UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended June 30, 2000
or
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 1-12396
THE BEARD COMPANY
(Exact name of registrant as specified in its charter)
Oklahoma 73-0970298
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, Oklahoma 73112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 842-2333
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of July 31, 2000.
Common Stock $.001 par value - 2,438,724
THE BEARD COMPANY
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Balance Sheets - June 30, 2000 (Unaudited) and
December 31, 1999
Statements of Operations - Three Months and Six
Months ended June 30, 2000 and 1999 (Unaudited)
Statements of Shareholders' Equity - Year ended
December 31, 1999 and Six Months ended June 30, 2000 (Unaudited)
Statements of Cash Flows - Six Months ended June 30, 2000 and
1999 (Unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
PART II. OTHER INFORMATION
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE BEARD COMPANY AND SUBSIDIARIES
Balance Sheets
June 30, 2000 (Unaudited) and December 31, 1999
June 30, December 31,
Assets 2000 1999
---- ----
Current assets:
Cash and cash equivalents $ 101,000 $ 767,000
Investments - 280,000
Accounts receivable, less allowance for doubtful
receivables of $42,000 in 2000 and $13,000
in 1999 349,000 480,000
Inventory 109,000 103,000
Prepaid expenses and other assets 63,000 98,000
Current portion of notes receivable 82,000 80,000
------------ ------------
Total current assets 704,000 1,808,000
------------ ------------
Notes receivable 857,000 756,000
Investments and other assets 956,000 1,324,000
Property, plant and equipment, at cost 7,094,000 6,879,000
Less accumulated depreciation, depletion and
amortization 4,027,000 3,987,000
------------ ------------
Net property, plant and equipment 3,067,000 2,892,000
------------ ------------
Intangible assets, at cost 44,000 25,000
Less accumulated amortization 1,000 1,000
------------ ------------
Net intangible assets 43,000 24,000
------------ ------------
$ 5,627,000 $ 6,804,000
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Trade accounts payable $ 220,000 $ 262,000
Accrued expenses 472,000 606,000
Current maturities of long-term debt 21,000 17,000
------------ ------------
Total current liabilities 713,000 885,000
------------ ------------
Long-term debt less current maturities 683,000 13,000
Other long-term liabilities 343,000 351,000
Redeemable preferred stock of $100 stated
value; 5,000,000 shares authorized;
27,838 shares issued and outstanding (note 5) 889,000 889,000
Common shareholders' equity:
Common stock of $.001 par value per share;
10,000,000 shares authorized; 2,832,129
shares issued and outstanding
in 2000 and 1999 3,000 3,000
Capital in excess of par value 37,723,000 37,723,000
Accumulated deficit (32,862,000) (31,218,000)
Accumulated other comprehensive income (loss) (19,000) 4,000
Treasury stock, 393,405 shares, at cost in
2000 and 1999 (1,846,000) (1,846,000)
------------ -------------
Total common shareholders' equity 2,999,000 4,666,000
------------ -------------
Commitments and contingencies (note 8)
$ 5,627,000 $ 6,804,000
============ =============
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Operations
(Unaudited)
For Three Months Ended For Six Months Ended
---------------------- ---------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
Coal reclamation $ 11,000 $ 108,000 $ 23,000 $ 792,000
Carbon dioxide 114,000 105,000 213,000 224,000
China - - - -
Environmental remediation - - - -
Natural gas well servicing - - 65,000 -
e-Commerce - - - -
Other 9,000 21,000 15,000 30,000
--------- --------- ----------- -----------
134,000 234,000 316,000 1,046,000
--------- --------- ----------- -----------
Expenses:
Coal reclamation 184,000 275,000 359,000 688,000
Carbon dioxide 15,000 26,000 36,000 54,000
China 107,000 75,000 190,000 158,000
Environmental remediation 41,000 46,000 81,000 102,000
Natural gas well servicing 5,000 - 48,000 -
e-Commerce - - - -
Selling, general and administrative 397,000 506,000 852,000 952,000
Depreciation, depletion &
amortization 28,000 23,000 54,000 204,000
Other 12,000 38,000 22,000 46,000
--------- --------- ----------- -----------
789,000 989,000 1,642,000 2,204,000
--------- --------- ----------- -----------
Operating profit (loss):
Coal reclamation (223,000) (206,000) (438,000) (179,000)
Carbon dioxide 91,000 70,000 161,000 154,000
China (82,000) (75,000) (191,000) (158,000)
Environmental remediation (51,000) (78,000) (117,000) (155,000)
Natural gas well servicing (48,000) - (76,000) -
e-Commerce (79,000) (18,000) (154,000) (36,000)
Other, primarily corporate (263,000) (448,000) (511,000) (784,000)
--------- --------- ----------- -----------
(655,000) (755,000) (1,326,000) (1,158,000)
Other income (expense):
Interest income 30,000 67,000 57,000 120,000
Interest expense (7,000) (2,000) (8,000) (158,000)
Minority interest in operations
of subsidiary 10,000 - 16,000 -
Gain (loss) on sale of assets 10,000 1,000 10,000 3,000
Equity in earnings of
unconsolidated affiliates (235,000) 134,000 (384,000) 89,000
Other (1,000) 34,000 5,000 72,000
--------- --------- ----------- -----------
Loss from continuing
operations before income taxes (848,000) (521,000) (1,630,000) (1,032,000)
Income taxes (note 7) (8,000) (16,000) (14,000) (16,000)
--------- --------- ----------- -----------
Loss from continuing operations (856,000) (537,000) (1,644,000) (1,048,000)
Loss from discontinued operations - (24,000) - (64,000)
--------- --------- ----------- -----------
Net loss $(856,000) $(561,000) $(1,644,000) $(1,112,000)
========= ========= =========== ===========
Net loss per average common share outstanding:
Basic and diluted:
Loss from continuing operations $ (0.35) $ (0.22) $ (0.67) $ (0.43)
Loss from discontinued operations 0.00 (0.01) 0.00 (0.02)
--------- --------- ----------- -----------
Net loss $ (0.35) $ (0.23) $ (0.67) $ (0.45)
========= ========= =========== ===========
Weighted average common shares
outstanding - basic and diluted 2,439,000 2,459,000 2,439,000 2,464,000
========= ========= =========== ===========
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Shareholders' Equity
Accumulated Total
Capital in Other Common
Common Excess of Accumulated Comprehensive Treasury Shareholders'
Stock Par Value Deficit Income Stock Equity
------- ------------ ------------ -------- ----------- -----------
Balance, December 31, 1998 $ 3,000 $ 37,747,000 $(27,819,000) $ - $(1,544,000) $ 8,387,000
Net loss - - (3,399,000) - - (3,399,000)
Comprehensive income:
Foreign currency translation
adjustment - - - 4,000 - 4,000
-----------
Comprehensive loss (3,395,000)
-----------
Issuance of 3,760 shares of
treasury stock for
stock option exercises - (24,000) - - 24,000 -
Purchase of 86,275 shares of
common stock - - - - (326,000) (326,000)
------- ------------ ------------ -------- ----------- -----------
Balance, December 31, 1999 $ 3,000 $ 37,723,000 $(31,218,000) $ 4,000 $(1,846,000) $ 4,666,000
Net loss, six months ended
June 30, 2000 (unaudited) - - (1,644,000) - - (1,644,000)
Comprehensive loss:
Foreign currency translation
adjustment (unaudited) - - - (23,000) - (23,000)
----------
Comprehensive loss (unaudited) (1,667,000)
------- ------------ ------------ -------- ----------- -----------
Balance, June 30, 2000
(unaudited) $ 3,000 $ 37,723,000 $(32,862,000) $(19,000) $(1,846,000) $ 2,999,000
======= ============ ============ ======== =========== ===========
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Cash Flows
(Unaudited)
For the Six Months Ended
----------------------------
June 30, 2000 June 30, 1999
------------- -------------
Operating activities:
Cash received from customers $ 1,580,000 $ 5,412,000
Cash paid to suppliers and employees (2,900,000) (5,612,000)
Interest received 51,000 116,000
Interest paid (28,000) (253,000)
Taxes paid (20,000) (64,000)
------------ ------------
Net cash used in operating activities (1,317,000) (401,000)
------------ ------------
Investing activities:
Acquisition of property, plant and equipment (249,000) (870,000)
Proceeds from sale of assets 13,000 5,000
Proceeds from redemptions of certificates of
deposit 280,000 -
