UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-12396
THE BEARD COMPANY
______________________________________________________
(Exact name of registrant as specified in its charter)
Oklahoma 73-0970298
_______________________________ _________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, Oklahoma 73112
___________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 842-2333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of May 15, 2006.
Common Stock $.0006665 par value - 5,539,210
THE BEARD COMPANY
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements............................................3
Balance Sheets - March 31, 2006 (Unaudited) and
December 31, 2005..................................................3
Statements of Operations - Three Months ended March 31,
2006 and 2005 (Unaudited)..........................................4
Statements of Shareholders' Equity (Deficiency) - Year ended
December 31, 2005 and Three Months ended March 31,
2006 (Unaudited)...................................................5
Statements of Cash Flows - Three Months ended
March 31, 2006 and 2005 (Unaudited)................................6
Notes to Financial Statements (Unaudited).............................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................15
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....20
Item 4. Controls and Procedures........................................20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................20
Item 1A. Risk Factors...................................................22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds....23
Item 3. Defaults Upon Senior Securities................................23
Item 4. Submission of Matters to a Vote of Security Holders............23
Item 5. Other Information..............................................23
Item 6. Exhibits.......................................................23
Signatures...............................................................25
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements
- -----------------------------
THE BEARD COMPANY AND SUBSIDIARIES
Balance Sheets
March 31, 2006 (Unaudited) and December 31, 2005
March 31, December 31,
Assets 2006 2005
--------------------- ----------------------
Current assets:
Cash and cash equivalents $ 198,000 $ 363,000
Accounts receivable, less allowance for doubtful
receivables of $80,000 in 2006 and 2005 208,000 215,000
Inventories 184,000 149,000
Prepaid expenses and other assets 47,000 67,000
Current maturities of notes receivable 7,000 6,000
Assets of discontinued operations held for resale 20,000 20,000
--------------------- ----------------------
Total current assets 664,000 820,000
--------------------- ----------------------
Note receivable, less allowance for doubtful receivable of
$30,000 in 2006 and 2005 13,000 14,000
Restricted certificate of deposit 50,000 50,000
Investments and other assets 29,000 36,000
Property, plant and equipment, at cost 8,710,000 4,779,000
Less accumulated depreciation, depletion and amortization 1,551,000 1,512,000
--------------------- ----------------------
Net property, plant and equipment 7,159,000 3,267,000
--------------------- ----------------------
Intangible assets, at cost 534,000 523,000
Less accumulated amortization 264,000 246,000
--------------------- ----------------------
Net intangible assets 270,000 277,000
--------------------- ----------------------
$ 8,185,000 $ 4,464,000
===================== ======================
Liabilities and Shareholders' Equity (Deficiency)
Current liabilities:
Trade accounts payable $ 141,000 $ 717,000
Accrued expenses 770,000 878,000
Short-term debt - related entities 5,495,000 1,100,000
Current maturities of long-term debt 226,000 215,000
Current maturities of long-term debt - related entities 324,000 316,000
Liabilities of discontinued operations held for resale 43,000 42,000
--------------------- ----------------------
Total current liabilities 6,999,000 3,268,000
--------------------- ----------------------
Long-term debt less current maturities 1,597,000 1,268,000
Long-term debt - related entities 6,007,000 5,770,000
Other long-term liabilities 133,000 133,000
Minority interest in consolidated subsidiary 3,000 8,000
Shareholders' equity (deficiency):
Convertible preferred stock of $100 stated value;
5,000,000 shares authorized; 27,838 shares issued
