UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
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
Securities registered pursuant to Section 12(b) of the Act:
(Name of each exchange on
(Title of each class) which registered)
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001333 par value
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
requirement for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form l0-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting common stock held by non-affiliates of
the registrant, computed by using the last sale price of registrant's common
stock on the OTC Bulletin Board as of the close of business on February 28, 2003
was $512,000.
The number of shares outstanding of each of the registrant's classes of common
stock as of February 28, 2003 was Common Stock $.001333 par value - 1,828,845
DOCUMENTS INCORPORATED BY REFERENCE: None
THE BEARD COMPANY
FORM 10-K
For the Fiscal Year Ended December 31, 2002
TABLE OF CONTENTS
PART I
Item 1. Business.......................................................... 3
Item 2. Properties........................................................ 19
Item 3. Legal Proceedings................................................. 19
Item 4. Submission of Matters to a Vote of Security Holders............... 20
PART II
Item 5. Market for the Company's Common Equity and
Related Stockholder Matters..................................... 21
Item 6. Selected Financial Data........................................... 22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........ 33
Item 8. Financial Statements and Supplementary Data....................... 34
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................. 61
PART III
Item 10. Directors and Executive Officers of the Registrant................ 61
Item 11. Executive Compensation............................................ 63
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters.................. 68
Item 13. Certain Relationships and Related Transactions.................... 71
Item 14. Controls and Procedures........................................... 71
PART IV
Item 15. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K........................................ 72
SIGNATURES................................................................ 78
CERTIFICATIONS............................................................ 79
THE BEARD COMPANY
FORM 10-K
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 1. BUSINESS (c) NARRATIVE DESCRIPTION OF OPERATING
SEGMENTS - RISK FACTORS," "ITEM 7. 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.
PART I
Item 1. Business.
(a) General development of business.
General. Prior to October, 1993, The Beard Company ("Beard" or the
"Company"), then known as Beard Oil Company ("Beard Oil"), was primarily an oil
and gas exploration company. During the late 1960's we made the decision to
diversify. In 1968 we started a hazardous waste management company, USPCI, Inc.
("USPCI"), which was partially spun off to shareholders in January 1984.
Following two public offerings and several acquisitions USPCI became so
successful that it subsequently listed on the New York Stock Exchange in 1986.
It was acquired by Union Pacific Corporation in 1987-1988 for $396 million ($111
million to Beard Oil stockholders for their residual 28% interest, of which $60
million was distributed to shareholders).
In 1989 Beard Oil founded Beard Investment Company (now The Beard Company)
for the purpose of building new businesses which Beard management believed to
have either high growth potential or better-than-average profit potential. Our
goal has been to nurture each investment to the point where it could sustain its
growth through internal cash flow while cultivating its own outside funding
sources to supplement financing requirements.
Under this scenario we formed in 1981 a joint venture for the extraction,
production and sale of crude iodine, which we managed until such operations were
discontinued at year-end 1999. In 1987 we formed a dry ice company which we sold
for an $11 million gain in 1997. In 1990 we bought a distressed real estate
development which we successfully operated before selling it in 1997.
In 1998 we formed a subsidiary to conduct operations in the People's
Republic of China where we are pursuing environmental and related marketing
opportunities. In 1999 we formed starpay(TM).com, inc. (now starpay. com,
l.l.c.), an e-Commerce startup company that has developed a proprietary payment
system to be used exclusively for Internet transactions and to provide
state-of-the-art security for purchasing transactions.
Along the way we've had our share of unsuccessful investments, including
numerous oil secondary recovery projects, two telecommunications projects,
several investments in the drilling and well servicing business, others in the
environmental business, plus an unsuccessful foray into the interstate travel
business.
Operating Segments. In 2002 the Company operated within the following
operating segments: (1) the coal reclamation ("Coal") Segment, which 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; (2) the carbon dioxide ("CO2") Segment, comprised of the
production of CO2 gas; (3) the China ("China") Segment, which is pursuing
environmental opportunities in China, focusing on the installation and
construction of facilities which will utilize the proprietary composting
technology of Real Earth United States Enterprises, Inc.; and (4) the e-Commerce
("e-Commerce") Segment, whose current strategy is to develop licensing
agreements and other fee based arrangements with companies implementing
technology in conflict with our intellectual property.
Fourth Quarter 2002 Impairment Provisions. The Company was required to
adopt Financial Accounting Standards Board ("FASB") Statement No. 142, Goodwill
and Other Intangible Assets and Statement No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, effective January 1, 2002 for the fiscal year
ended December 31, 2002. As a result, we wrote off $1,561,000 of long-lived
assets in 2002. (See "Management's Discussion and Analysis of Financial
Condition and Results of Operations---Impact of Recently Adopted Accounting
Standards").
In addition, we were required to write off $872,000 of investments and
other assets. $759,000 of this impairment resulted from the current litigation
involving ABT Beard. (See "Item 3. Legal Proceedings---ABT Beard Litigation").
The Company impaired an additional $7,000 of startup costs associated with
another investment opportunity in China. The Company impaired the $75,000
certificate of deposit serving as collateral on a note payable of the Coalition
involved in the McElmo Dome litigation. Finally, the Company impaired the
carrying value of a note receivable relating to a prior year sale of assets down
to the estimated market value of those assets should the debtor default on the
obligation and the Company be forced to repossess such assets for resale.
Discontinued Operations. Starting in 1998 the Company began discontinuing
various segments whose operations had proven to be unsuccessful, as set forth on
the next page:
Loss Assets Liabilities
Entity(ies) Involved and Year Recorded Remaining Remaining
Segment Percentage of Ownership Discontinued in 2002 At 12/31/02 At 12/31/02
- ----------------- ----------------------------------------- ------------ -------- ----------- -----------
ITF Segment Interstate Travel Facilities, Inc. (100%) 1998 $85,000 $147,000 $ 2,000
BE/IM Segment North American Brine Resources (40%) 1999 $88,000 $ 33,000 $65,000
ER Segment ISITOP, Inc. (80%) 2000 $ - $ - $ -
WS Segment Incorporated Tank Systems (100%) 2001 $22,000 $144,000 $ 1,000
ITS-TESTCO, L.L.C. (50%) 2001 $ - $ - $ -
Testco Inc. de Mexico, S.A. de C.V. (50%) 2001 $18,000 $ - $ -
ITS, Inc. (100%) 2001 $ - $ - $ -
Incorporated Tank Systems 2001 $10,000 $ 17,000 $58,000
de Mexico, S.A. de C.V. (100%)
Net Operating Loss Carryforwards. Beard has approximately $54.6 million of
unused net operating losses ("NOL's") available for carryforward, which expire
between 2004 and 2009. The loss of the NOL's would have a negative impact on the
Company's future value. The Company's Certificate of Incorporation contains
provisions to prevent the triggering of an "ownership change" as defined in
Section 382 of the Internal Revenue Code by restricting transfers of shares
without the Board of Directors' consent to any person if that person was, or
would thereby become, a holder of 5% or more of the fair market value of Beard's
outstanding capital stock.
Effect of Recent Operations on Liquidity. The termination of the MCN
Projects (see "Coal Reclamation Activities") in January 1999 has had a material
detrimental effect upon the Company's profitability since that date. Primarily
as a result of the loss of its major revenue stream, coupled with the use of
funds required to support the activities of its various startup activities, the
Company's working capital decreased from $981,000 at year-end 1999 to ($284,000)
at year-end 2002.
The Company continues to take steps to mitigate future funding requirements
by its poorly performing subsidiaries. Several projects are in various stages of
development which, subject to arranging necessary financing, are ultimately
expected to mature into operating projects. In the Coal Segment, Beard
Technologies has entered into a memorandum of understanding and expects to
finalize a definitive agreement on a project in the second quarter of 2003 (see
"Coal Reclamation Activities---Project in Advanced Stage" below). The
discontinued ITF Segment, which consumed $482,000 of cash from 1999 to 2001,
generated cash of $96,000 in 2002 and is expected to generate approximately
$140,000 of cash in 2003 as its remaining assets are sold. The discontinued
BE/IM Segment is expected to contribute $110,000 or more of cash to Beard in
2003 as its remaining assets are liquidated. The WS Segment, which consumed
$2,046,000 of cash from 1999 to 2000, generated $104,000 of cash from 2001 to
2002 and is expected to contribute $150,000 or more of cash to the Company in
2003 as its remaining assets are liquidated. Meanwhile, two private placements
of notes and warrants totaling $1,800,000 were completed in May of 2002 and
February of 2003. Such funds are expected to "bridge the gap" until (i) the
anticipated McElmo Dome settlement has been distributed, and (ii) the
contemplated new coal project and projects under development in China are
underway. (See "Recent Developments" below).
Recent Developments
McElmo Dome Litigation. On December 24, 2002, the Tenth Circuit Court of
Appeals issued an Opinion affirming the May 6, 2002 decision of the Colorado
District Court which approved the Settlement, the allocation thereof, attorneys'
fees and other matters.
On March 24, 2003, the Objectors filed a Petition for a Writ of Certiorari
with the U.S. Supreme Court. On April 1 Plaintiffs' counsel advised the Court
that they to not intend to file a response to the Petition unless one is
requested by the Court. We are advised that the vast majority of petitions are
ruled upon within three to 12 weeks, and that most petitions are disposed of
within 2-1/2 weeks.
If the U.S. Supreme Court denies the Petition, the Settlement is expected
to be final between early May and late June of 2003, meaning the distribution of
Settlement funds can begin at that time according to the terms of the Settlement
Agreement. Although it is possible the U.S. Supreme Court could decide to hear
the case and could overturn the Settlement, our counsel believe such possibility
is remote. The U.S. Supreme Court takes very few cases and our counsel think it
is unlikely the Court would have any interest in this case. (See "Item 3. Legal
Proceedings---McElmo Dome Litigation").
Private Placement of Notes and Warrants. On February 21, 2003, the Company
completed the sale of $600,000 of subordinated notes to accredited investors. A
$550,000 Note was sold by an investment banking firm which received a 5%
commission thereon. The purchaser received a 5% Loan Fee on this Note, which
bears a 5% coupon. A $50,000 Note was sold by the Company to affiliates of the
Company and bears a 10% coupon. The Notes were accompanied by Warrants to
purchase a total of 60,000 shares of Beard common stock at $0.50 per share. The
Company has agreed to redeem the Notes within 10 days of receipt of the second
installment of the McElmo Dome settlement. The Notes will mature on April 1,
2004; however, if they have not been redeemed by such date they will
automatically be extended to January 1, 2005.
ABT Beard Litigation. In early September a controversy arose between the
Company and ABT concerning their legal rights and relationship. Lengthy
negotiations and discussions were unsuccessful in arriving at a mutually
agreeable solution. Accordingly, in November of 2002, the Company filed suit
against ABT in the United States District Court for the Western District of
Oklahoma, styled The Beard Company and ABT Beard, L.L.C. (the "LLC") v. American
Bio-Tech, Inc. ("ABT"), Case No. CIV-02-1392, seeking the Court to: (i)
judicially dissolve the LLC; (ii) order that the affairs of the LLC be wound up;
and (iii) award the Company its costs, expenses and attorneys' fees. In January
of 2003, ABT filed its answer and asserted counterclaims against the Company and
third-party claims against Beard Sino-American Resources Co., Inc., Beijing
Beard Biotech Engineering Co., Inc., Cambridge/ABT Beard Handan Venture, L.L.C.,
William M. Beard, Riza E. Murteza and Mark E. Voth. (See "Item 3. Legal
Proceedings---ABT Beard Litigation" for additional details).
REUSE License Agreement. On February 14, 2003, Beard Environmental
Engineering, L.L.C. ("BEE") entered into a License Agreement with Real Earth
United States Enterprises, Inc. ("REUSE") pursuant to which BEE obtained the
exclusive right and license to use the proprietary composting technology of
REUSE in the People's Republic of China ("PRC"). The exclusive right is for a
term of five years and will be automatically extended for additional five year
periods if BEE or its affiliates have either sublicensed five plants or sold
plants during the respective periods involved. BEE will pay a license fee to
REUSE prior to the start up date of each plant and will also make quarterly
royalty payments for each metric ton of compost sold. (See "OPERATIONS IN
CHINA---REUSE License Agreement").
Unless the context otherwise requires, references to Beard and the Company
herein include Beard and its consolidated subsidiaries, including Beard Oil.
CONTINUING OPERATIONS
Coal Reclamation Activities. The Company's coal reclamation activities
comprise the ("Coal") Segment, which is conducted by Beard Technologies, Inc.
("BTI"). BTI 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.
Carbon Dioxide Operations. The Company's carbon dioxide activities comprise
the ("CO2") Segment, consisting of the production of CO2 gas which is conducted
through Beard. The Company owns non-operated working and overriding royalty
interests in two producing CO2 gas units in Colorado and New Mexico.
Operations in China. The Company's activities in China comprise the
("China") Segment, which is conducted by Beard Sino-American Resources Co., Inc.
("BSAR"). BSAR is pursuing environmental opportunities in the PRC, focusing on
the installation and construction of facilities which utilize the proprietary
composting technology of REUSE.
e-Commerce. The Company's e-Commerce activities comprise the ("e-Commerce")
Segment, which is conducted by starpay.com(TM), l.l.c. ("starpay"). starpay is
pursuing the development of a virtually secure payment system to be used
exclusively for Internet transactions. Its current focus is to develop licensing
agreements and other fee based arrangements with companies implementing
technology in conflict with its intellectual property.
(b) Financial information about industry segments.
Financial information about industry segments is contained in the
Statements of Operations and Note 15 of Notes to the Company's Financial
Statements. See Part II, Item 8---Financial Statements and Supplementary Data.
(c) Narrative description of operating segments.
The Company currently has four operating segments: Coal, CO2, China, and
e-Commerce. All of such activities, with the exception of Beard's CO2 gas
production activities, are conducted through subsidiaries. Beard, through its
corporate staff, performs management, financial, consultative, administrative
and other services for its subsidiaries.
COAL RECLAMATION ACTIVITIES
Background of Beard Technologies, Inc. In early 1990 the Company acquired
more than 80% of Energy International Corporation ("EI"), a research and
development firm specializing in coal-related technologies. The Company sold EI
in 1994, retaining certain assets which were contributed to a wholly-owned
subsidiary, Beard Technologies, Inc. ("BTI").
Impact of Section 29. In the late 1990's significant activity in the coal
industry was focused upon the development of fine coal waste impoundment
recovery projects which qualified for Federal tax credits under Section 29 of
the Internal Revenue Code. Such projects involve recovering the raw slurry with
a dredge, using a sophisticated washing plant to remove clay and other fine
impurities from the coal, and finally producing a high BTU fine coal briquette
which qualifies for the alternative fuels tax credit. In order to qualify for
the tax credit, which may amount to as much as $20 to $25 per ton of coal
briquettes sold, the synthetic fuel must be produced (i) from a facility placed
in service before July 1, 1998; (ii) pursuant to a binding contract entered into
before January 1, 1997; and (iii) before January 1, 2008.
The MCN Projects. In June of 1998 Beard Technologies finalized agreements
with a subsidiary of MCN Energy Group Inc. ("MCN"), to acquire beneficiation
plants located at six coal slurry impoundment sites in West Virginia, Kentucky,
and Ohio. Under the agreements, which became effective in April of 1998, Beard
Technologies operated and maintained the six beneficiation plants and six
briquetting plants for MCN under a cost-plus arrangement, receiving a minimum
operating profit of $100,000 per month so long as the contracts remained in
effect. Since these were Section 29 projects, BTI anticipated that the contracts
would last until the tax credits expired on December 31, 2007. However, in
November of 1998 MCN became concerned that the plants might not qualify for the
tax credit and took a special charge of $133,782,000 to completely write off the
projects. In January of 1999 MCN terminated the operating agreements.
During the time Beard Technologies was operating the 12 plants it was, to
the best of the Company's knowledge, the largest operator of coal recovery
plants in the world. In its capacity as contract operator, BTI supervised the
last few months of construction, hired and trained 11 foremen and 71 equipment
operators, obtained all necessary permits, negotiated and executed a union
contract, and brought each project into production of clean coal from the
impoundments and alternative fuel from the briquetting plants by the required
deadline.
Current Focus on Coal Reclamation. Since the termination of the MCN
agreements Beard Technologies has continued to focus its efforts on coal
reclamation. During such time BTI has called on numerous coal producers and
utilities, particularly those having ponds which it believes have large reserves
of recoverable coal fines.
Project in Advanced Stage. Beard Technologies currently has several
projects in various stages of development which, subject to arranging necessary
financing, are ultimately expected to mature into operating projects. BTI has
entered into a memorandum of understanding on one of these projects and expects
to reach a definitive agreement on the project during the second quarter of
2003. Negotiations are in progress with a third party to form a joint venture or
limited liability company that would provide the initial working capital and
guarantee the necessary equipment financing for the project. The timing of the
project is uncertain but, subject to obtaining the necessary financing, it is
considered to have a high probability of activity. However, no definitive
contracts have as yet been signed, and there is no assurance that the required
financing will be obtained or that the project will materialize.
Improved Drilling and Lab Capabilities. In 2000 Beard Technologies made
substantial investments to improve its slurry pond core drilling equipment and
its fine coal laboratory analytical services capabilities. In addition to
supporting its own pond recovery project evaluations, BTI is now able to offer
state of the art drilling and analytical services to commercial clients who are
independently investigating their own projects.
Recent Developments: Sharp Increase in Oil and Natural Gas Prices; Effect
on Coal Demand. As a result of the current war in Iraq there has been a sharp
increase in both oil and natural gas prices which has had a major impact upon
the electric power generating industry. It now appears that natural gas will be
in increasingly short supply in future years. This has caused many electric
utilities to re-think their strategy of moving to natural gas as their sole
source of supply, and a number of them have now reverted or moved to dual source
capability. As a result, the price of coal when compared to the price of gas on
a btu basis has become increasingly attractive. Although there is no certainty
of occurrence, the coal industry looks for coal to supply a greater portion of
electricity demand growth over the next few years.
Principal Products and Services. The principal products and services
supplied by the Company's Coal Segment are (i) the capability to undertake large
reclamation projects and the cleanup of slurry pond recovery sites; (ii) core
drilling of slurry ponds and evaluation of recoverable coal reserves; (iii)
consulting reclamation technology; (iv) technical services; (v) proprietary coal
reclamation technology; and, if desired, (vi) the operation of coal briquetting
facilities owned by third parties.
Sources and Availability of Raw Materials. There are numerous coal
impoundments scattered throughout the eastern third of the U.S. which contain
sizeable reserves of coal fines which the Company believes can be recovered on
an economic basis while at the same time solving an environmental problem. The
key is getting the owners of the slurry ponds to recognize that, with the
technology BTI now has available, recovery can now be done on a profitable
basis.
Dependence of the Segment on a Single Customer. The Coal Segment accounted
for the following percentages of the Company's consolidated revenues from
continuing operations for each of the last three years.
Percent of
Consolidated
Revenues from
Fiscal Year Continuing
Ended Operations
----------- -------------
12/31/02 2.6%
12/31/01 22.8%
12/31/00 27.5%
The segment is not dependent on a single customer. Loss of all of the
segment's present customers would not have a material adverse effect on the
segment nor on the Company.
Termination of the MCN operating agreements in 1999 has had a material
detrimental effect upon the Company's profitability since that date. The
Company's revenues and profitability will continue to be negatively impacted
until contracts for new reclamation projects currently in development have been
negotiated and finalized.
Facilities. Beard Technologies leases an office and laboratory facilities
from the Applied Research Center at the University of Pittsburgh ("UPARC"). The
UPARC facilities give the Coal Segment access to a wide range of coal and
mineral testing capabilities.
Market Demand and Competition. The coal reclamation industry is highly
competitive, and the Coal Segment must compete against larger companies, as well
as several small independent concerns. Competition is largely on the basis of
technological expertise and customer service.
Seasonality. The coal reclamation business is somewhat seasonal due to the
tendency for field activity to be reduced in cold and/or bad weather.
Environmental Matters. Compliance with Federal, state and local laws
regarding discharge of materials into the environment or otherwise relating to
protection of the environment are of primary concern to the segment, and the
cost of addressing such concerns are factored into the cost of each project. The
cost of compliance varies by project and cannot be estimated until all of the
contract provisions have been finalized. See " Regulation---Environmental and
Worker Safety Matters."
Financial Information. Financial information about the Coal Segment is set
forth in the Financial Statements. See Part II, Item 8---Financial Statements
and Supplementary Data.
CARBON DIOXIDE OPERATIONS
General. The Company's carbon dioxide (CO2) gas operations are conducted by
the parent company which owns working and overriding royalty interests in two
CO2 gas producing units.
Carbon Dioxide (CO2) Properties
McElmo Dome. The McElmo Dome field in western Colorado is a 240,000-acre
unit from which CO2 gas is produced. Beard owns a 0.53814206% working interest
(0.4708743% net revenue interest) and an overriding royalty interest equivalent
to a 0.0920289% net revenue interest in the Unit, giving it a total 0.5629032%
net revenue interest.
Deliveries of CO2 gas are transported through a 502-mile pipeline to the
Permian Basin oilfields in West Texas where such gas is utilized primarily for
tertiary oil recovery. In 2000, Kinder Morgan CO2 Company, L.P. replaced Shell
CO2 Company Ltd. as operator of the unit. There are 46 producing wells, ranging
from 7,634 feet to 8,026 feet in depth. McElmo Dome and Bravo Dome (see below)
are believed to be the two largest producing CO2 fields in the world. The gas is
approximately 98% CO2.
In 2002 Beard sold 1,514,000 Mcf attributable to its working and overriding
royalty interests at an average price of $.29 per Mcf. In 2001, Beard sold
1,327,000 Mcf (thousand cubic feet) attributable to its working and overriding
royalty interests at an average price of $.33 per Mcf. In 2000 Beard sold
1,319,000 Mcf attributable to its working and overriding royalty interests at an
average price of $.36 per Mcf. Beard was underproduced by 20,000 Mcf on the sale
of its share of McElmo Dome gas at year-end 2002.
As the result of a development program undertaken by Shell in mid-1996,
McElmo Dome production had increased to 935 million cubic feet per day in March
1998. Following the severe decline in oil prices in late 1998 and early 1999,
CO2 demand for tertiary recovery decreased sharply, and McElmo Dome CO2
production decreased to 657 million cubic feet per day in April 1999. With the
sharp increase in oil prices in late 1999 and throughout 2000, CO2 demand for
tertiary recovery increased accordingly. CO2 production had increased back to
745 million cubic feet per day in 2000 and 2001, and dropped slightly to 732
million cubic feet per day in 2002. As a result of additional developmental
drilling in the field in 2002, we have been advised by the operator that the
field is now capable of producing 1.2 billion cubic feet per day.
Beard considers its ownership interest in the McElmo Dome Field to be one
of its most valuable assets. In November 2000 Hunt Oil Company sold its 0.0197%
working interest (0.0164% net revenue interest) and its overriding royalty
interest equivalent to a 0.0356% net revenue interest in the Unit for $225,000
at a public auction in Houston, Texas. On an equivalent basis, Beard's interest
in the Unit is estimated to have had an approximate value of $2.1 million at the
time of the auction. However, the value of CO2 properties has decreased due to
pricing since the auction.
Bravo Dome. Beard also owns a 0.05863% working interest in the
1,000,000-acre Bravo Dome CO2 gas unit in northeastern New Mexico. At December
31, 2002, Beard was underproduced by 472,000 Mcf on the sale of its share of
Bravo Dome gas. The Company sold no CO2 gas from Bravo Dome in 2002, 2001, or
2000 despite being in an underproduced status. The Company's solid CO2 segment,
which was sold in 1997, had previously provided the market for such gas, and no
efforts have been made to market the Company's share of the gas since the sale.
Amoco Production Company operates a CO2 production plant in the middle of
the Bravo Dome field. The 350 producing wells are approximately 2,500 feet deep.
The gas is approximately 99% CO2.
Net CO2 Production. The following table sets forth Beard's net CO2
production for each of the last three fiscal years:
Net CO2
Fiscal Year Production
Ended (Mcf)
----------- ----------
12/31/02 1,514,000
12/31/01 1,327,000
12/31/00 1,319,000
Average Sales Price and Production Cost. The following table sets forth
Beard's average sales price per unit of CO2 produced and the average lifting
cost, lease operating expenses and production taxes, per unit of production for
the last three fiscal years:
Average Sales Average Lifting
Fiscal Year Price Per Mcf Cost Per Mcf
Ended of CO2 of CO2
----------- ------------- ---------------
12/31/02 $0.29 $0.07
12/31/01 $0.33 $0.06
12/31/00 $0.36 $0.05
Dependence of the Segment on a Single Customer. The CO2 Segment accounted
for the following percentages of the Company's consolidated revenues from
continuing operations for each of the last three years. The Company's CO2
revenues are received from two operators who market the CO2 gas to numerous end
users on behalf of the interest owners who elect to participate in such sales.
In 2002 approximately 52% of the Company's CO2 gas was sold to Kinder Morgan CO2
Company, L.P. and approximately 47% to Exxon Mobil.