Investment in and advances to fifty percent-owned
subsidiary (196,000) (341,000)
Advances for notes receivable (163,000) (560,000)
Payments on notes receivable 87,000 315,000
Other 178,000 161,000
------------ ------------
Net cash used in investing activities (50,000) (1,290,000)
------------ ------------
Financing activities:
Payments on line of credit and term notes (9,000) (195,000)
Proceeds from short term notes 710,000 -
Purchase of treasury stock - (286,000)
------------ ------------
Net cash provided by (used in) financing
activities 701,000 (481,000)
------------ ------------
Net decrease in cash and cash equivalents (666,000) (2,172,000)
Cash and cash equivalents at beginning of period 767,000 5,190,000
------------ ------------
Cash and cash equivalents at end of period $ 101,000 $ 3,018,000
============ ============
Continued
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Cash Flows
(Unaudited)
Reconciliation of Net loss to Net Cash Used in Operating Activities
For the Six Months Ended
------------------------
June 30, 2000 June 30, 1999
------------- -------------
Net loss $ (1,644,000) $ (1,112,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, depletion and amortization 54,000 319,000
Gain on sale of assets (10,000) (3,000)
Equity in net (income) loss of unconsolidated
affiliates 389,000 (25,000)
Net cash used by discontinued operations offsetting
accrued impairment loss (149,000) (345,000)
Minority interest in operations of consolidated
subsidiary (16,000) -
Noncash compensation expense 6,000 -
Other - 6,000
Decrease in accounts receivable, prepaid expenses
and other current assets 128,000 1,275,000
(Increase) decrease in inventories (6,000) 115,000
Decrease in accounts payable, accrued
expenses and other liabilities (69,000) (631,000)
------------ ------------
Net cash used in operating activities $ (1,317,000) $ (401,000)
============ ============
Supplemental Schedule of Noncash Investing and Financing Activities:
Issuance of subsidiary common stock in exchange
for ownership in applied-for patents $ 10,000 $ -
============ ============
Exchange of coal extraction and beneficiation
equipment for release of debt obligation $ - $ 23,053,000
============ ============
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Notes to Financial Statements
June 30, 2000 and 1999
(Unaudited)
(1) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements and notes thereto have
been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain
disclosures normally prepared in accordance with generally
accepted accounting principles have been omitted. The
accompanying financial statements and notes thereto should be
read in conjunction with the audited consolidated financial
statements and notes thereto included in The Beard Company's
1999 annual report on Form 10-K.
The accompanying financial statements include the accounts of
The Beard Company and its wholly and majority-owned
subsidiaries in which The Beard Company has a controlling
financial interest ("Beard" or the "Company"). Subdidiaries
and investees in which Beard does not exercise control are
accounted for using the equity method. All significant
intercompany transactions have been eliminated in the
accompanying financial statements.
The financial information included herein is unaudited;
however, such information reflects solely normal recurring
adjustments which are, in the opinion of management, necessary
for a fair presentation of the results for the interim periods
presented.
The results of operations for the three and six-month periods
ended June 30, 2000, are not necessarily indicative of the
results to be expected for the full year.
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 China
("China") Segment, (4) the Environmental Remediation ("ER")
Segment, (5) the Natural Gas Well Servicing ("WS") Segment,
and (6) the e-Commerce ("e-Commerce") Segment.
The Coal Segment is in the business of operating coal fines
reclamation and/or briquetting facilities in the U.S. and is
pursuing the development of advanced fine coal preparation
processes. The CO2 Segment consists of the production of CO2
gas. The China Segment is pursuing (i) the sale of coal
equipment, (ii) environmental opportunities, (iii) the sale of
technical services, and (iv) the operation of coal fines
reclamation facilities in China. The ER Segment consists of
services to remediate creosote and polycyclic aromatic
hydrocarbon contamination. The WS Segment is conducted by two
companies operating in northeastern Mexico and consists of (i)
a 50%-owned company (accounted for as an equity investment)
involved in natural gas well testing operations, and (ii) a
wholly-owned company that has designed a sand separator for
use on natural gas wells and has had five of them custom
fabricated for use on a trial basis. The e-Commerce Segment
consists of a 78%-owned subsidiary in the process of
developing and executing an Internet payment system.
As discussed in note 4, in April 1999, the Company's Board of
Directors adopted a formal plan to discontinue its interstate
travel facilities business (the "ITF" Segment). As discussed
in note 4, in December 1999 the Management Committee of NABR
adopted a plan to discontinue its brine extraction/iodine
manufacturing business which comprised the Company's ("BE/IM")
Segment.
Reclassifications
Certain 1999 balances have been reclassified to conform to the
2000 presentation.
(2) Liquidity and Ability to Fund Operations
In January 1999, the Company's primary source of revenues and
cash flows was eliminated by the termination of the Operating
Agreements with MCNIC (see note 3). As a result of the
termination of the plant operating agreements, the requirement
to fund operating losses, and the decision to pursue other
investment opportunities, including the repurchase of Company
common stock, the Company's working capital and cash and cash
equivalents decreased significantly at June 30, 2000 compared
to June 30, 1999. To mitigate potential liquidity problems,
the Company obtained stand-by financing of $1.3 million in
April 2000, of which $300,000 was from a commercial bank and
$1 million was from an affiliate of the Company's chairman.
Subsequent to its original commitment, the bank has agreed to
extend the maturity date of its original credit line from
April 2001 to January 2002 in exchange for a guaranty. The
affiliate has agreed to furnish the guaranty, has reduced its
credit line to $700,000 and extended the term thereof from
July 2001 to January 2002. Through June 30, 2000, the Company
has drawn down $660,000 of its available financing from this
affiliate. The Company also expects to generate cash from the
disposition of assets of discontinued operations and from the
sale of certain real estate holdings.
The Company is focusing on replacing its Coal Segment's
revenues. In November 1999 the Company signed letters of
intent with a large coal company and a Section 29 operator
which called for the Company to build and operate two fine
coal preparation plants to recover clean coal from two ponds
and provide the feed stock for two briquetting plants (the
"LOI Projects"). Due to limited availability of qualified
Section 29 briquetters at reasonable prices, it is unlikely
that the LOI Projects will be finalized in the foreseeable
future.
Meanwhile, the Company has continued to pursue other
reclamation projects. Beard Technologies, Inc. ("BTI") has
just finished coring a slurry pond in West Virginia owned by a
Fortune 500 company. Upon completion of the analyses of the
samples from the pond, BTI expects to finalize a Letter of
Intent to build and operate a fine coal preparation plant to
recover clean coal from the pond which will be delivered at an
agreed price to the pond owner. It is contemplated that the
LOI will be finalized within the next 30 days and that
definitive agreements for the project will be executed in the
fourth quarter.
The Company's project financing plans for the Coal Segment are
on hold until the agreements for the West Virginia project
have been finalized. Meanwhile, the Company's credit lines
totaling $1 million together with working capital generated
from the sale of assets are expected to be sufficient to meet
the Company's working capital requirements through 2000.