and outstanding 889,000 889,000
Common stock of $.0006665 par value per share; 15,000,000
shares authorized; 5,539,210 and 5,472,968 shares
issued and outstanding in 2006 and 2005, respectively 4,000 4,000
Capital in excess of par value 38,552,000 38,509,000
Accumulated deficit (46,007,000) (45,374,000)
Accumulated other comprehensive loss 8,000 (11,000)
--------------------- ----------------------
Total shareholders' equity (deficiency) (6,554,000) (5,983,000)
--------------------- ----------------------
Commitments and contingencies (note 7)
$ 8,185,000 $ 4,464,000
===================== ======================
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Operations
(Unaudited)
For the Three Months Ended
----------------------------------------
March 31, March 31,
2006 2005
------------------- ------------------
Revenues:
Coal reclamation $ 6,000 $ -
Carbon dioxide 335,000 218,000
China 80,000 -
e-Commerce 5,000 25,000
Oil & gas 56,000 -
------------------- ------------------
482,000 243,000
------------------- ------------------
Expenses:
Coal reclamation 258,000 176,000
Carbon dioxide 36,000 47,000
China 310,000 124,000
e-Commerce 29,000 37,000
Oil & gas 7,000 5,000
Selling, general and administrative 218,000 207,000
Depreciation, depletion and amortization 46,000 27,000
------------------- ------------------
904,000 623,000
------------------- ------------------
Operating profit (loss):
Coal reclamation (258,000) (178,000)
Carbon dioxide 289,000 161,000
China (239,000) (124,000)
e-Commerce (24,000) (13,000)
Oil & gas 45,000 (5,000)
Other, primarily corporate (235,000) (221,000)
------------------- ------------------
(422,000) (380,000)
Other income (expense):
Interest income 1,000 5,000
Interest expense (239,000) (233,000)
Equity in net earnings of unconsolidated affiliates 51,000 995,000
Impairment of investment in unconsolidated affiliate - (881,000)
Gain on sale of assets - 21,000
Other (1,000) (1,000)
Minority interest in operations of consolidated subsidiary 5,000 30,000
------------------- ------------------
Loss from continuing operations before income taxes (605,000) (444,000)
Income tax benefit (expense) (note 6) - (19,000)
------------------- ------------------
Loss from continuing operations (605,000) (463,000)
Discontinued operations:
Earnings (loss) from discontinued operations (note 3) (28,000) 88,000
------------------- ------------------
Net loss $ (633,000) $ (375,000)
=================== ==================
Net earnings (loss) per average common share outstanding:
Basic and diluted:
Loss from continuing operations $ (0.11) $ (0.08)
Earnings from discontinued operations 0.00 0.01
------------------- ------------------
Net loss $ (0.11) $ (0.07)
=================== ==================
Weighted average common shares outstanding:
Basic and diluted 5,592,000 5,748,000
=================== ==================
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Shareholders' Equity (Deficiency)
Total
Accumulated Common
Preferred Common Capital In Other Shareholders'
--------- ------ Excess of Accumulated Comprehensive Equity
Shares Stock Shares Stock Par Value Deficit Income(loss) (Deficiency)
---------------- ----------------- ------------ ----------- ----------- -------------
Balance, December 31, 2004 27,838 $889,000 4,839,565 $3,000 $ 38,193,000 $(43,214,000) $(15,000) $(4,144,000)
Net loss - - - - - (2,160,000) - (2,160,000)
Comprehensive income:
Foreign currency translation
adjustment - - - - - - 4,000 4,000
-------------
Total comprehensive loss - - - - - - - (2,156,000)
-------------
Issuance of stock for warrants exercised - - 415,750 1,000 122,000 - - 123,000
Reservation of shares pursuant to deferred
compensation plan - - - - 194,000 - - 194,000
Issuance of shares pursuant to deferred
compensation plan - - 217,653 - - - - -
----------------- ------------------ ------------ ------------- --------- ------------
Balance, December 31, 2005 27,838 889,000 5,472,968 4,000 38,509,000 (45,374,000) (11,000) (5,983,000)
Net loss (unaudited) - - - - - (633,000) - (633,000)
Comprehensive income (loss) (unaudited):
Foreign currency translation
adjustment (unaudited) - - - - - - 19,000 19,000
------------
Total comprehensive loss (unaudited) - - - - - - - (614,000)
------------
Share-based compensation related to
employee stock options (unaudited) - - - - 3,000 - - 3,000
Issuance of stock for warrants exercised
(unaudited) - - 10,000 - 4,000 - - 4,000