Under the existing operating agreements, so long as any CO2 gas is being
produced and sold from the field, the Company has the right to sell its
undivided share of the production to either Kinder Morgan or Exxon Mobil and
also has the right to sell such production in the spot market. During 2002
Kinder Morgan was offering a slightly higher price than Exxon Mobil, so more of
the segment's production was sold to Kinder Morgan. Although there might be a
slight loss of revenue if either Kinder Morgan or Exxon Mobil were lost as a
customer, the Company does not believe that such loss would have a material
adverse effect on the segment or on the Company.
Percent of
Consolidated
Revenues from
Fiscal Year Continuing
Ended Operations
----------- --------------
12/31/02 94.9%
12/31/01 73.4%
12/31/00 65.7%
Productive Wells. Beard's principal CO2 properties are held through its
ownership of working interests in oil and gas leases which produce CO2 gas. As
of December 31, 2002, Beard held a working interest in a total of 396 gross
(0.45 net) CO2 wells located in the continental United States. The table below
is a summary of such developed properties by state:
Number of Wells
------------------------
State Gross Net
-------------- ------- -------
Colorado 46 0.248
New Mexico 350 0.205
------- -------
Total 396 0.453
======= =======
Employees. As of December 31, 2002, the CO2 Segment had no employees.
Financial Information. Financial information about the Company's CO2 gas
operations is contained in the Company's Financial Statements. See Part II,
Item 8---Financial Statements and Supplementary Data.
OPERATIONS IN CHINA
Background Information. In 1998 the Company opened an office in Beijing,
People's Republic of China (the "PRC"). Later that year the Company formed Beard
Sino-American Resources Co., Inc. ("BSAR"), an Oklahoma corporation and a
wholly-owned subsidiary of Beard. In 1999 BSAR established a Representative
Office in Beijing. In December 2001 BSAR formed Beijing Beard Bio-Tech
Engineering Co., Ltd. ("BTEC"), a Chinese corporation, as a wholly-owned
subsidiary of BSAR to engage in business activities in the PRC.
Environmental Opportunities. China is a large country with serious
environmental problems which include atmospheric pollution, ground water
pollution and land pollution. To solve these problems the government has made
the decision to bring in foreign equipment and technology. Initially we
concentrated our marketing efforts on atmospheric pollution caused primarily by
the burning of coal; however such efforts were unsuccessful. We are now focusing
all of our efforts on land pollution. The amount of arable land in China is
limited considering its dense population. China is the largest user of chemical
fertilizers in the world. Unfortunately, the carryover of fertilizers from one
planting to the next and the considerable runoff into lakes and rivers has
polluted much of China's arable land and fresh water resources.
Organic-Chemical Compound Fertilizer Initiatives. China, which is the
world's fourth largest country in area, is also the world's most heavily
populated country, with a population of almost 1.4 billion. For many years the
Chinese have boosted the production of food crops by applying large quantities
of nitrogen, phosphate and potassium fertilizers to their dwindling amount of
arable land. This overuse of fertilizer has resulted in damaged, less productive
soil and high rates of erosion. Working with the top agronomists and
academicians in the Chinese agricultural community, BSAR has developed a concept
to solve the problem by manufacturing chemical fertilizers blended with compost
derived from organic wastes. The end result will be an organic-chemical compound
fertilizer ("OCCF") utilizing at least two types of organic waste materials:
sewage sludge and crop-residual agri-waste.
Background/Formation of ABT-Beard. The Company developed the concept of
converting municipal waste into compost/organic fertilizer. In furtherance of
that concept Beard contacted American Bio Tech, Inc. ("ABT"), which owns
proprietary composting technology. In December of 2000 the Company and ABT
formed a joint venture to market, design and construct plants utilizing the ABT
composting technology in the PRC. In February of 2001 the Company and ABT formed
ABT Beard, LLC ("ABT Beard") to replace the joint venture. In May of 2001 the
Company and ABT entered into (i) an operating agreement governing the management
and operation of ABT Beard and (ii) a license agreement which gave ABT Beard the
exclusive right to exploit the ABT technology in the PRC.
Cooperative Joint Ventures. Through BSAR, the Company has signed contracts
and formed Cooperative Joint Ventures ("CJV's") or similar arrangements with
various Chinese partners for the construction of three facilities and the
marketing and sales of fertilizer. Two of these plants, to be located at Baoding
City and the City of Handan in Hebei Province, were to have produced
organic-chemical compound fertilizer ("OCCF"); the third plant was to be located
in Qihe City in Shandong Province to produce an organic fertilizer from compost
(no added chemical fertilizer enhancement). At Baoding City and Qihe City the
Chinese partners committed to provide the funding for the facilities and the
necessary financing and working capital. Through BSAR, ABT Beard was to have had
an interest from inception in these two CJV's determined by BSAR's equity
contribution for bringing the technology to China, and was also receive an
operating fee. Progress was dependent upon the Chinese partners fulfilling their
commitments, which to date has not occurred. Financing terms for the plant in
the City of Handan were being negotiated when the controversy arose with ABT.
All of the plants were to have used the patented composting technology of ABT.
All of the projects which were under development by ABT Beard have been placed
on indefinite hold until the outcome of the litigation currently in progress has
been determined. (See "Termination of Business Relationship with ABT" below).
Formulation of Product. The formulation of our product will be based on the
target crops and determined by the leading soil scientists at Beijing
Agricultural University and agronomists in each province. Our production will
amount to less than about 5% of total fertilizer demand in each of the provinces
in which we are planning to construct a facility. We believe that the sales
price for our product will be commensurate with and that the quality will be
superior to other similar products presently available. We expect to receive
strong support for our product from these senior scientists. Based on these and
other factors, we are confident that our product will be well received by the
agricultural community.
Termination of Business Relationship with ABT. In early September a
controversy arose between the Company and ABT concerning their legal rights and
relationships. Lengthy negotiations and discussions were unsuccessful in
arriving at a mutually agreeable solution. In November of 2002 Beard filed suit
against ABT in the U.S. District Court for the Western District of Oklahoma
asking that the Court (i) judicially dissolve ABT Beard, (ii) order that the
affairs of ABT Beard be wound up, and (iii) award the Company its costs,
expenses and attorneys' fees. In January of 2003 ABT filed a counterclaim to
which the Company has subsequently responded. The outcome of the litigation
cannot presently be determined. Although the Company hopes to recover the other
party's 50% of the total loans and accrued interest receivable of more than
$1,379,000 which the Company has made to ABT Beard, we have fully impaired the
receivable due to the present uncertainties of recovery, and accordingly an
impairment provision in the amount of $759,000 was established in the fourth
quarter of 2002. Accordingly, all of the projects which were under development
in China are on indefinite hold until the outcome of the litigation has been
determined. (See "Item 3. Legal Proceedings---ABT Beard Litigation" and Note 2
to the financial statements).
Ongoing Development Efforts in China. Meanwhile, the Company is continuing
to pursue new development opportunities in China. To that end, on December 12,
2002, the Company formed Beard Environmental Engineering, L.L.C. ("BEE"), a
wholly-owned Oklahoma limited liability company, to serve as the joint venture
partner for all of the Company's activities in China. BTEC became a wholly-owned
subsidiary of BEE on that date.
REUSE License Agreement. On February 14, 2003, BEE entered into a License
Agreement with Real Earth United States Enterprises, Inc. ("REUSE") whereby BEE
obtained the exclusive right and license to use the REUSE proprietary composting
technology in the PRC. BEE also has the exclusive right to license or sublicense
the technology in the PRC. The exclusive right is for a term of five years and
will be automatically extended for additional five year periods if BEE or its
affiliates have entered into written agreements for either (i) the sublicense of
five plants or (ii) the sale to CJV's of five plants during the respective
periods involved.
BEE will pay a license fee prior to the start up date of each plant. For
biosolid plants, such fee will be determined by the design biocell capacity of
each plant. The fee for a biosolid plant will range from $125,000 to $250,000
depending upon the size of the plant. The license fee for an MSW plant will be
higher due to the complexity of the plant and equipment involved. If either type
of plant is later expanded, BEE will pay a supplemental license fee equal to 10%
of the construction cost of the plant enhancement. BEE will also pay a quarterly
royalty payment to REUSE for each metric ton of compost sold.
Principal Products and Services. The principal products and services
supplied by the Company's China Segment are the installation and construction of
facilities which utilize the proprietary technology of REUSE.
The China Segment generated its initial revenues, totaling $72,000, before
taxes of approximately $10,000, in December 2001. However, since it was an
unconsolidated entity in 2000 and 2001, it accounted for none of the Company's
consolidated revenues from continuing operations during such years. The China
Segment generated no revenues in 2002.
Facilities. BSAR leases a small office located in Beijing Landmark Tower A
in Beijing, China.
Market Demand and Competition. Both the environmental industry and the coal
reclamation industry are highly competitive, and the China Segment must compete
against significantly larger companies, as well as a number of small independent
concerns, in both businesses. Competition is largely on the basis of
technological expertise and customer service.
Financial Information. Financial information about the China Segment is set
forth in the Financial Statements. See Part II, Item 8---Financial Statements
and Supplementary Data.
e-COMMERCE
Formation of starpay.com(TM), inc. (now starpay.com, l.l.c.). In February
1999 Marc Messner, Beard's VP-Corporate Development, presented to Beard
management his concept for an easy, inexpensive and virtually secure payment
system to be used exclusively for Internet transactions. Shortly thereafter
Beard entered into Memorandums of Understanding with (i) a Web site development
company and (ii) a patent attorney who agreed to join forces to develop the
concept. The Memorandums provided that the patent applications would be owned by
Beard, Messner (the inventor), the Web site company and the patent attorney
(collectively, the "Patent Owners").
In mid-1999 three patent applications were filed embodying the features of
the invention, and starpay.com(TM), inc. ("starpay") was formed to pursue the
development of the payment system. A fourth patent application was filed in
November 1999 which supplemented the earlier filings. In 2000 the Patent Owners
converted their ownership in the patent applications to ownership in starpay as
follows: Beard (78.4%); Messner (7.6%); patent attorney (7.0%); Web site company
(7.0%). starpay filed two additional patent applications in 2000 which have
considerably broadened the scope and, starpay believes, the potential of its
patent claims. At year-end 2001, starpay.com, l.l.c. was formed and starpay.
com, inc. was merged into it. In January of 2002 the Company, in recognition of
his efforts, increased Mr. Messner's interest in starpay to 15.0%, reducing the
Company's interest to 71.0%.
The starpay Technology. Our secure payment methods and technologies address
payer and transaction authentication in many forms. These include, but are not
limited to, performing a payer query for authentication and transaction consent
verification, as well as, chaining split transactions into an integrated
verifiable unique transaction authenticating the user and the transaction
attributes in the process.
Other features of starpay's technology include a patent-pending system that
incorporates the innovative use of the ubiquitous compact disc ("CD") or smart
card as a security and transaction-enabling device ("AVCard"). The starpay
AVCard, user's identifier and/or PIN must all be present to enable a transaction
on the World Wide Web. This technology is an additional layer of security that
may or may not be applied to starpay's proprietary process flow models.
Review of starpay's Security Assessment. starpay engaged a consulting firm
to perform a security assessment of its security technology and applied
processes. The assessment compared and contrasted starpay's security protocol
with the two industry primary "standard" protocols (SSL and SET) and provided a
product level comparison with leading credit, debit and prepaid payment
products. The "white paper"---titled "Protocol and Competitor Analysis"---was
completed in April of 2000.
Based upon its review of the document, starpay's management believes that
its secure payment protocol is the most secure payment process available for use
on the Internet. The starpay model significantly enhances the use of SSL by
addressing all the noted security risks associated with SSL-based transactions
and meets all the goals of an SET-based transaction without the use of SET's
slow and costly high level cryptographic features. The "white paper" concludes
that "the starpay process meets or exceeds the majority of all transaction
qualities of the various (competing) Internet payment processes."
Issuance of Initial Patent; Negotiations for Exclusive License Agreement.
On April 9, 2002, the U.S. Patent and Trademark Office issued U.S. Patent No.
6,370,514 (the "Voucher Patent") to starpay on its patent application titled
"Method for Marketing and Redeeming Vouchers for use in Online Purchases." All
claims submitted in this application were allowed. starpay has negotiated an
exclusive license agreement with a private company. It is anticipated that this
agreement will be finalized in April of 2003.
License Agreement. On November 19, 2001, the owner (the "Patent Holder") of
U.S. Patent 5,903,878, "Method and Apparatus for Electronic Commerce" (the
"Patent") granted to starpay the exclusive marketing rights, with respect to
certain clients (the "Clients") which starpay has identified to the Patent
Holder, for security software and related products and applications. starpay
believes that this alliance strongly enhances its intellectual property
portfolio of electronic payment technologies. The Patent addresses payer and
transaction authentication in many forms. These include, but are not limited to,
performing a payer query for authentication and transaction consent
verification, as well as, chaining split transactions into an integrated
verifiable unique transaction authenticating the user and the transaction
attributes in the process. starpay believes the claims in this Patent are unique
and will provide numerous opportunities to generate related licensing agreements
in the electronic authentication and payment transaction fields.
On March 20, 2002, starpay's marketing rights with respect to its Clients
were broadened to include the right to litigate on behalf of the Patent Holder
all patent claims in relation to the Patent and related foreign applications or
patents. Any settlement and/or judgment resulting from starpay's prosecution of
Patent claims will be shared 50/50 or 25/75 between starpay and the Patent
Holder (depending upon who the infringing party may be) following reimbursement
to starpay (from the settlement and/or judgment monies) for litigation related
expenses incurred, including defense of any counterclaims.
starpay's Strategy and Current Opportunities. starpay's plan is to develop
licensing agreements and other fee based arrangements with companies
implementing technology in conflict with our intellectual property. We have
identified and investigated many opportunities for our intellectual property
portfolio which include various e-commerce payment systems, security access
applications and secure document transmission. Although there are many
applications for our technology, our focus is on Internet security,
authentication and electronic payments.
We have identified two major credit card industry entities who have payment
systems utilizing technology very similar to the authentication protocols
embodied in this Patent and/or our pending patent claims. We have also
identified two key entities in enabling mobile e-commerce that are currently
implementing payment systems using an authentication protocol very similar to
the patent to which we have marketing rights. starpay is currently assessing all
of these situations looking toward the possibility of generating licensing
opportunities with each.
starpay believes that its intellectual property portfolio provides the
technology and methods for enabling the most secure payment system and
authentication protocols available for use on the Internet. If starpay is
successful in its strategic alliance and licensing efforts, the e-Commerce
Segment is expected to become a major contributor to the Company's future
success. However, no assurance can be given that starpay will successfully
capitalize on its Internet security methods and technologies.
Facilities. starpay occupies a small portion of the office space occupied
by Beard at the Company's corporate headquarters located in Oklahoma City,
Oklahoma.
Market Demand and Competition. The e-Commerce industry is rapidly changing
and highly competitive, and the e-Commerce Segment must compete against
significantly larger companies, as well as a number of small independent
concerns. Competition is largely on the basis of technological expertise,
customer service, capital available for product branding and the ability to
react quickly to a constantly changing environment.
Financial Information. Financial information about the e-Commerce Segment
is set forth in the Financial Statements. See Part II, Item 8---Financial
Statements and Supplementary Data.
REGULATION
General. The Company is subject to extensive regulation by federal, state,
local, and foreign governmental authorities. The Company's operations in the
United States and China are subject to political developments that the Company
cannot accurately predict. Adverse political developments and changes in current
laws and regulations affecting the Company could dramatically impact the
profitability of the Company's current and intended operations. More stringent
regulations affecting the Company's coal reclamation activities or adverse
changes in federal tax laws concerning the availability of Section 29 tax
credits could adversely impact the profitability of the Company's future coal
reclamation operations and the availability of those projects.
Environmental and Worker Safety Matters. Federal, state, and local laws
concerning the protection of the environment, human health, worker safety,
natural resources, and wildlife affect virtually all the operations of the
Company, especially its coal reclamation and environmental remediation
activities. These laws affect the Company's profitability and increase the
Company's exposure to third party claims.
It is not possible to reliably estimate the amount or timing of the
Company's future expenditures relating to environmental matters because of
continually changing laws and regulations, and the nature of the Company's
businesses. The Company cannot accurately predict the scope of environmental or
worker safety legislation or regulations that will be enacted. The Company's
cost to comply with newly enacted legislation or regulations affecting its
business operations may require the Company to make material expenditures to
comply with these laws. Although management believes that it has adequate
insurance to address probable environmental contingencies, it is possible that
coverage may be inadequate to satisfy future environmental liabilities. As of
this date, the Company is not aware of any environmental liability or claim that
could reasonably be expected to have a material adverse effect upon its present
financial condition.
RISK FACTORS
Net Losses, Limited Liquidity and Capital Resources
The Company has suffered net losses during each of the last five years.
Because of losses incurred in the fourth quarter of 2001, the Company's net
worth became negative as of December 31, 2001, and the deficiency increased to
($4,833,000) at year-end 2002. Receipt of the anticipated McElmo Dome settlement
will materially reduce the deficiency. However, the Company will still have a
negative net worth, the amount of which will depend upon the additional losses
sustained before the settlement is received. The Company's business will
continue to require substantial expenditures. There is no certainty that the
Company will be able to achieve or sustain profitability or positive cash flows
from operating activities in the future.
Impact of Recent Writeoffs
The Company's balance sheet was severely impacted in 2002 as a result of
being required to impair long-lived assets in the amount of $1,561,000 and to
impair investments and other assets in the amount of $872,000. The resulting
impairment of $2,433,000 increased the common shareholders' deficiency from
($2,400,000) to ($4,833,000), more than doubling the deficiency. As a result,
even assuming the Company receives the anticipated Settlement of more than
$3,900,000, it will still have a deficiency. Such deficiency may reduce the
Company's ability to borrow funds and impact its ability to achieve
profitability in the future.
Failure to Receive or Delay in Receiving the Settlement
In the event the McElmo Dome Settlement should be overturned it would
severely diminish the Company's liquidity and its efforts to achieve
profitability. (See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations---Liquidity and capital
resources---Liquidity"). An appeal has been filed with the U.S. Supreme Court
which will delay the Settlement, and there is the possibility that the Court
could overturn the Settlement. (See "Item 1. Business---Recent
Developments---McElmo Dome Litigation" and "Item 3. Legal Proceedings--- McElmo
Dome Litigation").
History of Delays in Finalizing New Coal Projects
The Company has experienced delays in the past in finalizing its new coal
projects. The Company may experience additional delays in the future. No
definitive contracts have been signed yet in connection with the projects
currently under development in the Coal Segment. Additionally, financing has yet
to be arranged for these projects. Continued delays in finalizing the Company's
new coal projects may have a material adverse effect on the Company.
History of Delays in Finalizing Projects in China
The Company has experienced delays in the past in finalizing projects in
China. The Company may experience additional delays in the future. No definitive
contracts have been signed yet in connection with the projects currently under
development in the China Segment. Additionally, financing has yet to be arranged
for these projects. Continued delays in finalizing the Company's new projects in
China may have a material adverse effect on the Company.
starpay Intellectual Property Rights; Copying by Competitors
The Company has identified at least three competitors that offer services
that potentially conflict with starpay's intellectual property rights. If the
Company is unable to protect its intellectual property rights from infringement,
the Company may not be able to realize the anticipated profit potential from the
e-Commerce Segment.
Political and economic uncertainty in China could worsen at any time and our
operations could be delayed or discontinued.
Our business is subject to political and economic risks, including:
o Loss of revenue, property and equipment as a result of unforeseen
events like expropriation, nationalization, war and insurrection;
o Risks of increases in import, export and transportation regulations
and tariffs, taxes and governmental royalties;
o Renegotiation of contracts with governmental entities;
o Changes in laws and policies governing operations of foreign-based
companies in China;
o Exchange controls, currency fluctuations and other uncertainties
arising out of foreign government sovereignty over international
operations;
o Laws and policies of the United States affecting foreign trade,
taxation and investment; and
o The possibility of being subject to the exclusive jurisdiction of
foreign courts in connection with legal disputes and the possible
inability to subject foreign persons to the jurisdiction of courts in
the United States.
o The ABT Beard litigation currently in progress could hinder the China
Segment's ability to finance future projects until the litigation is
resolved; an unfavorable conclusion to the litigation could impact the
segment's ability to move forward with any projects.
OTHER CORPORATE ACTIVITIES
Other Assets. Beard also has a number of other assets and investments which
it is in the process of liquidating as opportunities materialize. Such assets
consist primarily of a convenience store location with related property, plant,
and equipment, an iodine extraction plant and related equipment, brine
collection wells, drilling rig components and related equipment, land and
improvements, wastewater storage tanks, a real estate limited partnership in
which the Company is a limited partner and other miscellaneous investments. As
excess funds become available from such liquidations they will be utilized for
working capital, reinvested in Beard's ongoing business activities or redeployed
into newly targeted opportunities. Beard's recorded value for these other assets
is less than or equal to their estimated fair value.
Office and Other Leases. Beard leases office space in Oklahoma City,
Oklahoma, aggregating 5,817 square feet under a lease expiring September 30,
2003, at a current annual rental of $83,000. In addition, Beard's subsidiaries
lease space at other locations as required to serve their respective needs.
Employees. As of December 31, 2002, Beard employed 20 full time and six
part time employees in all of its operations, including five full time employees
and three part time employees on the corporate staff.
(d) Financial information about foreign and domestic operations and export
sales.
See Item 1(c) for a description of foreign and domestic operations and
export sales.
Item 2. Properties.
See Item 1(c) for a description of properties.
Item 3. Legal Proceedings.
Neither Beard nor any of its subsidiaries are engaged in any litigation or
governmental proceedings which Beard believes will have a material adverse
effect upon the results of operations or financial condition of any of such
companies. However, the Company is a plaintiff in a lawsuit where the Company's
share of the claims, exclusive of interest and costs, exceeded 10% of
consolidated current assets at year-end 2002. See "McElmo Dome Litigation"
below. It is also plaintiff in another lawsuit which seeks judicial dissolution
of a subsidiary. The defendant has filed an answer and asserted counterclaims
against the Company, several subsidiaries and three of the officers thereof. The
Company and the other defendants have filed an answer denying liability and
intends to vigorously defend such claims. See "ABT Beard Litigation" below.
McElmo Dome Litigation. On October 22, 1996, the Company joined with others
(the "CO2 Claims Coalition, LLC" or the "Plaintiff" or collectively, the
"Plaintiffs") in filing in U.S. District Court for the District of Colorado a
suit against Shell Oil Company ("Shell"), Shell Western E & P, Inc. ("SWEPI"),
Mobil Producing Texas and New Mexico, Inc. ("Mobil") and Cortez Pipeline
Company, a partnership ("Cortez").
Plaintiffs in the litigation are small share CO2 working interest owners,
CO2 royalty owners and CO2 overriding royalty interest owners all of whom have
contract interests in the value of the CO2 produced from the McElmo Dome Field
(the "Field"---see "Carbon Dioxide Operations" at pages 9-12). Plaintiffs'
complaint alleges damages against the defendants caused by defendants' wrongful
determination of the value of CO2 produced from the Field and the corresponding
wrongful underpayment to Plaintiffs. The complaint further alleges that Shell
and Mobil are (1) the dominant producers of CO2 from the Field; (2) partners
owning defendant Cortez; (3) users of CO2 produced from the Field in west Texas
for the production of crude oil; and that SWEPI is for all practical purposes
the alter ego of Shell and thus liable to the same extent as Shell.
A Settlement Agreement (the "Agreement") was signed among the attorneys for
the Plaintiffs and the Defendants on September 24, 2001. On May 6, 2002, Judge
Weinshienk of the Colorado District Court issued a final judgment approving the
Settlement and ordered that a settlement fund of $50.4 million in cash (the
"Settlement") be established to settle the litigation. Shortly thereafter 11
objecting class members (the "Objectors") who collectively are entitled to
receive approximately $106,500 net of expenses under the Settlement filed
appeals to the final approval of the Settlement. On December 24, 2002, the Tenth
Circuit Court of Appeals issued an Opinion affirming the May 6, 2002 decision of
the Colorado District Court which approved the Settlement, the allocation
thereof, attorneys' fees and other matters.
On March 24, 2003, the Objectors filed a Petition for Certiorari asking the
U.S. Supreme Court for review. (See "Recent Developments---McElmo Dome
Litigation"). The U.S. Supreme Court takes very few cases and our counsel think
it is unlikely that the Court would have any interest in this case. If the U.S.
Supreme Court denies the petition, the Settlement is expected to be final
between early May and late June of 2003, meaning the distribution of Settlement
funds can begin at that time according to the terms of the Settlement Agreement.
Distribution of the proceeds will be delayed until the petition to the U.S.
Supreme Court has been decided. The Company believes the Settlement will be
concluded in the time frame indicated above with anticipated proceeds to the
Company in excess of $3.9 million including interest. Distribution of the
contemplated proceeds will have a significant impact upon the Company's
liquidity. The appeal to the Supreme Court could ultimately cause the Settlement
to be overturned. We believe such an outcome is unlikely.