(3) Termination of MCNIC Agreements
In June of 1998 the Company, through its wholly-owned
subsidiary, BTI, entered into agreements with affiliates of
MCNIC Pipeline & Processing Company ("MCNIC") pursuant to
which BTI acquired coal fines extraction and beneficiation
equipment located at six coal slurry impoundment sites for
$24,000,000. BTI financed the purchase with a $24,000,000
loan from MCNIC. BTI operated and maintained such equipment
and six briquetting plants for affiliates of MCNIC under a
cost-plus arrangement pursuant to which it received a minimum
profit of $100,000 per month. Effective January 31, 1999,
MCNIC terminated the operating agreements and assumed
ownership of the equipment, relieving BTI of its debt
obligation to MCNIC.
(4) Discontinued Operations
BE/IM Segment
In December 1999, the Management Committee of North American
Brine Resources ("NABR") adopted a formal plan to discontinue
the business and dispose of its assets. Beard has a 40%
ownership in NABR, which is accounted for under the equity
method. As a result of NABR's planned discontinuation,
Beard's share of NABR's operating results have been reported
as discontinued for all periods presented in the accompanying
statements of operations. Beard's share of NABR's operating
results for the three and six-month periods ended June 30,
1999 were losses of $24,000 and $64,000, respectively. As of
June 30, 2000, Beard's investment in NABR was $225,000.
In December 1999, Beard recorded a $540,000 loss, which
represents its share of NABR's $1,350,000 estimated loss
expected from the discontinuation of operations. NABR's loss
included $778,000 related to the difference in the estimated
amounts expected to be received from the assets' disposition
and the assets' recorded values as of December 31, 1999, and
$572,000 related to anticipated operating losses through April
2000 (the date operations ceased) and costs of ceasing
operations. NABR's actual losses for the three and six-month
periods ended June 30, 2000 were $81,000 and $137,000
respectively, the Company's share of which was charged against
the loss accrual recorded in 1999.
The Management Committee of NABR is actively pursuing
opportunities to sell its assets and expects the disposition
to be completed by December 31, 2000.
ITF Segment
On April 9, 1999, the Company's Board of Directors adopted a
formal plan to discontinue its interstate travel facilities
("ITF") Segment and recorded a $1,603,000 estimated loss for
the discontinuance in 1998. In April 1999, Beard entered into
an agreement with ITF and its minority shareholders which
failed to close. In September 1999 Beard, ITF and the
minority shareholders entered into new agreements which were
completed on November 18, 1999. As a result of the
transaction, ITF disposed of a majority of its assets, and was
relieved of its outstanding debt of $2,149,000 and accounts
payable of $126,000, retained two convenience stores ("C-
stores"), including their equipment and inventory, and Beard
became 100% owner of ITF.
In the fourth quarter of 1999, Beard recorded an additional
$214,000 loss related to the discontinued ITF Segment. This
loss included $180,000 related to additional expected
operating losses of ITF through the disposal date of the
remaining assets; and $34,000 related to a further reduction
in the estimated realizable value of the remaining C-stores as
of December 31, 1999. Revenues from the discontinued ITF
Segment were $580,000 and $1,118,000, respectively, for the
three and six-month periods ended June 30, 2000. ITF's actual
operating losses for the three and six-month periods ended
June 30, 2000 were $37,000 and $149,000, respectively. The
actual losses for the three and six-month periods ended June
30, 2000 were charged against the loss accrual recorded in the
fourth quarter of 1999.
As of June 30, 2000, the assets related to the ITF Segment
consist primarily of cash, accounts receivable, inventory and
the two remaining C-stores with a total recorded value of
$962,000. The significant liabilities of the segment consist
of trade accounts payable and accrued expenses totaling
$94,000. Beard is actively seeking opportunities to sell the
remaining C-stores and expects the C-stores to be sold by mid-
year 2001.
(5) Redeemable Preferred Stock
The Company's preferred stock is mandatorily redeemable
through December 31, 2002, from one-third of Beard's
"consolidated net income" as defined. Accordingly, one-third
of future "consolidated net income" will accrete directly to
preferred stockholders and reduce earnings per common share.
The Company's 2000 operations through June 30 were not
sufficient to begin the sharing of the consolidated net
income. To the extent that the preferred stock is not
redeemed by December 31, 2002, the shares of preferred stock
can be converted into shares of the Company's common stock.
(6) Loss Per Share
Basic loss per share data is computed by dividing loss
attributable to common shareholders by the weighted average
number of common shares outstanding for the period.
Diluted loss per share in the statements of operations exclude
potential common shares issuable upon conversion of redeemable
preferred stock or exercise of stock options as a result of
losses from continuing operations for all periods presented.
(7) Income Taxes
In accordance with the provisions of the Statement of
Financial Accounting Standard No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"), the Company's net deferred tax asset
is being carried at zero book value, which reflects the
uncertainties of the Company's utilization of the future net
deductible amounts. The provision for income taxes for the
three and six-month periods ended June 30, 2000 consist of
federal alternative minimum tax of $8,000 and $14,000,
respectively. The Company recorded a $16,000 provision for
alternative minimum taxes for the three months ended June 30,
1999.
At June 30, 2000, the Company estimates that it had the
following income tax carryforwards available for both income
tax and financial reporting purposes (in thousands):
Expiration
Date Amount
--------------------
Federal regular tax
operating loss carryforwards 2004-2009 $ 52,131
Investment tax credit
carryforward 2000 $ 104
Tax depletion carryforward Indefinite $ 5,500
(8) 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 results of operations.
The Company is a guarantor of an 11%, $535,000 promissory note
to a bank. The note is an obligation of ITS-Testco, the
Company's 50%-owned equity investment engaged in well testing
operations in northeastern Mexico. The note's due date has
been extended until December 2000 and is separately guaranteed
in full by the other 50% corporate owner of the joint venture
and the owners of that company, as individuals.
(9) 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 five
reportable segments during the three and six-month periods
ended June 30, 2000 and 1999: Coal, Carbon Dioxide, China,
Natural Gas Well Servicing, and Environmental Remediation.
The Coal Segment is in the business of operating coal fines
reclamation and/or briquetting facilities in the U.S. and is
pursuing the development of advanced fine coal preparation
processes. The Carbon Dioxide Segment consists of the
production of CO2 gas. The China Segment is pursuing (i) the
sale of coal equipment, (ii) environmental opportunities,
(iii) the sale of technical services, and (iv) the operation
of coal fines reclamation facilities in China. The Natural
Gas Well Servicing Segment is conducted by two companies
operating in northeastern Mexico and consists of (i) a 50%-
owned company (accounted for as an equity investment) involved
in natural gas well testing operations and (ii) a wholly-owned
company that has designed a sand separator for use on natural
gas wells and has had five custom fabricated for use on a
trial basis. The Environmental Remediation Segment consists
of services to remediate creosote and polycyclic aromatic
hydrocarbon contamination.
The following is certain financial information regarding the
Company's reportable segments (presented in thousands of
dollars). The information contained in "Other" relates to the
Company's e-Commerce Segment and consists of start-up costs.
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.
