| | | | | | |
| | | | | | |
Net loss attributable to common shareholders (note 4) | $(2,026,000) | | $(1,554,000) | | $(2,160,000) |
| | | | | | |
Net loss per average common share outstanding: | | | | | |
Basic (notes 1 and 12): | | | | | |
| Loss from continuing operations | $(0.16) | | $(0.10) | | $(0.26) |
| Loss from discontinued operations | (0.18) | | (0.17) | | (0.11) |
| Net loss | $(0.34) | | $(0.27) | | $(0.37) |
| | | | | | |
Net loss per average common share outstanding: | | | | | |
Diluted (notes 1 and 12): | | | | | |
| Loss from continuing operations | $(0.16) | | $(0.10) | | $(0.26) |
| Loss from discontinued operations | (0.18) | | (0.17) | | (0.11) |
| Net loss | $(0.34) | | $(0.27) | | $(0.37) |
| | | | | | |
Weighted average common shares outstanding: | | | | | |
| Basic | 5,896,000 | | 5,655,000 | | 5,888,000 |
| Diluted | 5,896,000 | | 5,655,000 | | 5,888,000 |
| | | | | | |
See accompanying notes to financial statements. |
|
THE BEARD COMPANY AND SUBSIDIARIES |
Statements of Shareholders' Equity (Deficiency) |
|
| | Preferred Shares Stock | Common Shares Stock | Capital in Excess of Par Value | Accumulated Deficit | Accum-ulated Other Compre-hensive Income (loss) | Total Common Share-holders' Equity (Deficiency) |
| | | | | | | | | |
Balance, December 31, 2004 | 27,838 | $889,000 | 4,839,565 | $3,000 | 38,193,000 | $(43,214,000) | $(15,000) | $(4,144,000) |
| | | | | | | | | |
| Net loss | - | - | - | - | - | (2,160,000) | - | (2,160,000) |
| Comprehensive income (loss): | | | | | | | | |
| Foreign currency translation adjustment | - | - | - | - | - | - | 4,000 | 4,000 |
| | | | | | | | | |
| Total comprehensive loss | - | - | - | - | - | - | - | (2,156,000) |
| | | | | | | | | |
| Issuance of stock warrants | - | - | 415,750 | 1,000 | 122,000 | - | - | 123,000 |
| | | | | | | | | |
| Reservation of shares pursuant to deferred compensation plan (note 12) | - | - | | - | 194,000 | - | - | 194,000 |
| | | | | | | | | |
| Issuance of shares pursuant to deferred stock compensation plan (note 12) | - | - | 217,653 | - | - | - | - | - |
| | | | | | | | | |
| | | | | | | | | |
Balance, December 31, 2005 | 27,838 | 889,000 | 5,472,968 | 4,000 | 38,509,000 | (45,374,000) | (11,000) | (5,983,000) |
| | | | | | | | | |
| Net loss | - | - | - | - | - | (1,554,000) | - | (1,554,000) |
| Comprehensive income (loss): | | | | | | | | |
| Foreign currency translation | - | - | - | - | - | - | 33,000 | 33,000 |
| | | | | | | | | |
| Total comprehensive loss | - | - | - | - | - | - | - | (1,521,000) |
| | | | | | | | | |
| Issuance of stock warrants | - | - | 10,000 | - | 4,000 | - | - | 4,000 |
| | | | | | | | | |
| Issuance of stock with debt | - | - | 10,000 | - | 6,000 | - | - | 6,000 |
| | | | | | | | | |
| Share-based compensation related to employee stock compensation | - | - | - | - | 1,000 | - | - | 1,000 |
| | | | | | | | | |
| Reservation of shares pursuant to deferred compensation plan (note 12) | - | - | - | - | 145,000 | - | - | 145,000 |
| | | | | | | | | |
| Issuance of shares pursuant to deferred stock compensation plan (note 12) | - | - | 98,612 | - | - | - | - | - |
| | | | | | | | | |
| | | | | | | | | |
Balance, December 31, 2006 | 27,838 | 889,000 | 5,591,580 | 4,000 | 38,665,000 | (46,928,000) | 22,000 | (7,348,000) |
| | | | | | | | | |
| Net loss | - | - | - | - | - | (2,026,000) | - | (2,026,000) |
| Comprehensive income (loss): | | | | | | | | |
| Foreign currency translation adjustment | - | - | - | - | - | - | 31,000 | 31,000 |
| | | | | | | | | |
| Total comprehensive loss | - | - | - | - | - | - | - | (1,995,000) |
| | | | | | | | | |
| Issuance of stock warrants | - | - | - | - | - | - | - | - |
| | | | | | | | | |
| Issuance of stock with debt | - | - | - | - | - | - | - | - |
| | | | | | | | | |
| Share-based compensation related to employee stock compensation | - | - | - | - | 5,000 | - | - | 5,000 |
| | | | | | | | | |
| Reservation of shares pursuant to deferred compensation plan (note 12) | - | - | - | - | 153,000 | - | - | 153,000 |
| | | | | | | | | |
| Issuance of shares pursuant to deferred stock compensation plan (note 12) | - | - | 66,135 | - | - | - | - | - |
| | | | | | | | | |
| | | | | | | | | |
Balance, December 31, 2007 | 27,838 | $889,000 | 5,657,715 | $4,000 | $38,823,000 | $(48,954,000) | $53,000 | $(9,185,000) |
| | | | | | | | | |
THE BEARD COMPANY AND SUBSIDIARIES |
Statements of Cash Flows |
| | | | | | | | |
| | | | Year Ended December 31, |
| | | | 2007 | | 2006 | | 2005 |
| | | | | | | | |
Operating activities: | | | | | | |
| Cash received from customers | | $1,319,000 | | $1,652,000 | | $1,061,000 |
| Cash paid to suppliers and employees | | (1,512,000) | | (2,632,000) | | (1,659,000) |
| Interest received | | 8,000 | | 26,000 | | 18,000 |
| Interest paid | | (399,000) | | (469,000) | | (600,000) |
| Taxes (paid) refunded | | 1,000 | | (11,000) | | (119,000) |
| Operating cash flows of discontinued operations | | (932,000) | | (970,000) | | (618,000) |
| Net cash used in operating activities | | (1,515,000) | | (2,404,000) | | (1,917,000) |
| | | | | | | | |
Investing activities: | | | | | | |
| Acquisition of property, plant and equipment | | (108,000) | | (10,637,000) | | (1,683,000) |
| Acquisition of property, plant and equipment | | | | | | |
| | of discontinued operations | | - | | (30,000) | | (414,000) |
| Acquisition of intangibles | | (9,000) | | (22,000) | | (44,000) |
| Proceeds from sale of assets | | 306,000 | | 287,000 | | 139,000 |
| Proceeds from sale of assets of discontinued operations | | - | | 3,000 | | 107,000 |
| Other investments | | (8,000) | | 156,000 | | 396,000 |
| Net cash provided by (used in) investing activities | | 181,000 | | (10,243,000) | | (1,499,000) |
| | | | | | | | |
Financing activities: | | | | | | |
| Proceeds from line of credit and term notes | | 1,750,000 | | 12,012,000 | | 2,017,000 |
| Proceeds from related party debt | | 278,000 | | 403,000 | | 2,321,000 |
| Payments on line of credit and term notes | | (641,000) | | (92,000) | | (219,000) |
| Payments on related party debt | | (330,000) | | (217,000) | | (415,000) |
| Proceeds from exercise of warrants | | - | | 4,000 | | 123,000 |
| Member contribution to a consolidated partnership | | 181,000 | | 397,000 | | 25,000 |
| Capitalized costs associated with issuance of | | | | | | |
| | subordinated debt | | (50,000) | | (16,000) | | (203,000) |
| Other | | 19,000 | | 18,000 | | (26,000) |
| Net cash provided by financing activities | | 1,207,000 | | 12,509,000 | | 3,623,000 |
| | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | (127,000) | | (138,000) | | 207,000 |
| | | | | | | | |
Cash and cash equivalents at beginning of year | | 188,000 | | 326,000 | | 119,000 |
| | | | | | | | |
Cash and cash equivalents at end of year | | $61,000 | | $188,000 | | $326,000 |
| | | | | | | | |
See accompanying notes to financial statements. | | | | | | |
THE BEARD COMPANY AND SUBSIDIARIES |
Statements of Cash Flows |
| | | | | | | | |
Reconciliation of Net loss to Net Cash Used In Operating Activities: | | | | |
| | | | | | | | |
| | | | Year Ended December 31, |
| | | | 2007 | | 2006 | | 2005 |
| | | | | | | | |
Net loss | | $(2,026,000) | | $(1,554,000) | | $(2,160,000) |
Adjustments to reconcile net loss to net cash | | | | | | |
used in operating activities: | | | | | | |
| Depreciation, depletion and amortization | | 162,000 | | 180,000 | | 174,000 |
| Depreciation, depletion and amortization | | | | | | |
| | of discontinued operations | | 37,000 | | 35,000 | | 13,000 |
| Provision for abandonment costs | | - | | - | | 30,000 |
| Gain on sale of assets | | (216,000) | | (287,000) | | (64,000) |
| Gain on sale of assets of discontinued operations | | - | | (3,000) | | (154,000) |
| Non cash interest expense | | - | | 208,000 | | - |
| Gain on disposition of controlling interest in subsidiary | | - | | (383,000) | | - |
| Equity in net (earnings) loss of unconsolidated | | | | | | |
| | affiliates | | 4,000 | | (49,000) | | (4,801,000) |
| Impairment of investments and other assets | | 13,000 | | | | 4,465,000 |
| Non cash compensation expense and stock warrants | | 154,000 | | 145,000 | | 194,000 |
| Minority interest in consolidated partnership | | - | | (8,000) | | (42,000) |
| Other | | (1,000) | | 1,000 | | (21,000) |
| Net change in assets and liabilities of discontinued | | | | | | |
| | operations | | - | | (2,000) | | (33,000) |
| Increase in accounts receivable, other | | | | | | |
| receivables, prepaid expenses and other current assets | | (282,000) | | (135,000) | | (115,000) |
| (Increase) decrease in inventories | | 116,000 | | (56,000) | | (149,000) |
| Increase (decrease) in trade accounts payable, | | | | | | |
| accrued expenses and other liabilities | | 524,000 | | (496,000) | | 746,000 |
| Net cash used in operating activities | | $(1,515,000) | | $(2,404,000) | | $(1,917,000) |
| | | | | | | | |
See accompanying notes to financial statements. |
|
THE BEARD COMPANY AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2007, 2006, and 2005
(1) Summary of Significant Accounting Policies
The Beard Company's (“Beard” or the "Company") accounting policies reflect industry practices and conform to accounting principles generally accepted in the United States of America. The more significant of such policies are briefly described below.
Nature of Business
The Company’s current significant operations are within the following segments: (1) the Coal Reclamation (“Coal”) Segment, (2) the Carbon Dioxide (“CO2”) Segment, (3) the e-Commerce (“e-Commerce”) Segment, and (4) the Oil and Gas (“Oil & Gas”) Segment.
The Coal Segment is in the business of operating coal fines reclamation facilities in the United States of America and provides slurry pond core drilling services, fine coal laboratory analytical services and consulting services. The CO2 Segment consists of the production of CO2 gas. The e-Commerce Segment consists of a 71%-owned subsidiary whose current strategy is to develop business opportunities to leverage starpay’s™ intellectual property portfolio of Internet payment methods and security technologies. The Oil & Gas Segment is in the business of producing oil and gas.
Principles of Consolidation and Basis of Presentation
The accompanying financial statements include the accounts of the Company and its wholly and majority owned subsidiariesinwhich the Company has a controlling financial interest. Subsidiaries and investees in which the Company does not exercise control are accounted for using the equity method. All significant intercompany transactions have been eliminated in the accompanying financial statements.
Use of estimates
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates.
Cash and Cash Equivalents
There were no cash equivalents at December 31, 2007 or 2006. For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less at the date of purchase to be cash equivalents.