The Company has expensed all of its share, totaling $450,000 from 1996
through year-end 2002, of the costs of the litigation. Accordingly, any
Settlement proceeds flowing to Beard will result in net income, except for
alternative minimum taxes which are not expected to exceed 2% in total. Beard's
share of any Settlement will not be subject to Federal or Colorado income tax
due to the Company's NOL's. (See Note 11 to the Company's Financial Statements).
ABT Beard Litigation. In early September a controversy arose between the
Company and ABT concerning their legal rights and relationship. Lengthy
negotiations and discussions were unsuccessful in arriving at a mutually
agreeable solution. Accordingly, in November of 2002, the Company filed suit
against ABT in the United States District Court for the Western District of
Oklahoma, styled The Beard Company and ABT Beard, L.L.C. (the "LLC") v. American
Bio-Tech, Inc. ("ABT"), Case No. CIV-02-1392, seeking the Court to: (i)
judicially dissolve the LLC; (ii) order that the affairs of the LLC be wound up;
and (iii) award the Company its costs, expenses and attorneys' fees. In January
of 2003, ABT filed its answer and asserted counterclaims against the Company and
third-party claims against Beard Sino-American Resources Co., Inc., Beijing
Beard Biotech Engineering Co., Inc., Cambridge/ABT Beard Handan Venture, L.L.C.,
William M. Beard, Riza E. Murteza and Mark E. Voth for: (i) fraud; (ii) breach
of fiduciary duty; (iii) breach of loyalty; (iv) an accounting and imposition of
a constructive trust; (v) breach of the ABT Operating Agreement; (vi) violation
of the Oklahoma Uniform Trade Secrets Acts; (vii) federal service mark
infringement; (viii) common law unfair competition; (ix) violation of the
Oklahoma Deceptive Trade Practices Act; (x) unjust enrichment; (xi) conversion;
(xii) common law conspiracy; and (xiii) dissolution of ABT. ABT seeks an
unspecified amount of direct, incidental, consequential, punitive, and treble
damages, plus attorneys' fees and costs and injunctive relief.
Discovery has not yet commenced in the lawsuit, and the outcome of this
litigation cannot be determined. On its claim against ABT, the Company hopes to
recover loans of more than $700,000 that were made to ABT, plus accrued
interest. Because of the uncertainty of the outcome, an impairment provision in
the amount of $759,000 was established in the fourth quarter of 2002 to write
off the loan, the accrued interest, and the Company's investment in all of the
LLC's projects. On the counterclaims and third party claims asserted by ABT, the
Company and third-party defendants have filed an answer denying liability and
intend to vigorously defend the claims. All of the projects that were under
development by the LLC have been placed on indefinite hold until the outcome of
the litigation has been determined.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
(a) Market information.
The Company's common stock trades on the OTC Bulletin Board ("OTCBB")(A)
under the ticker symbol BRCO. The following table sets forth the range of
reported high and low bid quotations for such shares on the OTCBB for each full
quarterly period within the two most recent fiscal years:
2002 High Low
-------------- -------- -------
Fourth quarter $1.04 $0.01
Third quarter 1.75 0.10
Second quarter 2.55 0.40
First quarter 0.99 0.40
2001 High Low
-------------- -------- -------
Fourth quarter $1.03 $0.03
Third quarter 1.50 0.05
Second quarter 1.15 0.12
First quarter 0.75 0.125
- ---------------
<FN>
(A) The reported quotations were obtained from the OTCBB Web Site. Such
quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions.
</FN>
(b) Holders.
As of February 28, 2003, the Company had 432 record holders of common
stock.
(c) Dividends.
To date, the Company has not paid any cash dividends. The payment of cash
dividends in the future will be subject to the financial condition, capital
requirements and earnings of the Company. The Company intends to employ its
earnings, if any, primarily in its coal reclamation activities and does not
expect to pay cash dividends for the foreseeable future. The Certificate of
Designations of the Beard Preferred Stock does not preclude the payment of cash
dividends. The Certificate provides that, in the event the Company pays a
dividend or other distribution of any kind, holders of the Preferred Stock will
be entitled to receive the same dividend or distribution based upon the shares
into which their Preferred Stock would be convertible on the record date for
such dividend or distribution.
Item 6. Selected Financial Data.
The following financial data are an integral part of, and should be read in
conjunction with, the financial statements and notes thereto. Information
concerning significant trends in the financial condition and results of
operations is contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages 23 through 33 of this report.
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(in thousands, except per share data)
Statement of operations data:
Revenues from
continuing operations $ 469 $ 602 $ 717 $ 1,421 $ 9,238
Interest income 119 177 136 228 400
Interest expense (400) (207) (60) (170) (964)
Loss from continuing operations (4,391) (1,453) (1,392) (1,571) (89)
Loss from discontinued operations (223) (868)(a) (1,637) (1,828)(b) (3,768)(c)
Net loss (4,614) (2,321) (3,029) (3,399) (3,857)
Net loss attributable to
common shareholders (4,614) (2,321) (3,029) (3,399) (3,857)
Net loss per share - basic and diluted:
Loss from continuing operations (2.40) (0.79) (0.76) (0.86) (0.05)
Loss from discontinued operations (0.12) (0.48) (0.90) (0.99) (1.97)
Net loss (2.52) (1.27) (1.66) (1.85) (2.02)
Balance Sheet Data:
Working capital (284) 281 (159) 981 5,378
Total assets 1,264 4,058 5,087 6,804 37,337
Long-term debt (excluding
current maturities) 4,241 2,513 1,428 13 25,780
Redeemable preferred stock 889 889 889 889 889
Total common shareholders' equity
(deficiency) (4,833) (344) 1,883 4,666 8,387
- ---------------
<FN>
(a) In March 2001, the Company determined that it would no longer provide financial support to ISITOP, Inc., an 80%-owned
subsidiary specializing in the remediation of polycyclic aromatic hydrocarbon contamination. In May 2001, the fixed
assets of the 50%-owned subsidiary involved in natural gas well testing operations were sold. In August 2001, the
Company made the decision to cease pursuing opportunities in Mexico and the WS Segment was discontinued. (See note 3
of notes to financial statements).
(b) 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 had a 40% ownership interest in NABR, which was accounted
for under the equity method and represented Beard's entire brine extraction/iodine manufacturing segment operations.
Beard's share of NABR's operating results have been reported as discontinued for all periods presented. (See note 3
of notes to financial statements).
(c) In August 1998, Beard adopted a plan to discontinue the Other E/S Operations. In April 1999, Beard adopted a plan to
discontinue its interstate travel facilities ("ITF") segment. The results of operations and estimated losses to
discontinue the Other E/S Operations and the ITF segment, including an estimated loss on disposition, were reported
as discontinued operations in 1998. (See note 3 of notes to financial statements).
</FN>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion addresses the significant factors affecting the
results of operations, financial condition, liquidity and capital resources of
the Company. Such discussion should be read in conjunction with the Company's
financial statements including the related notes and the Company's selected
financial information.
Overview
General. In 2002 the Company operated within the following operating
segments: (1) the Coal Reclamation ("Coal") Segment, (2) the Carbon Dioxide
("CO2") Segment, (3) the China ("China") Segment, and (4) the e-Commerce
("e-Commerce") Segment.
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 China Segment is pursuing
environmental opportunities in China, focusing on the installation and
construction of facilities which utilize the proprietary composting technology
of Real Earth United States Enterprises, Inc. The e-Commerce Segment is engaged
in a strategy to develop licensing agreements and other fee based arrangements
with companies implementing technology in conflict with its intellectual
property.
The Company's continuing operations have reflected losses of $4,391,000,
$1,453,000, $1,392,000, $1,571,000 and $89,000 in 2002, 2001, 2000, 1999 and
1998, respectively.
Beginning in 1999 the Company started discontinuing the operations of those
segments that were not meeting their targeted profit objectives. This ultimately
led to the discontinuance of the Company's ITF, BE/IM, WS and ER Segments. Such
discontinued operations have reflected losses of $223,000, $868,000, $1,637,000,
$1,828,000 and $3,768,000, in 2002, 2001, 2000, 1999 and 1998, respectively. See
"Discontinued Operations" below.
The Company is now focusing its primary attention on the McElmo Dome
litigation, together with the Coal, China and e-Commerce Segments, which it
believes have significant potential for growth and profitability.
The Company has other operations, including various assets and investments
that it has been liquidating as opportunities have materialized.
The results of operations for 2002, 2001 and 2000 were severely impacted by
the termination of a major contract, which had guaranteed the Company a minimum
operating profit of $100,000 per month, on January 31, 1999. Termination of this
contract (see "Coal Reclamation Activities---The MCN Projects") was especially
discouraging since it came at a time when the Coal Segment had just established
itself as the world's largest operator of coal reclamation facilities. The
result was a sharp decline in the Coal Segment's revenues---from $8,585,000 in
1998 down to $12,000 in 2002---with a correspondingly dramatic impact on
profitability. The segment, which had an operating profit of $1,678,000 in 1998,
recorded operating losses of $508,000 in 1999, $625,000 in 2000, $544,000 in
2001 and $2,105,000 in 2002. $1,516,000 of the 2002 loss resulted from
impairment of long-lived assets within the segment.
Operating profit of the CO2 Segment in 2002 decreased $22,000 from the
prior year, primarily as a result of higher production costs. As a result of the
deterioration in relations between the Company and its previous partner in
conducting operations in China, the Company reported the results of operations
for the last month of 2002 as an operating segment and, for the first 11 months
of 2002, through the affiliate which is included in equity in earnings of
unconsolidated affiliates. The segment incurred an operating loss of $63,000 for
the last month of 2002 and reported a loss in earnings of unconsolidated
affiliates of $357,000. The e-Commerce Segment also had no revenues in 2002, but
incurred $15,000 less SG&A expenses than in the prior year as it continued its
pursuit of strategic alliances. The segment's operating loss increased $30,000
to $202,000 in 2002 as a result of a $45,000 impairment of intangible assets.
The operating loss from corporate activities at the parent company level
increased $9,000. The Company's total net loss increased $2,298,000 to
$4,614,000 primarily as a result of the $2,374,000 increase in impairments
during 2002.
Operating profit of the CO2 Segment in 2001 decreased $43,000 from the
prior year, primarily as a result of a slight decrease in prices for CO2 and
higher operating costs. Beginning in 2001 the results of operations of the China
Segment, which had no revenues in such year, were conducted through an
unconsolidated affiliate. The segment incurred an operating loss of $300,000 in
2001 which is included in equity in earnings of unconsolidated affiliates. The
e-Commerce Segment also had no revenues in 2001, but incurred $103,000 less SG&A
expenses than in the prior year as it cut back its pursuit of strategic
alliances pending the issuance of patents. The operating loss from corporate
activities at the parent company level decreased $107,000 as the Company
continued to cut costs. The Company's total net loss decreased $708,000 to
$2,321,000, reflecting the $769,000 decrease in losses from discontinued
operations.
2000 results of operations reflected improvement in the operating margins
of the CO2 Segment. The segment had a $60,000 increase in its operating profit
versus 1999, principally as the result of higher prices for CO2. The China
Segment generated no revenues, and incurred $400,000 of selling, general and
administrative expenses related to its continuing startup activities. This was
an increase of $121,000 over 1999, reflecting the expanded level of activity by
this segment. The e-Commerce Segment generated no revenues but incurred $275,000
of SG&A expenses as it stepped up its marketing activities. The operating loss
from corporate activities at the parent company level decreased $248,000 from
1999 reflecting decreased salary, legal and other SG&A costs as the Company
found ways to reduce costs. The Company's total net loss decreased $370,000,
reflecting the $179,000 decrease in losses from continuing operations and the
$191,000 decrease in losses from discontinued operations.
The recurring net losses and overall declines in financial condition and
liquidity raise substantial doubts about the Company's ability to continue as a
going concern, as expressed in the independent auditors' opinion on page 35.
Liquidity and capital resources
Capital investments. The Company's capital investment programs have
required more cash than has been generated from operations during the past three
years. Cash flows used in operations during 2002, 2001 and 2000 were
$(1,789,000), $(1,243,000), and $(2,552,000), respectively, while capital
additions from continuing operations were $77,000, $71,000, and $422,000,
respectively, as indicated in the table below:
2002 2001 2000
---- ---- ----
Coal $ 7,000 $ 17,000 $ 371,000
Carbon dioxide 62,000 17,000 4,000
e-Commerce - - 8,000
Other 8,000 37,000 39,000
---------------- ------------------ -----------------
Total $ 77,000 $ 71,000 $ 422,000
================ ================== =================
Capital additions in the discontinued WS Segment were $9,000 and $38,000 in
2002 and 2000, respectively. Capital additions in the discontinued ITF Segment
were $13,000 in 2000.
The Company's 2003 capital expenditure budget has tentatively been set at
zero. This does not include an estimated $6,120,000 of plant costs which may be
incurred by the Coal Segment for the project expected to start in such year
subject to the availability of financing. It also excludes the cost of any
composting plants in China. It is anticipated that any composting plants will be
separately financed by each Cooperative Joint Venture ("CJV") with Beard
Environmental Engineering, L.L.C. selling the plants on a turnkey basis to the
respective CJV's and having a residual interest in each CJV after payout.
Liquidity. The Company's activities in 2000 and 2001 were primarily funded
by a bank line of credit, by loans from related parties, by repayments on notes
receivable related to our operations in Mexico and by the sale of assets. The
Company's activities in 2002 were primarily funded by loans from related parties
and by the proceeds from a private placement of notes and warrants. 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, demand for the construction of facilities in China using the
proprietary technology of Real Earth United States Enterprises, Inc. and the
e-Commerce Segment's success in developing licensing agreements and other fee
based arrangements with companies implementing technology in conflict with its
intellectual property.
During 2002 the Company reduced its working capital by $565,000 from
$281,000 at year-end 2001. The Coal Segment used $8,000 to purchase equipment
and $569,000 to fund operating losses. The China Segment required $585,000 to
fund net advances for operations. The discontinued BE/IM, ITF and WS Segments
absorbed $88,000, $85,000 and $50,000, respectively, in 2002, 2001 and 2000 to
fund their operations while the Company sought buyers for the remaining assets.
Another $157,000 was used to fund the startup activities of the e-Commerce
Segment. Other corporate activities utilized approximately $900,000 of working
capital. The bulk of these expenditures were funded by a $1,556,000 increase in
debt, $342,000 from the sale of assets, $188,000 from payments on notes
receivable, and $334,000 from the sale of carbon dioxide.
As a result, at December 31, 2002, the Company was in a negative working
capital position with working capital of $(284,000), and a current ratio of 0.67
to 1.
The Company incurred losses from continuing operations totaling $8,896,000
during the past five years. The Company generated net losses totaling
$17,220,000 during such period. The discontinued interstate travel facilities
and natural gas well servicing businesses accounted for $3,650,000 and
$2,397,000, respectively, of the losses, but those problems are now behind us
and management expects to dispose of their remaining assets in 2003. The
discontinued iodine business impacted earnings in the amount of $642,000 during
the last five years, including $199,000 the last two years, but again, those
problems are behind us, and management expects to dispose of its remaining
assets in 2003.
The Company's principal business is coal reclamation, and this is where
management's operating attention is primarily focused. The Coal Segment
currently has several projects in various stages of development which, subject
to arranging necessary financing, are ultimately expected to mature into
operating projects. The segment has entered into a memorandum of understanding
on one of these projects and expects, despite repeated delays, to reach a
definitive agreement on the project during the second quarter of 2003.
Negotiations are in progress with a third party to form a joint venture or
limited liability company that would provide the initial working capital and
guarantee the necessary equipment financing for the project. The timing of the
project is uncertain but, subject to obtaining the necessary financing, it is
considered to have a high probability of activity. However, no definitive
contracts have as yet been signed, and there is no assurance that the required
financing will be obtained or that the project will materialize.
After more than four years of development activity by the China Segment,
and just when it appeared that its efforts were finally starting to bear fruit,
we had a "falling out" with our technology partner and have filed suit to
terminate our business relationship. (See "Item 1. OPERATIONS IN
CHINA---Termination of Business Relationship with ABT" and "Item 3. Legal
Proceedings---ABT Beard Litigation"). Accordingly, all of the projects which
were under development in China are on indefinite hold. The segment has obtained
an exclusive license agreement for another technology in China (see "Item 1.
Recent Developments---REUSE License Agreement") and is now pursuing new
projects. Negotiations are in progress on the first of these, and there is ample
room and an adequate market for a number of such projects in the same area.
Key to the Company's liquidity is the anticipated settlement of a lawsuit,
in which the Company is a Plaintiff, which has been in progress since 1996. A
Settlement Agreement was signed by the parties in September of 2001. On December
24, 2002 the Tenth Circuit Court of Appeals affirmed the decision of the
Colorado District Court which approved the Settlement. On March 24, 2003 parties
who objected to the Settlement filed a petition with the U.S. Supreme Court. If
the Supreme Court denies the petition, the Settlement is expected to become
final between early May and late June of this year with anticipated proceeds to
the Company in excess of $3.9 million. Although it is possible the Court could
overturn the Settlement, our counsel believes such possibility is remote. (See
"Item 1. Recent Developments---McElmo Dome Litigation" and "Item 3. Legal
Proceedings---McElmo Dome Litigation").
In 2000 the Company supplemented its $300,000 credit line with a commercial
bank by arranging for borrowings of up to $1,500,000 from affiliates of a
related party. The long-term line of credit from the related party was increased
to $2,600,000 in January of 2002 and to $3,000,000 in October of 2002 to provide
additional working capital, and was supplemented by a $150,000 short-term line
of credit from the same party in November of 2002. The Company recently
completed the private placement of $600,000 of subordinated notes due April 1,
2004, with warrants, to provide additional working capital and improve liquidity
and to "bridge the gap" until the Settlement funds are distributed or until
contemplated Coal and China projects achieve positive cash flow. (See "Item 1.
Recent Developments---Private Placement of Notes and Warrants"). In addition,
the Company will be disposing of the remaining assets from the discontinued ITF,
BE/IM and WS Segments and can sell certain other assets to generate cash if
necessary.
Selected liquidity highlights for the Company for the past three years are
summarized below:
2002 2001 2000
---- ---- ----
Cash and cash equivalents $ 79,000 $ 55,000 $ 31,000
Accounts and other receivables, net 133,000 157,000 320,000
Assets of discontinued operations held for resale 343,000 764,000 1,480,000
Trade accounts payable 138,000 120,000 118,000
Liabilities of discontinued operations held for resale 125,000 321,000 500,000
Current maturities of long-term and short-term debt 419,000 307,000 17,000
Long-term debt 4,241,000 2,513,000 1,400,000
Working capital (284,000) 281,000 1,116,000
Current ratio 0.67 to 1 1.32 to 1 2.39 to 1
Net cash used in operations (1,789,000) (1,243,000) (2,552,000)
In 2002, the Company had positive cash flow of $24,000. Operations of the
Coal, China, and e-Commerce Segments and the discontinued W/S, ITF and E/R
Segments resulted in cash outflows of $1,473,000. (See "Results of
operations---Other corporate activities" below).
The Company's investing activities provided cash of $45,000 in 2002.
Proceeds from the sale of assets provided cash of $334,000 and payments on notes
receivable provided cash of $188,000. Net distributions from the Company's
investment in Cibola provided cash of $160,000. Acquisitions of property, plant
and equipment and intangible assets used $70,000 of the cash outflow, while (i)
investments in and (ii) loans to a partner in the China Segment and the
discontinued W/S Segment utilized cash of $606,000.
The Company's financing activities provided cash flows of $1,768,000 in
2002. The Company received $2,344,000 from its borrowings and utilized $474,000
for payments on lines of credit and term notes.
At year-end 2002 the Company had fully utilized the parent company's
$300,000 bank line of credit which matures on May 15, 2003. At December 31, 2002
the Company had also utilized all of a $3,000,000 line of credit from a related
party which bears interest at 10% until maturity at January 3, 2005, and had
utilized $110,000 of a short-term $250,000 line of credit from the same party
which bears interest at 10% until maturity at October 31, 2003. This short-term
line of credit was paid down to zero and the bank line of credit was paid down
to $500 from the net proceeds of the $600,000 private placement of notes and
warrants completed by the Company on February 21, 2003 (see "Item 1---Recent
Developments---Private Placement of Notes and Warrants"). The Company believes
that cash and available credit, together with proceeds from the sale of assets,
will be adequate to meet the Company's liquidity needs, including anticipated
requirements for working capital, until the McElmo Dome settlement has been
received.
Effect of Recent Developments on Liquidity. The Company's debt-to-equity
ratio, which stood at 0.77 to 1 at year-end 2000, had deteriorated to 2.20(A) to
1 at year-end 2001 and to 11.07(A) at year-end 2002. Consolidated debt, which
totaled $1,458,000 at year-end 2000, increased to $2,820,000 at year-end 2001
and to $4,660,000 at year-end 2002. The recently completed sale of $600,000 of
subordinated notes enabled the Company to pay down its bank debt and a portion
of its present indebtedness with a related party. This should give the Company
ample working capital to operate until the Settlement funds are distributed or
until contemplated Coal and China projects achieve positive cash flow. In
addition, the Company will be disposing of the remaining assets from the
discontinued ITF, BE/IM and WS Segments and can sell certain other assets to
generate cash if necessary.
- ---------------
(A) Computed by using the market value of the equity in the denominator of the
equation. Using the negative equity for the respective periods would result
in ending up with meaningless numbers.
Results of operation
General. The period from 1997 to 2002 has been a time of transition for the
Company. In 1997 the Company divested itself of its real estate construction and
development activities, sold its dry ice manufacturing and distribution
business, and restructured its E/RR Segment, shifting its principal focus to
coal reclamation and discontinuing most of its environmental services
activities. The Company made a brief and unsuccessful foray into the interstate
travel business in 1998, which it discontinued in 1999. That same year the
decision was made to discontinue the operations of a 40%-owned joint venture
engaged in the extraction, production and sale of crude iodine. In 2001 the ER
and WS Segments were discontinued. As a result, the corporate staff is now
focusing most of its attention on the management of the Coal, China and
e-Commerce Segments, which we believe hold the greatest potential for future
growth and profits.
The CO2 Segment's operating results remain profitable; the degree of
profitability primarily reflecting changes in demand due to fluctuations in oil
pricing. The China Segment experienced a setback in late 2002 as the result of a
controversy with our technology partner. (See "Item 1. Recent Developments---ABT
Beard Litigation" and "Item 3. Legal Proceedings--- ABT Beard Litigation"). We
have subsequently entered into an exclusive licensing arrangement for a new
technology which is expected to improve the economics of this segment in the
future assuming the segment is successful in its efforts to develop and finance
new projects. (See "Item 1. Recent Developments---REUSE License Agreement"). The
e-Commerce Segment is experiencing the normal problems and delays encountered
when starting new businesses. In addition, the Company continues to liquidate
assets which no longer fit the Company's strategic objectives. Operating profit
(loss) for the last three years for the Company's remaining segments is set
forth below:
2002 2001 2000
---- ---- ----
Operating profit (loss):
Coal $ (2,105,000) $ (544,000) $ (625,000)
Carbon dioxide 291,000 313,000 356,000
China (63,000) - (400,000)
e-Commerce (202,000) (172,000) (275,000)
-------------- -------------- --------------
Subtotal (2,079,000) (403,000) (944,000)
Other - principally corporate (978,000) (969,000) (1,076,000)
-------------- -------------- --------------
Total $ (3,057,000) $ (1,372,000) $ (2,020,000)
============== ============== ==============
Following is a discussion of results of operations for the three-year
period ended December 31, 2002.
Coal reclamation. As a result of the recent change of direction, the
Company has focused its primary attention on coal reclamation. In January 1999,
Beard Technologies completed a 10-month contract as the operator of coal waste
recovery projects (the "MCN Projects") located at six sites in three states in
the eastern U.S. Now that such contracts have been terminated (see "Coal
Reclamation Activities---The MCN Projects" in Part I, Item 1), Beard
Technologies is again pursuing coal recovery projects where it will serve as
either owner or operator.
The MCN Projects generated none, none and 35% of the Coal Segment's 2002,
2001 and 2000 revenues, respectively. Operating revenues in this segment were
$12,000, $137,000 and $215,000 in 2002, 2001 and 2000, respectively. Operating
costs decreased to $458,000 in 2002 from $524,000 in 2001 from $663,000 in 2000
and from $1,064,000 in 1999. SG&A expenses decreased $19,000 to $123,000 in 2002
from $142,000 in 2001 and from $158,000 in 2000. The decrease in costs in 2002
and 2001 reflects the effect of the termination of the MCN Projects. The segment
produced an operating loss of $2,105,000 in 2002, $544,000 in 2001 and $625,000
in 2000. The 2002 operating loss included $1,516,000 of impairment of long-lived
assets.