Natural
Carbon Environmental Gas Well
Coal Dioxide China Remediation Servicing Other Totals
---- ------- ----- ----------- --------- ----- ------
Three months ended June 30, 2000
- --------------------------------
Revenues from
external customers $ 11 $114 $ - $ - $ - $ - $ 125
Segment profit (loss) (223) 91 (82) (51) (613) (79) (957)
Three months ended June 30, 1999
- --------------------------------
Revenues from
external customers $ 108 $105 $ - $ - $ 813 $ - $ 1,026
Segment profit (loss) (201) 134 (75) (86) 171 (18) (75)
Six months ended June 30, 2000
- ------------------------------
Revenues from
external customers $ 23 $213 $ - $ - $ 234 $ - $ 470
Segment profit (loss) (438) 161 (191) (117) (1,131) (154) (1,870)
Segment assets 1,415 455 - 8 1,802 60 3,740
Six months ended June 30, 1999
- ------------------------------
Revenues from
external customers $ 792 $224 $ - $ - $ 900 $ - $ 1,916
Segment profit (loss) (325) 154 (158) (170) (58) (36) (593)
Segment assets 1,712 484 - 52 2,175 - 4,423
Reconciliation of total reportable segment loss to
consolidated loss from continuing operations before income
taxes is as follows for the three and six months ended June
30, 2000 and 1999 (in thousands):
For the Three Months For the Six Months
Ended Ended
-------------------- -------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
Total loss for reportable
segments $ (957) $ (75) $(1,870) $ (593)
Eliminate (income) loss from
Natural Gas Well Servicing
operations accounted for as
an equity investment 564 (171) 1,055 58
Equity in income (loss) from
Natural Gas Well Servicing
operations accounted for as
an equity investment (282) 73 (528) (42)
Net corporate costs not
allocated to segments (181) (388) (301) (535)
------- ------- ------- -------
Total consolidated loss
for continuing operations $ (856) $ (561) $(1,644) $(1,112)
======= ======= ======= =======
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS REPORT INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED,
AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL
FACTS INCLUDED OR INCORPORATED BY REFERENCE IN THIS REPORT,
INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE COMPANY'S
FUTURE FINANCIAL POSITION, BUSINESS STRATEGY, BUDGETS, PROJECTED
COSTS AND PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE
OPERATIONS, ARE FORWARD-LOOKING STATEMENTS. IN ADDITION, FORWARD-
LOOKING STATEMENTS GENERALLY CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT,"
"INTEND," "PROJECT," "ESTIMATE," "ANTICIPATE," "BELIEVE," OR
"CONTINUE" OR THE NEGATIVE THEREOF OR VARIATIONS THEREON OR
SIMILAR TERMINOLOGY. ALTHOUGH THE COMPANY BELIEVES THAT THE
EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL
PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S
EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED UNDER "ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS REPORT. ALL
SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY, OR PERSONS ACTING ON ITS BEHALF, ARE
EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY
STATEMENTS. THE COMPANY ASSUMES NO DUTY TO UPDATE OR REVISE ITS
FORWARD-LOOKING STATEMENTS BASED ON CHANGES IN INTERNAL ESTIMATES
OR EXPECTATIONS OR OTHERWISE.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion focuses on material changes in the
Company's financial condition since December 31, 1999 and results
of operations for the quarter ended June 30, 2000 compared to the
prior year second quarter and the six months ended June 30, 2000
compared to the prior year six months. Such discussion should be
read in conjunction with the Company's financial statements
including the related footnotes.
In preparing the discussion and analysis, the Company has
presumed readers have read or have access to the discussion and
analysis of the prior year's results of operations, liquidity and
capital resources as contained in the Company's 1999 Form 10-K.
The Company's current significant operations are within the
following segments: (1) the coal reclamation ("Coal") Segment,
which is in the business of operating coal fines reclamation
and/or briquetting facilities in the U.S. and is pursuing the
development of advanced fine coal preparation processes; (2) the
carbon dioxide ("CO2") Segment, comprised of the production of
CO2 gas; (3) the natural gas well servicing ("WS") Segment,
conducted by two companies operating in northeastern Mexico,
comprised of: (i) a 50%-owned company (accounted for as an
equity investment) involved in natural gas well testing
operations, and (ii) a 100%-owned company that has designed a
sand separator for use on gas wells; (4) the environmental
remediation ("ER") Segment, consisting of the remediation of
polycyclic aromatic hydrocarbon ("PAH") contamination; (5) the
China ("China") Segment, which is pursuing (i) the sale of coal
equipment, (ii) environmental opportunities, (iii) the sale of
technical services, and (iv) the operation of coal fines
reclamation facilities in China; and (6) the e-Commerce ("e-
Commerce") Segment, consisting of the development and
implementation of systems and technologies related to Internet
commerce.
In April 1999 the Company adopted a plan to discontinue its
"ITF" Segment, and those operations were reflected as
discontinued operations in 1998. The majority of the assets of
the ITF Segment were disposed of in November 1999 and the Company
is pursuing the sale of the remaining assets. In December 1999
the Company adopted a plan to discontinue its "BE/IM" Segment,
and those operations were reflected as discontinued operations in
1999. The Company is now in the process of liquidating those
assets.
Material changes in financial condition - June 30, 2000 as
compared with December 31, 1999.
The following table reflects changes in the Company's
financial condition during the periods indicated:
June 30, December 31, Increase
2000 1999 (Decrease)
--------- --------- ---------
Cash and cash equivalents $ 101,000 $ 767,000 $(666,000)
Working capital $ (9,000) $ 923,000 $(932,000)
Current ratio .99 to 1 2.04 to 1
During the first six months of 2000, the Company reduced its
working capital by $932,000 from $923,000 as of December 31,
1999. $141,000 of the decrease was attributable to purchases of
equipment by the Coal Segment. $42,000 of working capital was
used to pay for equipment utilized by the Company's subsidiary
which rents sand separators in northeastern Mexico. There were
net advances of $196,000 to the Company's joint venture involved
in natural gas well testing in northeastern Mexico. $117,000,
$191,000 and $154,000, respectively, were used to fund the
startup activities of the E/R, China and e-Commerce Segments.
The remainder of the working capital was utilized to fund other
operations.
Termination of the agreements to operate the MCNIC coal fines
projects effective January 31, 1999 (see Note 3 to the
accompanying financial statements) had a material detrimental
effect upon the Company's profitability during the first quarter
of 1999 as well as the subsequent periods. In November 1999
the Company signed letters of intent with a large coal company
and a Section 29 operator which called for the Company to build
and operate two fine coal preparation plants to recover clean
coal from two ponds and provide the feed stock for two
briquetting plants (the "LOI Projects"). Due to limited
availability of qualified Section 29 briquetters at reasonable
prices, it is unlikely that the LOI Projects will be finalized in
the foreseeable future.
Meanwhile, the Company has continued to pursue other
reclamation projects. Beard Technologies, Inc. ("BTI") has just
finished coring a slurry pond in West Virginia owned by a Fortune
500 company. Upon completion of the analyses of the samples from
the pond, BTI expects to finalize a Letter of Intent ("LOI") to
build and operate a fine coal preparation plant to recover clean
coal from the pond which will be delivered at an agreed price to
the pond owner. It is contemplated that the LOI will be
finalized within the next 30 days and that definitive agreements
for the project will be executed in the fourth quarter.
The Company's project financing plans for the Coal Segment are
on hold until the agreements for the West Virginia project have
been finalized. Meanwhile, the Company's credit lines totaling
$1 million together with working capital generated from the sale
of assets are expected to be sufficient to meet the Company's
working capital requirements through 2000. In addition, the
Company is attempting to dispose of the remaining assets of the
discontinued ITF Segment while at the same time liquidating the
assets of the discontinued BE/IM Segment. The discontinuance of
the ITF and BE/IM Segments will benefit liquidity by generating
cash from the liquidation of the assets of the two segments and
by eliminating the funding of losses generated by the operations
of the ITF Segment. The Company will also be selling certain
other assets, principally real estate, to generate cash if
necessary.
The Company's future cash flows and availability of credit are
subject to a number of variables, including demand for the
Company's coal reclamation services and technology, continuing
demand for CO2 gas and the services provided by the Company's WS
Segment, private and governmental demand for environmental
remediation services, demand for the services and technology
being offered in China, and the degree to which the Company is
successful in bringing its Internet technology to a favorable
conclusion. The Company anticipates that its current resources
and available credit lines are sufficient to enable it to fund
its operations through 2000.