Receivables and Credit Policies
Accounts receivable include amounts due from (i)CO2 and natural gas from properties in which the Company owns an interest, and (ii) accrued interest receivable and uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Notes receivable are stated at principal amount plus accrued interest and are normally not collateralized. Payments of accounts receivable are allocated to the specific invoices identified on the customers remittance advice or, if unspecified, are applied to the earliest unpaid invoices. Payments of notes receivable are allocated first to accrued but unpaid interest with the remainder to the outstanding principal balance. Trade accounts and notes receivable are stated at the amount management expects to collect from outstanding balances. The carrying amounts of accounts receivable are reduced by a valuation allowance that reflects management’s best estimate of the amounts that will not be collected. Management individually reviews all notes receivable and accounts receivable balances that exceed 90 days from invoice date and based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. Management provides for probable uncollectible accounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation account and a credit to trade accounts receivable. Changes to the valuation allowance have not been material to the financial statements.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation, and are depreciated by use of the straight-line method using estimated asset lives ranging from three to 40 years.
The Company charges maintenance and repairs directly to expense as incurred while betterments and renewals are generally capitalized. When property is retired or otherwise disposed of, the cost and applicable accumulated depreciation, depletion and amortization are removed from the respective accounts and the resulting gain or loss is reflected in operations.
Intangible Assets
Identifiable intangible assets are stated at cost, net of accumulated amortization, and are amortized on a straight-line basis over their respective estimated useful lives, ranging from five to 17 years.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
The Company recorded an impairment to its investments and other assets of $4,465,000 related to its investment in Cibola Corporation (“Cibola”) for the year 2005. There were no such impairments in 2006 or 2007.
Other Long-Term Liabilities
Other long-term liabilities consist of various items which are not payable within the next calendar year.
Fair Value of Financial Instruments
The carrying amounts of the Company’s cash and cash equivalents, accounts receivable, other current assets, trade accounts payables, and accrued expenses approximate fair value because of the short maturity of those instruments. At December 31, 2007 and 2006, the fair values of the long-term debt and notes receivable were not significantly different than their carrying values due to interest rates relating to the instruments approximating market rates on those dates.
Revenue Recognition
The Company recognizes revenue when it is realized or receivable and earned. Revenue from the CO2 and Oil & Gas Segments are recognized in the period of production. Revenue from Coal Segment projects is recognized in the period the projects are performed. License fees from the e-Commerce segment are recognized over the term of the agreement.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Share-Based Compensation Expense |
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123R”) which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made to employees and directors, including employee stock options. SFAS 123R supersedes the Company’s previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning in 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123R. The Company has utilized the guidance of SAB 107 in its adoption of SFAS 123R.
SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the results of operations at their grant-date fair values. The Company adopted SFAS 123R using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006, the first day of the Company’s 2006 fiscal year. Under this transition method, compensation cost recognized in the first quarter of 2006 includes: (a) compensation cost for all share-based payments granted prior to but not yet vested as of December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant date value estimated in accordance with the provisions
of SFAS 123R. In accordance with the modified prospective method of adoption, the Company’s results of operations and financial position for prior periods have not been restated.
The Company reserved 175,000 shares of its common stock for issuance to key management, professional employees and directors under The Beard Company 1993 Stock Option Plan (the "1993 Plan") adopted in August 1993. In April 1998 the Board of Directors voted to increase the number of shares authorized under the 1993 Plan to 275,000, and the shareholders approved the increase in June 1998. As a result of the 3-for-4 reverse stock split effected in September 2000 and the 2-for-1 stock split effected in August 2004, the number of shares authorized under the 1993 Plan was increased to 412,500. The 1993 Plan terminated on August 26, 2003. The remaining 26,250 options outstanding under the 1993 Plan lapsed without exercise in 2006. At December 31, 2007 there were no options outstanding under the 1993 Plan.
The Company reserved 100,000 shares of its common stock for issuance to key management, professional employees and directors under The Beard Company 2005 Stock Option Plan (the "2005 Plan") adopted in February 2005. There were 45,000 options granted under the 2005 Plan in the first quarter of 2005. However, on May 1, 2006, the Company cancelled the 2005 Plan and all the options under the 2005 Plan and replaced the 2005 Plan with the 2006 Stock Option Plan (the “2006 Plan”). The Company granted 45,000 options under the 2006 Plan in replacement of the options that were cancelled under the 2005 Plan; 15,000 of these options were cancelled effective July 31, 2006 following the resignation of the holder thereof.
Grant-Date Fair Value
The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award. The fair value of the options granted in 2006 was calculated using the following estimated weighted average assumptions:
Expected volatility | | 283.9% |
Expected risk term (in years) | | 5.5 |
Risk-free interest rate | | 4.84% |
Expected dividend yield | | 0% |
The expected volatility is based on historical volatility over the two-year period prior to the date of granting of the unvested options. Beginning in 2006, the Company has adopted the simplified method outlined in SAB 107 to estimate expected lives for options granted during the period. The risk-free interest rate is based on the yield on zero coupon U. S. Treasury securities for a period that is commensurate with the expected term assumption. The Company has not historically issued any dividends and does not expect to in the future.
Share-Based Compensation Expense
The Company uses the straight-line attribution method to recognize expense for unvested options. The amount of share-based compensation recognized during a period is based on the value of the awards that are ultimately expected to vest. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company will re-evaluate the forfeiture rate annually and adjust as necessary. Share-based compensation expense recognized under SFAS 123R for the year ended December 31, 2007 was $5,000 and was charged to “Other Activities”. Prior to January 1, 2006, the Company accounted for its share-based compensation under the recognition and measurement principles of APB No. 25 and related interpretations, the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” and the disclosures required by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure.” In accordance with APB No. 25, no share-based compensation was reflected in the Company’s net income for grants of stock options to employees because the Company granted stock options with an exercise price equal to the fair market value of the stock on the date of grant.
Had the Company used the fair value based accounting method for share-based compensation expense prescribed by SFAS Nos. 123 and 148 for the period ended December 31, 2005, the Company’s consolidated net loss and net loss per share would have been as illustrated in the pro forma amounts shown below:
| | | | For the Year Ended | |
| | | | December 31, 2005 | |
| | | | (in thousands, except per share data) | |
| Earnings (loss) from continuing operations, as reported | | | $ (2,302) | |
| Earnings from discontinued operations, as reported | | | 142 | |
| Net earnings (loss), as reported | | | $ (2,160) | |
| | | | | |
| Earnings (loss) from continuing operations, as reported | | | $ (2,302) | |
| Less: total stock-based employee compensation determined under fair value based method for all awards, net of tax | | | (5) | |
| Pro forma net earnings (loss) from Continuing operations | | | $ (2,307) | |
| Earnings from discontinued operations, as reported | | | 142 | |
| Pro forma net earnings (loss) | | | $ (2,165) | |
| | | | | | |
| Net earnings (loss) per average common share outstanding, as reported: Basic: Earnings (loss) from continuing
operations Earnings from discontinued operations | | | $ (0.39) 0.02 | | |
| Net earnings (loss), as reported | | | $ (0.37) | | |
| | | | | | |
| Net earnings (loss) per average common share share outstanding, as reported: Diluted: Earnings (loss) from continuing
operations Earnings from discontinued operations | | | $ (0.39) 0.02 | | |
| Net earnings (loss), as reported | | | $ (0.37) | | |
| | | | | |
| | | | | |
Net earnings (loss) per average common share outstanding, pro forma: Basic: Earnings (loss) from continuing operations Earnings from discontinued operations | | | $ (0.39) 0.02 | | |
Net earnings (loss)-basic, pro forma | | | $ (0.37) | | |
| | | | |
| | | | | | | | | |
| Net earnings (loss) per average common share outstanding, pro forma: Diluted: Earnings (loss) from continuing operations Earnings from discontinued operations | | | $ (0.39) 0.02 | | |
| Net earnings (loss) - diluted, pro forma | | | $ (0.37) | | |
| | | | |
| | | | |
Weighted average common shares outstanding, As reported: | | | | |
| Basic | | 5,888,000 | | |
| Diluted | | 5,888,000 | | |
| | | | | |
| | | | | |
| Weighted average common shares outstanding, Pro forma: | | | |
| | Basic | | 5,888,000 | |
| | Diluted | | 5,888,000 | |
| | | | | | | | | | | | | | | | |
As of December 31, 2007, there was $30,000 of total unrecognized compensation cost, net of estimated forfeitures, related to unvested share based awards, which is expected to be recognized over a weighted average period of 8.33 years.
Option Activity
A summary of the activity under the Company’s stock option plans for the periods indicated is as follows:
| | |
| | Weighted |
| | Average |
| Shares | Exercise Price |
| | |
Options outstanding at December 31, 2004 | 26,250 | $2.08 |
Granted | 45,000 | 2.70 |
Exercised | - | - |
Cancelled | - | - |
Expired | - | - |
Options outstanding at December 31, 2005 | 71,250 | $2.47 |
Granted | 45,000 | 1.53 |
Exercised | - | |
Cancelled A | 45,000 | 2.70 |
Forfeited | 15,000 | 1.53 |
Expired | 26,250 | 2.08 |
Options outstanding at December 31, 2006: | 30,000 | $1.53 |
Granted | - | - |
Exercised | - | - |
Cancelled | - | - |
Forfeited | - | - |
Expired | - | - |
Options outstanding at December 31, 2007 | 30,000 | $1.53 |
Options exercisable at December 31, 2007 | 10,000 | $1.53 |
Options vested and options expected to vest at December 31, 2007A | 30,000 | $1.53 |
_______
A The Company’s 2005 Stock Option Plan was cancelled on May 1, 2006 and replaced by the 2006 Stock Option Plan. All options under the 2005 Plan were cancelled and replaced by options under the new plan on such date.
Convertible Preferred Stock
The Company's convertible preferred stock is accounted for at estimated fair value. Prior to January 1, 2003, the preferred stock had been redeemable and was carried at its estimated fair value. The excess of the estimated redeemable value over the fair value at the date of issuance was accreted over the redemption term. Effective January 1, 2003, the preferred stock ceased to be mandatorily redeemable and thereafter became convertible at the holder’s option into common stock. Accordingly, it is no longer subject to accretion.
Earnings (Loss) Per Share
Basic earnings (loss) per share data is computed by dividing earnings (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if the Company’s outstanding stock options (calculated using the treasury stock method) and warrants were exercised and if the Company’s preferred stock, convertible notes and deferred stock compensation units were converted to common stock.
Diluted earnings (loss) per share from continuing operations in the statements of operations exclude potential common shares issuable upon conversion of preferred stock, convertible notes, termination of the deferred stock compensation plan, or exercise of stock options and warrants as a result of losses from continuing operations in 2006 and 2007, because such potential common shares are antidilutive.
The table below contains the components of the common share and common equivalent share amounts (adjusted to reflect the 2-for-1 stock split effected on August 6, 2004) used in the calculation of earnings (loss) per share in the Company’s statements of operations:
| | For the Year Ended | |
| | December 31, 2007 | December 31, 2006 | December 31, 2005 | |
| | | | | |
Basic EPS: | | | | | |
Weighted average common shares outstanding | | 5,623,619 | 5,564,504 | 5,219,553 | |
Weighted average shares in deferred stock compensation plan treated as common stock equivalents | | 271,919 | 90,522 | 668,198 | |
| | 5,895,538 | 5,655,026 | 5,887,751 | |
Diluted EPS: | | | | | |
Weighted average common shares outstanding | | 5,623,619 | 5,564,504 | 5,219,553 | |
Weighted average shares in deferred stock compensation plan treated as common stock equivalents | | 271,919 | 90,522 | 668,198 | |
| | 5,895,538 | 5,655,026 | 5,887,751 | |
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts and notes receivable. Accounts receivable from three parties comprised approximately 85% of the December 31, 2007 balances of accounts receivable. Generally, the Company does not require collateral to support accounts and notes receivable.