Reservation of shares pursuant to deferred
compensation plan (unaudited) - - - - 36,000 - - 36,000
Issuance of shares pursuant to deferred
compensation plan (unaudited) - - 56,242 - - - - -
----------------- ------------------ ------------ ------------- --------- ------------
Balance, March 31, 2006 (unaudited) 27,838 $889,000 5,539,210 $4,000 $ 38,552,000 $(46,007,000) $ 8,000 $(6,554,000)
================= ================== ============ ============= ========= ============
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Cash Flows
(Unaudited)
For the Three Months Ended
------------------------------------------
March 31, 2006 March 31, 2005
------------------------------------------
Operating activities:
Cash received from customers $ 527,000 $ 155,000
Gain on settlement - -
Cash paid to suppliers and employees (1,281,000) (512,000)
Interest received 1,000 4,000
Interest paid (241,000) (199,000)
Taxes paid (28,000) (119,000)
Operating cash flows of discontinued operations (26,000) (16,000)
------------------- ------------------
Net cash used in operating activities (1,048,000) (687,000)
------------------- ------------------
Investing activities:
Acquisition of property, plant and equipment (3,999,000) (130,000)
Acquisition of intangibles (8,000) (149,000)
Proceeds from sale of assets - 30,000
Proceeds from sale of assets of discontinued operations - 70,000
Proceeds from redemption of investment account 107,000 -
Other 17,000 219,000
------------------- ------------------
Net cash provided by (used in) investing activities (3,883,000) 40,000
------------------- ------------------
Financing activities:
Proceeds from term notes 332,000 90,000
Payments on line of credit and term notes (15,000) (203,000)
Proceeds from related party debt 4,570,000 1,868,000
Payments on related party debt (139,000) (248,000)
Proceeds from exercise of warrants 4,000 123,000
Loan to buyer - (30,000)
Capitalized costs associated with issuance of
subordinated debt - (114,000)
Other 14,000 (1,000)
------------------- ------------------
Net cash provided by financing activities 4,766,000 1,485,000
------------------- ------------------
Net increase (decrease) in cash and cash activities (165,000) 838,000
Cash and cash equivalents at beginning of period 363,000 216,000
------------------- ------------------
Cash and cash equivalents at end of period $ 198,000 $ 1,054,000
=================== ==================
Continued
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Cash Flows
(Unaudited)
Reconciliation of Net loss to Net Cash Used in Operating Activities
For the Three Months Ended
------------------------------------------
March 31, 2006 March 31, 2005
------------------------------------------
Net loss $ (633,000) $ (375,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, depletion and amortization 46,000 27,000
Gain on sale of assets - (9,000)
Gain on sale of assets of discontinued operations - (91,000)
Equity in operations of unconsolidated affiliates (13,000) (995,000)
Impairment of investment in unconsolidated affiliate - 881,000
Increase in impairment reserve - -
Non cash compensation expense 39,000 16,000
Net cash used by discontinued operations offsetting
accrued impairment loss - (12,000)
Minority interest in consolidated subsidiary (5,000) (30,000)
(Increase) decrease in accounts receivable, prepaid
expenses and other current assets 40,000 (32,000)
Increase in inventories (35,000) -
Decrease in accounts payable, accrued
expenses and other liabilities (487,000) (67,000)
------------------- ------------------
Net cash used in operating activities $ (1,048,000) $ (687,000)
=================== ==================
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Notes to Financial Statements
March 31, 2006 and 2005
(Unaudited)
(1) Summary of Significant Accounting Policies
- --- ------------------------------------------
Basis of Presentation
---------------------
The accompanying financial statements and notes thereto have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain disclosures normally prepared in
accordance with accounting principles generally accepted in the United
States of America have been omitted. The accompanying financial statements
and notes thereto should be read in conjunction with the audited
consolidated financial statements and notes thereto included in The Beard
Company's 2005 annual report on Form 10-K.