Through the period ending December 31, 2002, the Company's
liquidity will be reduced to the extent it is required to redeem
any of the Beard preferred stock pursuant to the mandatory
redemption provisions. See Note 5 to the accompanying financial
statements.
Material changes in results of operations - Quarter ended June
30, 2000 as compared with the Quarter ended June 30, 1999.
The net loss for the quarter ended June 30, 2000 was $856,000,
compared to a net loss of $561,000 for the second quarter of the
prior year. The second quarter of 1999 included $24,000 of
losses attributable to discontinued operations. The Coal Segment
reported a $17,000 increase in operating loss for the quarter.
The CO2 Segment had a $21,000 increase in its operating margin
due primarily to a slight increase in revenue from its interests
in the McElmo Dome field. The operating loss in China increased
$7,000 to $82,000 for the second quarter of 2000 compared to the
same period in 1999. There was a $27,000 reduction in operating
losses of the ER Segment for the second quarter of 2000 compared
to the second quarter of 1999. The operating loss of the WS
Segment increased $48,000 in the current quarter compared to the
same period in 1999. The new e-Commerce Segment incurred
operating losses of $79,000 for the second quarter of 2000
compared to $18,000 in the second quarter of 1999. The operating
loss in Other activities for the first quarter of 2000 decreased
$185,000 compared to the same period in 1999 As a result, the
operating loss in the second quarter of 2000 was $100,000 smaller
than in the same period in 1999.
Operating results of the Company's primary operating Segments
are reflected below:
2000 1999
---- ----
Operating profit (loss):
Coal reclamation $(223,000) $(206,000)
Carbon dioxide 91,000 70,000
China (82,000) (75,000)
Environmental remediation (51,000) (78,000)
Natural gas well servicing (48,000) -
e-Commerce (79,000) (18,000)
--------- ---------
Subtotal (392,000) (307,000)
Other (263,000) (448,000)
--------- ---------
Total $(655,000) $(755,000)
========= =========
The "Other" in the above table reflects primarily general and
corporate activities, as well as other activities and investments
of the Company.
Coal reclamation
As discussed in Note 3 to the accompanying financial
statements, since April 1998, the Company had been operating six
coal slurry impoundment sites for a subsidiary of a large
midwestern utility company under a cost-plus arrangement which
guaranteed the Company a minimum profit of $100,000 per month.
The arrangement was terminated on January 31, 1999. The CR
Segment generated operating losses of $223,000 and $206,000 for
the second quarter of 2000 and 1999, respectively, reflecting the
effects of the termination of this contract while maintaining its
corporate staff as it continued to pursue new reclamation
contracts.
Carbon dioxide
Second quarter 2000 operations reflected an operating profit of
$91,000 compared to $70,000 in the 1999 second quarter. The sole
component of revenues for this segment is the sale of CO2 gas
from the working and overriding royalty interests of the
Company's two carbon dioxide producing units in Colorado and New
Mexico. Operating revenues in this segment increased $9,000 or
9% to $114,000 for the second quarter of 2000 compared to
$105,000 for the same period in 1999.
China
The operating loss of the China Segment increased to $82,000
in the current quarter versus $75,000 in the 1999 second quarter
as Beard Sino-American Resources Co., Inc. stepped up its level
of activity to promote centrifuge sales and the installation of
composting facilities.
Environmental remediation
The subsidiary which comprises this segment utilizes a
chemical for which it is the sole U.S. licensee of a process for
the remediation of creosote and PAH contamination. The ER
Segment generated a $27,000 smaller operating loss in the second
quarter of 2000 as compared with the same period in 1999. The
segment recorded no revenues in the second quarter of 2000 or
1999. Since 1997 personnel employed in the segment have been
attempting to develop a market for the process and the chemical
product involved by demonstrating the benefits of the process to
potential customers. The subsidiary incurred less operating and
SG&A costs as its marketing budget was decreased due to lack of
sales.
Natural gas well servicing
The operations of both of the companies comprising the WS
Segment, which conduct natural gas well servicing operations in
northeastern Mexico, were suspended in late January 2000 after
contracts with Petroleos Mexicanos ("Pemex") were allowed to
expire by Pemex rather than being "rolled over" as has been the
practice in the past. The two companies were successful bidders
as subcontractors to Schlumberger on new contracts which are
expected to be finalized by the end of August, and will also be
bidding on additional contracts with Pemex late this year.
The sand separator company, formed late in the third quarter of
1999, incurred an operating loss of $49,000 for the second
quarter of 2000. The Company's share of the loss for its
50%-owned natural gas well testing investee was $282,000
for the second quarter of 2000 versus earnings of $73,000
for the same period in 1999, with the suspension of
operations accounting for the decrease.
e-Commerce
The Company's startup company involved in the development of a
secure Internet purchasing system incurred an operating loss of
$79,000 for the second quarter of 2000 versus an operating loss
of $18,000 in the prior year quarter. Segment personnel are
pursuing funding for the programming and testing of the software,
the purchase of necessary hardware, the hiring of the necessary
staff and are also pursuing strategic alliances to facilitate the
launching of the technology.
Other activities
Other operations, consisting principally of general and
corporate activities, generated a $185,000 decrease in the loss
for the second quarter of 2000 compared to the same period in
1999. The Company incurred $50,000 less in legal costs
associated with a class action lawsuit (the "McElmo Dome
Litigation"), in which the Company is a plaintiff against two
major oil companies and others. Other lower SG&A costs
contributed to the smaller operating loss.
Selling, general and administrative expenses
The Company's selling, general and administrative expenses
("SG&A") in the current quarter were $109,000 less in the second
quarter of 2000 compared to the same period in 1999. The Coal
Segment had an increase in SG&A expenses of $13,000 due to
increases in insurance and rental expenses. The China Segment
incurred increased SG&A expenses of $32,000 as the Company
increased its efforts to secure contracts in China. The ER
Segment incurred decreased SG&A expenses of $20,000 for the
second quarter of 2000 compared to 1999 as a result of a
reduction in its marketing budget. Other operations incurred
approximately $86,000 less in SG&A for the second quarter of
2000 compared to the same period in 1999 primarily as a result of
decreased legal costs associated with the McElmo Dome Litigation,
and other lower SG&A costs.
Depreciation, depletion and amortization expenses
The second quarter of 2000 reported an increase in DD&A expense
of $5,000, reflecting additions to property, plant and equipment
made since June 30, 1999, primarily in the Coal Segment.
Other income and expense
Other income and expenses netted to a net loss of $193,000
for the second quarter of 2000, down sharply from the $234,000 in
income recorded for such items in the same period of 1999.
Interest income was down $30,000 for the second quarter of 2000
compared to the same period in 1999 primarily as a result of the
reduction in cash available for investment. Included in other
income in the second quarter of 1999 was a reversal of $64,000 of
impairment taken in 1997 relating to the plugging of a shut-in
CO2 gas well with no comparable adjustment in 2000. The Company
recorded a loss of $282,000 for the second quarter of 2000
compared to earnings of $73,000 for the same period in 1999 on
its investment in an entity engaged in natural gas well testing
operations in northeastern Mexico. The operations of this entity
were severely curtailed in January 2000 as Pemex allowed the
contracts for its subcontractors providing services to expire
rather than have them automatically renew. The contracts had not
been renewed through the second quarter of 2000. New contracts
are expected to be finalized in August 2000. See the discussion
regarding the WS Segment above. The Company's equity in the
earnings of Cibola decreased $21,000 from $68,000 for the second
quarter of 1999 to $47,000 for the same period in 2000 reflecting
losses on certain outside investments by Cibola.
Income taxes
The Company provided for federal alternative minimum tax
expense of $8,000 for the second quarter of 2000 compared to
$16,000 of alternative minimum tax in the same period in 1999.
The Company has not recorded any financial benefit attributable
to its various tax carryforwards due to uncertainty regarding
their utilization and realization.