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
Comprehensive Income
SFAS No. 130 establishes standards for reporting and display of “comprehensive income” and its components in a set of financial statements. It requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. During 2005, 2006 and 2007, the Company’s only significant items of comprehensive income related to foreign currency translation adjustments resulting from its equity investment in Xianghe BH Fertilizer Co., Ltd (“XBH”). The assets and liabilities of XBH, a wholly-owned subsidiary of BEE/7HBF, LLC, in which Beard owns 50% through Beard Environmental Engineering, LLC (“BEE”), a wholly-owned subsidiary of Beard, and Beijing Beard Sino-American Bio-Tech Engineering Co., Ltd. (“BTEC”), a wholly-owned subsidiary of Beard, are stated in the local currency (the Chinese yuan renminbi, “RMB”) and are translated into U.S. dollars using the current exchange rate in effect at the balance sheet date, while income and expenses are translated at average rates for the respective periods. Translation adjustments have no effect on net loss and are included in accumulated other comprehensive loss.
Reclassifications
Certain 2006 and 2005 balances have been reclassified to conform to the 2007 presentation.
(2) Ability to Fund Operations and Continue as a Going Concern
Overview
The accompanying financial statements have been prepared based upon the Company’s belief that it will continue as a going concern. The Company’s revenues from continuing operations increased in 2005 and 2006, but decreased in 2007 primarily as a result of sharp drops in both production and prices received in the Oil & Gas Segment. The Company has incurred operating losses and negative cash flows from operations during each of the last six years. The Company commenced projects in both its Coal and China Segments in 2005. Both of these were projected to begin generating positive cash flow during the last half of 2006, but such projections have not been attained. (See “Additional Details” and “Subsequent Developments” below). Although the Company finalized its first licensing arrangement in its e-Commerce Segment in 2003, the arrangement did not make the segment profitable in 2005, 2006 or 2007 and will not make it profitable in 2008. The CO2 Segment received 11% less in revenues in 2007 than in 2006 and operating and SG&A expenses, including an additional $68,000 in severance taxes, were up, as well, resulting in a 20% decline in operating profit. Effective August 1, the Company elected to take a portion of its share of CO2 production in kind from the McElmo Dome field and sell it through an entity designed for this purpose. The net revenues received according to the terms of the contracts dedicated to this entity were greater than they would have been under the terms of the contracts with the prior operator. Additionally, a total of 329,000 Mcf of production was placed in long-term storage during 2007.
During the three years ended December 31, 2007, the Company took several steps which reduced its negative cash flow to some degree, including (i) salary deferrals by its Chairman and President (2005 only), (ii) deferrals of directors’ fees into its Deferred Stock Compensation Plans (the “DSC Plans”) and (iii) suspension of the Company’s 100% matching contribution (up to a cap of 5% of gross salary) under its 401(k) Plan.
Five private debt placements raised gross proceeds of $4,184,000 during such period, including $105,000 in the first quarter of 2007. In the first half of 2005 the Company borrowed $850,000 from a related party to finance most of the cost of a fertilizer plant in China. Starting in the fourth quarter of 2005, the Company borrowed $1,100,000 from the pond owner to begin constructing the plant for its coal fines recovery project in West Virginia. That funding ultimately increased to more than $14,150,000, as of March 31, 2007 including $2,800,000 of equity provided by affiliates of the pond owner. In addition, the Company secured a $350,000 long-term bank credit facility (the “2006 Facility”) in March of 2006 and borrowed $200,000 from one of the Company’s Note holders in May of 2006. These financings were supplemented in 2007 by (i) the $105,000 of additional convertible notes discussed above, (ii) a $150,000 short-term loan from a shareholder of a former affiliate in March, (iii) $192,000 of short-term loans from the Company’s Note holders, (iv) a $1,500,000 long-term bank facility (the “2007 Facility”) in June, and (v) sale of the Company’s interest in the Bravo Dome CO2 field in October which generated net cash of $285,000. The remaining $220,000 principal balance of the 2006 Facility was paid from the proceeds of the 2007 Facility. In addition, the Coalition Managers Litigation has now been concluded, and the Company received approximately $96,000 from the defense fund in August of 2007. In March of 2008 the Company sold 35% of its interest in the McElmo Dome CO2 field, generating net cash of approximately $3,475,000. These measures enabled the Company to continue operating. As a result of the McElmo Dome sale, the Company’s balance sheet, liquidity and working capital have significantly improved from their year-end 2007 position.
The private placements resulted in additional dilution to the Company’s common equity. 72,240 warrants were issued in 2005 and 12,869 warrants were issued in 2007 in connection with two of the private debt placements and 1,014,000 Stock Units (including 40,000 Units in the 2008 first quarter) were accrued in the participants’ accounts as a result of salary and fee deferrals into the various DSC Plans. During such period $4,184,000 of convertible notes were also issued which are
convertible into 3,506,000 shares of common stock. Additional dilution also occurred due to an adjustment to the Preferred Stock conversion ratio resulting from the issuance of the warrants, the convertible notes and the salary deferrals. Termination of the 2003-2 DSC Plan resulted in the issuance of 218,000 common shares in 2005, 98,000 in 2006, 66,000 in 2007, and another 66,000 in the first quarter of 2008. In addition, 25,000 options were issued to a financial consultant in 2005 and 30,000 employee stock options were issued in 2006 (both figures net of forfeitures).
Additional Details
The Company’s principal business is coal reclamation, and this is where management’s operating attention is primarily focused. The Coal Segment had a signed contract to construct and operate a pond fines recovery project in West Virginia (the “Pinnacle Project” or the “Project”) and commenced construction on the Project in September of 2005. The Company obtained commitments for (i) $2,800,000 of equity for the Project provided by a group of investors (the “Group”) who were affiliates of PinnOak Resources, LLC (“PinnOak”), the pond owner. in exchange for 50% ownership in the Project; and (ii) a $9,000,000 bank loan subject to obtaining a USDA guaranty (the “Guaranty”) of 70% of the loan amount. PinnOak committed to fund or to arrange the funding for the Project if the Guaranty was not obtained.
Due to cost over-runs of more than $3,000,000, the Group elected, effective October 1, 2006, to exercise their option to assume control of Beard Pinnacle, LLC (“BPLLC”), the limited liability company which owned the Pinnacle Project, and reduce the Company’s interest therein to 25%. As a result, the Company was precluded from obtaining the USDA-guaranteed financing for the Project and PinnOak became the permanent source of financing. Despite the fact that PinnOak was providing all of the financing for the Project, the Company was deemed to own 100% of the Project until the Group subscribed to their ownership effective September 30, 2006. Effective October 1, 2006 the Company’s ownership percentage was reduced to 25% and the Group took control of the Project. At that point BPLLC ceased to be a consolidated entity and all of its assets and liabilities were removed from the Company’s balance sheet.
The Pinnacle Project produced its first coal in October of 2006. In May of 2007 the Company and the PinnOak parties agreed to terminate most of the agreements governing the Project. The Company gave up its remaining 25% interest in the Project while remaining as contract operator. As part of the agreement, the Company was relieved of the guaranty made by a Company subsidiary of loans made by PinnOak totaling more than $11,350,000 secured by the subsidiary’s 25% interest in the Project and the Company’s ownership percentage in the Project was reduced to zero.
On October 11, 2007, the Company signed a purchase agreement and on October 31, 2007, it made a down payment on the site for a new project (the “Yukon Project”). A new subsidiary, Beard Yukon, LLC, was formed to conduct recovery operations at this site. The Company had raised $280,000 of the $450,000 necessary to fund the Yukon Project when it was determined that the owner of the site would not allow us to use the site to test the equipment we were planning to use during the recovery process. Alternative equipment would have been too expensive for a stand alone project, and accordingly the project was abandoned.
The Coal Segment is actively pursuing multi-project financing for its future coal projects through two separate investment banking sources. Meanwhile, it is continuing to develop projects so as to have them ready when the financing becomes available. The timing of the projects the Company is actively pursuing is uncertain and their continuing development is subject to obtaining the necessary financing. There is no assurance that the required financing will be obtained or that any of the projects under development will materialize.
To date the China fertilizer plant has not marketed sufficient product to reach its projected breakeven point. Several new marketing initiatives were attempted, but all were unsuccessful. In December of 2007 the Company’s Board of Directors voted to discontinue the China Segment. The Company engaged an investment banking firm to explore available alternatives including, but not limited to: sale of the plant, merger of the operation with a competitor, or bringing in a new partner. It is currently exploring the possibility of manufacturing product for a Chinese company which currently produces liquid fertilizer and has announced its intention to expand into the granular fertilizer business. If this company elects to proceed, our partner will then take over the China fertilizer plant. We will retain a 2% interest in the partnership and be relieved of all of the existing debt. Meanwhile, the Company and its partner advanced a total of $297,000 during 2007 and an additional $49,000 during the 2008 first quarter to fund the plant’s operations. It is estimated that the Company may need to make additional advances of up to $50,000 while the negotiations concerning the production contract are being concluded.
Several developments have taken place which have benefited, or are expected to benefit, the Company’s cash flow position:
(i) On October 11, 2007, the Company entered into a Change of Terms Agreement on its $1,500,000 bank credit facility (the “2007 Facility”) whereby no principal reduction was required on the facility for the months of July
through October of 2007, only a $25,000 reduction was required in November and December of 2007, a $50,000 reduction in January and February of 2008, and a $75,000 per month reduction in March through December of 2008. This made $100,000 available under the 2007 Facility that had already been paid and eliminated by verbal agreement the need to pay the September payment. It also had the effect of deferring a portion of the principal reductions until (a) the Kinder Morgan matter (see below) was resolved, (b) the disposition of the China fertilizer plant has been concluded, and (c) the Company transfers the balance of its CO2 production to a new purchaser, which is expected to significantly improve the Company’s cash flow.
(ii) On October 31, 2007, the Company closed on the sale of its interest in the Bravo Dome CO2 Unit for $300,000. The sale, which was effective October 1st, added $285,000 to cash flow after payment of a $15,000 finder’s fee. The sale was also meaningful since there had been no market for the Company’s share of the production from the unit for the last 10 years, and it had received no income during such period while having to pay its share of the operating costs.
(iii) In May of 2006 the Company signed an Authorization for Expenditure to participate for its 0.54469% working interest (“WI”) share of the $100,000,000 costs of the Goodman Point expansion (the “Expansion”) of the McElmo Dome Unit. In February of 2007 Kinder Morgan (“KM”), the operator, belatedly advised the Company that Exxon Mobil had elected not to participate and that the Company must carry its share of their costs, increasing its interest in the Expansion to 0.968564% of the costs. The Company, together with a number of the small share WI owners strongly objected to this arrangement, resulting in a meeting of KM with all of the WI owners on June 30, 2007. As a result of the meeting KM sent a letter in late October giving the parties the option to either (a) carry Exxon Mobil for their share of such costs, or (b) opt out of the Expansion and be carried along with Exxon Mobil (paying 12% interest until payout of such costs out of production from the Expansion). Meanwhile, during all of 2007, KM had been billing the Company for its expanded 0.968564% interest in the Unit. Due to the Company’s illiquid cash position, it had not paid any of such costs since April of 2007, and they had suspended the Company’s runs, which had been in excess of $100,000 per month, since that time. This caused the Company considerable harm and severely impacted its cash flow. The Company elected option (b) and shortly before year-end KM released the cash of nearly $620,000, representing the Company’s share of the refunded costs of expansion and the revenue which KM had arbitrarily suspended.
(iv) In May of 2007 the Company committed the approximately 30% of its McElmo Dome production which had been selling at the lowest prices to a new purchaser which began taking such production August 1. The price the Company receives under this contract tracks the price of crude oil. Negotiations are currently underway for new contracts covering the balance of the Company’s production, again geared to the price of crude oil.
(v) In December of 2007 the Company has made the decision to discontinue the China Segment; as a result, it will no longer have the burden of supporting such operation in the future.
On March 26, 2008, the Company closed on the sale of 35% of its interest in the McElmo Dome CO2 Unit for $3,500,000. The sale, which was effective February 1, 2008, added approximately $3,475,000 to cash flow after legal costs. Because our interest in McElmo Dome served as the collateral for our primary lines of credit we entered into a new Change of Terms Agreement reducing the maximum available credit under the 2007 Facility from $1,500,000 to $1,000,000 and modifying the required monthly principal reduction from $75,000 per month beginning in March of 2008 to $50,000 per month beginning in April of 2008. The outstanding principal balance under the facility was reduced down to zero. In addition, the outstanding loan agreement and related promissory note with The William M. Beard and Lu Beard 1988 Charitable Unitrust (the “Unitrust”) was amended to reduce the outstanding principal balance of the loan from $2,783,000 to $2,250,000, pay the accrued interest of $697,000 and extend the maturity date from April 1, 2009 to April 1, 2010. The Company also entered into a Release, Subordination and Amended and Restated Nominee Agreement whereby the Unitrust loan will continue to be subordinate to the Company’s $390,000 note in favor of Boatright Family, L.L.C. (“Boatright”) and the 2007 Facility, and the Boatright note will continue to be subordinate to the 2007 Facility.