Carbon dioxide. 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 were $445,000, $442,000 and $471,000 in 2002, 2001 and
2000, respectively, while operating profits totaled $291,000, $313,000 and
$356,000, respectively, for the three years. CO2 net sales volumes were
1,514,000 Mcf, 1,327,000 Mcf and 1,319,000 Mcf, in 2002, 2001 and 2000,
respectively. The increase in sales volumes were nearly offset by a decrease in
price resulting in virtually the same revenue amounts for 2002 compared to 2001.
Operating expenses increased $21,000 to $117,000 in 2002 compared to $96,000 in
2001. As a result, operating profits decreased $22,000 to $291,000 in 2002. The
decrease in revenues and operating profits in 2001 versus 2000 was due to a
slight increase in net sales volume which was more than offset by a decrease in
prices received for CO2.
China. In 1998 the Company activated Beard Sino-American Resources Co.,
Inc. ("BSAR") to pursue coal reclamation opportunities in China. Due to changes
in the political and business environment in China, BSAR shifted its direction
in 1999. Coal reclamation activities were suspended and BSAR focused all of its
attention on the installation and construction of facilities utilizing the ABT
composting technology. During 2001 and the first 11 months of 2002, the
operations of this segment were conducted through an unconsolidated affiliate.
BSAR had no revenues in 2002, 2001 or 2000, and recorded $58,000 and $400,000 of
SG&A expenses, respectively, in 2002 and 2000 while pursuing its various
marketing efforts. The Company recorded an operating loss of $63,000
attributable to its operations in China, along with losses of $357,000 in equity
in operations of unconsolidated affiliates for the first 11 months of 2002. For
the year 2001, the segment incurred a loss of $289,000 which is included in
equity in operations of unconsolidated affiliates discussed below.
e-Commerce. In early 1999, the Company began developing its proprietary
concept for an Internet payment system through starpay.com, inc., now
starpay.com, l.l.c. ("starpay"). starpay had no revenues in 2002, 2001 or 2000,
and recorded $151,000, $167,000 and $272,000 of SG&A expenses, respectively, in
such years. The segment recorded $45,000 of impairment of intangibles in 2002,
increasing its operating loss for such year to $202,000. In 2001 starpay shifted
its focus from the development of its technology to concentrate on developing
licensing agreements and other fee based arrangements with companies
implementing technology in conflict with its intellectual property.
Other corporate activities. Other corporate activities include general and
corporate operations, as well as assets unrelated to the Company's operating
segments or held for investment. These activities generated operating losses of
$978,000 in 2002, $969,000 in 2001 and $1,076,000 in 2000. The operating loss
increased $9,000 in 2002 compared to 2001 due to slight increases in certain
SG&A expenses. The operating loss decreased $107,000 in 2001 compared to 2000
primarily as a result of lower fees for legal, accounting and other professional
services.
Selling, general and administrative expenses. Selling, general and
administrative expenses ("SG&A") decreased to $1,204,000 in 2002 from $1,232,000
in 2001 and from $1,480,000 in 2000. The reduction was partly attributable to
the Coal Segment, which incurred SG&A expense of $123,000, $142,000, and
$158,000 in 2002, 2001, and 2000, respectively. The decreases reflect lower
staffing costs required to meet the demands of the projects undertaken in place
of the MCN Projects. SG&A expense incurred by the China Segment during 2000
increased to $400,000 from $279,000 in 1999 as the segment expanded its
marketing efforts. For the year 2001 and the first 11 months of 2002, those
activities were being conducted through an unconsolidated affiliate and are
reflected elsewhere. The China Segment incurred $58,000 in SG&A expenses for the
month of December, 2002, as the Company changed the vehicle in which it conducts
business in China from an unconsolidated entity back to wholly-owned
subsidiaries. SG&A expense incurred by the e-Commerce Segment decreased in 2002
to $151,000 from $167,000 in 2001 and from $272,000 in 2000 reflecting the
segment's level of marketing activity. Other corporate SG&A decreased to
$870,000 in 2002 from $924,000 in 2001 and from $1,048,000 in 2000. The $54,000
decrease for the year 2002 compared to 2001 was attributable primarily to
reductions in professional fees associated with the McElmo Dome litigation. The
year 2001 decreased $124,000 compared to 2000 primarily due to decreases in
professional fees, in Company benefits and to changes in the level of costs
incurred as the Company pursued investment opportunities that failed to
materialize.
Depreciation, depletion and amortization. Depreciation, depletion and
amortization expenses increased $54,000 to $144,000 in 2002 compared to 2001 and
$6,000 to $90,000 in 2001 compared to 2000 due primarily to increases in
intangible assets associated with the issuance of the 10% subordinated debt and
in property, plant and equipment in the Coal Segment.
Impairment of long-lived assets. In 2002 the Company recognized $1,561,000
of impairment of long-lived assets as required by FASB No. 144. Impairments
related to assets in the Coal and e-Commerce Segments totaled $1,516,000 and
$45,000, respectively. No such impairments were required in either 2001 or 2000.
Interest income. Interest income decreased $58,000 to $119,000 in 2002 from
$177,000 in 2001. The decrease is primarily the result of the decision made at
year-end 2001 to cease charging interest on a loan to the 50%-owned entity
involved in operations in Mexico when it became apparent the entity could no
longer repay the note. Interest income increased $41,000 to $177,000 from
$136,000 in 2000. The increase for 2001 reflects the income on loans to its
partners in Mexico and China.
Interest expense. Interest expense increased $193,000 in 2002 to $400,000
from $207,000 in 2001. Interest expense increased $147,000 in 2001 to $207,000
from $60,000 in 2000. The higher expense in 2002 and 2001 reflects the increased
level of debt in each year as the Company borrowed to meet operating needs and
to fund the China ventures.
Equity in earnings of unconsolidated affiliates. The Company's equity in
earnings of unconsolidated affiliates reflected a loss of $238,000 for 2002
compared to a loss of $167,000 for 2001 and earnings of $235,000 in 2000. The
Company's equity in the operating losses of its affiliate in China reflected a
loss of $312,000 for 2001, the first year of conducting the operations in China
in this format, and a loss of $357,000 for the first 11 months of 2002.
Effective at the close of November, 2002, and as a result of the disagreement
with our partner over operations in China, the Company began recording the
results of operations as an operating segment. Offsetting the Company's share of
the losses of the affliate in China was the Company's share of the earnings of
Cibola Corporation ("Cibola"). Although the Company owns 80% of the common stock
of Cibola, it does not have operating or financial control of this gas marketing
subsidiary. Cibola, formed in 1996, contributed $123,000, $142,000 and $237,000
of pre-tax net income to the Company for fiscal years 2002, 2001 and 2000,
respectively, pursuant to a tax sharing agreement. Such income was down in 2001
and 2002 due to capital losses incurred on Cibola's investments.
Gain on sale of assets. Gains on the sale of assets totaled $27,000 in
2002, $81,000 in 2001 and $298,000 in 2000. Such gains reflected proceeds from
the sale of certain assets that are in the process of being liquidated. Most of
the increase in 2000 resulted from the sale of the Company's interest in a real
estate limited partnership which generated a gain of $194,000.
Impairment of investments and other assets. In 2002, 2001 and 2000 the
Company recognized $872,000, $41,000 and $71,000, respectively, for impairments
to the carrying values of investments and other assets relating to the
recoverability of such investments or assets. The large increase in 2002 is due
primarily to the $759,000 impairment of its net investment in its 50%-owned
subsidiary in China.
Income taxes. The Company has approximately $60.1 million of net operating
loss carryforwards and depletion carryforwards to reduce future income taxes.
Based on the Company's historical results of operations, it is not likely that
the Company will be able to realize the benefit of its net operating loss
carryforwards before they begin to expire in 2004. At December 31, 2002 and
2001, the Company has not reflected as a deferred tax asset any future benefit
it may realize as a result of its tax credits and loss carryforwards. Future
regular taxable income of the Company will be effectively sheltered from tax as
a result of the Company's substantial tax credits and loss carryforwards.
Continuing operations reflect foreign and state income and federal alternative
minimum taxes (refunds) of ($31,000), ($73,000) and $8,000 for 2002, 2001 and
2000, respectively. It is anticipated that the Company will continue to incur
minor alternative minimum tax in the future, despite the Company's carryforwards
and credits.
Discontinued operations. In 1999 the Company adopted a plan to dispose of
Interstate Travel Facilities, Inc., whose activities had previously been
conducted as the "ITF" Segment. Such operations were initially reflected as
discontinued in 1998 and the Company recorded losses for the ITF Segment
totaling $2,419,000 that year. The majority of the assets of the ITF Segment
were disposed of in 1999 and the Company recorded an additional charge of
$434,000 that year. The Company recorded additional losses of $591,000, $121,000
and $85,000 in 2000, 2001 and 2002, respectively, related to such discontinued
operations. The Company sold one of the two remaining convenience stores with
related property, plant and equipment on November 12, 2002 for $169,000 after
commissions and other settlement charges. At year-end 2002, the discontinued ITF
Segment had $147,000 of assets remaining, consisting primarily of a convenience
store with related property, plant, and equipment, and liabilities totaling
$2,000 consisting primarily of trade payables. The remaining convenience store
along with related assets is under contract for sale for $146,000, after
commissions and other selling expenses, and is due to be closed prior to May 31,
2003. See Note 4 to the financial statements.
In 1999 the Management Committee of North American Brine Resources ("NABR")
made the decision to terminate the business of the joint venture and liquidate
its assets. NABR's operations had previously comprised the Company's brine
extraction/iodine manufacturing segment. Beard owned 40% of NABR, which was not
a consolidated entity and had previously been accounted for as an equity
investment. Beard's share of NABR's losses totaled $622,000 in 1999. The joint
venture was dissolved in September of 2000, and the Japanese partners received
their final distribution of cash in December, 2000, with the Company taking over
the remaining assets and liabilities. The segment's larger plant was shut down
in September 2000 and the Company is now working to dispose of its equipment. In
2000, the Company recorded income of $179,000 which represented the excess of
the amounts received by the Company over the remaining basis of the Company's
investment in the joint venture. In 2001, the Company recorded losses of
$111,000 related to the operations of the smaller plant. In 2002, the Company
recorded losses of $88,000 related to the operations of the smaller plant which
was sold effective July 31, 2002. The sale will eliminate future operating
losses after such date. At year-end 2002, the significant assets related to
NABR's operations consisted primarily of plant and equipment with an estimated
net realizable value of $33,000. The significant liabilities related to NABR's
operations consisted primarily of accrued expenses of $65,000 related to the
shutdown of the remaining plant. See Note 4 to the financial statements.
In May 2001 the fixed assets of the 50%-owned company (accounted for as an
equity investment) involved in natural gas well testing operations in the
Natural Gas Well Servicing ("WS") Segment were sold for $1,550,000, subject to a
holdback of $150,000. The Company received $86,000 of the holdback later that
year and received an additional $35,000 in 2002. The remainder of the holdback
was offset by legal expenses incurred by the purchaser in order to clear title
to a portion of the equipment. As a result of the sale all debt of the 50%-owned
company was retired and the Company was relieved of contingent liabilities
totaling $512,000. In August 2001 the Company made the decision to cease
pursuing opportunities in Mexico and the WS Segment was discontinued. In
December 2001 all of the sand separators owned by the 100%-owned company in the
WS Segment were sold for $100,000. The Company is now pursuing the sale of all
remaining equipment owned by the segment. Beard's share of operating losses from
the discontinued segment in 2001 totaled $619,000. Beard's share of operating
losses from the 50%-owned company (accounted for as an equity investment) were
$393,000. The remaining $226,000 of losses in 2001 were associated with the
operations of the sand separator company. These losses included a $107,000 loss
incurred on the sale of the five sand separators owned by the wholly-owned
subsidiary of the Company. Beard's share of operating losses from the
discontinued segment were $50,000 in 2002, including $18,000 from the 50%-owned
company and $32,000 from sand separator company. At year-end 2002, the
significant assets related to the discontinued segment's operations consisted
primarily of equipment with an estimated net realizable value of $144,000. The
significant liabilities related to the segment's operations consisted primarily
of trade payables of $21,000 and accrued expenses of $38,000. See Note 4 to the
financial statements.
In March of 2001 the Company determined that it would no longer provide
financial support to ISITOP, Inc., an 80%-owned subsidiary specializing in the
remediation of polycyclic aromatic hydrocarbon ("PAH") contamination. The
operations of ISITOP had previously comprised the Company's environmental
remediation ("ER") Segment. On May 31, 2001, ISITOP was notified by the Licensor
that the segment's exclusive U.S. marketing license for the chemical used for
such PAH remediation had been cancelled. ISITOP generated no revenues in 2002,
2001 or 2000. ISITOP's operating losses totaled zero, $17,000 and $142,000 for
2002, 2001 2000, respectively. ISITOP had no significant assets or liabilities
at December 31, 2002.
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 the Company's expectations, hopes, beliefs,
intentions and strategies regarding the future. The Company's 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" contained in this Item
7.
Impact of Recently Adopted Accounting Standards
FASB Statement No. 144. In October 2001, the FASB issued Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. The assets
covered by the statement include those to be held and used or to be disposed of,
such as assets under capital leases of lessees, assets subject to operating
leases of lessors, and prepaid assets. This statement provides guidance for the
recognition and measurement of an impairment loss for certain types of
long-lived assets and expands the scope of discontinued operations. The Company
was required to adopt FASB Statement No. 144 effective January 1, 2002 for the
fiscal year ended December 31, 2002.
The Company has compared the carrying value of the long-lived assets in its
Coal Segment to the fair value of such assets. Because the Coal Segment has not
been successful in obtaining contracts for the use of such assets, we have
impaired the value of such assets to their expected present value based on
probability-weighted cash flows. Since the Company has been unable during the
past year to demonstrate the near-term probability of obtaining any such
contracts we have, accordingly, written off all of the property, plant and
equipment of the segment, resulting in a total impairment charge in the amount
of $1,516,000.
FASB Statement No. 142. In June 2001, the FASB issued Statement No. 142,
Goodwill and Other Intangible Assets. This statement requires that intangible
assets are to be recorded at fair value, and that goodwill not be amortized, but
assessed annually for impairment. The Company was required to adopt FASB
Statement No. 142 effective January 1, 2002 for the fiscal year ended December
31, 2002.
The Company has reviewed the carrying value of the intangible assets in its
e-Commerce Segment. $41,000 of such value was related to the cost of patent
applications on which to date no patents have been issued. $4,000 of such value
was related to the cost of obtaining the segment's Voucher Patent. As of
year-end 2002 no revenues had been generated related to such patent, and no
licensing or other arrangements had been finalized in connection therewith.
Accordingly, we have written off all such intangible assets, resulting in a
total impairment charge in the amount of $45,000.
Impact of Recently Issued Accounting Standards Not Yet Adopted
In September 2001, the FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations. Statement No. 143 applies to the initial measurement and
subsequent accounting for obligations associated with the sale, abandonment, or
other type of disposal of long-lived tangible assets. The statement requires
that asset retirement obligations be recognized at fair value when the
obligation is incurred.
The Company will be required to adopt FASB Statement 143 effective January
1, 2003 for the fiscal year ended December 31, 2003. The Company has not
evaluated the effect of Statement No. 143, but does not believe that adoption of
this accounting standard will have a significant effect on the financial
position or results of operations of the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
At December 31, 2002, the Company had notes receivable of $30,000 and total
debt of $4,660,000. The notes receivable and $4,360,000 of the debt have fixed
interest rates and, to such extent, the Company's interest income and expense
and operating results would not be affected by an increase in market interest
rates. The Company's outstanding bank debt totaling $300,000 at year-end floats
with the prime rate, and a 10% increase in market interest rates would have
increased the Company's interest expense by approximately $2,000. At December
31, 2002, a 10% increase in market interest rates would have reduced the fair
value of the Company's notes receivable by $1,000 and reduced the fair value of
its debt by $54,000.
The Company has 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
Page Number
-----------
Independent Auditors' Report.........................................35
Financial Statements:
Balance Sheets, December 31, 2002 and 2001.........................36
Statements of Operations,
Years ended December 31, 2002, 2001 and 2000.....................37
Statements of Shareholders' Equity (Deficiency),
Years ended December 31, 2002, 2001 and 2000.....................38
Statements of Cash Flows,
Years ended December 31, 2002, 2001 and 2000.....................39
Notes to Financial Statements,
December 31, 2002, 2001 and 2000.................................41
Independent Auditors' Report
The Board of Directors and Stockholders
The Beard Company:
We have audited the accompanying consolidated balance sheets of The Beard
Company and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of operations, shareholders' equity (deficiency), and
cash flows for each of the three years in the period ended December 31, 2002.
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 auditing standards generally accepted
in the 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. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes 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 at December 31, 2002 and 2001, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2002, in conformity with accounting principles generally accepted in the
United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's 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.
Cole & Reed, P.C.
Oklahoma City, Oklahoma
April 8, 2003
THE BEARD COMPANY AND SUBSIDIARIES
Balance Sheets
December 31, December 31,
Assets 2002 2001
---------------- ---------------
Current assets:
Cash and cash equivalents $ 79,000 $ 55,000
Accounts receivable, less allowance for doubtful
receivables of $80,000 in 2002 and $79,000 in 2001 133,000 157,000
Prepaid expenses and other assets 20,000 17,000
Current portion of notes receivable (note 6) - 180,000
Assets of discontinued operations held for resale 343,000 764,000
---------------- ----------------
Total current assets 575,000 1,173,000
---------------- ----------------
Notes receivable (note 6) 30,000 108,000
Investments and other assets (note 5) 67,000 641,000
Property, plant and equipment, at cost (note 7) 1,794,000 3,579,000
Less accumulated depreciation, depletion and amortization 1,259,000 1,489,000
---------------- ----------------
Net property, plant and equipment 535,000 2,090,000
---------------- ----------------
Intangible assets, at cost (note 8) 114,000 48,000
Less accumulated amortization 57,000 2,000
---------------- ----------------
Net intangible assets 57,000 46,000
---------------- ----------------
$ 1,264,000 $ 4,058,000
================ ================
Liabilities and Shareholders' Equity (Deficiency)
Current liabilities:
Trade accounts payable $ 138,000 $ 120,000
Accrued expenses (note 3) 177,000 144,000
Short-term debt 411,000 300,000
Current maturities of long-term debt (note 9) 8,000 7,000
Liabililities of discontinued operations held for resale 125,000 321,000
---------------- ----------------
Total current liabilities 859,000 892,000
---------------- ----------------
Long-term debt less current maturities (note 9) 853,000 19,000
Long-term debt - related entities (note 9) 3,388,000 2,494,000
Other long-term liabilities 108,000 108,000
Redeemable preferred stock of $100 stated value;
5,000,0000 shares authorized; 27,838 shares issued
and outstanding in 2002 and 2001 (note 4) 889,000 889,000
Common shareholders' equity (deficiency):
Common stock of $.001333 par value per share; 7,500,000
shares authorized; 2,123,898 shares issued
and outstanding in 2002 and 2001 3,000 3,000
Capital in excess of par value 38,207,000 38,081,000
Accumulated deficit (41,182,000) (36,568,000)
Accumulated other comprehensive loss (15,000) (14,000)
Treasury stock, 295,053 shares, at cost, in 2002 and 2001 (1,846,000) (1,846,000)
---------------- ----------------
Total common shareholders' equity (deficiency) (4,833,000) (344,000)
---------------- ----------------
Commitments and contingencies (notes 4, 10, and 14)
$ 1,264,000 $ 4,058,000
================ ================
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Operations
-----------------------------------------------
2002 2001 2000
-------------- ------------- --------------
Revenues:
Coal reclamation $ 12,000 $ 137,000 $ 215,000
Carbon dioxide 445,000 442,000 471,000
China - - -
e-Commerce - - -
Other 12,000 23,000 31,000
-------------- ------------- --------------
469,000 602,000 717,000
-------------- ------------- --------------
Expenses:
Coal reclamation 458,000 524,000 663,000
Carbon dioxide 117,000 96,000 82,000
China - - 400,000
e-Commerce - - -
Selling, general and administrative 1,204,000 1,232,000 1,480,000
Depreciation, depletion and amortization 144,000 90,000 84,000
Impairment of long-lived assets (notes 1, 7, 8 and 16) 1,561,000 - -
Other 42,000 32,000 28,000
-------------- ------------- --------------
3,526,000 1,974,000 2,737,000
-------------- ------------- --------------
Operating profit (loss):
Coal reclamation (2,105,000) (544,000) (625,000)
Carbon dioxide 291,000 313,000 356,000
China (63,000) - (400,000)
e-Commerce (202,000) (172,000) (275,000)
Other, principally corporate (978,000) (969,000) (1,076,000)
-------------- ------------- --------------
(3,057,000) (1,372,000) (2,020,000)
Other income (expense):
Interest income 119,000 177,000 136,000
Interest expense (400,000) (207,000) (60,000)
Equity in net earnings (loss) of unconsolidated affiliates (238,000) (167,000) 235,000
Gain on sale of assets 27,000 81,000 298,000
Impairment of investments and other assets (notes 1, 7, 8 and 16) (872,000) (41,000) (71,000)
Minority interest in operations of consolidated subsidiaries - - 16,000
Other (1,000) 3,000 82,000
-------------- ------------- --------------
Loss from continuing operations before income taxes (4,422,000) (1,526,000) (1,384,000)
Income tax (expense) benefit (note 11) 31,000 73,000 (8,000)
-------------- ------------- --------------
Loss from continuing operations (4,391,000) (1,453,000) (1,392,000)
Discontinued operations (note 3):
Gain from discontinued operations - - 155,000
Gain (loss) from discontinuing brine extraction/iodine
manufacturing activities (88,000) (111,000) 179,000
Loss from discontinuing other environmental remediation activities - (17,000) (142,000)
Loss from discontinuing interstate travel facilities activities (85,000) (121,000) (591,000)
Loss from discontinued Natural Gas Well Servicing activities (50,000) (619,000) (1,238,000)
-------------- ------------- --------------
Loss from discontinued operations (223,000) (868,000) (1,637,000)
-------------- ------------- --------------
Net loss $ (4,614,000) $ (2,321,000) $ (3,029,000)
============== ============= ==============
Net loss attributable to common shareholders (note 4) $ (4,614,000) $ (2,321,000) $ (3,029,000)
============== ============= ==============
Net loss per average common share outstanding:
Basic and diluted (notes 1 and 12):
Loss from continuing operations $ (2.40) $ (0.79) $ (0.76)
Loss from discontinued operations (0.12) (0.48) (0.90)
-------------- ------------- --------------
Net loss $ (2.52) $ (1.27) $ (1.66)
============== ============= ==============
Weighted average common shares outstanding - basic and diluted 1,829,000 1,829,000 1,829,000
============== ============= ==============
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Shareholders' Equity (Deficiency)
Total
Accumulated Common
Capital in Other Shareholders'
Common Excess of Accumulated Comprehensive Treasury Equity
Stock Par Value Deficit Income Stock (Deficiency)
--------- -------------- -------------- ----------- ----------- ---------------
Balance, December 31, 1999 $ 3,000 $ 37,723,000 $(31,218,000) $ 4,000 $ (1,846,000) $ 4,666,000
Net loss - - (3,029,000) - - (3,029,000)
Comprehensive income:
Foreign currency translation
adjustment - - - (17,000) - (17,000)
------------
Comprehensive loss - - - - - (3,046,000)
------------
Reservation of shares pursuant to deferred
compensation plan (note 12) - 263,000 - - - 263,000
--------- --------------- ------------- ----------- ------------- ------------
Balance, December 31, 2000 3,000 37,986,000 (34,247,000) (13,000) (1,846,000) 1,883,000
Net loss - - (2,321,000) - - (2,321,000)
Comprehensive income:
Foreign currency translation
adjustment - - - (1,000) - (1,000)
------------
Comprehensive loss - - - - - (2,322,000)
------------
Reservation of shares pursuant to deferred
compensation plan (note 12) - 95,000 - - - 95,000
--------- --------------- ------------- ----------- ------------- ------------
Balance, December 31, 2001 3,000 38,081,000 (36,568,000) (14,000) (1,846,000) (344,000)
Net loss - - (4,614,000) - - (4,614,000)
Comprehensive income:
Foreign currency translation
adjustment - - - (1,000) - (1,000)
------------
Comprehensive loss - - - - - (4,615,000)
------------
Issuance of stock warrants - 11,000 - - - 11,000
Reservation of shares pursuant to deferred
compensation plan (note 12) - 115,000 - - - 115,000
--------- --------------- ------------- ----------- ------------- ------------
Balance, December 31, 2002 $ 3,000 $ 38,207,000 $(41,182,000) $ (15,000) $ (1,846,000) $(4,833,000)
========= =============== ============== =========== ============= ============
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Cash Flows
Year Ended December 31,
------------------------------------------------
2002 2001 2000
------------ ------------- ------------
Operating activities:
Cash received from customers $ 499,000 $ 768,000 $ 734,000
Cash paid to suppliers and employees (1,595,000) (1,766,000) (2,673,000)
Interest received 21,000 142,000 88,000
Interest paid (430,000) (106,000) (12,000)
Taxes paid - 73,000 (8,000)
Operating cash flows of discontinued operations (284,000) (354,000) (681,000)
------------ ------------ ------------
Net cash used in operating activities (1,789,000) (1,243,000) (2,552,000)
------------ ------------ ------------
Investing activities:
Acquisition of property, plant and equipment (68,000) (83,000) (488,000)
Acquisition of intangibles (2,000) (12,000) (25,000)
Proceeds from sale of assets 49,000 82,000 516,000
Proceeds from sale of assets of discontinued operations 285,000 182,000 45,000
Advances for notes receivable - (378,000) (325,000)
Payments on notes receivable 188,000 876,000 360,000
Investment in and advances to fifty percent-owned
and wholly-owned subsidiary in Mexico (21,000) (80,000) (615,000)
Investment in and advances to fifty percent-owned
subsidiary in China (585,000) (751,000) -
Proceeds from redemptions of certificates of deposit - - 280,000
Distribution from partnership - - 482,000
Other investments 199,000 133,000 269,000
------------ ------------ ------------
Net cash provided by (used in) investing activities 45,000 (31,000) 499,000
------------ ------------ ------------
Financing activities:
Proceeds from line of credit and term notes 1,166,000 480,000 1,386,000
Proceeds from related party debt 1,178,000 1,327,000 -
Payments on line of credit and term notes (373,000) (489,000) (69,000)
Payments on related party debt (101,000) (20,000) -
Capitalized costs associated with issuance of
subordinated debt (102,000) - -
------------ ------------ ------------
Net cash provided by financing activities 1,768,000 1,298,000 1,317,000
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 24,000 24,000 (736,000)
Cash and cash equivalents at beginning of year 55,000 31,000 767,000
------------ ------------ ------------
Cash and cash equivalents at end of year $ 79,000 $ 55,000 $ 31,000
============ ============ ============
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,
------------------------------------------------
2002 2001 2000
------------ ------------- ------------
Net loss $ (4,614,000) $ (2,321,000) $ (3,029,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, depletion and amortization 144,000 90,000 84,000
Depreciation, depletion and amortization
discontinued operations 2,000 46,000 27,000
(Gain) loss on sale of assets (27,000) (81,000) (298,000)
(Gain) loss on sale of assets of discontinued operations (86,000) 90,000 (30,000)
Gain from discontinued operations - - (334,000)
Provision for uncollectible accounts and notes 25,000 45,000 99,000
Impairment of investments and other assets 2,433,000 41,000 71,000
Impairment of investments and other assets of
discontinued operations 80,000 145,000 420,000
Equity in net (earnings) loss of unconsolidated
affiliates 238,000 167,000 (235,000)
Equity in net loss of unconsolidated affiliates of
discontinued operations 15,000 313,000 1,069,000
Minority interest in operations of consolidated subsidiaries - - (16,000)
Non cash compensation expense 126,000 - -
Other (10,000) - 5,000
(Increase) decrease in accounts receivable, other
receivables, prepaid expenses and other current assets (102,000) 159,000 239,000
Decrease in inventories 93,000 - -
Net cash used by discontinued operations offsetting
accrued losses (155,000) (58,000) (180,000)
Increase (decrease) in trade accounts payable,
accrued expenses and other liabilities 49,000 121,000 (444,000)
-------------- -------------- --------------
Net cash used in operating activities $ (1,789,000) $ (1,243,000) $ (2,552,000)
============== ============== ==============
Supplemental Schedule of Noncash Investing and Financing Activities:
Accounts payable, accrued expenses and other debt
obligations assumed or cancelled by the purchaser of
the interstate travel facilities' assets $ - $ 38,000 $ -
============== =============== ==============
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002, 2001, and 2000
(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. 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 China ("China") Segment, and (4) the e-Commerce ("e-Commerce")
Segment.