The accompanying financial statements include the accounts of The Beard
Company and its wholly and majority-owned subsidiaries in which The Beard
Company has a controlling financial interest (the "Company"). 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 financial information included herein is unaudited; however, such
information reflects solely normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation of the results for
the interim periods presented.
The results of operations for the three-month period ended March 31, 2006,
are not necessarily indicative of the results to be expected for the full
year.
The Company's current significant operations are within the following
segments: (1) the Coal Reclamation ("Coal") Segment, (2) the Carbon Dioxide
("CO2") Segment, (3) the China ("China") Segment, (4) the e-Commerce
("e-Commerce") Segment, and (5) the Oil & Gas ("Oil & Gas") 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 construction
and operation of organic chemical compound fertilizer ("OCCF") plants. The
e-Commerce Segment consists of a 71%-owned subsidiary whose current
strategy is to develop business opportunities to leverage starpay's(TM)
intellectual property portfolio of Internet payment methods and security
technologies. The Oil & Gas Segment consists of the production of oil and
gas.
Inventories
-----------
Inventories consist of the materials used to manufacture fertilizer to be
sold to third parties by a 50%-owned subsidiary in the China Segment and,
at March 31, 2006, was made up of raw materials ($59,000), work-in-process
($92,000) and finished goods ($33,000). There were no inventories at March
31, 2005. The inventories are valued at the lower of cost or market on the
first-in, first-out method.
Stock-Based Compensation
------------------------
On January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payment," ("SFAS 123R")
which requires the measurement and recognition of compensation expense
based on estimated fair values for all share-based payment awards made to
employees and directors, including employee stock options. SFAS 123R
supersedes the Company's previous accounting under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25")
for periods beginning in 2006. In March 2005, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 107 ("SAB 107") relating to
SFAS 123R. The Company has utilized the guidance of SAB 107 in its adoption
of SFAS 123R.
SFAS 123R requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the results of operations at
their grant-date fair values. The Company adopted SFAS 123R using the
modified prospective transition method, which requires the application of
the accounting standard as of January 1, 2006, the first day of the
Company's 2006 fiscal year. Under this transition method, compensation cost
recognized in the first quarter of 2006 includes: (a) compensation cost for
all share-based payments granted prior to but not yet vested as of December
31, 2005, based on the grant-date fair value estimated in accordance with
the provisions of SFAS 123, and (b) compensation cost for all share-based
payments granted subsequent to December 31, 2005, based on the grant date
value estimated in accordance with the provisions of SFAS 123R. In
accordance with the modified prospective method of adoption, the Company's
results of operations and financial position for prior periods have not
been restated.
The Company reserved 175,000 shares of its common stock for issuance to key
management, professional employees and directors under The Beard Company
1993 Stock Option Plan (the "1993 Plan") adopted in August 1993. In April
1998 the Board of Directors voted to increase the number of shares
authorized under the 1993 Plan to 275,000, and the shareholders approved
the increase in June 1998. As a result of the 3-for-4 reverse stock split
effected in September 2000 and the 2-for-1 stock split effected in August
2004, the number of shares authorized under the 1993 Plan was increased to
412,500. The 1993 Plan terminated on August 26, 2003. At December 31, 2005,
there were 26,250 options outstanding under the 1993 Plan. These options
were fully vested prior to 2005.
The Company reserved 100,000 shares of its common stock for issuance to
key management, professional employees and directors under The Beard
Company 2005 Stock Option Plan (the "2005 Plan") adopted in February 2005.
There were 45,000 options granted under the 2005 Plan in the first quarter
of 2005.