The Company expects to generate cash of at least $40,000 from the disposition of the remaining assets from two of its discontinued segments. The excess cash provided by the McElmo Dome sale is expected to provide sufficient working capital to satisfy the Company’s liquidity needs until the disposition of the assets and liabilities of the China Segment have been concluded and the new production sales contracts at McElmo Dome have been finalized. This will eliminate the cash flow drain from the China Segment, and it is anticipated that the Coal Segment will become self-sustaining from the projects it has under development prior to year-end 2008.
(3) Discontinued Operations
BE/IM Segment
In 1999, the Management Committee of a joint venture 40%-owned by the Company adopted a formal plan to discontinue the business and dispose of its assets. The venture was dissolved in 2000 and the Company took over certain remaining assets and liabilities. The majority of the assets of the segment were sold prior to 2003. In 2005, the Company recorded earnings of $44,000 related to this segment, which included $48,000 in gains from the sale of equipment. The segment incurred net losses of $3,000 for each of the years 2006 and 2007. The Company expects no further material charges to earnings related to the remaining assets.
As of December 31, 2007, the significant assets related to the segment’s operations consisted primarily of equipment with no estimated net realizable value. The segment had no significant liabilities at December 31, 2007. The Company is actively pursuing opportunities to sell the segment’s few remaining assets and expects the disposition to be completed by December 31, 2008.
WS Segment
In 2001, the Company made the decision to cease pursuing opportunities in Mexico and the WS Segment was discontinued. The bulk of the segment’s assets were sold in 2001. In 2005, the segment recorded earnings of $98,000, which included gains from the sale of equipment totaling $107,000. The segment recorded net losses of $3,000 and $29,000, respectively, in 2007 and 2006. As of December 31, 2007, the significant assets of the WS Segment were fixed assets totaling $20,000. The Company is actively pursuing the sale of the remaining assets and expects to have them sold or otherwise disposed of by December 31, 2008. The significant liabilities of the segment consisted of trade accounts payable and other accrued expenses totaling $43,000. It is anticipated that all of the liabilities of the segment will be paid prior to December 31, 2008.
China Segment
In December of 2007, the Company elected to dispose of its fertilizer manufacturing operations and related interests in China. The Company incurred losses of $1,069,000, $923,000 and $821,000 for the years ended December 31, 2007, 2006 and 2005, respectively. At December 31, 2007, the significant assets of the China Segment included (i) fixed assets of $337,000, (ii) inventory of $89,000 and (iii) cash, receivables and other current assets totaling $41,000. The significant liabilities of the segment included long-term debt of $850,000, current debt of $578,000 and trade payables and accrued expenses of $182,000. The Company is presently seeking a buyer for the assets and expects to have them sold or otherwise disposed of prior to December 31, 2008. The Company expects to pay or otherwise be relieved of all liabilities of the segment prior to December 31, 2008.
(4) 1993 Restructure; Convertible Preferred Stock
As the result of a restructure (the “Restructure”) effected in 1993, a company owned by four lenders (the “Institutions”) received substantially all of the Company’s oil and gas assets, 25% of the Company’s then outstanding common stock, and $9,125,000 stated value (91,250 shares, or 100%) of its preferred stock. As a result, $101,498,000 of the Company’s long-term debt and other obligations were eliminated.
The Company’s preferred stock was mandatorily redeemable through December 31, 2002 from one-third of Beard’s consolidated net income. At January 1, 2003, the stock was no longer redeemable, and each share of Beard preferred stock became convertible into 4.26237135 (118,655) shares (pre-split) of Beard common stock. The conversion ratio is adjusted periodically (i) for stock splits, (ii) as additional warrants or convertible notes are issued, and (iii) as additional shares of stock are credited to the accounts of the Company’s Chairman or President in the Company’s Deferred Stock Compensation Plans, in each case at a value of less than $1.29165 per share. Fractional shares will not be issued, and cash will be paid in redemption thereof. At December 31, 2007 (after giving effect to a 2-for-1 stock split effected in August of 2004) each share of Beard preferred stock was convertible into 10.51925814 (292,835) shares of Beard common stock. The preferred stockholder is entitled to one vote for each full share of common stock into which its preferred shares are convertible. In addition, preferred shares that have not been converted have preference in liquidation to the extent of their $100 per share stated value.
From 1995 through 1998 the Company redeemed or repurchased 63,412 of the preferred shares from the Institutions or from individuals to whom the Institutions had sold such shares. The last 31,318 of such shares were purchased for $31.93 per share in 1998.
At December 31, 2007 and 2006, the convertible preferred stock was recorded at its estimated fair value of $889,000 or $31.93 per share versus its aggregate stated value of $2,784,000.
(5) Investments and Other Assets
Investments and other assets consisted of the following:
| |
| | |
| | |
Investment in real estate limited partnerships | $ 13,000 | $ 13,000 |
Other assets | | |
| | |
Investment in Real Estate Limited Partnerships
The Company owns a limited partnership interest in a real estate limited partnership whose only asset consists of a tract of undeveloped land near Houston, Texas, most of which was sold in 2004. The Company recorded losses of $2,000 in each of the years 2005, 2006 and 2007 from its share of the limited partnership’s operations. These losses are attributable to the Company’s share of real estate taxes on the property held by the partnership.
Other assets
These assets consist primarily of deposits on hand with various regulatory agencies. There were no impairments of these assets in 2005, 2006 or 2007.
(6) Notes Receivable
At December 31, 2007, the Company had a $35,000 note receivable from a related party. The note is due to be repaid December 31, 2008, is unsecured and bears interest at six percent per year beginning January 2, 2008. In addition, at December 31, 2006, the Company had other notes receivable totaling $13,000 from the sale of equipment and an $11,000 loan receivable from a related party.
(7) Property, Plant and Equipment
Property, plant and equipment consisted of the following:
| |
| | |
| | |
Oil and gas leases | $ 84,000 | $ 84,000 |
Proved carbon dioxide properties | 1,302,000 | 1,414,000 |
Buildings and land improvements | 38,000 | 28,000 |
Machinery and equipment | 711,000 | 736,000 |
Other | | |
| | |
The Company incurred $83,000, $100,000, and $65,000, of depreciation expense for 2007, 2006, and 2005, respectively.
(8) Intangible Assets
Intangible assets are summarized as follows:
| |
| | |
| | |
Debt issuance costs | $ 517,000 | $ 460,000 |
Patent costs | - | 12,000 |
Other | | |
| | |
Accumulated amortization is summarized as follows:
| |
| | |
| | |
Debt issuance costs | $ 380,000 | $ 304,000 |
Patent costs | - | 2,000 |
Other | | |
| | |
During 2005, the Company capitalized $228,000 of costs associated with the issuance of the 12% Convertible Subordinated Notes due August 31, 2009, the 12% Convertible Subordinated Notes due February 15, 2010 and an $850,000 3.83% Note due February 14, 2010. The costs of the 12% notes due in 2009 will be fully amortized by the end of August, 2009; the costs of the 12% notes due in 2010 and the 3.83% note due also in February, 2010,are being amortized over five years and will be fully amortized by the first quarter of 2010, all as a result of such notes having been paid off.
During 2006, the Company capitalized $16,000 of costs associated with the issuance of the 12% Convertible Subordinated Series A and Series B Notes due August 30, 2008 and November 30, 2008, respectively. The costs of the 12% notes due in 2008 will be fully amortized by the end of November, 2008. In 2007, the Company capitalized $57,000 of costs associated with revising the terms of its reducing revolving credit facility with a local bank. These costs will be fully amortized by the end of 2008.
The Company incurred $77,000, $78,000, and $57,000 of amortization expense for 2007, 2006 and 2005, respectively. In addition, in 2005 the Company wrote off another $51,000 of previously unamortized costs associated with an unsuccessful effort to obtain funding for either or both of the China or Coal Segments. In 2007, the Company wrote off another $13,000 of previously unamortized costs associated with unsuccessful attempts to gain a patent in its e-Commerce Segment. If no capital assets are added, amortization expense is expected to be as follows.
| Year | Amount | |
| | | |
| 2008 | $ 87,000 | |
| 2009 | 45,000 | |
| 2010 | 5,000 | |
| | $ 137,000 | |
(9) Long-term Debt
Long-term debt is summarized as follows:
| |
| | |
| | |
Coal (a) | $ 10,000 | $ 38,000 |
12% Convertible Subordinated Notes due February, 2010 (b) (c) | 2,205,000 | 2,100,000 |
12% Convertible Subordinated Notes due August, 2009 (d) | 1,328,000 | 1,328,000 |
3.83% Loan due February, 2010 (e) | 850,000 | 850,000 |
6% Loan due January, 2009 (e) | 578,000 | 397,000 |
12% Loan due May, 2007 (h) | - | 200,000 |
Revolving Credit Facility (i) | 1,375,000 | 260,000 |
Series A 12% Convertible Subordinated Notes due August 30, 2008 (g) | 83,000 | 83,000 |
Series B 12% Convertible Subordinated Notes due November 30, 2008 (g) | 568,000 | 568,000 |
12% Notes due February, 2008 (b) | 55,000 | - |
Loans including accrued interest – affiliated entities (f) | | |
| 10,651,000 | 8,997,000 |
Less current maturities, debt of discontinued operations and short term debt | | |
Long-term debt | | |
(a) | At December 31, 2007, the Company’s Coal Segment had a note payable with a total balance due of $10,000. The note bears interest at zero%, requires monthly payments of principal and interest totaling $531 and matures in 2009. The note is secured by an automobile with an approximate book value of $10,000 at December 31, 2007. |
(b) | On August 31, 2007, the Company issued $79,000 of short-term notes, along with two-year warrants to purchase the 7,869 shares of the Company’s common stock for $0.80 per share, in lieu of the semi-annual interest payment due on its 12% Convertible Subordinated Debt due August 31, 2009. The notes bore interest at 12%. The Company repaid $24,000 along with accrued interest totaling less than $1,000 on October 11, 2007. The remaining $55,000, along with accrued interest totaling $3,000, were repaid on February 29, 2008. |
(c) | In September of 2004, the Company arranged for an investment firm to sell $1,800,000 of 9% convertible subordinated notes (the “9% Notes”) in a private placement. As of December 15, 2004, a total of $255,000 of the offering had been subscribed and closed, including $150,000 by directors of the Company, and the offering was terminated. On December 29, 2004, a new private placement of the Company’s 12% Convertible Subordinated Notes (the “12% Notes”) was commenced. In December of 2004 the 9% Notes were exchanged for a like amount of 12% Notes and the holders forgave all accrued interest on the 9% Notes, totaling $5,000. An additional $1,845,000 of the 12% Notes were subscribed and closed in January bringing the total offering amount to $2,100,000. In February of 2007, an additional $105,000 of these notes were sold making the total amount outstanding $2,205,000. The Company began paying interest only on a semi-annual basis effective August 15, 2005. Such payments will be made until the February 15, 2010 maturity date, at which time the Company will make a balloon payment of the outstanding principal balance plus accrued and unpaid interest. The Company granted a security interest in Beard Technologies’ equipment to the holders of the 12% Notes. The security interest was released when the Company raised sufficient funds to finance the Pinnacle Project. The notes are convertible into shares of the Company’s stock at an initial conversion price of $1.00 per share. The Company may force conversion of the notes after February 15, 2007 if the weighted average sales price of the Company’s common stock has been more than two times the conversion price for more than sixty (60) consecutive trading days. |
(d) | In June of 2005, the Company arranged for an investment banking firm to commence a private debt placement of up to $2,004,102 of its 12% Convertible Subordinated Notes (the “2009 Notes”) due August 31, 2009. As part of the offering, holders of the remaining $804,102 of 10% Notes due November 30, 2006 were given the right to exchange such notes for the 2009 Notes. Holders of $624,000 of the 10% Notes did exchange their notes and the Company sold an additional $511,000 of the 2009 Notes bringing the total of the 2009 Notes outstanding to $1,135,000 at December 31, 2005. The Company began paying interest only on a semi-annual basis effective February 28, 2006. Such payments will be made until the August 31, 2009 maturity date, at which time the Company will make a balloon payment of the outstanding principal balance plus accrued and unpaid interest. The 2009 Notes are convertible into shares of the Company’s common stock. The conversion price for the 2009 Notes was determined by the weighted average price of Beard common stock during the 90-day period preceding the date each subscription was received by the Company, subject to the proviso that all notes issued in connection with subscriptions received on or before July 15, 2005, would have a conversion price of $2.25. The Company has the right to force conversion of the 2009 Notes after February 28, 2007 if the weighted average sales price of its common stock has been more than two times the conversion price for more than 60 consecutive trading days. These notes are convertible into 504,444 shares of the Company’s common stock. The unrelated third party which purchased $500,000 of the 10% Notes---see footnote (b) above---was allowed to retain its security interest in the McElmo Dome collateral to the extent of $390,000 (the remaining principal balance of its note). In February of 2006, the Company sold another $193,000 of the 2009 Notes. These notes are convertible into 145,415 shares of the Company’s common stock. |
(e) | On February 14, 2005, the Company borrowed $850,000 from its 50%-partner in the U.S limited liability company which owns Xianghe BH Fertilizer Co., Ltd. (“XBH”), the owner and operator of the China Segment’s fertilizer plant. XBH was formed in and operates solely in China. The note bears interest at 3.83%, which was the Applicable Federal Mid Term rate on the date of the note. Interest is payable annually commencing on February 14, 2006 and will be paid until the maturity of the note, February 14, 2010. At December 31, 2007, the Company had accrued interest totaling $61,000 on this unsecured note. During 2006 and 2007, the Company borrowed an additional $578,000 from its 50% partner in the U.S. |
limited liability company which owns XBH. The note bears interest at 6%, payable semi-annually, with the principal balance due at maturity on January 13, 2008. In January of 2008 the maturity date of the note was extended to January 13, 2009. At December 31, 2007, the Company had accrued interest totaling $42,000 on this unsecured note. Both the 2006 and 2007 principal and accrued interest balances associated with these notes are included in “Liabilities of discontinued operations held for resale” on the balance sheets presented.