Discontinued operations
In December 1999, the Management Committee of North American
Brine Resources ("NABR") adopted a formal plan to discontinue the
business and dispose of its assets. Beard has a 40% ownership in
NABR, which is accounted for under the equity method. As a
result of NABR's planned discontinuation, Beard's share of NABR's
operating results have been reported as discontinued for all
periods presented in the accompanying statements of operations.
Beard's share of NABR's operating results was a $24,000 loss for
the three months ended June 30, 1999. As of June 30, 2000,
Beard's investment in NABR was $225,000.
In December 1999, Beard recorded a $540,000 loss, which
represented its share of NABR's $1,350,000 estimated loss
expected from the discontinuation of operations. $778,000 of
NABR's loss represented the difference in the estimated amounts
expected to be received from the assets' disposition and the
assets' recorded values as of December 31, 1999. $572,000 of
NABR's loss represented anticipated operating losses through
April 2000 (the date operations ceased) and the estimated costs
of ceasing operations. NABR's actual loss for the three months
ended June 30, 2000 was $81,000, the Company's share of which was
charged against the loss accrual it recorded in 1999. See Note 4
to the accompanying financial statements.
Material changes in results of operations - Six months ended June
30, 2000 as compared with the Six months ended June 30, 1999.
The net loss for the six months ended June 30, 2000 was
$1,644,000, compared to a net loss of $1,112,000 for the first
six months of the prior year. Continuing operations posted a net
loss of $1,644,000 after taxes of $14,000 compared to a loss from
continuing operations of $1,048,000 after taxes of $16,000 for
the same period in 1999. In addition, the Company had a net loss
of $64,000 for the first half of 1999 related to discontinued
operations.
Operating results of the Company's primary operating segments
are reflected below:
2000 1999
---- ----
Operating profit (loss):
Coal reclamation $ (438,000) $ (179,000)
Carbon dioxide 161,000 154,000
China (191,000) (158,000)
Environmental remediation (117,000) (155,000)
Natural gas well servicing (76,000) -
e-Commerce (154,000) (36,000)
----------- -----------
Subtotal (815,000) (374,000)
Other (511,000) (784,000)
----------- -----------
Total $(1,326,000) $(1,158,000)
=========== ===========
The "Other" in the above table reflects primarily general and
corporate activities, as well as other activities and investments
of the Company.
Coal reclamation
As discussed in Note 3 to the accompanying financial
statements, since April of 1998 the Company had been operating
six coal slurry impoundment sites for a subsidiary of a large
midwestern utility company under a cost-plus arrangement which
guaranteed the Company a minimum operating profit of $100,000 per
month. The arrangement was terminated on January 31, 1999. The
$259,000 increase in the operating loss for the first six months
of 2000 compared to the same period in 1999 reflects the effect
of losing the guaranteed profit realized from these contracts for
six months in 2000, versus having five months of such losses plus
one month of profit in 1999.
Carbon dioxide
Operations for the first six months of 2000 resulted in an
operating profit of $161,000 compared to a $154,000 operating
profit for the 1999 first half. The sole component of revenues
for this segment is the sale of CO2 gas from the working and
overriding royalty interests of the Company's two carbon dioxide
producing units in Colorado and New Mexico. Operating revenues
in this segment decreased $9,000 or 4% to $213,000 for the first
six months of 2000 compared to $224,000 for the same period in
1999. The Company recorded $18,000 less in operating costs
associated with the properties in the first half of 2000 compared
to the same period in 1999. While production volumes for the
field increased for the first six months of 2000 compared to the
same period in 1999, paid volumes to the Company's interest
decreased as the Company reduced its overproduced status.
China
The operating loss of the China Segment increased to $191,000
in the current six months versus $158,000 in the 1999 first half
as Beard Sino-American Resources Co., Inc. stepped up its level
of activity to promote centrifuge sales and the installation of
composting facilities.
Environmental remediation
The ER Segment's operating loss decreased $38,000 to $117,000
for the first six months of 2000 as compared to $155,000 for the
same period in 1999. The segment recorded no revenues in the
first half of 2000 or 1999. Personnel employed in the segment
have been involved in expanding the market for the process and
the chemical product involved by demonstrating the benefits of
the process to potential customers. The segment incurred less
operating and SG&A costs in the current six months period as its
marketing budget was decreased due to lack of sales.
Natural gas well servicing
The operations of both of the companies comprising the WS
Segment, which conduct natural gas well servicing operations in
northeastern Mexico, were suspended in late January, 2000 after
contracts with Petroleos Mexicanos ("Pemex") were allowed to
expire by Pemex rather than being "rolled over" as has been the
practice in the past. The two companies were successful bidders
as subcontractors to Schlumberger on new contracts which are
expected to be finalized by the end of August, and will also be
bidding on additional contracts with Pemex later this year.
The sand separator company, formed late in the third quarter
of 1999, incurred an operating loss of $76,000 for the six months
ended June 30, 2000. The Company's share of the loss for its
50%-owned natural gas well testing investee was $528,000 for
the first half of 2000 versus a loss of $42,000 for the same
period in 1999, with the suspension of operations accounting
for the decrease.
e-Commerce
The Company's startup company involved in the development of a
secure Internet purchasing system incurred an operating loss of
$154,000 for the first half of 2000 versus an operating loss of
$36,000 in the prior year period. Segment personnel continue to
pursue funding for the programming and testing of the software,
the purchase of necessary hardware, the hiring of the necessary
staff as well as strategic alliances to facilitate the launching
of the technology.
Other activities
Other operations, consisting principally of general and
corporate activities, generated a $273,000 decrease in operating
loss for the first half of 2000 as compared to the same period
last year. Reasons for the decreased loss include a reduction of
$71,000 in legal costs, primarily those associated with the
McElmo Dome Litigation, decreases in contract labor costs of
$34,000, and reductions in most other expense categories as the
Company found ways to reduce costs.
Selling, general and administrative expenses
The Company's selling, general and administrative expenses
("SG&A") in the first half of 2000 decreased to $852,000 from
$952,000 for the 1999 six months. The Coal Segment had a
decrease in SG&A expenses of $42,000 due primarily to reductions
in staff and other expenses. The China Segment had an increase
of $32,000 in SG&A costs while segment personnel pursued
opportunities in China. The ER Segment's SG&A decreased $15,000
for the six months of 2000 compared to the same period in 1999
as personnel found ways to reduce costs as they continued to seek
a market for the products and services of the segment. The WS
Segment incurred $26,000 more SG&A expenses for the six months of
2000 compared to the same period of the prior year as personnel
in Mexico continued to pursue the contracts with Pemex and other
subcontractors in the region. The new e-Commerce Segment
incurred $118,000 in additional SG&A costs as segment personnel
sought partners to develop the technology involved with the
Internet purchasing system. Other operations incurred
approximately $219,000 less in SG&A for the six months of 2000
compared to the same period in 1999 primarily as a result of the
decreased legal costs and by the reduction in other expenses
discussed above.
Depreciation, depletion and amortization expenses
DD&A expense decreased $150,000 from $204,000 to $54,000 from
the six months of 1999 to the same period in 2000, reflecting
primarily a $133,000 reduction in depreciation on coal fines
extraction and beneficiation equipment in the Coal Segment during
the past year. On March 19, 1999, the Company assigned all its
membership interest in the company owning the equipment to the
noteholder in exchange for a release on the debt for which the
property was security. See note 3 to the accompanying financial
statements.
Other income and expenses
The other income and expenses for the first six months of 2000
netted to a total net loss of $304,000 compared to $126,000 in
net income for the same period in 1999. Interest income was down
$63,000 for the first half of 2000 compared to the same period in
1999 primarily as a result of the reduction in cash available for
investment. Interest expense was down $150,000 as a result of
the release, effective January 31, 1999, of the debt incurred to
purchase the coal fines and beneficiation equipment on June 30,
1998.