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 China Segment is pursuing
environmental opportunities in China, focusing on the installation and
construction of facilities which utilize the proprietary composting technology
of Real Earth United States Enterprises, Inc. The e-Commerce Segment consists of
a 71%-owned subsidiary which is (i) pursuing the development of a payment system
to be used exclusively for Internet transactions and (ii) focusing on developing
licensing agreements and other fee based arrangements with companies
implementing technology in conflict with the Company's intellectual property.
Principles of Consolidation and Basis of Presentation
The accompanying financial statements include the accounts of the Company and
its wholly and majority owned subsidiaries in which 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.
The Company operated in the interstate travel facilities business (the "ITF"
Segment) following its acquisition of four travel facilities in February 1998.
As discussed in note 3, in April 1999, the Company's Board of Directors adopted
a formal plan to discontinue the ITF Segment.
The Company operated in the Brine Extraction/Iodine Manufacturing ("BE/IM")
Segment, consisting of the Company's 40%-ownership investment in a joint
venture, North American Brine Resources ("NABR"), for the extraction, production
and sale of crude iodine. As discussed in note 3, in December 1999, the
Management Committee of NABR adopted a formal plan to discontinue the business.
The Company operated in the Natural Gas Well Servicing ("WS") Segment through
(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 had
designed a sand separator for use on natural gas wells. As discussed in note 3,
in May 2001, the fixed assets of the 50%-owned company were sold and in August
2001, the Company ceased pursuing opportunities in Mexico and the segment was
discontinued. The majority of the assets of the 100%-owned company in the
segment were sold in December 2001.
The Company operated in the environmental remediation business through ISITOP,
Inc., an 80%-owned subsidiary specializing in the remediation of polycyclic
aromatic hydrocarbon ("PAH") contamination. As discussed in note 3, in March
2001, the Company determined that it would no longer provide financial support
to ISITOP, Inc. and the business was discontinued.
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.
Actual results could differ from those estimates.
Cash and Cash Equivalents
There were no cash equivalents at December 31, 2002 or 2001. 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 the sale of CO2 from properties in
which the Company owns an interest, a tax refund due, 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 of 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
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") NO. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. This statement provides guidance for the
recognition and impairment loss for certain types of long-lived assets and
expands the scope of discontinued operations. The Company adopted the Statement
effective January 1, 2002.
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.
In 2002, the Company recorded impairments of long-lived assets of $1,516,000 in
the Coal Segment and $45,000 in the e-Commerce Segment. There were no such
impairments in 2001 or 2000.
In addition, in 2002, 2001, and 2000 the Company recognized $872,000, $41,000,
and $71,000 for impairments to the carrying values of investments and other
assets relating to the recoverability of such investments or assets.
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, 2002 and 2001, 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. Redeemable preferred stock is carried at estimated fair value.
Revenue Recognition
The Company recognizes revenue when it is realized or receivable and earned. The
Company considers revenue realized or receivable and earned when there is
documentation of an arrangement, the product has been shipped or services
provided to a customer, and the amount of revenue is fixed and determinable.
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.
Treasury Stock
In September 1998, the Company announced a plan to repurchase up to 150,000
shares of its outstanding common stock. In 1999, the Company repurchased
approximately 64,700 shares for $326,000 and in 1998 repurchased approximately
41,600 shares for $265,000. In 1997, the Company repurchased approximately
228,000 shares of its common stock for approximately $1,519,000. The Company
holds repurchased stock as treasury stock. The number of shares purchased and
remaining as treasury shares as of December 31, 2002 have been restated to give
effect to the 3-for-4 reverse split in September, 2000.
Stock Option Plan
The Company applies the intrinsic value method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations, in accounting for its stock options.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. SFAS
No. 123, "Accounting for Stock-Based Compensation," established accounting and
disclosure requirements using a fair value-based method of accounting for
stock-based employee compensation plans. As allowed by SFAS No. 123, the Company
has elected to continue to apply the intrinsic value method of accounting
described above, and has adopted the disclosure requirements of SFAS No. 123.
Mandatorily Redeemable Preferred Stock
The Company's preferred stock is accounted for at estimated fair value. The
excess of the estimated redeemable value over the fair value at the date of
issuance is accreted over the redemption term. The carrying value of the
preferred stock is increased annually, if necessary, for the estimated accretion
with a corresponding reduction of capital in excess of par value. The accretion
of carrying value decreases net income or increases net loss for purposes of
calculating net income (loss) attributable to common shareholders. No additional
accretion was recorded in 2002, 2001, or 2000. Effective January 1, 2003, the
preferred stock ceased to be mandatorily redeemable and thereafter became
convertible at the holder's option into common stock.
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
were exercised (calculated using the treasury stock method) and if the Company's
preferred stock were converted to common stock.
Diluted loss per share from continuing operations in the statements of
operations exclude potential common shares issuable upon conversion of
redeemable preferred stock or exercise of stock options and warrants as a result
of losses from continuing operations for all years presented.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of accounts and notes receivable. Notes and leases
receivable from four parties comprised approximately 82% of the December 31,
2002 balances of accounts and notes receivable. Generally, the Company does not
require collateral to support accounts and notes receivable.
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 2002
and 2001, the Company's only significant items of comprehensive income related
to foreign currency translation adjustments resulting from its equity investment
in ITS-Testco. The assets and liabilities of Testco de Mexico, a wholly-owned
subsidiary of ITS-Testco, are stated in the local currency (the Mexican peso)
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 2001 and 2000 balances have been reclassified to conform to the 2002
presentation. As described in note 3, the Company discontinued two of its
segments in 2001. As a result, the 2000 statement of operations has been
reclassified to reflect the two segments' operations as discontinued.
(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. Despite the fact that
the Company's revenues from continuing operations have declined in each of the
last four years and the Company has incurred operating losses and negative cash
flows from operations during each of the last five years, the Company is of the
belief (i) that it will commence a project in both its Coal Segment and its
China Segment during 2003 and (ii) that the long-awaited Settlement in the
McElmo Dome litigation will be received in the May-July time frame of this year.
In addition, the Company expects to finalize its first licensing arrangement in
its e-Commerce Segment in April of 2003. Receipt of the Settlement in the
expected time frame would ensure that 2003 will be a profitable year while at
the same time materially enhancing the Company's liquidity and bolstering its
balance sheet ratios. Meanwhile, the Company expects to finalize negotiations
currently in progress on a major coal project, including the financing thereof,
which would ensure that its Coal Segment will become profitable beginning in
late 2003 or early 2004. (See Additional Details below). Negotiations are also
underway for a new composting project in China and the financing therefor.
Although the e-Commerce licensing arrangement would not make the segment
profitable this year, the Company believes the arrangement has the potential to
make the segment profitable in 2004 or 2005.
During the 12 months ended December 31, 2002 and through March 31, 2003, the
Company has taken a number of steps to reduce its negative cash flow. The
Company's Chairman and President have deferred a portion of their base salary
into the Company's Deferred Stock Compensation Plan (the "DSC Plan"). The
Company's outside directors have deferred all of their directors' fees into such
Plan. The President of Beard Technologies has deferred a portion of his salary
until the Settlement has occurred. The Company has suspended its 100% matching
contribution (up to a cap of 5% of gross salary) under its 401(k) Plan. All of
these measures have helped and will continue to help until the Settlement has
occurred. The negative result has been a substantial amount of dilution to the
Company's common equity. During such period 225,000 warrants were issued in
connection with the two private debt placements, and 169,000 Stock Units were
accrued in the participants' accounts as a result of deferrals of salary into
the DSC Plan. A minor amount of dilution has also occurred due to an adjustment
to the Preferred Stock conversion ratio resulting from the issuance of the
warrants and the salary deferrals.
Meanwhile, despite the recent poor financial results and the deterioration of
its financial condition, the Company has demonstrated the ability to maintain
its viability as a going concern. During the 12 months ended December 31, 2002
and through March 31, 2003, the Company has successfully completed two private
debt placements totaling $1,800,000 while at the same time increasing its lines
of credit from a total of $2,925,000 to a total of $3,450,000. During such
period it has remained in compliance on all of its debt obligations. On March
31, 2003, the Company made the required semi-annual $61,000 interest payment on
its 10% subordinated notes due September 30, 2003, and still had $125,000
available on its existing line of credit from the Unitrust which, coupled with
anticipated proceeds from the sale of assets, it believes will be adequate to
carry it until the anticipated Settlement of more than $3,900,000 is received.
Receipt of the Settlement in the indicated time frame would ensure that the
Company will remain viable as a going concern at least through December 31,
2003.
Distribution of the Settlement proceeds will be delayed until the petition to
the U. S. Supreme Court has been decided. Although there is the possibility that
the appeal process would delay the Settlement into late 2003 or that the
objecting parties could ultimately cause the Settlement to be overturned, the
Company believes it is unlikely that the Settlement will be overturned. A delay
in receiving the funds until late 2003 would require that the Company seek
additional financing, and there is no assurance this would be accomplished. In
such event the Company might need to take severe measures, including further
reduction of overhead expenses, in order to ensure the Company's ability to
continue as a going concern.
Additional Details
Despite continuing operating losses during the past twelve months, the Company's
cash and cash equivalents increased slightly from $55,000 at December 31, 2001
to $79,000 at December 31, 2002. To mitigate potential liquidity problems, the
Company obtained financing of $1,800,000 in 2000, including $1,500,000 from an
affiliate of the Company's chairman. Lines from related parties were increased
to a total of $2,350,000 in September of 2001, to $2,500,000 in January of 2002,
to $2,625,000 in February of 2002, to $3,000,000 in October of 2002, and to
$3,150,000 in November of 2002. Despite these inflows, working capital
deteriorated $565,000 during 2002.
The Company's principal business is coal reclamation, and this is where
management's operating attention is primarily focused. The Coal Segment
currently has several projects in various stages of development which, subject
to arranging necessary financing, are ultimately expected to mature into
operating projects. The segment has entered into a memorandum of understanding
on one of these projects and expects to reach a definitive agreement on the
project during the second quarter of 2003. Negotiations are in progress with a
third party to form a joint venture or limited liability company that would
provide the initial working capital and guarantee the necessary equipment
financing for the project. The timing of the project is uncertain but, subject
to obtaining the necessary financing, it is considered to have a high
probability of activity. However, no definitive contracts have as yet been
signed, and there is no assurance that the required financing will be obtained
or that the project will materialize.
After more than four years of development activity by the China Segment, and
just when it appeared that its efforts were finally starting to bear fruit, a
controversy arose between the Company and its technology partner concerning
their legal rights and relationships. Lengthy negotiations and discussions were
unsuccessful in arriving at a mutually agreeable solution. In November of 2002
the Company filed suit to terminate the relationship. Our partner filed a
counterclaim to which the Company has subsequently responded. The outcome of the
litigation cannot presently be determined. Although the Company hopes to recover
the technology partner's 50% portion of the total loans and accrued interest
receivable of more than $1,379,000 which it has made to the partnership, due to
the present uncertainties of recovery, an impairment provision in the amount of
$759,000 was established in the fourth quarter of 2002. See Note 5 below.
Accordingly, all of the projects which were under development in China are on
indefinite hold until the outcome of the litigation has been determined.
The segment has obtained an exclusive license agreement for another technology
in China and is now pursuing new projects. Negotiations are in progress on the
first of these, and there is ample room and an adequate market for a number of
such projects in the same area.
Key to the Company's liquidity is the anticipated settlement of a lawsuit, in
which the Company is a Plaintiff, which has been in progress since 1996. A
Settlement Agreement was signed among the attorneys for the Plaintiffs and the
Defendants in September of 2001. On May 6, 2002, the federal judge issued a
final judgment approving the Settlement and ordered that a settlement fund of
$50.4 million in cash be established to settle the litigation. In late May,
2002, 11 parties (the "Objectors") who objected to the Settlement and who were
entitled to receive approximately $107,000 thereof filed appeals to the final
approval of the settlement. On December 24, 2002, the Tenth Circuit Court of
Appeals issued an opinion affirming the May 6, 2002 decision. On March 24, 2003
the Objectors filed a Petition for a Writ of Certiorari asking the U.S. Supreme
Court for review. On April 1 Plaintiff's counsel advised the Court that they do
not intend to file a response to the Petition unless one is requested by the
Court. Counsel has also advised that the vast majority of petitions are ruled
upon within three to 12 weeks, and that most petitions are disposed of within
2-1/2 weeks. If the U.S. Supreme Court denies the Petition, the Settlement is
expected to be final between early May and late June of 2003, meaning the
distribution of Settlement funds can begin at that time according to the terms
of the Settlement Agreement. Distribution of the proceeds will be delayed until
the petition to the U.S. Supreme Court has been decided. The Company believes
the Settlement will be concluded within the time frame indicated with
anticipated proceeds to the Company in excess of $3.9 million. Distribution of
the contemplated proceeds will have a significant impact upon the Company's
liquidity. Although there is the possibility that the appeals process could
delay the Settlement into late 2003 or that the objecting parties could
ultimately cause the Settlement to be overturned, the Company believes it is
unlikely that the Settlement will be overturned.
To further bolster working capital, the Company on May 31, 2002 completed the
private placement of $1,200,000 of 10% subordinated notes due September 30, 2003
(the "2002 Notes"), to "bridge the gap" until the settlement funds are
distributed or until the anticipated Coal and China projects achieve positive
cash flow. The Company has agreed to redeem the 2002 Notes within 10 days of
receipt of the McElmo Dome settlement. In the event the 2002 Notes have not been
redeemed by the maturity date, they will be automatically extended to March 31,
2005. An investment banking firm received warrants to purchase 45,000 shares of
Company common stock as part of its sales compensation in connection with the
offering. The note holders have the contingent right to receive up to 240,000
additional warrants depending upon the length of time their notes are held. As
of March 1, 2003, a total of 120,000 of such warrants had been issued to the
note holders. Related parties purchased $320,000 of the offering, and had
received a total of 32,000 warrants as of such date. All of the warrants issued
in connection with the 2002 Notes have a 5-year term and have an exercise price
of $1.00 per share during the first three years and $1.25 per share thereafter.
On February 21, 2003, the Company completed the sale of $600,000 of subordinated
notes (the "2003 Notes") to accredited investors. A $550,000 note was sold by an
investment banking firm which received a 5% commission thereon. The purchaser
received a 5% Loan Fee on this note, which bears a 5% coupon. A $50,000 note was
sold by the Company to affiliates of the Company and bears a 10% coupon. The
2003 Notes were accompanied by warrants to purchase a total of 60,000 shares of
Beard common stock at $0.50 per share. The Company has agreed to redeem the 2003
Notes within 10 days of receipt of the second installment of the McElmo Dome
settlement. The 2003 Notes will mature on April 1, 2004; however, if they have
not been redeemed by such date they will automatically be extended to January 1,
2005.
In addition, the Company expects to generate cash from the disposition of the
remaining assets from the discontinued ITF, BE/IM and WS Segments, and can sell
certain other assets to generate cash if necessary.
The Company believes that the cash generated from the private debt placement
just completed, coupled with the cash expected to be generated from the sale of
assets and the anticipated distribution of the settlement funds will be
sufficient to enable the Company to continue operations through 2003 and until
the operations of the projects under development in the Coal and China Segments
have come on stream and the Company is generating positive cash flow.
(3) Discontinued Operations
ITF Segment
In April 1999, Beard's Board of Directors adopted a formal plan to discontinue
its ITF Segment and recorded losses totaling $2,419,000 from discontinuing the
segment in 1998. The segment disposed of all of its assets in 1999 except two
convenience stores, including their remaining equipment and inventory, and was
relieved of all outstanding indebtedness related to the assets. An additional
$214,000 was reflected as loss from discontinued operations by the segment in
1999, including a loss accrual of $180,000 to cover anticipated operating losses
from December 31, 1999 through the anticipated disposal date of the remaining
assets. Revenues and operating losses from the discontinued ITF Segment were
$1,826,000 and $351,000, respectively in 2000. The Company charged $180,000 of
these operating losses against the loss accrual established in 1999 and
recognized $44,000 in September, 2000. The remaining $127,000 in operating
losses were recognized during the fourth quarter. Beard recorded an additional
$420,000 loss in December 2000; $60,000 represented losses expected to be
incurred by the discontinued ITF Segment from the date of shutdown through the
anticipated disposal date of the remaining assets; and $360,000 of the loss
represented an additional reduction in the estimated realizable value of the
remaining C-stores and related assets as of December 31, 2000. The total loss
recorded in 2000 related to the discontinued ITF Segment was $591,000. ITF
recorded $7,000 of revenues in 2001 and its actual operating losses attributable
to the shutdown and maintenance of the facilities were $67,000. ITF charged
$60,000 of the losses to the loss accrual recorded in 2000. The remaining $7,000
is reflected in the statement of operations. At December 31, 2001, ITF recorded
an additional $100,000 impairment in the carrying value of the facilities and
$14,000 for anticipated operating losses for the period from December 31, 2001
through the expected disposal date of those remaining assets. In 2002, the
Company recorded losses totaling $85,000, including a $1,000 gain on the sale of
assets and an additional charge of $77,000 to impair the carrying value of the
remaining facilities. The Company sold one of the convenience stores with
related property, plant and equipment on November 12, 2002, for $169,000 after
commissions and other settlement charges.
As of December 31, 2002, the significant assets related to the ITF Segment
consisted of fixed assets with a total estimated net realizable value of
$143,000 and prepaid expenses and other assets with a recorded value of $4,000.
The significant liabilities of the segment consist of trade accounts payable of
$2,000. The remaining C-store along with related assets is under contract for
sale for $146,000, after selling expenses, and is due to be closed prior to May
31, 2003.
BE/IM Segment
In December 1999, the Management Committee of NABR adopted a formal plan to
discontinue the business and dispose of its assets. Beard had a 40% ownership in
NABR, which was accounted for under the equity method. As a result of NABR's
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 were $82,000 of losses in
1999. The joint venture was dissolved effective September 15, 2000 and the
Japanese partners received their final distribution of cash in December, 2000,
with the Company taking over the remaining assets and liabilities. The Company
recorded $179,000 in income representing the excess of the amounts received by
the Company over the remaining basis of the Company's investment in the joint
venture.
In addition, 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 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 of anticipated
operating losses through April 2000 (the date operations ceased for the larger
of the two plants) and costs of ceasing operations. The Company recorded $88,000
and $111,000, for the years 2002 and 2001, respectively, in net operating
expenses for the smaller of the two plants distributed to the Company in 2000.
The smaller of the two plants was sold effective July 31, 2002, which will
eliminate future operating losses after such date. The Company expects no
further material charges to earnings related to the remaining assets until the
time of their disposition or sale.
As of December 31, 2002, the significant assets related to NABR's operations
consisted primarily of equipment with an estimated net realizable value of
$33,000. The significant liabilities related to NABR's operations consisted
primarily of accrued expenses totaling $65,000. The Company is actively pursuing
opportunities to sell NABR's assets and expects the disposition to be completed
by December 31, 2003.
Solid CO2 Segment
In 1997 the Company sold the business and substantially all of the assets of
Carbonic Reserves, an 85%-owned subsidiary involved in the manufacturing and
distribution of solid CO2 ("solid CO2 segment"). The Company recorded $155,000
in income in October 2000 as the result of the lapse of an option for accrued
employee severance compensation.
As of December 31, 2002, the solid CO2 segment had no significant assets or
liabilities.
WS Segment
In May 2001 the fixed assets of the 50%-owned company (accounted for as an
equity investment) involved in natural gas well testing operations for the
Natural Gas Well Servicing ("WS") Segment were sold for $1,550,000, subject to a
holdback of $150,000. $21,000 and $65,000 of the holdback were received in June
and November, respectively, of 2001. As a result of the sale all debt of the
50%-owned company was retired and the Company was relieved of contingent
liabilities totaling $512,000. In August 2001 the Company made the decision to
cease pursuing opportunities in Mexico and the WS Segment was discontinued. In
December 2001 all of the sand separators owned by the 100%-owned company in the
WS Segment were sold for $100,000. The Company is now pursuing the sale of all
remaining equipment owned by the segment.
Operating losses from the discontinued segment were $50,000 and $619,000 for the
years ending December 31, 2002 and 2001, respectively. This included Beard's
share of operating losses from the 50%-owned company (accounted for as an equity
investment) of $15,000 and $393,000 for the years ending December 31, 2002 and
2001, respectively. The loss for 2001 also included a provision of $72,000 for
estimated losses from the discontinuation of operations. The remaining $35,000
and $226,000 of losses for the year ending December 31, 2002 and 2001,
respectively, were associated with the operations of the wholly-owned companies
and were not anticipated in the loss accrual. The 2002 loss included gains
totaling $88,000 from the sale of equipment in this segment. The 2001 losses
included a $107,000 loss incurred on the sale of the five sand separators owned
by the subsidiary of the Company. Beard's share of operating losses from the
discontinued segment was $1,238,000 for 2000.
As of December 31, 2002 the significant assets of the WS Segment were accounts
receivable totaling $17,000 and fixed assets of $144,000. The Company is
actively pursuing the sale of the remaining assets and expects to have them sold
or other wise disposed of by December 31, 2003. The significant liabilities of
the segment consisted of trade accounts payable and other accrued expenses
totaling $59,000. It is anticipated that all of the liabilities of the segment
will be paid in prior to December 31, 2003.