(f) | At December 31, 2007, the Company had borrowed $2,783,000 from an affiliated entity of the Chairman of the Company under terms of a note that bears interest at 10%. Such borrowings are subject to a Deed of Trust, Assignment of Production, Security Agreement and Financing Statement recorded against the Company’s working and overriding royalty interests in the McElmo Dome Field. At December 31, 2007, the Company owed $668,000 of accrued interest on this note. The note, which was due to be repaid on April 1, 2008, has been extended to April 1, 2009. At December 31, 2007, the Company had borrowed another $98,000 from this same affiliate under terms of a loan that bears interest at ½% above the Wall Street Journal prime rate. The loan was repaid on March 27, 2008. At December 31, 2007, the Company owed $2,000 of accrued interest on this loan. In September, 2007 the Company borrowed $50,000 under a note from a related party for working capital. The noteholder was also given two-year warrants to purchase 5,000 shares of the Company’s common stock for $0.80 per share. The note bore interest at 12% and was repaid on March 27, 2008. At December 31, 2007, the Company owed $2,000 of accrued interest on this note. |
(g) | In October of 2006, the Company arranged for an investment banking firm to commence a private debt placement of up to $700,000 of its Series A 12% Convertible Subordinated Notes (the “Series A Notes”) due August 30, 2008 and up to $568,000 of its Series B 12% Convertible Subordinated Notes (the “Series B Notes”) due November 30, 2008. As part of the offering, holders of the Company’s outstanding Production Payment totaling $568,000 associated with the 10% Participating Notes due November 30, 2006 were given the opportunity to tender their Production Payment in exchange for a like amount of the Series B Notes and all such holders elected to do so. Holders of the Production Payment that exchanged their Production Payment and holders of the Company’s other outstanding convertible subordinated debt were given the right to purchase Series A Notes. Under these terms, the Company placed an additional $83,000 of the Series A Notes. The Series A and B Notes bear interest at an annual rate of 12%. The initial payment of interest on the Series A Notes was due on February 28, 2007 and is payable semi-annually thereafter. The initial payment of interest on the Series B Notes was on November 30, 2006 and is also payable semi-annually thereafter. Only interest will be paid until the respective maturity dates of the Series A and B Notes, which are convertible into shares of the Company’s common stock. The conversion price for the Notes is determined by the weighted average closing price of Beard common stock during the 90-day period preceding the date each subscription was received by the Company with a floor of $1.00 per share, subject to the proviso that all notes issued in connection with subscriptions received on or before October 19, 2006, would have a conversion price of $1.00. The Company has the right to force conversion of the Series A and B Notes after March 31, 2008 if the weighted average closing sales price of its common stock has been more than two times the conversion price for more than 40 consecutive trading days. These notes are convertible into 651,000 shares of the Company’s common stock. |
(h) | On May 22, 2006, the Company borrowed $200,000 from the unrelated third party that holds the $390,000 note referred to in (d) above. The note bore interest at 12% and the principal and all accrued interest was due to be repaid May 22, 2007. Such borrowing was subject to a Deed of Trust, Assignment of Production, Security Agreement and Financing Statement recorded against the Company’s working and overriding royalty interests in the McElmo Dome property, which is superior to both the lien held by the Chairman’s affiliate referred to in (b) above and by the $390,000 prior lien already held by such third party. In addition and in order to obtain this financing, the Company issued the lender 10,000 shares of its common stock which had a fair market value of $1.05 per share on the date of issuance. This note was repaid, along with accrued interest of $25,000, on June 8, 2007. |
(i) | On March 28, 2006, the Company obtained a $350,000 reducing revolving credit facility from a local bank (the “2006 Facility”. Terms of the 2006 Facility provided that on April 30, 2006, and on the last day of each month thereafter, the principal amount of the note was to be reduced by $10,000. Such borrowing was subject to a Deed of Trust, Assignment of Production, Security Agreement and Financing Statement recorded against the Company’s working and overriding royalty interests in the Yuma County, Colorado gas wells. The Company paid $30,000, which it capitalized, to another note holder to subordinate its note to the new lender. The Company borrowed a maximum of $290,000 under the terms of the 2006 Facility, and the balance outstanding at December 31, 2006 was $260,000. The note bore interest at the Wall Street Journal Prime Rate plus 1.5% and was payable monthly. The note was to mature on September 30, 2007. On June 8, 2007, however, the Company consummated a $1,500,000 long-term bank revolving reducing line of credit (the “2007 Facility”) collateralized by a priority position in its interest in the McElmo Dome field (the “Collateral”) and the remaining balance of $220,000 on the 2006 Facility was repaid. Initially, the Company could borrow up to $1,500,000 under the new line but that limit began reducing by $50,000 per month starting on July 31, 2007 and is to be fully repaid by December 31, 2008. |
On October 11, 2007, the Company entered into a Change of Terms Agreement on the 2007 Facility whereby no principal reduction was required on the facility for the months of July through October of 2007, only a $25,000 reduction was required in November and December of 2007, a $50,000 reduction in January and February of 2008, and a $75,000 per month reduction was required in March through December of 2008. (See “Recent Developments” above). At December 31, 2007, the balance outstanding on the 2007 Facility was $1,375,000. The line accrues interest at 1.5% above the Wall Street Journal Prime Rate which at December 31, 2007 was 7.25%. In connection with the sale of 35% of the Company’s interest in the McElmo Dome Unit on March 26, 2008, the Company entered into a new Change in Terms Agreement on March 25, 2008, whereby the 2007 Facility was modified to reduce the maximum credit available under the facility to $1,000,000 and to change the required monthly reductions to $50,000 per month beginning April 30, 2008. The Company reduced the outstanding principal balance under the 2007 Facility to zero on March 28, 2008. As part of the agreement for the 2007 Facility, all prior liens held by third parties will be released, and the bank has agreed to grant a partial release covering 35% of the Collateral. The third parties will then place new liens against the Collateral reflecting their respective positions which will again be subordinate to the bank’s secured position.
At December 31, 2007, the annual maturities of long-term debt were $2,812,000 in 2008, $4,783,000 in 2009 and $3,056,000 in 2010.
The Company incurred $717,000, $725,000 and $713,000 of interest expense relating to debt to related parties in 2007, 2006 and 2005, respectively. The Company paid $381,000, $384,000 and $464,000 of those amounts for 2007, 2006 and 2005, respectively.
The weighted average interest rates for the Company’s short-term borrowings were 11.3% and 10.6% as of December 31, 2007 and 2006, respectively.
The above financings were further supplemented in 2007 by (i) a $150,000 short-term loan from a shareholder of a former affiliate, (ii) $39,000 of short-term loans from our Note holders, and (iii) an additional short-term note of $23,000 from a current affiliate.
(10) Operating Leases
Noncancelable operating leases for continuing operations relate principally to office space, vehicles and operating equipment. Gross future minimum payments under such leases as of December 31, 2007 are summarized as follows:
| Year | Amount | |
| | | |
| 2008 | $ 109,000 | |
| 2009 | - | |
| 2010 | - | |
| | $ 109,000 | |
Gross future minimum payments under such leases for the discontinued China Segment are $100,000, $100,000 and $58,000 for 2008, 2009 and 2010, respectively.
Rent expense under operating leases aggregated $174,000, $166,000, and $166,000, in 2007, 2006, and 2005, respectively. Additionally, rent expense under operating leases in the now discontinued China Segment totaled $97,000, $157,000 and $130,000 in 2007, 2006, and 2005, respectively.
(11) Income Taxes
Total income tax expense (benefit) was allocated as follows:
| |
| | | |
| | | |
Continuing operations | $ (1,000) | $ (17,000) | $ 35,000 |
Discontinued operations | | | |
| | | |
Current income tax expense (benefit) from continuing operations consisted of:
| |
| | | |
| | | |
U. S. federal | $ (1,000) | $ (17,000) | $ 35,000 |
Various states | | | |
| | | |
Total income tax expense (benefit) allocated to continuing operations differed from the amounts computed by applying the U. S. federal income tax rate to loss from continuing operations before income taxes as a result of the following:
| |
| | | |
| | | |
Computed U. S. federal statutory expense (benefit) | $ (343,000) | $ (225,000) | $ (536,000) |
Federal alternative minimum tax (benefit) | (1,000) | (17,000) | 35,000 |
Increase (decrease) in the valuation allowance for deferred tax assets | 343,000 | 225,000 | 536,000 |
State income tax (benefit) | | | |
| | | |
The components of deferred tax assets and liabilities are as follows:
| |
| | |
| | |
Deferred tax assets – tax effect of: | | |
Net operating loss carryforwards | $ 10,545,000 | $ 16,781,000 |
Statutory depletion and investment tax credit carryforwards | 1,275,000 | 1,275,000 |
Other, principally investments and property, plant and equipment | | |
Total gross deferred tax assets | $ 12,128,000 | $ 18,412,000 |
Less valuation allowance | (12,105,000) | (18,371,000) |
Deferred tax liabilities | | |
Net deferred tax asset/liability | | |
In assessing the recoverability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
At December 31, 2007, the Company had federal regular tax operating loss carryforwards (the “NOL’s”) of approximately $27.6 million and tax depletion carryforwards of approximately $3.45 million. Another $22.8 million of the NOL’s will expire in 2008 and $4.8 million will expire from 2021 to 2027. These carryforwards may be limited if the Company undergoes a significant ownership change.