The Company's equity in the earnings of unconsolidated
affiliates was down $473,000 for the first six months of 2000
compared to 1999. The Company recorded a loss of $528,000 on its
investment in an entity engaged in natural gas well testing
operations in northeastern Mexico (the WS Segment) compared to a
loss of $42,000 for the same period in 1999. This entity
generated its initial revenues in the first quarter of 1999 which
were not sufficient to cover the overhead costs of the
operations. The operations of this entity were severely
curtailed in January 2000 as Pemex allowed the contracts for its
subcontractors providing services to expire rather than have them
automatically renew. See the discussion regarding the WS Segment
above. The Company's equity in the earnings of Cibola increased
$11,000 from $133,000 for the first six months of 1999 to
$144,000 for the same period in 2000 reflecting Cibola's improved
operating results.
Income taxes
The Company provided for federal alternative minimum tax
expense of $14,000 for the first half of 2000 compared to $16,000
in alternative minimum tax expense in the same period in 1999.
The Company has not recorded any financial benefit attributable
to its various tax carryforwards due to uncertainty regarding
their utilization and realization.
Discontinued operations
In December 1999, the Management Committee of North American
Brine Resources ("NABR") adopted a formal plan to discontinue the
business and dispose of its assets. Beard has a 40% ownership in
NABR, which is accounted for under the equity method. As a
result of NABR's planned discontinuation, Beard's share of NABR's
operating results have been reported as discontinued for all
periods presented in the accompanying statements of operations.
Beard's share of NABR's operating results was a $64,000 loss for
the three months ended June 30, 1999. As of June 30, 2000,
Beard's investment in NABR was $225,000.
In December 1999, Beard recorded a $540,000 loss, which
represented its share of NABR's $1,350,000 estimated loss
expected from the discontinuation of operations. NABR's loss
included $778,000 which represented the difference in the
estimated amounts expected to be received from the assets'
disposition and the assets' recorded values as of December 31,
1999, and $572,000 related to anticipated operating losses
through April 2000 (the date operations ceased) and costs of
ceasing operations. NABR's actual loss for the six months ended
June 30, 2000 was $136,000, the Company's share of which was
charged against the loss accrual it recorded in 1999. See Note 4
to the accompanying financial statements.
Impact of Recently Issued Accounting Standards Not Yet Adopted
In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No.133 establishes accounting and
reporting standards for derivative instruments, including certain
recognition of all derivatives as either assets or liabilities in
the balance sheet and measurement of those instruments at fair
value. If certain conditions are met, a derivative may be
specifically designated as a hedge. The accounting for changes
in the fair value of a derivative (that is, gains and losses)
depends on the intended use of the derivative and whether it
qualifies as a hedge. A subsequent pronouncement, SFAS 137, was
issued in July 1999 that delayed the effective date of SFAS 133
until the fiscal year beginning after June 15, 2000. In June
2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities", an
amendment to SFAS No. 133. If the provisions of SFAS No. 133 and
No. 138 were to be applied as of June 30, 2000, it would not have
a material impact on the Company's financial position as of such
date, or the results of operations for the three and six-month
periods then ended.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
At June 30, 2000, the Company had notes receivable of $939,000
and long-term debt of $704,000. The notes receivable and $44,000
of the long-term debt have fixed interest rates and therefore,
the Company's interest income and expense and operating results
would not be affected by an increase in market interest rates.
The remaining $660,000 of long-term debt consists of a note
payable that bears interest at 1% above the prime rate. A 10%
increase in market interest rates would result in an increase in
interest expense related to this variable rate long-term debt of
approximately $3,000 through December 31, 2000. At June 30,
2000, a 10% increase in market interest rates would have reduced
the fair value of the Company's notes receivable by $5,000 and
reduced the fair value of its fixed rate long-term debt by less
than $1,000.
The Company has no other market risk sensitive instruments
PART II. OTHER INFORMATION
Item 2. Changes in Securities
The Company's preferred stock is mandatorily redeemable through
December 31, 2002 from one-third of Beard's "consolidated net
income" as defined in the instrument governing the rights of the
preferred stockholders. Accordingly, one-third of future
"consolidated net income" will accrete directly to preferred
stockholders and reduce earnings per common share. As a result
of these redemption requirements, the payment of any dividends to
the common stockholders in the near future is very unlikely. See
Note 5 to the accompanying financial statements.
Item 6. Exhibits and Reports on Form 8-K:
(a) The following exhibits are filed with this Form 10-Q and are
identified by the numbers indicated:
2 Plan of acquisition, reorganization, arrangement,
liquidation or succession:
2(a) Agreement and Plan of Reorganization by and among
Registrant, Beard Oil Company ("Beard Oil") and New
Beard, Inc., dated as of July 12, 1993 (see Addendum A to
Part I, which is incorporated herein by reference;
schedules to the Agreement have been omitted). (This
Exhibit has been previously filed as Exhibit 3(b), filed
on July 27, 1993 to Registrant's Registration Statement
on Form S-4, File No. 33-66598, and same is incorporated
by reference).
2(b) Agreement and Plan of Merger by and between The Beard
Company and The New Beard Company, dated as of September
16, 1997. (This Exhibit has been previously filed as
Exhibit B to Registrant's Proxy Statement filed on
September 12, 1997, and same is incorporated by
reference).
2(c) Certificate of Merger merging The Beard Company into The
New Beard Company as filed with theSecretary of State of
Oklahoma on November 26, 1997. (This Exhibit has been
previously filed as Exhibit 2.1 to Registrant's Form 8-K,
filed on December 8, 1997, and same is incorporated by
reference).
3(i) Certificate of Incorporation of The New Beard Company as
filed with the Secretary of State of Oklahoma on
September 11, 1997. (This Exhibit has been previously
filed as Exhibit C to Registrant's Proxy Statement filed
on September 12, 1997, and same is incorporated by
reference).
3(ii) 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).
4 Instruments defining the rights of security holders:
4(a) 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 by reference).
4(b) Settlement Agreement, with Certificate of Amendment
attached thereto, by and among Registrant, Beard Oil, New
York Life Insurance Company, New York Life Insurance and
Annuity Company, John Hancock Mutual Life Insurance
Company, Memorial Drive Trust and Sensor, dated as of
April 13, 1995. (This Exhibit has been previously filed
as Exhibit 4(g) to Registrant's Form 10-K for the period
ended December 31, 1994 and same is incorporated by
reference).
10 Material contracts:
10(a) Amendment No. One to The Beard Company 1993 Stock Option
Plan dated August 27, 1993, as amended June 4, 1998. (The
Amended Plan supersedes the original Plan adopted on
August 27, 1993. This Exhibit has previously been filed
as Exhibit A, filed on April 30, 1998 to Registrant's
Proxy Statement dated April 30, 1998, and same is
incorporated by reference).*
10(b) The Beard Company 1994 Phantom Stock Units Plan as
amended effective October 23, 1997. (This Exhibit has
been previously filed as Exhibit 10(b) to Registrant's
Form 10-K for the period ended December 31, 1999, filed
on April 14, 2000, and same is incorporated by
reference).*
10(c) Amendment No. One to The Beard Company Deferred Stock
Compensation Plan dated November 1, 1995, as amended July
21, 1999. (The Amended Plan supersedes the original Plan
adopted on June 3, 1996. (This Exhibit has previously
been filed as Exhibit A, filed on May 11, 1999 to
Registrant's Proxy Statement dated May 11, 1999, and same
is incorporated by reference).*
10(d) Form of Change in Control Compensation Agreement dated as
of January 24, 1997, by and between Carbonics and three
employees. (This Exhibit has been previously filed as
Exhibit 10(l) to Registrant's Form 10-Q for the period
ended March 31, 1997, filed on May 14, 1997, and same is
incorporated by reference).*
10(e) Amended and Restated Nonqualified Stock Option Agreement
by and between Richard D. Neely and ISITOP, Inc.