ER Segment
In March of 2001 the Company determined that it would no longer provide
financial support to ISITOP, Inc., an 80%-owned subsidiary specializing in the
remediation of polycyclic aromatic hydrocarbon ("PAH") contamination. The
operations of ISITOP had previously comprised the Company's environmental
remediation ("ER") Segment. On May 31, 2001, ISITOP was notified by the Licensor
that the segment's exclusive U.S. marketing license for the chemical used for
such PAH remediation had been cancelled. ISITOP generated no revenues in 2002,
2001 or in 2000. ISITOP's operating losses totaled less than $1,000, $17,000,
and $142,000 for 2002, 2001 and 2000, respectively. ISITOP had no significant
assets or liabilities at December 31, 2002.
(4) 1993 Restructure; Redeemable Preferred Stock
As a result of a restructure (the "Restructure") effected in October of 1993
with four institutional lenders (the "Institutions"): (a) substantially all of
the oil and gas assets of Beard's subsidiary, Beard Oil Company ("Beard Oil")
were sold to a company owned by the Institutions; (b) $101,498,000 of long-term
debt and other obligations were effectively eliminated; and (c) the Institutions
received 25% of Beard's then outstanding common stock and $9,125,000 stated
value (91,250 shares, or 100%) of Beard's preferred stock.
The Company's preferred stock was mandatorily redeemable through December 31,
2002 from one-third of Beard's consolidated net income as defined in the
Restructure agreements. Each share of Beard preferred stock became convertible
into 4.054017704 shares of Beard common stock on January 1, 2003. The conversion
ratio will be adjusted slightly as additional warrants are issued or as
additional shares of stock are credited to the accounts of the Company's
Chairman or President in the Company's Deferred Stock Compensation Plan.
Fractional shares will not be issued, and cash will be paid in redemption
thereof.
In 1997, three of the four Institutions sold their common and preferred shares
to five individuals (the "Sellers") who thereafter sold such shares to the
Company. Repurchase of the common shares was effected by the Company in 1997 and
repurchase of the preferred (47,729 shares) was effected in 1998. The Company
redeemed 16,411 of the preferred shares at stated value ($100 per share). The
Sellers' remaining 31,318 preferred shares were purchased for $1,000,000 or
$31.93 per share.
At December 31, 2002 and 2001, the redeemable preferred stock was recorded at
its estimated fair value of $889,000 or $31.93 per share and had an aggregate
redemption value of $2,784,000.
(5) Investments and Other Assets
Investments and other assets consisted of the following:
December 31,
------------
2002 2001
---- ----
Certificates of deposit $ - $ 75,000
Investment in and advances to ABT-Beard, L.L.C. - 440,000
Investment in Cibola Corporation 11,000 48,000
Investment in real estate limited partnerships 52,000 54,000
Other assets 4,000 24,000
----------- ------------
67,000 641,000
Current investments - -
----------- ------------
$ 67,000 $ 641,000
=========== ============
Certificates of Deposit
Included in investments and other assets at December 31, 2001 is a certificate
of deposit of $75,000. The certificate of deposit has been pledged as collateral
to secure a note payable for the plaintiff group in a lawsuit in which the
Company is a participant. The certificate of deposit was expensed in the year
2002 as it will not be returned.
Investment in ABT-Beard, L.L.C.
In 2001, the Company contributed $50,000 for a 50% interest in ABT-Beard, L.L.C.
("ABT-Beard"). ABT-Beard was pursuing the formation of joint venture entities in
China which would oversee the construction and operation of waste reclamation
facilities. The Company did not control ABT-Beard's operations and, therefore,
accounted for its operations using the equity method of accounting through
November 30, 2002, when the Company decided to terminate the joint venture. The
Company's carrying value of its investment in ABT-Beard at December 31, 2002
approximated ($620,000). The Company also had $1,379,000 of receivables,
including accrued interest of $99,000, due from ABT-Beard at December 31, 2002
related to advances to fund operations. Inasmuch as the Company was committed to
funding the operations of ABT-Beard, the Company's deficit in its investment in
ABT-Beard and advances due from ABT-Beard are combined in the consolidated
balance sheets. The Company recognized an impairment of $759,000 at December 31,
2002 to reduce the net investment (including the receivables) in ABT-Beard to
zero.
The summarized unaudited financial information of ABT-Beard, L.L.C. as of and
for the eleven months ended November 30, 2002 and for the year ended December
31, 2001 is as follows:
November 30, December 31,
2002 2001
---------------- ----------------
Current assets $ 50,000 $ 11,000
Current liabilities (26,000) -
---------------- ----------------
Working capital 24,000 11,000
Equipment, net 4,000 6,000
Other assets 385,000 385,000
Long-term debt (including interest) (1,427,000) (702,000)
---------------- ----------------
Members' equity (deficit) $ (1,014,000) $ (300,000)
================ ================
Revenue $ - $ 72,000
================ ================
Net income (loss) $ (714,000) $ (625,000)
Foreign currency translation adjustment - -
---------------- ----------------
Comprehensive income (loss) $ (714,000) $ (625,000)
================ ================
Investment in Cibola Corporation
The Company owns 80% of the outstanding common stock of Cibola Corporation
("Cibola"), a natural gas marketing company, but does not consolidate the
assets, liabilities, revenues or expenses of Cibola because Cibola's assets are
controlled by its minority common stockholders and preferred stockholders. The
Company's equity in the earnings of Cibola were $123,000, $142,000, and $237,000
in 2002, 2001 and 2000, respectively.
Investment in Real Estate Limited Partnerships
The Company owns a limited partnership interest in a real estate limited
partnership, and had a limited partnership interest in another real estate
limited partnership which was sold in 2000. The remaining limited partnership's
significant assets consist of undeveloped land near Houston, Texas. The Company
recorded $4,000 and $2,000 of income in 2002 and 2000, respectively, and $3,000
of income in 2001 resulting from its share of the two limited partnerships'
operations for those years. Additionally, in 2000, the Company realized income
of $194,000 as the result of the sale of property owned by one of the two
partnerships in which the Company had an interest.
Other assets
The Company recorded provisions of $872,000, $41,000, and $71,000, in 2002, 2001
and 2000, respectively, for economic impairment of other investments, including
those discussed above.
(6) Notes Receivable
As of December 31, 2002 and 2001, the Company had various notes receivable
totaling $30,000 and $179,000, respectively, resulting from the sale of
equipment. The notes bear interest at rates ranging from 5.85% to 8% (discounted
using a 10% interest rate) at December 31, 2002 and 2001. The note remaining at
December 31, 2002 matures in October, 2004 and is secured by the sold equipment.
At December 31, 2001, the Company had a $109,000 note receivable due from
Testco, Inc., the other 50% owner of ITS-Testco, L.L.C. The note, which accrued
interest at an annual rate one percent above the Wall Street Journal prime rate
until November 26, 2001, when it was increased to 10% per year, was paid in full
in December, 2002.
(7) Property, Plant and Equipment
Property, plant and equipment consisted of the following:
December 31,
------------
2002 2001
---- ----
Land $ 143,000 $ 141,000
Proved and unproved carbon dioxide properties 1,222,000 1,161,000
Buildings and land improvements 65,000 65,000
Machinery and equipment 202,000 540,000
Other 162,000 162,000
Coal fines extraction and beneficiation equipment - 1,510,000
---------------- ----------------
$ 1,794,000 $ 3,579,000
================ ================
The initial evaluation of long-lived assets on a fair value basis, as required
by the implementation of SFAS No. 144, indicated that an impairment existed in
the Coal Segment. Accordingly, an impairment loss of $1,516,000 was recognized
in 2002 to fully impair the coal fines extraction and beneficiation equipment
and certain other long-lived assets of the Coal Segment. The fair value of the
segment was estimated using the expected present value of future cash flows.
The Company incurred $89,000, $90,000 and $84,000 of depreciation expense for
2002, 2001 and 2000, respectively.
(8) Intangible Assets
Intangible assets are summarized as follows:
December 31,
------------
2002 2001
---- ----
Patent costs $ - $ 45,000
Debt issuance costs 102,000 -
Other 12,000 3,000
---------------- ----------------
$ 114,000 $ 48,000
================ ================
Accumulated amortization is summarized as follows:
December 31,
------------
2002 2001
---- ----
Patent costs $ - $ 45,000
Debt issuance costs 47,000 -
Other 10,000 3,000
---------------- ----------------
$ 57,000 $ 48,000
================ ================
The Company capitalized $102,000 of costs associated with the issuance of the
10% Subordinated Debt. These costs are being amortized over 18 months and will
be fully amortized by December 31, 2003.
The initial evaluation of long-lived assets on a fair value basis, as required
by the implementation of SFAS No. 144, indicated that an impairment existed in
the e-Commerce Segment. Accordingly, patent and patent application costs
totaling $45,000 were written off in 2002. The fair value of the affected asset
group was estimated using the expected present value of future cash flows.
The Company incurred $55,000 of amortization expense for 2002 and less than
$1,000 amortization expense for each of the years 2001 and 2000, respectively.
Amortization expense is expected to be $55,000 for 2003, and less than $1,000
for each subsequent year.
(9) Long-term Debt
Long-term debt is summarized as follows:
December 31,
------------
2002 2001
---- ----
Coal (a) $ 5,000 $ 8,000
e-Commerce (b) 14,000 18,000
Line of credit (c) 300,000 300,000
10% Subordinated debt (d) 842,000 -
Lines of credit including accrued interest -
affiliated entities (e) 3,499,000 2,494,000
-------------- --------------
4,660,000 2,820,000
Less current maturities 419,000 307,000
-------------- --------------
Long-term debt $ 4,241,000 $ 2,513,000
============== ==============
- ---------------
<FN>
(a) At December 31, 2002, the Company's Coal Segment had one note payable with a
balance of $5,000. The note bears interest at 18%, requires monthly payments of
interest and principal and matures in March, 2004. The note is secured by equipment
with an approximate book value of $6,000 at December 31, 2002.
(b) At December 31, 2002, the Company's e-Commerce Segment had one note payable with a
balance due of $14,000. The note bears interest at 12%, requires monthly payments
of interest and principal and matures in July 2005. The note is secured by an
automobile with an approximate book value of $14,000 at December 31, 2002.
(c) At December 31, 2002, the Company had fully utilized a $300,000 line of credit at a
bank. The line bears interest at prime plus one-half percent, (4.75% at December
31, 2002) requires monthly payments of interest and matures May 15, 2003. The note
is guaranteed by a related party.
(d) At December 31, 2002, the Company had various subordinated 10% notes payable
totaling $1,157,000, net of discount of $43,000, pursuant to a private placement.
The discount, when combined with the stated interest rate, will result in the
holders receiving an effective interest rate of approximately 15%. The notes are
mandatorily redeemable within 10 days of the receipt of the McElmo Dome settlement.
In the event the notes have not been redeemed by the maturity date of September 30,
2003, they will be automatically extended to March 31, 2005. An investment banking
firm received warrants to purchase 45,000 shares of Company common stock as part of
its sales compensation in connection with the offering. The note holders have the
contingent right to receive up to 240,000 additional warrants depending upon the
length of time their notes are held. As of December 31, 2002, a total of 60,000 of
such warrants had been issued to the note holders. Related parties purchased
$320,000 of the offering, and had received a total of 16,000 warrants as of such
date. The exercise price of the warrants is $1.00 per warrant share until November
30, 2005 and thereafter $1.25 per warrant share; however, if the maturity of the
notes is extended for 18 months, the exercise price after the original maturity
shall be $0.75 per warrant share. As a condition of the private placement, a Deed
of Trust, Assignment of Production, Security Agreement and Financing Statement has
been recorded against the Company's working and overriding royalty interests in the
McElmo Dome field pursuant to which the related entity which has made a $3 million
line of credit available to the Company has been granted a security interest. The
note holders will be granted a security interest pari passu with the related entity
if certain events of default should occur. The assets serving as collateral for
these debt instruments have a recorded value on the Company's books of $414,000 as
of December 31, 2002.
(e) At December 31, 2002, the Company had borrowed $3,110,000 from an affiliated entity
of the Chairman of the Company under terms of two notes that bear interest at 10%.
The amounts borrowed under the first note totaling $3,000,000 are due to be repaid
on the earlier of January 3, 2005 or within 10 days of the receipt of the McElmo
Dome settlement. The principal amount of the other note, totaling $110,000 at
December 31, 2002, plus accrued interest was repaid February 24, 2003, along with
accrued interest of $74,000 on the first note.
</FN>
The annual maturities of long-term debt subsequent to December 31, 2002 are
$419,000 for 2003, $3,081,000 for 2004, and $1,160,000 for 2005.
The Company incurred $294,000, $182,000 and $45,000 of interest expense relating
to debt to related parties in 2002, 2001 and 2000, respectively. The Company
paid $363,000, $76,000 and none of those amounts for 2002, 2001 and 2000,
respectively.
The weighted average interest rate for the Company's short-term borrowings was
6.16% as of December 31, 2002.
(10) Operating Leases
Noncancelable operating leases relate principally to office space, vehicles and
operating equipment. Gross future minimum payments under such leases as of
December 31, 2002 are summarized as follows:
2003 $ 170,000
2004 21,000
2005 12,000
----------
$ 203,000
==========
Rent expense under operating leases aggregated $311,000, $275,000, and $201,000
in 2002, 2001 and 2000, respectively. The Company has charged $64,000 of the
amount incurred in 2002 to ABT-Beard, L.L.C.
(11) Income Taxes
Total income tax expense (benefit) was allocated as follows:
Year ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
Continuing operations $ (31,000) $ (73,000) $ 8,000
Discontinued operations - (2,000) -
---------- ---------- ----------
$ (31,000) $ (75,000) $ 8,000
========== ========== ==========
Current income tax expense (benefit) from continuing operations consisted of:
Year ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
U. S. federal $ (31,000) $ (54,000) $ 8,000
Various states - (19,000) -
---------- ---------- ----------
$ (31,000) $ (73,000) $ 8,000
========== ========== ==========
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:
Year ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
Computed U. S. federal statutory benefit $ (1,680,000) $ (580,000) $ (526,000)
Federal alternative minimum tax (benefit) (31,000) (54,000) 8,000
Increase in the valuation allowance
for deferred tax assets 1,680,000 580,000 526,000
State income tax (benefit) - (19,000) -
------------- ------------ ------------
$ (31,000) $ (73,000) $ 8,000
============= ============ ============
The components of deferred tax assets and liabilities are as follows:
December 31,
------------
2002 2001
---- ----
Deferred tax assets - tax effect of:
Net operating loss carryforwards $ 20,725,000 $ 20,047,000
Statutory depletion and investment tax credit carryforwards 2,081,000 2,081,000
Other, principally investments and property, plant and equipment 57,000 112,000
------------- --------------
Total gross deferred tax assets 22,863,000 22,240,000
Less valuation allowance (22,823,000) (22,200,000)
Deferred tax liabilities (40,000) (40,000)
------------- --------------
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, 2002, the Company had federal regular tax operating loss
carryforwards of approximately $54.6 million that expire from 2004 to 2009 and
tax depletion carryforwards of approximately $5.5 million. These carryforwards
may be limited if the Company undergoes a significant ownership change.
(12) Stock Option and Deferred Compensation Plans
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, the
number of shares authorized under the 1993 Plan was reduced to 206,250. The 1993
Plan is administered by the Compensation and Stock Option Committee (the
"Committee") of the Board of Directors. The option price is determined by the
Committee but cannot be less than the fair market value of the common stock of
the Company at the date of grant for incentive stock options and 75% of fair
market value of the common stock for non-qualified options. All options have
ten-year terms and become exercisable one year after the date of grant at the
rate of 25% each year until fully exercisable. Directors who are not key
management employees of the Company or subsidiaries of the Company are only
eligible to be granted non-qualified stock options. At December 31, 2002, there
were 93,750 additional shares available for grant under the Plan.
The per share weighted-average fair value of stock options granted during 1997
was $2.67 on the date of grant using the Black-Scholes option pricing model with
the following assumptions: no expected dividend yield; risk-free interest rate
of 6.5%; expected life of ten years; and expected volatility of 39%. No options
were granted in 2000, 2001 or 2002.
The Company applies APB Opinion No. 25 in accounting for its stock options and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
net loss would have increased $1,000 in 2001 and $8,000 in 2000. There would be
no effect on the 2002 net loss. Net earnings (loss) per share would not have
been affected for any years presented in the accompanying financial statements.
Stock option activity during the periods indicated is as follows:
Number of Weighted-Average
Shares Exercise Price
---------------- ----------------
Balance at December 31, 1999(A) 46,496 $3.09
Granted - -
Exercised - -
Forfeited (5,625) 2.67
Expired - -
---------------- ----------------
Balance at December 31, 2000 40,871 $3.16
Granted - -
Exercised - -
Forfeited - -
Expired - -
---------------- ----------------
Balance at December 31, 2001 40,871 $3.16
Granted - -
Exercised - -
Forfeited - -
Expired - -
---------------- ----------------
Balance at December 31, 2002 40,871 $3.16
================ ================
<FN>
(A) Adjusted to reflect the 3-for-4 reverse stock split effected in September
2000.
</FN>
At December 31, 2002, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $2.67 - $5.83 and 2.5
years, respectively.
At both December 31, 2002 and 2001, 41,000 options were exercisable, after
giving effect to the 3-for-4 reverse split in September 2000, and the
weighted-average exercise price of those options was $3.16.
The Company has a deferred compensation plan for certain key executives and the
board of directors which provide for payments in the form of the Company's
common stock upon the death, disability, retirement or termination of the
participant. 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. As of December 31, 2002, there
were 335,000 shares reserved for distribution under the plan.
(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 15%, 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 15%.
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. During 2002, 2001 and 2000,
the Company made matching contributions of $32,000, $54,000, and $63,000,
respectively, to the plans. Effective July 16, 2002 the Company notified all
participants in the two plans that it was suspending the 100% match until
further notice.
(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.
The Company has an indemnity obligation to its institutional preferred
stockholder and one of its assignees for certain losses (i) arising out of the
ownership and/or operation of Beard Oil's former oil and gas assets, including
environmental liabilities; (ii) arising under any employee benefit or severance
plan; or (iii) relating to any misrepresentation or inaccuracy in any
representation made by the Company or Beard Oil in connection with the
Restructure (collectively, the "Obligations"). Neither Beard nor Beard Oil is
presently aware of any material liabilities existing as a result of such
Obligations.
In November of 2002, the Company filed suit in the Western District of Oklahoma
to terminate ABT-Beard and the Company's business relationship with American Bio
Tech, Inc. ("ABT"), the other party in ABT-Beard. Additionally, the Company is
seeking recovery of costs, expenses and attorney's fees. In January of 2003, ABT
filed its answer and asserted counterclaims against the Company and third-party
claims against Beard Sino-American Resources, Co., Inc., Beijing Beard Biotech
Engineering Co., Inc., Cambridge/ABT Beard Handan Venture, L.L.C., William M.
Beard, Riza E. Murteza, and Mark E. Voth. The Company and the other defendants
have filed an answer denying liability and intend to vigorously defend such
claims. Management feels that the claims of ABT are without merit and expect no
material liabilities as a result of ABT's suit against the Company and the other
defendants.
(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
four reportable segments in 2002, 2001 and 2000: Coal, Carbon Dioxide, China,
and e-Commerce.
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 China Segment is pursuing
environmental opportunities in China, focusing on the installation and
construction of facilities which utilize the proprietary composting technology
of Real Earth United States Enterprises, Inc. The e-Commerce Segment consists of
a 71%-owned subsidiary which is (i) pursuing the development of a payment system
to be used exclusively for Internet transactions and (ii) focusing on developing
licensing agreements and other fee based arrangements with companies
implementing technology in conflict with the Company's intellectual property.
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
Coal Dioxide China e-Commerce Totals
---- ------- ----- ---------- ------
2002
----
Revenues from external
customers $ 12 $ 445 $ - $ - $ 457
Interest income - - - - -
Interest expense 1 - 98 2 101
Depreciation, depletion and
amortization 21 35 3 6 65
Segment profit (loss) (2,098) 291 (714) (204) (2,725)
Segment assets 33 458 439 15 945
Expenditures for segment 7 62 - 2 71
assets
2001
----
Revenues from external
customers $ 137 $ 442 $ 72 $ - $ 651
Interest income - - - - -
Interest expense 2 - 34 2 38
Depreciation, depletion and
amortization 20 33 1 6 60
Segment profit (loss) (531) 313 (625) (175) (1,018)
Segment assets 1,609 460 403 64 2,536
Expenditures for segment 17 17 - 14 48
assets
2000
----
Revenues from external
customers $ 215 $ 471 $ - $ - $ 686
Interest income - - - - -
Interest expense 3 - - 1 4
Depreciation, depletion and
amortization 19 33 - 3 55
Segment profit (loss) (625) 356 (400) (275) (944)
Segment assets 1,746 453 - 59 2,258
Expenditures for segment 371 4 - 8 383
assets
Reconciliation of reportable segment revenues to consolidated revenues is as
follows (in thousands):
2002 2001 2000
------------- ------------- -------------
Total revenues for reportable segments $ 457 $ 651 $ 686
Revenues from China operations accounted for as
an equity investment - (72) -
Revenues from corporate activities not allocated
to segments 12 23 31
------------- ------------- -------------
Total consolidated revenues $ 469 $ 602 $ 717
============= ============= =============
Reconciliation of reportable segment interest expense to consolidated interest
expense is as follows (in thousands):
2002 2001 2000
------------- ------------- -------------
Total interest expense for reportable segments $ 101 $ 38 $ 4
Interest expense from China operations
accounted for as an equity investment (98) (34) -
Interest expense from corporate activities not
allocated to segments 397 203 56
------------- ------------- -------------
Total consolidated interest expense $ 400 $ 207 $ 60
============= ============= =============
Reconciliation of reportable segment depreciation, depletion and amortization to
consolidated depreciation, depletion and amortization is as follows (in
thousands):
2002 2001 2000
------------- ------------- -------------
Total depreciation, depletion and amortization
for reportable segments $ 65 $ 60 $ 55
Corporate depreciation and amortization
not allocated to segments 79 30 29
------------- ------------- -------------
Total consolidated depreciation, depletion and
amortization $ 144 $ 90 $ 84
============= ============= =============
Reconciliation of total reportable segment profit (loss) to consolidated loss
from continuing operations is as follows (in thousands):
2002 2001 2000
------------- ------------- -------------
Total loss for reportable segments $ (2,725) $ (1,018) $ (994)
Eliminate loss from China operations
accounted for as an equity investment 714 625 -
Equity in loss from China operations accounted for
as an equity investment (357) (312) -
Net corporate costs not allocated to segments (2,054) (821) (390)
------------- ------------- -------------
Total consolidated loss from continuing
operations $ (4,422) $ (1,526) $ (1,384)
============= ============= =============
Reconciliation of reportable segment assets to consolidated assets is as follows
(in thousands):
2002 2001
--------------- ---------------
Total assets for reportable segments $ 945 $ 2,536
Assets from China operations accounted for as an
equity investment (439) (403)
Investment in equity investee - China operations - 440
Assets of discontinued operations 343 764
Corporate assets not allocated to segments 415 721
--------------- ---------------
Total consolidated assets $ 1,264 $ 4,058
=============== ===============
Reconciliation of expenditures for segment assets to total expenditures for
assets is as follows (in thousands):
2002 2001
--------------- --------------
Total expenditures for assets for reportable
Segments $ 71 $ 48
Capital expenditures of discontinued operations 9 3
Corporate expenditures not allocated to segments 21 24
--------------- --------------
Total expenditures for assets $ 101 $ 75
=============== ==============
11% of segment revenues for 2001 were derived from a customer in China. The
remaining 2002 and all of 2000 segment revenues were derived from customers in
the United States. Certain long-lived assets with recorded values approximating
$305,000 at December 31, 2001 were located in China. All remaining segment
assets are located in the United States.
During 2002, one customer accounted for 93% of the Coal Segment's and 2% of the
Company's revenues. During 2001, two customers accounted for 47% of the Coal
Segment's and 10% of the Company's revenues. During 2000, two customers
accounted for 65% of the Coal Segment's and 20% of the Company's revenues. The
Company's CO2 revenues are received from two operators 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. During 2002, 2001, and 2000, sales by these
two operators accounted for 97%, 68%, and 69%, respectively, of the Company's
segment revenues and all of the Carbon Dioxide Segment's revenues. All of the
China Segment's 2001 revenues were derived from one customer.
(16) Quarterly Financial Data (unaudited)
Three Months Ended
------------------- ------------------- ------------------- -----------------
March 31, June 30, September 30, December 31,
2002 2002 2002 2002
------------------- ------------------- ------------------- -----------------
(in thousands except per share data)
Revenues $ 90 $ 127 $ 131 $ 121
Operating loss (351) (353) (327) (2,026)
Loss from continuing
operations (413) (505) (450) (3,023)
Loss from discontinued
operations (48) (55) (78) (42)
Net loss (461) (560) (528) (3,065)
Basic loss per share (0.25) (0.31) (0.29) (1.67)
Diluted loss per share (0.25) (0.31) (0.29) (1.67)
Three Months Ended
------------------- ------------------- ------------------- -----------------
March 31, June 30, September 30, December 31,
2001 2001 2001 2001
------------------- ------------------- ------------------- -----------------
(in thousands except per share data)
Revenues $ 183 $ 168 $ 129 $ 122
Operating loss (296) (335) (349) (392)
Loss from continuing
operations (274) (339) (393) (447)
Loss from discontinued
operations (310) (150) (56) (352)
Net loss (584) (489) (449) (799)
Basic loss per share (0.32) (0.27) (0.24) (0.44)
Diluted loss per share (0.32) (0.27) (0.24) (0.44)
The quarterly information presented above has been restated to conform to the
final year-end 2002 presentation.