(12) Deferred Compensation Plans
The Company has adopted a series of deferred compensation plans for certain key executives and the board of directors which provide for payments in the form of the Company’s common stock upon (i) the death, disability, retirement or termination of the participant or (ii) termination of the plans. Under such plans, the number of shares of stock credited to each participant’s account is equal to the amount of compensation deferred divided by the fair market value of the stock on the deferral date. 700,000 shares of stock were issued effective January 31, 2003, upon termination of the initial plan adopted in 1996. 300,000 shares were issued effective September 30, 2003, upon termination of a second plan. 800,000 shares of stock were authorized
for issuance under the third plan (the “2003-2 Plan”), adopted in September of 2003 and amended in February of 2004. As of December 31, 2004, there were 712,716 shares reserved for distribution under the 2003-2 Plan and another85,095 shares werereserved for distribution in 2005 before the plan’s termination on November 17, 2005. A total of 217,653 shares from the 2003-2 Plan were distributed to the participants in 2005, along with an immaterial cash payment for fractional shares. Another 98,612 and 66,135 shares from the 2003-2 Plan were distributed to the participants in 2006 and 2007, respectively. The Company will distribute the remaining 415,408 shares in the following years, according to the binding elections of the participants:
| Year(s) | Total Shares | |
| | | |
| 2008-2009 (66,135 shares per year) | 132,270 | |
| 2010-2011 (66,134 shares per year) | 132,268 | |
| 2012 | 66,132 | |
| 2013-2014 (42,369 shares per year) | 84,738 | |
| Total | 415,408 | |
The Company adopted a fourth plan, the 2005 Deferred Stock Compensation Plan, on November 17, 2005 and 100,000 total shares of stock were authorized for issuance under this plan. On April 27, 2006 and April 26, 2007 the authorized shares were increased to 200,000 and 400,000, respectively. As of December 31, 2007, 360,042 shares were reserved for distribution under this plan, none of which have been issued at such date. As of February 29, 2008, the authorized shares in the plan had been exhausted and the plan was terminated. 399,997 shares were distributed to the participants in March, together with an immaterial cash payment for fractional shares.
The weighted-average fair values of stock units issued under the plans were $0.69, $1.177 and $1.887 for 2007, 2006 and 2005, respectively.
(13) Employee Benefit Plan
Employees of the Company participate in either of two defined contribution plans with features under Section 401(k) of the Internal Revenue Code. The purpose of the Plans is to provide retirement, disability and death benefits for all full-time employees of the Company who meet certain service requirements. One of the plans allows voluntary "savings" contributions up to a maximum of 50%, and the Company matches 100% of each employee’s contribution up to 5% of such employee's compensation. The second plan covers those employees in the Coal Segment and allows voluntary “savings” contributions up to a maximum of 40%. Under this plan, the Company contributes $1.00 per hour of service performed for hourly employees and up to 6% of compensation for salaried employees regardless of the employees’ contribution. The Company’s contributions under both plans are limited to the maximum amount that can be deducted for income tax purposes. Benefits payable under the plans are limited to the amount of plan assets allocable to the account of each plan participant. The Company retains the right to modify, amend or terminate the plans at any time. Effective July 16, 2002 the Company notified all participants in the two plans that it was suspending the 100% match until further notice. In November 2006 the Company, according to the terms of a union contract, notified the union participants employed at the Coal Segment’s coal fines recovery facility in West Virginia that it had re-instituted the 100% match (effective with each employee’s date of hire), and $9,000 of contributions were made to the plan during the remainder of the year. The Company made contributions totaling $11,000 under terms of this plan in 2007. No other contributions were made to the plans in 2005, 2006 or 2007.
(14) Commitments and Contingencies
In the normal course of business various actions and claims have been brought or asserted against the Company. Management does not consider them to be material to the Company's financial position, liquidity or future results of operations.
(15) Business Segment Information
The Company manages its business by products and services and by geographic location (by country). The Company evaluates its operating segments’ performance based on earnings or loss from operations before income taxes. The Company had three reportable segments in 2005 and four reportable segments in 2006 and 2007. The segments are Coal, Carbon Dioxide, e-Commerce, with the new Oil & Gas Segment added as a reportable segment in 2006.
The Coal Segment is in the business of operating coal fines reclamation facilities in the U.S. and provides slurry pond core drilling services, fine coal laboratory analytical services and consulting services. The CO2 Segment consists of the production
of CO2 gas. The e-Commerce Segment consists of a 71%-owned subsidiary whose current strategy is to develop business opportunities to leverage a subsidiary’s intellectual property portfolio of Internet payment methods and security technologies. The Oil & Gas Segment is in the business of producing of oil and gas.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies in note 1.
The following is certain financial information regarding the Company’s reportable segments (presented in thousands of dollars).
General corporate assets and expenses are not allocated to any of the Company’s operating segments; therefore, they are included as a reconciling item to consolidated total assets and loss from continuing operations before income taxes reported in the Company’s accompanying financial statements.
| | Carbon | | | |
| | | | | |
| | | | | |
2007 | | | | | |
Revenues from external customers | $ 21 | $ 1,367 | $ 5 | $ 74 | $ 1,467 |
Interest income | - | - | - | 2 | 2 |
Interest expense | - | - | - | - | - |
Depreciation, depletion and amortization | 12 | 50 | - | 15 | 77 |
Segment profit (loss) | (503) | 1,063 | (125) | 9 | 444 |
Segment assets | 262 | 970 | 5 | 323 | 1,560 |
Expenditures for segment assets | 14 | 85 | - | - | 99 |
| | | | | |
2006 | | | | | |
Revenues from external customers | $ 25 | $ 1,540 | $ 5 | $ 147 | $ 1,717 |
Interest income | - | - | - | 2 | 2 |
Interest expense | 2 | - | - | - | 2 |
Depreciation, depletion and amortization | 40 | 46 | - | 15 | 101 |
Segment profit (loss) | (120) | 1,324 | (95) | 89 | 1,198 |
Segment assets | 301 | 557 | 18 | 343 | 1,219 |
Expenditures for segment assets | 25 | 92 | 3 | - | 120 |
| | | | | |
2005 | | | | | |
Revenues from external customers | $ 52 | $ 1,172 | $ 31 | $ 95 | $ 1,350 |
Interest income | - | - | - | 1 | 1 |
Interest expense | 19 | - | - | - | 19 |
Depreciation, depletion and amortization | 9 | 42 | 3 | 5 | 59 |
Segment profit (loss) | (783) | 949 | (139) | 12 | 39 |
Segment assets | 1,816 | 522 | 13 | 401 | 2,752 |
Expenditures for segment assets | 1,991 | 34 | - | 277 | 2,302 |
| | | | | |
Reconciliation of reportable segment revenues to consolidated revenues is as follows (in thousands):
| 2007 | | 2006 | | 2005 |
| | | | | |
Total revenues for reportable segments | $ 1,467 | | $ 1,717 | | $ 1,350 |
Revenues from corporate activities not allocated to segments | - | | - | | - |
Total consolidated revenues | $ 1,467 | | $ 1,717 | | $ 1,350 |
Reconciliation of reportable segment interest expense to consolidated interest expense is as follows (in thousands):
| 2007 | | 2006 | | 2005 |
| | | | | |
Total interest expense for reportable segments | $ - | | $ 2 | | $ 19 |
Interest expense from corporate activities not allocated to segments | 892 | | 957 | | 956 |
Total consolidated interest expense | $ 892 | | $ 959 | | $ 975 |
Reconciliation of reportable segment depreciation, depletion and amortization to consolidated depreciation, depletion and amortization is as follows (in thousands):
| 2007 | | 2006 | | 2005 |
| | | | | |
Total depreciation, depletion and amortization for reportable segments | $ 77 | | $ 101 | | $ 59 |
Corporate depreciation and amortization not allocated to segments | 97 | | 77 | | 114 |
Total consolidated depreciation, depletion and amortization | $ 174 | | $ 178 | | $ 173 |
Reconciliation of total reportable segment profit (loss) to consolidated loss from continuing operations before income taxes is
as follows (in thousands):
| 2007 | | 2006 | | 2005 |
| | | | | |
Total earnings for reportable segments | $ 444 | | $ 1,198 | | $ 39 |
Net corporate income (costs) not allocated to segments | (1,397) | | (1,822) | | (1,527) |
Total consolidated loss from continuing operations | $ (953) | | $ (624) | | $ (1,488) |
Reconciliation of reportable segment assets to consolidated assets is as follows (in thousands):
| 2007 | | 2006 | | |
| | | | | |
Total assets for reportable segments | $ 1,560 | | $ 1,219 | | |
Assets of discontinued operations | 487 | | 789 | | |
Corporate assets not allocated to segments | 287 | | 414 | | |
Total consolidated assets | $ 2,334 | | $ 2,422 | | |
Reconciliation of expenditures for segment assets to total expenditures for assets is as follows (in thousands):
| 2007 | | 2006 | | |
| | | | | |
Total expenditures for assets for reportable Segments | $ 99 | | $ 120 | | |
Expenditures for assets in discontinued operations | - | | 49 | | |
Corporate expenditures not allocated to segments | 10 | | 19 | | |
Total expenditures for assets | $ 109 | | $ 188 | | |
All of 2005, 2006 and 2007 segment revenues were derived from customers in the United States of America. All remaining continuing segment assets are located in the United States of America.
For the year 2007, one customer accounted for 97% of the Coal Segment’s and 1% of the Company’s continuing revenues. During the year 2006, two customers accounted for 91% of the Coal Segment’s and 1% of the Company’s continuing revenues. During the year 2005, three customers accounted for 87% of the Coal Segment’s and 3% of the Company’s continuing
revenues. All of the e-Commerce Segment’s 2005, 2006 and 2007 revenues were derived from one customer. In 2007, the Company’s CO2 revenues were received from three parties in the CO2 Segment who market the CO2 gas to numerous end users on behalf of the interest owners who elect to participate in such sales. There were two such parties in 2005 and 2006. During 2007, 2006 and 2005, sales by these parties accounted for 93%, 86%, and 76%, respectively, of the Company’s segment revenues and all of the Carbon Dioxide Segment’s revenues. The Company’s oil and gas revenues are received from two operators in the Oil & Gas Segment who market the oil and natural gas to numerous end users on behalf of the interest owners who elect to participate in such sales. During 2007, 2006 and 2005, sales by these two operators accounted for 5%, 8% and 7%, respectively, of the Company’s segment revenues and all of the Oil & Gas Segment’s revenues.
(16) Quarterly Financial Data (unaudited) |
| Three Months Ended | |
| March 31, 2007 | June 30, 2007 | September 30, 2007 | December 31, 2007 | |
| (in thousands except per share data) | |
| | | | | |
Revenues | $ 319 | $ 328 | $ 355 | $ 465 | |
Operating profit (loss) | (141) | (267) | 72 | (42) | |
Loss from continuing operations | (323) | (476) | (66) | (88) | |
Loss from discontinued operations | (250) | (135) | (381) | (307) | |
Net loss | (573) | (611) | (447) | (395) | |
Basic loss per share | (0.10) | (0.10) | (0.08) | (0.06) | |
Diluted loss per share | (0.10) | (0.10) | (0.08) | (0.06) | |
| Three Months Ended | |
| March 31, 2006 | June 30, 2006 | September 30, 2006 | December 31, 2006 | |
| (in thousands except per share data) | |
| | | | | |
Revenues | $ 403 | $ 407 | $ 468 | $ 439 | |
Operating profit (loss) | (184) | (230) | 73 | (68) | |
Earnings (loss) from continuing operations | (362) | (467) | (150) | 372 | |
Loss from discontinued operations | (271) | (198) | (225) | (253) | |
Net earnings (loss) | (633) | (665) | (375) | 119 | |
Basic earnings (loss) per share | (0.11) | (0.12) | (0.07) | 0.03 | |
Diluted earnings (loss) Per share | (0.11) | (0.12) | (0.07) | 0.03 | |
The quarterly information presented above has been restated to conform to the final year-end 2007 presentation.
The Company recorded no economic impairments in the fourth quarter of 2005 or 2006. In the fourth quarter of 2007, the Company expensed $13,000 of costs associated with unsuccessful attempts to obtain a patent in the e-Commerce Segment.