Grant-Date Fair Value
---------------------
The Company uses the Black-Scholes option pricing model to calculate the
grant-date fair value of an award. There were no options granted during the
first quarter of 2006. The fair value of the options granted in the first
quarter of 2005 was calculated using the following estimated weighted
average assumptions:
Expected volatility 279.5%
Expected risk term (in years) 3.5
Risk-free interest rate 3.75%
Expected dividend yield 0%
The expected volatility is based on historical volatility over the one-year
period prior to the date of granting of the unvested options. Beginning in
2006, the Company expects to use the simplified method outlined in SAB 107
to estimate expected lives for options granted during the period. The
risk-free interest rate is based on the yield on zero coupon U. S. Treasury
securities for a period that is commensurate with the expected term
assumption. The Company has not historically issued any dividends and does
not expect to in the future.
Share-Based Compensation Expense
--------------------------------
The Company uses the straight-line attribution method to recognize expense
for unvested options. The amount of share-based compensation recognized
during a period is based on the value of the awards that are ultimately
expected to vest. SFAS 123R requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. The Company will re-evaluate the
forfeiture rate annually and adjust as necessary. Share-based compensation
expense recognized under SFAS 123R for the three months ended March 31,
2006 was $3,000, charged to "Other Activities". Prior to January 1, 2006,
the Company accounted for its share-based compensation under the
recognition and measurement principles of APB No. 25 and related
interpretations, the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" and the disclosures required by
SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure." In accordance with APB No. 25, no share-based compensation was
reflected in the Company's net income for grants of stock options to
employees because the Company granted stock options with an exercise price
equal to the fair market value of the stock on the date of grant. Had the
Company used the fair value based accounting method for share-based
compensation expense prescribed by SFAS Nos. 123 and 148 for the periods
ended March 31, 2005, the Company's consolidated net loss and net loss per
share would have been as illustrated in the pro forma amounts shown
below:
Three Months Ended
March 31, 2005
Basic and diluted
Net loss, as reported $ (375,000)
Deduct: share based compensation, net of related
income tax effect 3,000
------------------
Pro forma net loss $ (378,000)
==================
Net earnings (loss) per share, as reported
Basic and diluted
Loss from continuing operations $ (0.08)
Earnings from discontinued operations 0.01
------------------
Net loss $ (0.07)
==================
Net earnings (loss) per share, pro forma
Basic and diluted
Loss from continuing operations $ (0.08)
Earnings from discontinued operations 0.01
------------------
Net loss $ (0.07)
==================
As of March 31, 2006, there was $107,000 of total unrecognized compensation
cost, net of estimated forfeitures, related to unvested share based awards,
which is expected to be recognized over a weighted average period of five
years.
On November 10, 2005, the Financial Accounting Standards Board ("FASB")
issued FASB Staff Position No. FAS 123R-3 "Transition Election Related to
Accounting for Tax Effects of Share-Based Payment Awards." The Company has
elected to adopt the alternative transition method provided in the FASB
Staff Position for calculating the tax effects of stock-based compensation
pursuant to SFAS 123R. The alternative transition method includes
simplified methods to establish the beginning balance of the additional
paid-in capital pool ("APIC pool") related to the tax effects of employee
stock-based compensation, and to determine the subsequent impact on the
APIC pool and consolidated statements of cash flows of the tax effects of
employee stock-based compensation awards that are outstanding upon adoption
of SFAS 123R. SFAS 123R also requires the benefits of tax deductions in
excess of recognized compensation expense to be reported as a financing
cash flow, rather than as an operating cash flow as prescribed under prior
accounting rules. This requirement reduces net operating cash flows and
increases net financing cash flows in periods after adoption. Total cash
flow remains unchanged from what would have been reported under prior
accounting rules. Since no tax benefit was recorded for share based payment
awards in the quarter ended March 31, 2006, the aforementioned provisions
of SFAS 123R and the related FASB Staff Position No. FAS 123R-3 had no
impact on the consolidated financial statements of the Company.