During the fourth quarter of 2002, The Company recorded economic impairment
losses on certain long-lived assets in the Coal Segment and e-Commerce Segment
of $1,516,000 and $45,000, respectively. In addition, in the fourth quarter of
2002, the Company recorded economic impairments of the Company's investment in
its operations in China totaling $759,000, a certificate of deposit relating to
the McElmo Dome litigation of $75,000, another start-up entity operating in
China totaling $7,000, and a note receivable for certain assets sold in a prior
year totaling $31,000. During the fourth quarter of 2001, the Company recorded
economic impairment losses on certain investments and an additional accrual for
loss relating to the Company's investment in the discontinued interstate travel
business of $113,000 and $114,000, respectively.
(17) Subsequent events
Private Placement of Notes and Warrants
On February 21, 2003, the Company completed the sale of $600,000 of subordinated
notes to accredited investors. A $550,000 Note was sold by an investment banking
firm which received a 5% commission thereon. The purchaser received a 5% Loan
Fee on this Note, which bears a 5% coupon. A $50,000 Note was sold by the
Company to affiliates of the Company and bears a 10% coupon. The Notes were
accompanied by Warrants to purchase a total of 60,000 shares of Beard common
stock at $0.50 per share. The Company has agreed to redeem the Notes within 10
days of receipt of the second installment of the McElmo Dome settlement. The
Notes will mature on April 1, 2004; however, if they have not been redeemed by
such date they will automatically be extended to January 1, 2005. As a condition
of the private placement, a new Deed of Trust, Assignment of Production,
Security Agreement and Financing Statement has been recorded against the
Company's working and overriding royalty interests in the McElmo Dome field.
Under this Deed of Trust and a companion Subordination and Nominee Agreement the
priorities as to the repayment of indebtedness to the note holders and the
Company's affiliates has been established without the necessity for a triggering
event.
McElmo Dome Litigation
On December 24, 2002, the Tenth Circuit Court of Appeals issued an Opinion
affirming the May 6, 2002 decision of the Colorado District Court which approved
the Settlement, the allocation thereof, attorneys' fees and other matters. On
March 24, 2003, parties objecting to the Settlement filed a Petition for
Certiorari asking the U.S. Supreme Court for review. If the U.S. Supreme Court
denies the Petition, the Settlement is expected to be final between early May
and late June of 2003, meaning the distribution of Settlement funds can begin at
that time according to the terms of the Settlement Agreement. Distribution of
the proceeds will be delayed until the petition to the U.S Supreme Court has
been decided. The Company believes the Settlement will be concluded within the
time frame indicated with anticipated proceeds to the Company in excess of $3.9
million. Although there is the possibility that the appeals process could delay
the Settlement into late 2003 or that the objecting parties could ultimately
cause the Settlement to be overturned, the Company believes it is unlikely the
Settlement will be overturned. (See Note 2 above and "Item 3. Legal
Proceedings---McElmo Dome Litigation").
ABT Beard Litigation
In November of 2002, the Company filed suit against American Bio-Tech, Inc.
("ABT") seeking judicial termination of the partnership between the Company and
ABT. In January of 2003, ABT filed its answer and asserted counterclaims against
the Company and third-party claims against various Company affiliates seeking an
unspecified amount of damages plus attorneys' fees and costs. The Company and
the third-party defendants have filed an answer denying liability and stating
their intention to vigorously defend the claims.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable
PART III
Item 10. Directors, Executive Officers and Significant Employees of the
Registrant.
The directors, executive officers and significant employees of the Company
are identified below. The table sets forth the age, positions with the Company
and the year in which each person became a director, executive officer or
significant employee. All positions are held with the Company unless otherwise
indicated.
Director, Executive Officer
or Significant
Employee of Beard
Name Position or Beard Oil Since Age
---- -------- ------------------ ---
W. M. Beard Chairman of the Board, Chief Executive
Officer and Director(A) June 1969 74
Herb Mee, Jr. President, Chief Financial Officer November 1973 74
and Director(A)
Allan R. Hallock Director December 1986 73
Harlon E. Martin, Jr. Director October 1997 55
Ford C. Price Director March 1988 65
Philip R. Jamison President - Beard Technologies, Inc.(B)(C) February 1997 64
Riza E. Murteza President & CEO - Beard Sino-American November 1998 73
Resources Co., Inc.(B)(C)
Marc A. Messner President & CEO- starpay.com, l.l.c.(C) August 1998 41
and Vice President-Corporate Development of
the Company
Jack A. Martine Controller and Chief Accounting Officer October 1996 53
Rebecca G. Witcher Secretary-Treasurer(A) October 1993 43
- ----------------
<FN>
(A) Trustee of certain assets of the Company's 401(k) Trust.
(B) Devotes all of his time to this subsidiary.
(C) Indicated entity is a subsidiary of the Registrant.
</FN>
The executive officers and other officers of the Company serve at the
pleasure of the Board of Directors.
W. M. Beard has served Beard as its Chairman of the Board and Chief
Executive Officer since December 1992. He previously served as Beard's President
and Chief Executive Officer from the Company's incorporation in October 1974
until January 1985. He has served Beard Oil, the predecessor to Beard, as its
Chairman of the Board and Chief Executive Officer since its incorporation. He
has also served as a director of Beard and Beard Oil since their incorporation.
Mr. Beard has been actively involved since 1952 in all management phases of
Beard and Beard Oil from their inception, and as a partner of their predecessor
company.
Herb Mee, Jr. has served as Beard's President since October 1989 and as its
Chief Financial Officer since June 1993. He has served as President of Beard Oil
since its incorporation, and as its Chief Financial Officer since June 1993. He
has also served as a director of Beard and Beard Oil since their incorporation.
Mr. Mee served as President of Woods Corporation, a New York Stock Exchange
diversified holding company, from 1968 to 1972 and as its Chief Executive
Officer from 1970 to 1972.
Allan R. Hallock was elected a director of Beard in July 1993. He served as
a director of Beard Oil from December 1986 until October 1993. Mr. Hallock is
currently an independent consulting geologist. He served as Vice President and
Exploration Manager of Gemini Corporation from 1970 until December 1986.
Harlon E. Martin, Jr. was elected a director of Beard in October 1997 to
fill the directorship vacancy created by the death of W. R. Plugge. Mr. Martin
has served as the principal of H. E. Martin & Company, a Houston investment
banking firm, since its founding in 1990. He was a co-founder of GTM Securities
Corp. in 1985 and served as a principal of such firm until 1989. H. E. Martin &
Company is not a parent, subsidiary, or other affiliate of Beard.
Ford C. Price was elected a director of Beard in July 1993. He served as a
director of Beard Oil from June 1987 until October 1993. From 1961 until 1986
Mr. Price served in various capacities with The Economy Company, a
privately-held schoolbook publishing company, last serving as its Chairman of
the Board and Chief Executive Officer. Mr. Price is a private investor.
Philip R. Jamison has served as President of Beard Technologies, Inc. since
August 1994. Mr. Jamison has been associated with the coal industry since 1960,
working in various positions. From 1972 to 1977 he served as Vice President
Operations for International Carbon and Minerals and as President and CEO of all
its coal producing subsidiaries. From 1979 to 1988 he served as CEO of four
small companies which were engaged in the production and sale of coal.
Riza E. Murteza has served as President and Chief Executive Officer of
Beard Sino-American Resources Co., Inc. since November 1998. He was appointed
Senior Advisor to the United Nations Development Project for China, residing in
China for one year (1996-1997), assisting large Chinese enterprises move to a
market economy. Prior to that he served as General Manager and Project Manager
for two large projects in Indonesia and a large project in the Soviet Union for
periods totaling nine years.
Marc A. Messner has served as President and Chief Executive Officer of
starpay. com, l.l.c. (and its predecessor) since April 1999. He has also served
as Vice President - Corporate Development of Beard since August 1998. Mr.
Messner is the inventor of starpay's proprietary payment system technology. From
1993 to 1998 he served as President of Horizontal Drilling Technologies, Inc., a
company he founded in 1993 which was acquired by Beard in 1996.
Jack A. Martine was elected as Controller, Chief Accounting Officer and Tax
Manager of Beard in October 1996. Mr. Martine served as tax manager for Beard
from June 1989 until October 1993 at which time he joined Sensor Oil & Gas, Inc.
in a similar capacity. Mr. Martine is a certified public accountant.
Rebecca G. Witcher has served as Corporate Secretary of the Company and
Beard Oil since October 1993, and has served as Treasurer of such companies
since July 1997.
The directors of the Company have been elected to serve until the annual
stockholders' meeting to be held in the year indicated opposite their respective
names or until their successors are duly elected and qualified:
Director(A) Term
----------- ----
Allan R. Hallock 2003
Ford C. Price 2003
Harlon E. Martin, Jr. 2004
Herb Mee, Jr. 2004
W. M. Beard 2005
- ---------------
(A) Michael E. Carr, who was elected by the preferred stockholders in February
1994 to fill the directorship vacancy which they were entitled to fill,
resigned effective February 1, 2002. To date the sole remaining preferred
stockholder has not elected to fill such vacancy.
There is no family relationship between any of the directors or executive
officers of the Company. All executive officers hold office until the first
meeting of the Board of Directors following the next annual meeting of
stockholders or until their prior resignation or removal.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities (collectively
"reporting persons"), to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of common stock
and other equity securities of the Company. Reporting persons are required by
the SEC regulations to furnish the Company with copies of all Section 16(a)
forms they file.
All of the Company's directors had late filings during the fiscal year
covered by this report. The directors erroneously believed that the granting of
Stock Units under the Company's Deferred Stock Compensation Plan were to be
reported annually on Form 5 rather than as they occurred during the year, and
they reported such grants for the entire year on such basis. Accordingly, Mr.
Beard had 24 late filings, Mr. Mee had one late filing, and Messrs. Hallock,
Martin and Price each had 16 late filings.
To the Company's knowledge, based solely on information received from each
reporting person which includes written representations that, other than as
described above, no other reports were required during the fiscal year ended
December 31, 2002, all Section 16(a) filing requirements applicable to its
reporting persons were complied with.
Item 11. Executive Compensation.
The table below sets forth the compensation paid or accrued during each of
the last three fiscal years by the Company and its subsidiaries to the Company's
Chief Executive Officer and each of the Company's other most highly compensated
executive officers (hereafter referred to as the named executive officers),
whose aggregate salary and bonus exceeded $100,000, for any of the fiscal years
ended December 31, 2002, 2001 or 2000:
SUMMARY COMPENSATION TABLE
Long Term
Compensation
--------------------------------------------
Annual Compensation Awards Payouts
- ---------------------------------------------------------- ------ -------
Securities
Underlying All Other
Name and Options/ LTIP Compen-
Principal Salary (A) Bonus (B) SAR's Payouts sation (C)
Position Year ($) ($) (#) ($) ($)
-------- ---- --- --- --- --- ---
W. M. Beard 2002 44,275(D) -0-(D) -0- 90,175(D) 1,788(D)(F)
Chairman & CEO 2001 66,000(D) -0-(D) -0- 68,400(D) 3,300(D)
2000 118,250(D) -0-(D) -0- 16,100(D) 5,913(D)
Herb Mee, Jr. 2002 132,000 -0-(E) -0- 1,450(E) 3,505(F)
President & CFO 2001 132,000 -0-(E) -0- 1,400(E) 6,670(E)
2000 132,000 -0-(E) -0- 1,350(E) 6,600(E)
- ---------------
<FN>
(A) Amounts shown include cash compensation earned and received by executive
officers as well as amounts earned but deferred pursuant to the Company's
401(k) Plan at the election of those officers. Amounts shown exclude cash
compensation earned but deferred pursuant to the Company's Deferred Stock
Compensation Plan (the "DSC Plan"). The Company has 350,000 shares
available for issuance under the DSC Plan; 335,000 were reserved for
distribution under the DSC Plan at December 31, 2002.
(B) Bonus for length of service with Beard or Beard Oil.
(C) Consists of the Company's contribution to the Company's 401(k) Plan.
(D) In 2002 Mr. Beard deferred 50% ($35,750) of his salary during the first
6-1/2 months of the year, 85% ($51,975) of his salary during the last 5-1/2
months of the year and all ($2,450) of his length of service bonus for the
year; in 2001 Mr. Beard deferred one-half ($66,000) of his salary and all
($2,400) of his length of service bonus for the year; and in 2000 he
deferred one-half ($13,750) of his salary for 2-1/2 months and all ($2,350)
of his length of service bonus for the year pursuant to the DSC Plan.
(E) In 2002 Mr. Mee deferred all ($1,450) of his length of service bonus for
the year; in 2001 Mr. Mee deferred all ($1,400) of his length of service
bonus for the year; and in 2000 he deferred all ($1,350) of his length of
service bonus for the year pursuant to the DSC Plan.
(F) Beginning July 16, 2002, the Company suspended its 100% matching
contribution (up to a cap of 5% of gross salary) under its 401(k) Plan.
Although there is no firm commitment to do so, the Company has indicated
its intention to reinstate the match when future conditions permit.
</FN>
OPTION GRANTS IN LAST FISCAL YEAR
The Company did not grant any options during the last fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information, with respect to the named
executive officers, concerning the exercise of options during the Company's last
fiscal year and unexercised options held as of the end of the last fiscal year:
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at FY-End (#) FY-End ($)
--------------------- ----------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
---- --------------- ------------ ------------- -------------
W. M. Beard -0- $ -0- 9,375/-0- $-0-/-0-
Herb Mee, Jr. -0- $ -0- 18,371/-0- $-0-/-0-
Compensation of Directors
Messrs. Hallock, Martin and Price received $8,000 each of deferred fees
under the Company's Deferred Stock Compensation Plan (the "Plan") as
compensation for services rendered in 2002. Under the Plan, the electing
officers and directors can defer fees and compensation until termination of
service or termination of the Plan, at which time the accounts will be settled
by distribution of a number of shares of the Company's common stock equal to the
number of Units credited under the Plan. A Unit is equal to the amount deferred
divided by the fair market value of a share of common stock on the date of
deferral. Currently, the non-management directors each receive $500 per month
for their services, and also receive the following fees for directors' meetings
which they attend: annual and 1-1/2 day meetings -- $750; regular meeting --
$500; telephone meeting -- $100 to $300 depending upon length of meeting.
Messrs. Hallock, Martin and Price received $700, $250 and $700, respectively,
for such attendance in 2002. The non-management directors also receive a small
year-end bonus depending upon their length of service as directors of Beard and
Beard Oil. All of the directors deferred such bonuses pursuant to the Plan.
Beard also provides life, health and accident insurance benefits for its
non-management directors who are not otherwise covered and the value of these
benefits is included in the above compensation amounts. Messrs. Hallock, Price
and Martin received $4,478, $453 and $202, respectively, of such compensation
during the year. None of the directors received additional compensation in 2002
for their committee participation.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the Board of Directors (the
"Board") establishes the general compensation policies of the Company. The
Committee meets once each year to establish specific compensation levels for the
chairman/chief executive officer ("CEO") and the president/chief financial
officer ("CFO") and to review the executive officers' compensation generally.
(The compensation for executive officers other than the CEO and CFO is actually
determined by the CEO and CFO).
The Committee's goal in setting executive compensation is to motivate,
reward and retain management talent who support the Company's goals of
increasing shareholder value. This goal is to provide competitive levels of
compensation that relate to the Company's long-term performance goals and
objectives, reward outstanding corporate performance and recognize individual
initiative and achievement. The Committee endeavors to achieve these objectives
through a combination of base salary, cash bonuses and stock options.
The Committee believes that the total compensation of its CEO, CFO and
other executive officers should be tied to the Company's success in achieving
long-term growth in earnings, cash flow and stock price per share. The Committee
also believes that the total cash compensation of such officers should, to the
extent possible, be similar to the total cash compensation of similarly situated
executives of peer group public companies. To date neither the Company nor the
Committee has been able to establish a peer group which they feel is comparable
enough in size, financial structure and diversity of operations to establish a
valid comparison.
No executive officer's compensation for 2002 exceeded the $1 million
deduction limit under Section 162(m) of the Internal Revenue Code, as amended,
and the same result is anticipated for 2003. The Committee does not anticipate
that any executive officer's compensation would approach the threshold level in
the foreseeable future.
Base Salaries. No salary increases have been granted to the Company's top
two executive officers since September of 1990. Because of the poor financial
results in 2000, 2001 and 2002, no changes in base salary are currently under
consideration for any of the executive officers. Because of the Company's
deteriorating cash position, (i) the Chairman elected to defer one-half of his
salary effective October 16, 2000 and increased such deferral to 85% effective
July 16, 2002 and (ii) the President elected to defer 40% of his salary
effective February 1, 2003.
Cash Bonuses. All employees and directors of the Company receive a small
year-end bonus depending upon their length of service as employees of Beard or
Beard Oil. Because of the overall financial results, no other cash bonuses have
been paid to executive officers during the last three fiscal years. The
Chairman, the President and all of the directors elected to defer all of their
year-end bonuses for calendar years 2000, 2001 and 2002.
Beard Group 401(k) Plan. One of the Company's principal benefits has been
its 401(k) Plan, which included a 100% match (up to a cap of 5% of gross salary)
in order to encourage participation. Due to the Company's deteriorating cash
position the Company on July 8, 2002 notified all Participants that it was
suspending the 100% match effective July 16, 2002 until further notice. One of
the investment options available under the Company's 401(k) Plan is the option
for each participant to invest all or part of his investment account in Company
common stock ("The Beard Company Stock Fund Investment Option"). The Committee
feels that this option is important because it enables key management members to
increase their ownership in the Company, further aligning their interests with
those of the shareholders.
Stock Options. The Committee desires to reward long-term strategic
management practices and enhancement of shareholder value through the award of
stock options. The Committee believes that stock options encourage increased
performance by the Company's key employees by providing incentive to employees
to elevate the long-term value of the Company's common stock, thus aligning the
interests of the Company's employees with the interests of its shareholders.
Additionally, stock options build stock ownership and provide employees with a
long-term focus. However, because of their conviction that management should not
reap the benefit of a low option grant price until the Company's performance has
achieved a recognizable turnaround, the Committee has not granted any stock
options since April of 1997.
Deferred Stock Compensation Plan. This Plan was adopted in 1995 to provide
a means to promote ownership by officers and directors of a greater proprietary
interest in the Company, thereby aligning such interests more closely with the
interests of the shareholders. Since 2000 the Plan has become increasingly
important as a mechanism to conserve the Company's cash until the anticipated
McElmo Dome Settlement has been received.
CEO Compensation
W. M. Beard has been Chairman and CEO of the Company and its predecessors
since 1974. Mr. Beard's 2002 base salary was $132,000, and has not increased
since 1990. He receives, along with all other Beard employees, a small year-end
bonus based on length of service. The 1994 stock option grant of 50,000 shares
to Mr. Beard reflected the Committee's desire to provide significant incentives
which link long-term executive compensation to long-term growth in equity for
all shareholders, as described above. The award also reflected Mr. Beard's
position and level of responsibility within the Company, the Committee's
qualitative analysis of his performance in managing the Company, and the
importance of the role he plays in determining the Company's strategic
direction. Based on the Company's profitability, the granting of any additional
stock options to Mr. Beard or other key management members was not considered by
the Committee in 2002. A significant portion of the Company's outstanding
options were exercised in 1998, including 75% of his outstanding option by Mr.
Beard. The Committee may consider the awarding of additional options to key
management members, including Mr. Beard, in 2004 and subsequent years. Any such
grants will depend upon the Company's profitability at such time, the outlook
for its various businesses and the Committee's determination of the need to
provide additional incentives to management.
COMPENSATION COMMITTEE
Allan R. Hallock, Chairman
Harlon E. Martin, Jr.
Ford C. Price
STOCK PERFORMANCE
The following performance graph compares The Beard Company's cumulative
total stockholder return on its common stock against the cumulative total return
of the NASDAQ Market Index and the SIC Code Index of the Bituminous Coal,
Surface Mining Industry compiled by Media General Financial Services for the
period from December 31, 1997 through December 31, 2002. The performance graph
assumes that the value of the investment in The Beard Company stock and each
index was $100 on December 31, 1997 and that any dividends were reinvested. The
Beard Company has never paid dividends on its common stock.
------------- ------------- ------------- ------------- ------------- -------------
December December December December December December
1997 1998 1999 2000 2001 2002
------------- ------------- ------------- ------------- ------------- -------------
The Beard Company 100.00 61.90 35.71 6.67 13.33 4.38
------------- ------------- ------------- ------------- ------------- -------------
Bituminous Coal, Surface
Mining Industry Index 100.00 61.99 44.26 84.45 96.95 95.21
------------- ------------- ------------- ------------- ------------- -------------
NASDAQ Market Index 100.00 141.04 248.76 156.35 124.64 86.94
------------- ------------- ------------- ------------- ------------- -------------
The Industry Index chosen consists of the following companies: Arch Coal,
Inc., Consol Energy, Inc., Headwaters Inc., Peabody Energy Corp., Westmoreland
Coal Co. and Yanzhou Coal Mining Co.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below sets forth the name and address of each shareholder who is
known to the Company to own beneficially more than 5% of Beard's outstanding
common stock or preferred stock, the number of shares beneficially owned by each
and the percentage of outstanding common or preferred stock so owned as of
February 28, 2003. Unless otherwise noted, the person named has sole voting and
investment powers over the shares reflected opposite his name.
Number of
Preferred Number of Common Combined
Shares and Shares and Common and
Nature of Percent Nature of Percent Preferred Voting
Ownership of Class Ownership of Class (8) Percentage (8)
--------- -------- --------- ------------ --------------
Name and Address
----------------
John Hancock Financial Services,
Inc. ("Hancock").................................. 27,838 100.00% 234,030(1)(2) 12.80%(2) 17.89%
57th Floor
200 Clarendon Street
Boston, Massachusetts 02117
Dimensional Fund Advisors, Inc. ("DFA")........... None 0.00% 112,296(3) 6.14% 5.78%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
The Beard Group 401(k) Trust
c/o InvesTrust, N.A., Trustee..................... None 0.00% 199,278(4) 10.90% 10.26%
5101 N. Classen, Suite 620
Oklahoma City, OK 73118
W. M. Beard....................................... None 0.00% 939,903(5) 44.45% 42.19%
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, OK 73112
Lu Beard.......................................... None 0.00% 247,639(6) 13.54% 12.75%
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, OK 73112
Herb Mee, Jr...................................... None 0.00% 365,036(7) 19.57% 18.45%
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, OK 73112
- ---------------
<FN>
(1) Shares are held by Hancock on behalf of itself and affiliated entities.
(2) Excludes the Beard preferred shares which became convertible into 5.84% (113,513 shares) of the outstanding common stock
(after conversion) on January 1, 2003.
(3) DFA, a registered investment advisor, is deemed to have beneficial ownership of 112,296 shares as of December 31, 2002
(latest information available), all of which shares are held in portfolios of investment companies and commingled group
trusts and separate accounts which DFA serves as investment advisor or investment manager. DFA disclaims beneficial
ownership of all such shares.
(4) Represents shares owned by The Beard Group 401(k) Trust (the "401(k) Trust") at February 28, 2003. Shares held by the
401(k) Trust are owned by the participating employees, each of whom has sole voting and investment power over the shares
held in his or her account. Includes 53,899 and 127,744 shares held for the accounts of Messrs. Beard and Mee,
respectively.
(5) Includes 187,354 shares owned directly by Mr. Beard as to which he has sole voting and investment power; 240,380 shares (or
13.14%) owned by the William M. Beard and Lu Beard 1988 Charitable Unitrust (the "Unitrust"), of which Mr. Beard and his
wife, Lu Beard, serve as co-trustees and share voting and investment power; 36,214 shares held by the William M. Beard
Irrevocable Trust "A," 51,324 shares held by the William M. Beard Irrevocable Trust "B," and 62,661 shares held by the
William M. Beard Irrevocable Trust "C" (collectively, the "Beard Irrevocable Trusts") of which Messrs. Beard and Herb Mee,
Jr. are trustees and share voting and investment power; 5,053 shares each held by the John Mason Beard II Trust and by the
Joseph G. Beard Trust as to which Mr. Beard is the trustee and has sole voting and investment power; 2,442 shares held by
the Rebecca Banner Beard Lilly Living Trust as to which Mr. Beard is a co-trustee and shares voting and investment power
with his daughter; 53,899 shares held by The Beard Group 401(k) Trust (the "401(k) Trust") for the account of Mr. Beard as
to which he has sole voting and investment power; and 9,999 shares held by B & M Limited, a general partnership ("B&M"), of
which Mr. Beard is a general partner and shares voting and investment power with Mr. Mee. Also includes 9,375 shares
subject to presently exercisable options; 6,000 shares subject to presently exercisable warrants held by the Unitrust;
5,000 shares subject to presently exercisable warrants held by B&M; and 265,149 shares reserved in Mr. Beard's account in
the Company's Deferred Stock Compensation Plan (the "DSC Plan") which will be distributed upon his death, disability,
retirement or termination. Excludes 1,259 shares owned by his wife as to which Mr. Beard disclaims beneficial ownership.