See Note 2 – “Additional Details – Subsequent Events”
(18) Impact of Recently Issued Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“FAS 141R”), which replaces FAS 141. FAS 141R establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS 141R is to be applied prospectively to business combinations for which the acquisition date is on or after an entity’s fiscal year that begins after December 15, 2008 (the Company’s fiscal year ending December 31, 2009). Management has not completed its evaluation of the potential impact, if any, of the adoption of FAS 141R on its consolidated financial position, results of operations and cash flows.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160 “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (“FAS 160”). FAS 160 establishes accounting and reporting standards that require the ownership interest in subsidiaries held by parties other than the parent be clearly identified and presented in the consolidated balance sheets within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of earnings; and changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. This statement is effective for fiscal years beginning on or after December 15, 2008, (the Company’s fiscal year ending December 31, 2009). Management has not completed its evaluation of the potential impact, if any, of the adoption of FAS 160 on its consolidated financial position, results of operations and cash flows.
In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, with earlier adoption permitted. Management is assessing the impact of the adoption of this Statement.
In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115” (“SFAS No. 158”). SFAS No. 158 permits entities to choose to measure many financial instruments and certain other items at fair value. It requires companies to provide information helping financial statement users to understand the effect of a company’s choice to use the fair value on its earnings, as well as to display the fair value of the assets and liabilities a company has chosen to use fair value for on the face of the balance sheet. Additionally, SFAS No. 158 establishes presentation and disclosure requirements designed to simplify comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The Statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Management is assessing the impact of this statement.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
No matters require disclosure here.
Item 9A. Controls and Procedures.
See "Item 8. Financial Statements and Supplemental Data" for Managements Annual Report on Internal Control Over Financial Reporting.
We, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule a-15(f) under the Exchange Act) were not effective as discussed in Management's Annual Report on Internal Control Over Financial Reporting as of December 31, 2007 to ensure that information required to be disclosed by us in reports that we file or submit under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosures.
There were no changes in our internal control over financial reporting during our fiscal fourth quarter ended December 31, 2007, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
There was no information required to be disclosed in a report on Form 8-K during the fourth quarter ended December 31, 2007, that was not reported.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information regarding our directors and executive officers will be contained in the definitive proxy statement which will be filed pursuant to Regulation 14A with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K, and the information to be contained therein is incorporated herein by reference.
Item 11. Executive Compensation.
The information regarding executive compensation will be contained in the definitive proxy statement which will be filed pursuant to Regulation 14A with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K, and the information to be contained therein is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockkholder Matters.
The information regarding security ownership of certain beneficial owners and management and related stockholder matters will be contained in the definitive proxy statement which will be filed pursuant to Regulation 14A with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K, and the information to be contained therein is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information regarding transactions with management and others will be contained in the definitive proxy statement which will be filed pursuant to Regulation 14A with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K, and the information to be contained therein is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
The information regarding principal accountant fees and services will be contained in the definitive proxy statement which will be filed pursuant to Regulation 14A with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K, and the information to be contained therein is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) The following documents are filed as part of this report:
| 1. | Financial Statements. Reference is made to the Index to Financial Statements and Financial Statement. |
| 2. | Financial Statement Schedules. Financial Statement Schedules are omitted as inapplicable or not required, or the required information is shown in the financial statements or in the notes thereto. |
| 3. | Exhibits. The following exhibits are filed with this Form 10-K and are identified by the numbers indicated: |
3.1 | Restated Certificate of Incorporation of Registrant as filed with the Secretary of State of Oklahoma on September 20, 2000. (This Exhibit has been previously filed as Exhibit 3(i) to Registrant’s Form 10-Q for the period ended September 30, 2000, filed on November 20, 2000, and same is incorporated herein by reference). |
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3.2 | Amended Certificate of Incorporation of Registrant as filed with the Secretary of State of Oklahoma on July 20, 2004, effective on the close of business August 6, 2004. (This Exhibit has been previously filed as Exhibit 3.2 to Registrant’s Form 10-K for the period ended December 31, 2005, filed on April 17, 2006, and same is incorporated by reference). |
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3.3 | Registrant’s By-Laws as currently in effect. (This Exhibit has been previously filed as Exhibit 3(ii) to Registrant’s Form 10-K for the period ended December 31, 1997, filed on March 31, 1998, and same is incorporated herein by reference). |
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4 | Instruments defining the rights of security holders: |
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4.1 | Certificate of Designations, Powers, Preferences and Relative, Participating, Option and Other Special Rights, and the Qualifications, Limitations or Restrictions Thereof of the Series A Convertible Voting Preferred Stock of the Registrant. (This Exhibit has been previously filed as Exhibit 3(c) to Amendment No. 2, filed on September 17, 1993 to Registrant's Registration Statement on Form S-4, File No. 33-66598, and same is incorporated herein by reference). |
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10 | Material contracts: |
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10.1* | The Beard Company 2006 Stock Option Plan adopted on May 1, 2006. (This Exhibit has been previously filed as Exhibit C to Registrant’s Proxy Statement filed on May 1, 2006, and same is incorporated herein by reference). |
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10.2 | Form of Indemnification Agreement dated December 15, 1994, by and between Registrant and five directors. (This Exhibit has been previously filed as Exhibit 10(b) to Registrant’s Form 10-K for the period ended December 31, 2000, filed on April 2, 2001, and same is incorporated herein by reference). |
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10.3* | Amendment No. One to The Beard Company 2003-2 Deferred Stock Compensation Plan as amended effective February 13, 2004. (This Amendment, which supersedes the original Plan adopted on September 30, 2003, has been previously filed as Exhibit 10.5 to Registrant’s Form 10-K for the period ended December 31, 2003, filed on March 30, 2004, and same is incorporated herein by reference). |
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10.4* | Amendment No. One to The Beard Company 2005 Deferred Stock Compensation Plan as amended effective April 27, 2006. (This Amendment, which supersedes the original Plan adopted on November 17, 2005, has been previously filed as Exhibit B to Registrant’s Proxy Statement filed on May 1, 2006, and same is incorporated herein by reference). |
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10.5* | Amendment No. Two to The Beard Company 2005 Deferred Stock Compensation Plan as amended effective April 26, 2007. (This Amendment, which supersedes the Plan as amended on April 27, 2006, has been previously filed as Exhibit A to Registrant’s Proxy Statement filed on April 30, 2007, and same is incorporated herein by reference). |
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10.6 | Amendment to Restated and Amended Letter Loan Agreement by and between Registrant and The William M. Beard and Lu Beard 1988 Charitable Unitrust (the “Unitrust”) dated June 25, 2004. (This Exhibit has been previously filed as Exhibit 10.11 to Registrant’s Form 10-K for the period ended December 31, 2004, filed on March 31, 2005, and same is incorporated herein by reference). |
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10.7 | Restated and Amended Letter Loan Agreement by and between Registrant and the Unitrust dated March 3, 2006. (This Exhibit, which superseded all prior Agreements between the parties (except for the third paragraph of Exhibit 10.6), has been previously filed as Exhibit 10.1 to Registrant’s Form 10-Q for the period ended March 31, 2006, filed on May 22, 2006, and same is incorporated herein by reference). |
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10.8 | Second Replacement Renewal and Extension Promissory Note from Registrant to the Trustees of the Unitrust dated effective February 14, 2005. (This Exhibit, which superseded all prior Notes between the parties (except for the third paragraph of Exhibit 10.6), has been previously filed as Exhibit 10.2 to Registrant’s Form 10-Q for the period ended March 31, 2006, filed on May 22, 2006, and same is incorporated herein by reference). |
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10.9 | Restated and Amended Letter Loan Agreement by and between Registrant and the Unitrust dated June 13, 2007. (This Exhibit, which superseded all prior Agreements between the parties, has been previously filed as Exhibit 10.7 to Registrant’s Form 10-Q for the period ended June 30, 2007, filed on August 20, 2007, and same is incorporated herein by reference). |
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10.10 | Third Replacement Renewal and Extension Promissory Note from Registrant to the Trustees of the Unitrust dated effective February 14, 2005. (This Exhibit, which superseded all prior Notes between the parties (except for the third paragraph of Exhibit 10.6), has been previously filed as Exhibit 10.8 to Registrant’s Form 10-Q for the period ended June 30, 2007, filed on August 20, 2007, and same is incorporated herein by reference). |
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10.11 | Form of 2002 Warrant. (This Exhibit has been previously filed as Exhibit 10(d) to Registrant’s Form 10-Q for the period ended June 30, 2002, and same is incorporated herein by reference). |
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10.12 | Form of 2003 Warrant. (This Exhibit has been previously filed as Exhibit 10(c) to Registrant’s Form 10-Q for the period ended March 31, 2003, filed on May 15, 2003, and same is incorporated herein by reference). |
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10.13 | Form of Deed of Trust, Assignment of Production, Security Agreement and Financing Statement dated as of February 21, 2003. (This Exhibit has been previously filed as Exhibit 10(d) to Registrant’s Form 10-Q for the period ended March 31, 2003, filed on May 15, 2003, and same is incorporated herein by reference). |
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10.14 | Subordination and Nominee Agreement dated February 21, 2003. (This Exhibit has been previously filed as Exhibit 10.26 to Registrant’s Form 10-K for the period ended December 31, 2003, filed on March 30, 2004, and same is incorporated herein by reference). |
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10.15 | Form of 2004 Warrant. (This Exhibit has been previously filed as Exhibit 10.2 to Registrant’s Form 10-Q for the period ended June 30, 2004, filed on August 16, 2004, and same is incorporated herein by reference). |
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10.16 | Form of Deed of Trust, Assignment of Production, Security Agreement and Financing Statement by and between Registrant and McElmo Dome Nominee, LLC (“Nominee”), dated as of May 21, 2004. (This Exhibit has been previously filed as Exhibit 10.25 to Registrant’s Form 10-K for the period ended December 31, 2004, filed on March 31, 2005, and same is incorporated herein by reference). |
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10.17 | Subordination and Nominee Agreement dated May 21, 2004, by and between the Unitrust and Boatright Family, L.L.C. (“Boatright”) (This Exhibit has been previously filed as Exhibit 10.27 to Registrant’s Form 10-K for the period ended December 31, 2004, filed on March 31, 2005, and same is incorporated herein by reference). |
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10.18 | Form of 12% Convertible Subordinated Promissory Note due February 15, 2010. (This Exhibit has been previously filed as Exhibit 10.1 to Registrant’s Form 10-Q for the period ended March 31, 2005, filed on May 16, 2005, and same is incorporated herein by reference). |
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10.19 | Form of 2005 Warrant. (This Exhibit has been previously filed as Exhibit 10.3 to Registrant’s Form 10-Q for the period ended March 31, 2005, filed on May 16, 2005, and same is incorporated herein by reference). |
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10.20 | Letter Agreement by and between 7HBF, Ltd. (“7HBF”) and Registrant dated February 7, 2005. (This Exhibit has been previously filed as Exhibit 10.4 to Registrant’s Form 10-Q for the period ended March 31, 2005, filed on May 16, 2005, and same is incorporated herein by reference). |
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10.21 | Unsecured Promissory Note from BEE/7HBF, LLC to 7HBF dated February 14, 2005. (This Exhibit has been previously filed as Exhibit 10.5 to Registrant’s Form 10-Q for the period ended March 31, 2005, filed on May 16, 2005, and same is incorporated herein by reference). |
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10.22 | Beard Boatright 12% Convertible Subordinated Promissory Note due August 31, 2009. (This Exhibit has been previously filed as Exhibit 99.1 to the Registrant’s Form 8-K, Current Report, filed on July 25, 2005, and same is incorporated herein by reference). |
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10.23 | Form of 12% Convertible Subordinated Promissory Note due August 31, 2009 issued to all other 2009 Note purchasers. (This Exhibit has been previously filed as Exhibit 99.2 to the Registrant’s Form 8-K, Current Report, filed on July 25, 2005, and same is incorporated herein by reference). |
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10.24 | Note Assumption Agreement and Release by and among the Unitrust, Registrant and Boatright. (This Exhibit has been previously filed as Exhibit 99.3 to the Registrant’s Form 8-K, Current Report, filed on July 25, 2005, and same is incorporated herein by reference). | |
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10.25 | Subordination and Nominee Agreement dated as of July 22, 2005, by and among the Unitrust, Boatright and Nominee. (This Exhibit has been previously filed as Exhibit 99.4 to the Registrant’s Form 8-K, Current Report, filed on July 25, 2005, and same is incorporated herein by reference). | |
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10.26 | Form of Amended and Restated Deed of Trust, Assignment of Production, Security Agreement and Financing Statement by and between Registrant, the Public Trustees of Dolores and Montezuma Counties, Colorado, for the benefit of Nominee, dated as of July 22, 2005. (This Exhibit has been previously filed as Exhibit 99.5 to the Registrant’s Form 8-K, Current Report, filed on July 25, 2005, and same is incorporated herein by reference). | |
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10.27 | Form of 12% Convertible Subordinated Series A Promissory Note due August 30, 2008. (This Exhibit has been previously filed as Exhibit 10.30 to Registrant’s Form 10-K for the period ended December 31, 2006, filed on April 17, 2007, and same is incorporated herein by reference). | |
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10.28 | Form of 12% Convertible Subordinated Series B Promissory Note due November 30, 2008.. (This Exhibit has been previously filed as Exhibit 10.31 to Registrant’s Form 10-K for the period ended December 31, 2006, filed on April 17, 2007, and same is incorporated herein by reference). | |
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10.29 | Amended and Restated Contract Operating Agreement between BTI and BPLLC, dated October 31, 2006. (This Exhibit has been previously filed as Exhibit 10.30 to Registrant’s Form 10-K for the period ended December 31, 2006, filed on April 17, 2007, and same is incorporated herein by reference). | |
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10.30 | Business Loan Agreement dated June 8, 2007 by and between Registrant and First Fidelity Bank, N.A. (This Exhibit has been previously filed as Exhibit 99.1 to Registrant’s Form 8-K, Current Report, filed on June 12, 2007, and same is incorporated herein by reference). |
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10.31 | Promissory Note dated June 8, 2007, by and between Registrant and FFB. (This Exhibit has been previously filed as Exhibit 99.2 to Registrant’s Form 8-K, Current Report, filed on June 12, 2007, and same is incorporated herein by reference). |
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10.32 | Form of Deed of Trust, Assignment, Security Agreement and Financing Statement dated as of June 8, 2007 by and between Registrant and the Public Trustees of Dolores and Montezuma Counties, Colorado for the benefit of FFB. (This Exhibit has been previously filed as Exhibit 99.4 to Registrant’s Form 8-K, Current Report, filed on June 12, 2007, and same is incorporated herein by reference). |
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10.33 | Subordination Agreement and Release dated June 8, 2007, by and among the Unitrust, Boatright and Nominee. (This Exhibit has been previously filed as Exhibit 99.3 to Registrant’s Form 8-K, Current Report, filed on June 12, 2007, and same is incorporated herein by reference). |
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10.34 | Consent and Amendment to Subordination Agreement and Release dated October 11, 2007, by and among the Unitrust, Boatright and Nominee. |
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10.35 | Change in Trms Agreement dated October 11, 2007 by and between Registrant and FFB. |
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14 | Code of Ethics as amended March 9, 2006. (This Exhibit has been previously filed as Exhibit 14 to Registrant’s Form 10-K for the period ended December 31, 2006, filed on April 17, 2007, and same is incorporated herein by reference). |
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21 | Subsidiaries of the Registrant. |
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23 | Consents of Experts and Counsel: |
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23.1 | Consent of Cole & Reed, P.C. |
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31 | Rule 13a-14(a)/15d-14(a) Certifications: |
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31.1 | Chief Executive Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a). |
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31.2 | Chief Financial Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a). |
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32 | Section 1350 Certifications: |
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32.1 | Chief Executive Officer Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code. |
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32.2 | Chief Financial Officer Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code. |
_____________________
*Compensatory plans or arrangements.