("ISITOP"), dated November 12, 1998. (This Exhibit has
been previously filed as Exhibit 10(g) to Registrant's
Form 10-K for the period ended December 31, 1998, filed
on April 15, 1999, and same is incorporated herein by
reference).*
10(f) Amended and Restated Nonqualified Stock Option Agreement
by and between Jerry S. Neely and ISITOP, dated November
12, 1998. (This Exhibit has been previously filed as
Exhibit 10(h) to Registrant's Form 10-K for the period
ended December 31, 1998, filed on April 15, 1999, and
same is incorporated herein by reference).*
10(g) Nonqualified Stock Option Agreement by and between Robert
A. McDonald and ISITOP, dated November 12, 1998. (This
Exhibit has been previously filed as Exhibit 10(i) to
Registrant's Form 10-K for the period ended December 31,
1998, filed on April 15, 1999, and same is incorporated
herein by reference).*
10(h) Incentive Stock Option Agreement by and between Philip R.
Jamison and Beard Technologies, Inc. ("BTI"), dated May
18, 1998. (This Exhibit has been previously filed as
Exhibit 10(k) to Registrant's Form 10-K for the period
ended December 31, 1998, filed on April 15, 1999, and
same is incorporated herein by reference).*
10(i) Subscription Agreement by and between Cibola Corporation
("Cibola") and Registrant, dated April 10, 1996. (This
Exhibit has been previously filed as Exhibit 10.1 to
Registrant's Form 10-Q for the period ended June 30,
1996, filed on August 14, 1996, and same is incorporated
by reference).
10(j) Nonrecourse Secured Promissory Note from Registrant to
Cibola, dated April 10, 1996. (This Exhibit has been
previously filed as Exhibit 10.2 to Registrant's Form 10-
Q for the period ended June 30, 1996, filed on August 14,
1996, and same is incorporated by reference).
10(k) Security Agreement by and among Registrant, Cibola and
the Cibola shareholders, dated April 10, 1996. (This
Exhibit has been previously filed as Exhibit 10.3 to
Registrant's Form 10-Q for the period ended June 30,
1996, filed on August 14, 1996, and same is incorporated
by reference).
10(l) Tax Sharing Agreement by and among Registrant, Cibola and
the Cibola shareholders, dated April 10, 1996. (This
Exhibit has been previously filed as Exhibit 10.4 to
Registrant's Form 10-Q for the period ended June 30,
1996, filed on August 14, 1996, and same is incorporated
by reference).
10(m) Guaranty Agreement between Registrant and Oklahoma Bank
and Trust Company, dated as of June 7, 1999. (This
Exhibit has been previously filed as Exhibit 10(bb) to
Registrant's Form 10-Q for the period ended June 30,
1999, filed on August 20, 1999, and same is incorporated
herein by reference).
10(n) Letter Loan Agreement by and between Registrant and The
William M. Beard and Lu Beard 1988 Charitable Unitrust
(the "Unitrust") dated April 3, 2000. (This Exhibit has
been previously filed as Exhibit 10(cc) to Registrant's
Form 10-K for the period ended December 31, 1999, filed
on April 14, 2000, and same is incorporated by
reference).
10(o) Promissory Note from Registrant to the Trustees of the
Unitrust dated April 3, 2000. (This Exhibit has been
previously filed as Exhibit 10(dd) to Registrant's Form
10-K for the period ended December 31, 1999, filed on
April 14, 2000, and same is incorporated by reference).
27 Financial Data Schedule
- ---------------
*Compensatory plan or arrangement.
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.
(b) No reports on Form 8-K were filed during the period covered
by this report.
SIGNATURES
Pursuant to the requirements 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.
(Registrant) THE BEARD COMPANY
(Date) August 14, 2000 HERB MEE, JR.
Herb Mee, Jr., President and
Chief Financial Officer
(Date) August 14, 2000 JACK A. MARTINE
Jack A. Martine, Controller and
Chief Accounting Officer
EXHIBIT INDEX
Exhibit
No. Description Method of Filing
--- ----------- ----------------
2(a) Agreement and Plan of Incorporated herein by reference
Reorganization by and among
Registrant, Beard Oil Company
("Beard Oil") and New Beard,
Inc., dated as of July 12, 1993
2(b) Agreement and Plan of Merger by Incorporated herein by reference
and between The Beard Company and
The New Beard Company, dated as
of September 16, 1997
2(c) Certificate of Merger merging The Incorporated herein by reference
Beard Company into The New Beard
Company as filed with the
Secretary of State of Oklahoma on
November 26, 1997
3(i) Certificate of Incorporation of Incorporated herein by reference
The New Beard Company as filed
with the Secretary of State of
Oklahoma on September 11, 1997
3(ii) Registrant's By-Laws as currently Incorporated herein by reference
in effect
4(a) Certificate of Designations, Incorporated herein by reference
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
4(b) Settlement Agreement, with Incorporated herein by reference
Certificate of Amendment attached
thereto, by and among Registrant,
Beard Oil, New York Life
Insurance Company, New York Life
Insurance and Annuity Company,
John Hancock Mutual Life
Insurance Company, Memorial Drive
Trust and Sensor, dated as of
April 13, 1995
10(a) Amendment No. One to The Beard Incorporated herein by reference
Company 1993 Stock Option Plan
dated August 27, 1993, as amended
June 4, 1998
10(b) The Beard Company 1994 Phantom Incorporated herein by reference
Stock Units Plan as amended
effective October 23, 1997
10(c) Amendment No. One to The Beard Incorporated herein by reference
Company Deferred Stock
Compensation Plan dated November
1, 1995, as amended July 21, 1999
10(d) Form of Change in Control Incorporated herein by reference
Compensation Agreement dated as
of January 24, 1997, by and
between Carbonics and three
employees
10(e) Amended and Restated Nonqualified Incorporated herein by reference
Stock Option Agreement by and
between Richard D. Neely and
ISITOP, Inc. ("ISITOP"), dated
November 12, 1998
10(f) Amended and Restated Nonqualified Incorporated herein by reference
Stock Option Agreement by and
between Jerry S. Neely and
ISITOP, dated November 12, 1998
10(g) Nonqualified Stock Option Incorporated herein by reference
Agreement by and between Robert
A. McDonald and ISITOP, dated
November 12, 1998
10(h) Incentive Stock Option Agreement Incorporated herein by reference
by and between Philip R. Jamison
and Beard Technologies, Inc.
("BTI"), dated May 18, 1998
10(i) Subscription Agreement by and Incorporated herein by reference
between Cibola Corporation
("Cibola") and Registrant, dated
April 10, 1996
10(j) Nonrecourse Secured Promissory Incorporated herein by reference
Note from Registrant to Cibola,
dated April 10, 1996
10(k) Security Agreement by and among Incorporated herein by reference
Registrant, Cibola and the Cibola
shareholders, dated April 10,
1996
10(l) Tax Sharing Agreement by and Incorporated herein by reference
among Registrant, Cibola and the
Cibola shareholders, dated April
10, 1996
10(m) Guaranty Agreement between Incorporated herein by reference
Registrant and Oklahoma Bank and
Trust Company, dated as of June
7, 1999
10(n) Letter Loan Agreement by and Incorporated herein by reference
between Registrant and The
William M. Beard and Lu Beard
1988 Charitable Unitrust (the
"Unitrust") dated April 3, 2000
10(o) Promissory Note from Registrant Incorporated herein by reference
to the Trustees of the Unitrust
dated April 3, 2000
27 Financial Data Schedule Filed herewith electronically