(6) Includes 240,380 shares owned directly by the Unitrust and 6,000 shares subject to presently exercisable warrants owned by
the Unitrust, as to all of which Mr. and Mrs. Beard serve as co-trustees and share voting and investment power. Also
includes 1,259 shares owned directly by Mrs. Beard as to which she has sole voting and investment power.
(7) Includes 21,560 shares owned directly by Mr. Mee as to which he has sole voting and investment power; 14,422 shares held by
Mr. Mee and Marlene W. Mee as joint tenants as to which he shares voting and investment power with Mrs. Mee, 4,999 shares
held by Mee Investments, Inc., as to which Mr. Mee has sole voting and investment power; 9,999 shares owned directly and
5,000 shares subject to presently exercisable warrants held by B & M as to all of which Mr. Mee shares voting and
investment power with Mr. Beard but as to which Mr. Mee has no present economic interest; and 127,743 shares held by the
401(k) Trust for the account of Mr. Mee as to which he has sole voting and investment power. Also includes 150,199 shares
held by the Beard Irrevocable Trusts as to which Mr. Mee is a co-trustee and shares voting and investment power with Mr.
Beard but as to which Mr. Mee has no pecuniary interest and disclaims beneficial ownership. Also includes 18,371 shares
subject to presently exercisable options and 12,743 shares reserved in Mr. Mee's account in the DSC Plan which will be
distributed upon his death, disability, retirement or termination. Excludes 33 shares owned by Mrs. Mee, as to which Mr.
Mee disclaims beneficial ownership.
(8) All percentages reflected above exclude 295,053 common shares held by the Company as treasury stock.
</FN>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the number of
shares of Beard common stock beneficially owned by each director, the Chief
Executive Officer ("CEO"), each named executive officer and by all directors and
executive officers as a group and the percentage of outstanding common stock so
owned as of February 28, 2003.
Amount and
Nature of
Beneficial Percent
Name and Address Ownership of Class (7)
---------------- --------- ------------
W. M. Beard............................ 939,903(1) 44.45%
Herb Mee, Jr........................... 365,037(2) 19.57%
Marc A. Messner........................ 37,500 2.05%
Allan R. Hallock....................... 74,796(3) 3.97%
Ford C. Price.......................... 54,384(4) 2.92%
Harlon E. Martin, Jr................... 28,577(5) 1.54%
Jack A. Martine........................ 10,875(6) ---(9)
Rebecca G. Witcher..................... 3,880(7) ---(9)
All directors and executive
officers as a group (8 in number). 1,349,754(8) 60.91%
- ---------------
(1) See footnote (5) to table "Security Ownership of Certain Beneficial
Owners."
(2) See footnote (7) to table "Security Ownership of Certain Beneficial
Owners."
(3) Includes 1,875 shares held directly by Mr. Hallock as to which he has sole
voting and investment power; 19,618 shares owned directly and 20,000 shares
subject to presently exercisable warrants held by A. R. Hallock & Co., a
nominee partnership for estate planning purposes as to which Mr. Hallock
shares voting and investment powers with his wife; and 33,303 shares
reserved in Mr. Hallock's account in the DSC Plan which will be distributed
upon his death, disability, retirement or termination.
(4) Includes 17,561 shares held by the FCP Trust as to which Mr. Price has
shared voting and investment power, 2,449 shares held by an IRA for the
benefit of Mr. Price as to which he has sole voting and investment power,
and 34,284 shares reserved in Mr. Price's account in the DSC Plan which
will be distributed upon his death, disabiliity, retirement or termination.
(5) Includes 750 shares held directly by Mr. Martin as to which he has sole
voting and investment power, and 27,827 shares reserved in Mr. Martin's
account in the DSC Plan which will be distributed upon his death,
disability, retirement or termination.
(6) Includes 1,500 shares held directly by Mr. Martine as to which he has sole
voting and investment power and 9,375 shares subject to presently
exercisable options.
(7) Includes 130 shares held directly by Mrs. Witcher as to which she has sole
voting and investment power and 3,750 shares subject to presently
exercisable options.
(8) Includes 864,043 shares as to which directors and executive officers have
sole voting and investment power and 485,711 shares as to which they share
voting and investment power with others.
(9) Reflects ownership of less than one (1) percent.
(10) See footnote (8) to table "Security Ownership of Certain Beneficial
Owners."
Item 13. Certain Relationships and Related Transactions.
Unitrust Credit Lines. In April 2000, William M. Beard and Lu Beard, as
trustees of the William M. Beard and Lu Beard 1988 Charitable Unitrust (the
"Trustees") provided a $1,000,000 revolving line of credit to the Company. The
original loan by the Trustees provided for a term of 15 months, 10% interest and
was subject to the terms of a promissory note and a letter loan agreement of
corresponding dates. The line of credit was increased to $1,500,000 in October
2000, and the maturity was extended to April 1, 2002. The credit line was
increased to $1,750,000 in March 2001, to $2,000,000 in June 2001, to $2,250,000
in September 2001, to $2,500,000 in January 2002 and to $3,000,000 in October
2002. The interest rate remains at 10% and the loan now matures on January 3,
2005. As of December 31, 2002, the line of credit had been fully utilized. In
November 2002, the Unitrust provided a supplemental $150,000 revolving line of
credit maturing on October 31, 2003. The supplemental line was also at 10%
interest and was subject to the terms of a promissory note and a supplemental
letter loan agreement of corresponding date. As of December 31, 2002, there was
a principal balance of $110,000 outstanding on the supplemental line. In May
2002, the Unitrust also purchased $120,000 of 10% Subordinated Notes due
September 30, 2003 in connection with a private placement of notes and warrants
by the Company.
Borrowings from Other Related Entities. Three affiliates of the Company's
Chairman loaned $100,000 to the Company in 2001, also at 10% interest, under
notes maturing on April 1, 2003. These loans were paid in full in April 2002.
One of these affiliates purchased a $50,000 10% subordinated note in connection
with the private placement of notes and warrants by the Company in February
2003.
Item 14. Controls and Procedures.
Within the 90 days prior to the date of this report we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-14 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended. Based upon
that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information relating to our Company (including our
consolidated subsidiaries) required to be included in our periodic filings with
the Securities and Exchange Commission. There have been no significant changes
in our internal controls or in other factors which could significantly affect
internal controls subsequent to the date we carried out our evaluation.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(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:
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 herein by reference).
2(b) Agreement and Plan of Merger by and between The Beard Company and The New
Beard Company, dated as of 2(b) 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 herein by reference).
2(c) Certificate of Merger merging The Beard Company into The New Beard
Company as filed with the Secretary 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 herein 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 herein 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 herein 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 herein 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 herein by
reference).*
10(b) Form of Indemnification Agreement dated December 15, 1994, by and between
Registrant and eight 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).
10(c) 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 herein by reference).*
10(d) Amendment No. Three to The Beard Company Deferred Stock Compensation Plan
dated November 1, 1995, as amended October 24, 2001. (The Amended Plan
supersedes the original Plan adopted on June 3, 1996. This Exhibit has
previously been filed as Exhibit 99 filed on April 10, 2002 to
Registrant's Registration Statement on Form S-8, File No. 333-85936, and
same is incorporated herein 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., 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 herein 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 herein 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 herein 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 herein 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 herein by reference).
10(o) Amended Letter Loan Agreement by and between Registrant and the Unitrust
dated September 1, 2000. (This Exhibit has been previously filed as
Exhibit 10(o) 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).
10(p) Amended Letter Loan Agreement by and between Registrant and the Unitrust
dated March 31, 2001. (This Exhibit has been previously filed as Exhibit
10(p) to Registrant's Form 10-Q for the period ended March 31, 2001,
filed on May 21, 2001, and same is incorporated herein by reference).
10(q) Amended Letter Loan Agreement by and between Registrant and the Unitrust
dated June 30, 2001. (This Exhibit has been previously filed as Exhibit
10(q) to Registrant's Form 10-Q for the period ended June 30, 2001, filed
on August 14, 2001, and same is incorporated herein by reference).
10(r) Amended Letter Loan Agreement by and between Registrant and the Unitrust
dated September 30, 2001. (This Exhibit has been previously filed as
Exhibit 10(r) to Registrant's Form 10-Q for the period ended September
30, 2001, filed on November 19, 2001, and same is incorporated herein by
reference).
10(s) Amended Letter Loan Agreement by and between Registrant and the Unitrust
dated January 15, 2002. (This Exhibit has been previously filed as
Exhibit 10(s) to Registrant's Form 10-K for the period ended December 31,
2001, filed on April 16, 2002, and same is incorporated herein by
reference).
10(t) Amended Letter Loan Agreement by and between Registrant and the Unitrust
dated February 28, 2002. (This Exhibit has been previously filed as
Exhibit 10(t) to Registrant's Form 10-Q for the period ended March 31,
2002, and same is incorporated herein by reference).
10(u) Amended Letter Loan Agreement by and between Registrant and the Unitrust
dated October 3, 2002. (This Exhibit has been previously filed as Exhibit
10(a) to Registrant's Form 10-Q for the period ended September 30, 2002,
filed on November 14, 2002, and same is incorporated herein by
reference).
10(v) Supplemental Letter Loan Agreement by and between Registrant and the
Unitrust dated November 7, 2002.
10(w) 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 herein by reference).
10(x) Renewal Promissory Note from Registrant to the Trustees of the Unitrust
dated September 1, 2000. (This Exhibit has been previously filed as
Exhibit 10(q) 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).
10(y) Renewal Promissory Note from Registrant to the Trustees of the Unitrust
dated October 20, 2000. (This Exhibit has been previously filed as
Exhibit 10(w) 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).
10(z) Renewal Promissory Note from Registrant to the Trustees of the Unitrust
dated March 31, 2001. (This Exhibit has been previously filed as Exhibit
10(t) to Registrant's Form 10-Q for the period ended March 31, 2001,
filed on May 21, 2001, and same is incorporated herein by reference).
10(aa) Renewal Promissory Note from Registrant to the Trustees of the Unitrust
dated June 30, 2001. (This Exhibit has been previously filed as Exhibit
10(v) to Registrant's Form 10-Q for the period ended June 30, 2001, filed
on August 14, 2001, and same is incorporated herein by reference).
10(bb) Renewal Promissory Note from Registrant to the Trustees of the Unitrust
dated September 30, 2001. (This Exhibit has been previously filed as
Exhibit 10(x) to Registrant's Form 10-Q for the period ended September
30, 2001, filed on November 19, 2001, and same is incorporated herein by
reference).
10(cc) Renewal Promissory Note from Registrant to the Trustees of the Unitrust
dated January 15, 2002. (This Exhibit has been previously filed as
Exhibit 10(z) to Registrant's Form 10-K for the period ended December 31,
2001, filed on April 16, 2002, and same is incorporated herein by
reference).
10(dd) Renewal Promissory Note from Registrant to the Trustees of the Unitrust
dated February 28, 2002. (This Exhibit has been previously filed as
Exhibit 10(bb) to Registrant's Form 10-Q for the period ended March 31,
2002, and same is incorporated herein by reference).
10(ee) Renewal Promissory Note from Registrant to the Trustees of the Unitrust
dated October 3, 2002. (This Exhibit has been previously filed as Exhibit
10(b) to Registrant's Form 10-Q for the period ended September 30, 2002,
filed on November 14, 2002, and same is incorporated herein by
reference).
10(ff) Supplemental Promissory Note from Registrant to the Trustees of the
Unitrust dated November 7, 2002.
10(gg) Promissory Note from Registrant to the Trustee of the William M. Beard
Irrevocable Trust "B" (the "B Trust") dated August 31, 2001. (This
Exhibit has been previously filed as Exhibit 10(x) to Registrant's Form
10-Q for the period ended September 30, 2001, filed on November 19, 2001,
and same is incorporated herein by reference).
10(hh) Promissory Note from Registrant to the Trustee of the William M. Beard
Irrevocable Trust "C" (the "C Trust") dated August 31, 2001. (This
Exhibit has been previously filed as Exhibit 10(x) to Registrant's Form
10-Q for the period ended September 30, 2001, filed on November 19, 2001,
and same is incorporated herein by reference).
10(ii) Promissory Note from Registrant to B & M Limited, a General Partnership
("B&M") dated August 31, 2001. (This Exhibit has been previously filed as
Exhibit 10(x) to Registrant's Form 10-Q for the period ended September
30, 2001, filed on November 19, 2001, and same is incorporated herein by
reference).
10(jj) Promissory Note from Registrant to Bank of Oklahoma, N.A. ("BOK") dated
August 30, 2000. (This Exhibit has been previously filed as Exhibit 10(r)
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).
10(kk) Extension Promissory Note from Registrant to BOK dated September 30,
2000. (This Exhibit has been previously filed as Exhibit 10(s) 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).
10(ll) Extension Promissory Note from Registrant to BOK dated March 15, 2001.
(This Exhibit has been previously filed as Exhibit 10(w) to Registrant's
Form 10-Q for the period ended March 31, 2001, filed on May 21, 2001, and
same is incorporated herein by reference).
10(mm) Extension Promissory Note from Registrant to BOK dated June 30, 2001.
(This Exhibit has been previously filed as Exhibit 10(z) to Registrant's
Form 10-Q for the period ended June 30, 2001, filed on August 14, 2001,
and same is incorporated herein by reference).
10(nn) Extension Promissory Note from Registrant to BOK dated May 15, 2002.
(This Exhibit has been previously filed as Exhibit 10(b) to Registrant's
Form 10-Q for the period ended June 30, 2002, and same is incorporated
herein by reference).
10(oo) Form of 10% Subordinated Note due September 30, 2003. (This Exhibit has
been previously filed as Exhibit 10(c) to Registrant's Form 10-Q for the
period ended June 30, 2002, and same is incorporated herein by
reference).
10(pp) 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).
10(qq) Form of Deed of Trust, Assignment of Production, Security Agreement and
Financing Statement dated as of May 16, 2002. (This Exhibit has been
previously filed as Exhibit 10(c) to Registrant's Form 10-Q for the
period ended September 30, 2002, filed on November 14, 2002, and same is
incorporated herein by reference).
10(rr) Guaranty Agreement between the Unitrust and BOK dated August 30, 2000.
(This Exhibit has been previously filed as Exhibit 10(t) 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).
10(ss) Guaranty Agreement between W. M. Beard and BOK dated August 30, 2000.
(This Exhibit has been previously filed as Exhibit 10(u) 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).
10(tt) Asset Purchase and Sale Agreement among Testco Inc. de Mexico, S.A. de
C.V. and ITS-Testco, LLC and PD Oilfield Services Mexicana, S. de R.L. de
C.V., dated May 4, 2001. (This Exhibit has been previously filed as
Exhibit 10(z) to Registrant's Form 10-Q for the period ended March 31,
2001, filed on May 21, 2001, and same is incorporated herein by
reference).
10(uu) Asset Purchase and Sale Agreement between ITS-Testco, LLC and Inter-Tech
Drilling Solutions, Inc., dated May 4, 2001. (This Exhibit has been
previously filed as Exhibit 10(aa) to Registrant's Form 10-Q for the
period ended March 31, 2001, filed on May 21, 2001, and same is
incorporated herein by reference).
14 Code of Ethics
21 Subsidiaries of the Registrant
23 Consents of Experts and Counsel:
23(a) Consent of Cole & Reed, P.C.
99 Additional exhibits:
99(a) Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
99(b) Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
- -------------
* 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) The following reports on Form 8-K were filed during the last quarter
of the period covered by this report:
A report on Form 8-K was filed by the Company on December 20, 2002. The
matter reported was the filing of a suit by the Company in the U.S. District
Court for the Western District of Oklahoma to terminate the Company's business
relationship with American Bio Tech, Inc.
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)
HERB MEE, JR.
DATE: April 8, 2003 By Herb Mee, Jr., President
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
- --------- ----- ----
By W.M. BEARD Chief Executive Officer April 8, 2003
W.M. Beard
By HERB MEE, JR. President and Chief April 8, 2003
Herb Mee, Jr. Financial Officer
By JACK A. MARTINE Controller and April 8, 2003
Jack A. Martine Chief Accounting Officer
By W.M. BEARD Chairman of the Board April 8, 2003
W.M. Beard
By HERB MEE, JR. Director April 8, 2003
Herb Mee, Jr.
By ALLAN R. HALLOCK Director April 8, 2003
Allan R. Hallock
By HARLON E. MARTIN, JR. Director April 8, 2003
Harlon E. Martin, Jr.
By FORD C. PRICE Director April 8, 2003
Ford C. Price
EXHIBIT INDEX
Exhibit
No. Description Method of Filing
- --- ----------- ----------------
2(a) Agreement and Plan of Reorganization by Incorporated herein by reference
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).
2(b) Agreement and Plan of Merger by and Incorporated herein by reference
between The Beard Company and The New
Beard Company, dated as of 2(b) September
16, 1997.
2(c) Certificate of Merger merging The Beard Incorporated herein by reference
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 The New Incorporated herein by reference
Beard Company as filed with the Secretary
of State of Oklahoma on September 11,
1997.
3(ii) Registrant's By-Laws as currently in Incorporated herein by reference
effect.
4(a) Certificate of Designations, Powers, Incorporated herein by reference
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 Certificate of Incorporated herein by reference
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 Company Incorporated herein by reference
1993 Stock Option Plan dated August 27,
1993, as amended June 4, 1998.
10(b) Form of Indemnification Agreement dated Incorporated herein by reference
December 15, 1994, by and between
Registrant and eight directors.
10(c) The Beard Company 1994 Phantom Stock Incorporated herein by reference
Units Plan as amended effective October
23, 1997.
10(d) Amendment No. Three to The Beard Company Incorporated herein by reference
Deferred Stock Compensation Plan dated
November 1, 1995, as amended October 24,
2001.
10(e) Amended and Restated Nonqualified Stock Incorporated herein by reference
Option Agreement by and between Richard
D. Neely and ISITOP, Inc. ("ISITOP"),
dated November 12, 1998.
10(f) Amended and Restated Nonqualified Stock Incorporated herein by reference
Option Agreement by and between Jerry S.
Neely and ISITOP, dated November 12,
1998.
10(g) Nonqualified Stock Option Agreement by Incorporated herein by reference
and between Robert A. McDonald and
ISITOP, dated November 12, 1998.
10(h) Incentive Stock Option Agreement by and Incorporated herein by reference
between Philip R. Jamison and Beard
Technologies, Inc., dated May 18, 1998.
10(i) Subscription Agreement by and between Incorporated herein by reference
Cibola Corporation ("Cibola") and
Registrant, dated April 10, 1996.
10(j) Nonrecourse Secured Promissory Note from Incorporated herein by reference
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 among Incorporated herein by reference
Registrant, Cibola and the Cibola
shareholders, dated April 10, 1996.
10(m) Guaranty Agreement between Registrant and Incorporated herein by reference
Oklahoma Bank and Trust Company, dated as
of June 7, 1999.
10(n) Letter Loan Agreement by and between Incorporated herein by reference
Registrant and The William M. Beard and
Lu Beard 1988 Charitable Unitrust (the
"Unitrust") dated April 3, 2000.
10(o) Amended Letter Loan Agreement by and Incorporated herein by reference
between Registrant and the Unitrust dated
September 1, 2000.
10(p) Amended Letter Loan Agreement by and Incorporated herein by reference
between Registrant and the Unitrust dated
March 31, 2001.
10(q) Amended Letter Loan Agreement by and Incorporated herein by reference
between Registrant and the Unitrust dated
June 30, 2001.
10(r) Amended Letter Loan Agreement by and Incorporated herein by reference
between Registrant and the Unitrust dated
September 30, 2001.
10(s) Amended Letter Loan Agreement by and Incorporated herein by reference
between Registrant and the Unitrust dated
January 15, 2002.
10(t) Amended Letter Loan Agreement by and Incorporated herein by reference
between Registrant and the Unitrust dated
February 28, 2002.
10(u) Amended Letter Loan Agreement by and Incorporated herein by reference
between Registrant and the Unitrust dated
October 3, 2002.
10(v) Supplemental Letter Loan Agreement by and Filed herewith electronically
between Registrant and the Unitrust dated
November 7, 2002.
10(w) Promissory Note from Registrant to the Incorporated herein by reference
Trustees of the Unitrust dated April 3,
2000.
10(x) Renewal Promissory Note from Registrant Incorporated herein by reference
to the Trustees of the Unitrust dated
September 1, 2000.
10(y) Renewal Promissory Note from Registrant Incorporated herein by reference
to the Trustees of the Unitrust dated
October 20, 2000.
10(z) Renewal Promissory Note from Registrant Incorporated herein by reference
to the Trustees of the Unitrust dated
March 31, 2001.
10(aa) Renewal Promissory Note from Registrant Incorporated herein by reference
to the Trustees of the Unitrust dated
June 30, 2001.
10(bb) Renewal Promissory Note from Registrant Incorporated herein by reference
to the Trustees of the Unitrust dated
September 30, 2001.
10(cc) Renewal Promissory Note from Registrant Incorporated herein by reference
to the Trustees of the Unitrust dated
January 15, 2002.
10(dd) Renewal Promissory Note from Registrant Incorporated herein by reference
to the Trustees of the Unitrust dated
February 28, 2002.
10(ee) Renewal Promissory Note from Registrant Incorporated herein by reference
to the Trustees of the Unitrust dated
October 3, 2002.
10(ff) Supplemental Promissory Note from Filed herewith electronically
Registrant to the Trustees of the
Unitrust dated November 7, 2002.
10(gg) Promissory Note from Registrant to the Incorporated herein by reference
Trustee of the William M. Beard
Irrevocable Trust "B" (the "B Trust")
dated August 31, 2001.
10(hh) Promissory Note from Registrant to the Incorporated herein by reference
Trustee of the William M. Beard
Irrevocable Trust "C" (the "C Trust")
dated August 31, 2001.
10(ii) Promissory Note from Registrant to B & M Incorporated herein by reference
Limited, a General Partnership ("B&M")
dated August 31, 2001.
10(jj) Promissory Note from Registrant to Bank Incorporated herein by reference
of Oklahoma, N.A. ("BOK") dated August
30, 2000.
10(kk) Extension Promissory Note from Registrant Incorporated herein by reference
to BOK dated September 30, 2000.
10(ll) Extension Promissory Note from Registrant Incorporated herein by reference
to BOK dated March 15, 2001.
10(mm) Extension Promissory Note from Registrant Incorporated herein by reference
to BOK dated June 30, 2001.
10(nn) Extension Promissory Note from Registrant Incorporated herein by reference
to BOK dated May 15, 2002.
10(oo) Form of 10% Subordinated Note due Incorporated herein by reference
September 30, 2003.
10(pp) Form of 2002 Warrant. Incorporated herein by reference
10(qq) Form of Deed of Trust, Assignment of Incorporated herein by reference
Production, Security Agreement and
Financing Statement dated as of May 16,
2002.
10(rr) Guaranty Agreement between the Unitrust Incorporated herein by reference
and BOK dated August 30, 2000.
10(ss) Guaranty Agreement between W. M. Beard Incorporated herein by reference
and BOK dated August 30, 2000.
10(tt) Asset Purchase and Sale Agreement among Incorporated herein by reference
Testco Inc. de Mexico, S.A. de C.V. and
ITS-Testco, LLC and PD Oilfield Services
Mexicana, S. de R.L. de C.V., dated May
4, 2001.
10(uu) Asset Purchase and Sale Agreement between Incorporated herein by reference
ITS-Testco, LLC and Inter-Tech Drilling
Solutions, Inc., dated May 4, 2001.
14 Code of Ethics Filed herewith electronically
21 Subsidiaries of the Registrant Filed herewith electronically
23(a) Consent of Cole & Reed, P.C. Filed herewith electronically
99(a) Chief Executive Officer Certification Filed herewith electronically
pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002.
99(b) Chief Financial Officer Certification Filed herewith electronically
pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002.
CERTIFICATIONS FOR FORM 10-K
I, William M. Beard, Chairman of the Board and Chief Executive Officer, certify
that:
1. I have reviewed this annual report on Form 10-K of The Beard Company
(the "registrant");
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
The Beard Company
WILLIAM M. BEARD
Date: April 8, 2003 By: William M. Beard
Chairman of the Board and
Chief Executive Officer
CERTIFICATIONS FOR FORM 10-K
I, Herb Mee, Jr., President and Chief Financial Officer, certify that:
I have reviewed this annual report on Form 10-K of The Beard Company (the
"registrant");
1. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
2. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
3. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
4. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
5. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
The Beard Company
Date: April 8, 2003 By: HERB MEE, JR.
Herb Mee, Jr.
President and Chief Financial Officer