The Company will furnish to any shareholder a copy of any of the above exhibits upon the payment of $.25 per page. Any request should be sent to The Beard Company, Enterprise Plaza, Suite 320, 5600 North May Avenue, Oklahoma City, Oklahoma 73112.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| THE BEARD COMPANY
(Registrant) |
| By /s/ Herb Mee, Jr.
Herb Mee, Jr., President |
Date: April 14, 2008 | |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated below.
Signature | Title | Date |
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By /s/ W.M. Beard
W.M. Beard | Chief Executive Officer | April 14, 2008 |
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By /s/ Herb Mee, Jr.
Herb Mee, Jr. | President and Chief Financial Officer | April 14, 2008 |
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By Jack A. Martine
Jack A. Martine | Controller and Chief Accounting Officer | April 14, 2008 |
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By /s/ W.M. Beard
W.M. Beard | Chairman of the Board | April 14, 2008 |
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By /s/ Herb Mee, Jr.
Herb Mee, Jr. | Director | April 14, 2008 |
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By /s/ Allan R. Hallock
Allan R. Hallock | Director | April 14, 2008 |
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By /s/ Harlon E. Martin, Jr.
Harlon E. Martin, Jr. | Director | April 14, 2008 |
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By /s/ Ford C. Price
Ford C. Price | Director | April 14, 2008 |
EXHIBIT INDEX |
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Exhibit No. | Descripiton of Document | Method of Filing |
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3.1 | Restated Certificate of Incorporation of Registrant as filed with the Secretary of State of Oklahoma on September 20, 2000 | Incorporated herein by reference |
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3.2 | Amended Certificate of Incorporation of Registrant as filed with the Secretary of State of Oklahoma on July 20, 2004, effective on the close of business August 6, 2004 | Incorporated herein by reference |
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3.3 | Registrant’s By-Laws as currently in effect | Incorporated herein by reference |
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4.1 | Certificate of Designations, Powers, Preferences and Relative, Participating, Option and Other Special Rights, and the Qualifications, Limitations or Restrictions Thereof of the Series A Convertible Voting Preferred Stock of the Registrant | Incorporated herein by reference |
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3.1 | Restated Certificate of Incorporation of Registrant as filed with the Secretary of State of Oklahoma on September 20, 2000 | Incorporated herein by reference |
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3.2 | Amended Certificate of Incorporation of Registrant as filed with the Secretary of State of Oklahoma on July 20, 2004, effective on the close of business August 6, 2004 | Incorporated herein by reference |
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3.3 | Registrant’s By-Laws as currently in effect. | Incorporated herein by reference |
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4.1 | Certificate of Designations, Powers, Preferences and Relative, Participating, Option and Other Special Rights, and the Qualifications, Limitations or Restrictions Thereof of the Series A Convertible Voting Preferred Stock of the Registrant | Incorporated herein by reference |
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10.1 | The Beard Company 2006 Stock Option Plan adopted on May 1, 2006 | Incorporated herein by reference | |
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10.2 | Form of Indemnification Agreement dated December 15, 1994, by and between Registrant and five directors | Incorporated herein by reference | |
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10.3 | Amendment No. One to The Beard Company 2003-2 Deferred Stock Compensation Plan as amended effective February 13, 2004. | Incorporated herein by reference | |
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10.4 | Amendment No. One to The Beard Company 2005 Deferred Stock Compensation Plan as amended effective April 27, 2006 | Incorporated herein by reference | |
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10.5 | Amendment No. Two to The Beard Company 2005 Deferred Stock Compensation Plan as amended effective April 26, 2007 | Incorporated herein by reference | |
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10.6 | Amendment to Restated and Amended Letter Loan Agreement by and between Registrant and The William M. Beard and Lu Beard 1988 Charitable Unitrust (the “Unitrust”) dated June 25, 2004. | Incorporated herein by reference | |
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10.7 | Restated and Amended Letter Loan Agreement by and between Registrant and the Unitrust dated March 3, 2006. | Incorporated herein by reference | |
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10.8 | Second Replacement Renewal and Extension Promissory Note from Registrant to the Trustees of the Unitrust dated effective February 14, 2005. | Incorporated herein by reference | |
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10.9 | Restated and Amended Letter Loan Agreement by and between Registrant and the Unitrust dated June 13, 2007. | Incorporated herein by reference | |
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10.10 | Third Replacement Renewal and Extension Promissory Note from Registrant to the Trustees of the Unitrust dated effective February 14, 2005 | Incorporated herein by reference | |
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10.11 | Form of 2002 Warrant. (This Exhibit has been previously filed as Exhibit 10(d) to Registrant’s Form 10-Q for the period ended June 30, 2002, and same is incorporated herein by reference). | Incorporated herein by reference | |
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10.12 | Form of 2003 Warrant. | Incorporated herein by reference | |
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10.13 | Form of Deed of Trust, Assignment of Production, Security Agreement and Financing Statement dated as of February 21, 2003. | Incorporated herein by reference | |
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10.14 | Subordination and Nominee Agreement dated February 21, 2003. | Incorporated herein by reference | |
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10.15 | Form of 2004 Warrant | Incorporated herein by reference | |
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10.16 | Form of Deed of Trust, Assignment of Production, Security Agreement and Financing Statement by and between Registrant and McElmo Dome Nominee, LLC (“Nominee”), dated as of May 21, 2004 | Incorporated herein by reference | |
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10.17 | Subordination and Nominee Agreement dated May 21, 2004, by and between the Unitrust and Boatright Family, L.L.C. (“Boatright”). | Incorporated herein by reference | |
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10.18 | Form of 12% Convertible Subordinated Promissory Note due February 15, 2010. | Incorporated herein by reference | |
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10.19 | Form of 2005 Warrant. | Incorporated herein by reference | |
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10.20 | Letter Agreement by and between 7HBF, Ltd. (“7HBF”) and Registrant dated February 7, 2005. | Incorporated herein by reference | |
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10.21 | Unsecured Promissory Note from BEE/7HBF, LLC to 7HBF dated February 14, 2005. | Incorporated herein by reference | |
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10.22 | Beard Boatright 12% Convertible Subordinated Promissory Note due August 31, 2009. | Incorporated herein by reference | |
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10.23 | Form of 12% Convertible Subordinated Promissory Note due August 31, 2009 issued to all other 2009 Note purchasers. | Incorporated herein by reference | |
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10.24 | Note Assumption Agreement and Release by and among the Unitrust, Registrant and Boatright. | Incorporated herein by reference | |
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10.25 | Subordination and Nominee Agreement dated as of July 22, 2005, by and among the Unitrust, Boatright and Nominee. | Incorporated herein by reference | |
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10.26 | Form of Amended and Restated Deed of Trust, Assignment of Production, Security Agreement and Financing Statement by and between Registrant, the Public Trustees of Dolores and Montezuma Counties, Colorado, for the benefit of Nominee, dated as of July 22, 2005. | Incorporated herein by reference | |
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10.27 | Form of 12% Convertible Subordinated Series A Promissory Note due August 30, 2008. | Incorporated herein by reference | |
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10.28 | Form of 12% Convertible Subordinated Series B Promissory Note due November 30, 2008. | Incorporated herein by reference | |
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10.29 | Amended and Restated Contract Operating Agreement between BTI and BPLLC, dated October 31, 2006. | Incorporated herein by reference | |
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10.30 | Business Loan Agreement dated June 8, 2007 by and between Registrant and First Fidelity Bank, N.A. | Incorporated herein by reference |
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10.31 | Promissory Note dated June 8, 2007, by and between Registrant and FFB. | Incorporated herein by reference |
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10.32 | Form of Deed of Trust, Assignment, Security Agreement and Financing Statement dated as of June 8, 2007 by and between Registrant and the Public Trustees of Dolores and Montezuma Counties, Colorado for the benefit of FFB. . | Incorporated herein by reference |
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10.33 | Subordination Agreement and Release dated June 8, 2007, by and among the Unitrust, Boatright and Nominee. | Incorporated herein by reference |
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10.34 | Consent and Amendment to Subordination Agreement and Release dated October 11, 2007, by and among the Unitrust, Boatright and Nominee. | Filed herewith electronically |
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10.35 | Change in Terms Agreement dated October 11, 2007 by and between Registrant and FFB. | Filed herewith electronically |
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14 | Code of Ethics as amended March 9, 2006. | Incorporated herein by reference |
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21 | Subsidiaries of the Registrant. | Filed herewith electronically |
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23.1 | Consent of Cole & Reed, P.C. | Filed herewith electronically |
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31.1 | Chief Executive Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a). | Filed herewith electronically |
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31.2 | Chief Financial Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a). | Filed herewith electronically |
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32.1 | Chief Executive Officer Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code. | Filed herewith electronically |
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32.2 | Chief Financial Officer Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code. | Filed herewith electronically |
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