Option Activity
---------------
A summary of the activity under the Company's stock option plans for the
three-month period ended March 31, 2006 is presented below:
Weighted Average
Weighted Remaining Average
Average Contractual Term Intrinsic
Shares Exercise Price (Years) Value
------ -------------- ------- -----
Options outstanding at December 31, 2005: 71,250 $2.47 3.25 -
Granted - - - -
Exercised - - - -
Canceled - - - -
----------
Options outstanding at March 31, 2006 71,250 $2.47 3.00 -
==========
Options exercisable at March 31, 2006 26,250 $2.08 .74 -
==========
Options vested and options expected to
vest at March 31, 2006<F1> 26,250 $2.08 .74 -
==========
_______________
<FN>
<F1>
The Company's 2005 Stock Option Plan was cancelled on May 1, 2006 and
replaced by the 2006 Stock Option Plan. All options under the 2005 Plan
were cancelled and replaced by options under the new plan on such date.
</FN>
Reclassifications
-----------------
Certain 2005 balances have been reclassified to conform to the 2006
presentation.
(2) Ability to Fund Operations and Continue as a Going Concern
- --- ----------------------------------------------------------
Overview
--------
The accompanying financial statements have been prepared based upon the
Company's belief that it will continue as a going concern. The Company's
revenues from continuing operations are on an uptrend; they increased in
each of the last three years. The Company has incurred operating losses and
negative cash flows from operations during each of the last five years.
However, the Company commenced projects in both its Coal and China Segments
in 2005, and both of these projects are projected to begin generating
positive cash flow during the last half of 2006. Meanwhile, in addition to
the project currently in progress, the Coal Segment is currently pursuing
seven other projects which are in various stages of development. (See
"Additional Details" below). The Company arranged the financing for its
initial fertilizer plant in China in early 2005; the plant commenced
production in October of 2005. The McElmo Dome Settlement has resulted in
better pricing and higher profit margins for the CO2 Segment. Although the
Company finalized its first licensing arrangement in its e-Commerce Segment
in 2003, the arrangement did not make the segment profitable in 2004 or
2005 and will not make it profitable in 2006.
During the two years ended March 31, 2006, the Company took several steps
which reduced its negative cash flow to some degree, including salary
deferrals by its Chairman and President, deferrals of directors' fees into
its Deferred Stock Compensation Plans (the "DSC Plans"), and suspension of
the Company's 100% matching contribution (up to a cap of 5% of gross
salary) under its 401(k) Plan. Six private debt placements raised gross
proceeds of $4,434,000 during such period and an additional $193,000 in the
first quarter of 2006. In the first half of 2005 the Company borrowed
$850,000 from a related party to finance most of the cost of the fertilizer
plant in China. During the fourth quarter of 2005 and the first quarter of
2006, the Company borrowed $5,495,000 from the pond owner to begin
constructing the plant for its coal fines recovery project in West Virginia
(the "Pinnacle Project"). That funding had increased to $6,850,000 as of
May 4, 2006. In addition, the Company secured a $350,000 long-term bank
credit facility on March 28, 2006 (the "Bank Facility"). These measures
have enabled the Company to continue operating.
The negative result of the above has been a substantial amount of dilution
to the Company's common equity. From January 1, 2004 through March 31,
2006, a total of 602,240 warrants (as adjusted for the 2-for-1 stock split
effected in August of 2004) were issued in connection with the private debt
placements, and 672,000 Stock Units (as adjusted for the stock split) were
accrued in the participants' accounts as a result of salary and fee
deferrals into the various DSC Plans. During such period $3,428,000 of
convertible notes were also issued which are convertible into 2,750,000
shares of common stock. Additional dilution also occurred due to an
adjustment to the Preferred Stock conversion ratio resulting from the
issuance of the warrants, the convertible notes and the salary deferrals.
Termination of one of the DSC Plans resulted in the issuance of 218,000
common shares in November of 2005 and 56,000 in January of 2006. In
addition, 50,000 options were issued to a financial consultant in 2005, of
which 25,000 have been exercised.
Additional Details
------------------
The Company obtained net additional working capital of approximately
$191,000 during the first quarter of 2006 from the private debt placement
completed during the quarter, and an additional $195,000 as a result of the
initial draw made under its new Bank Facility. Despite these additions,
working capital decreased from $(2,448,000) at December 31, 2005 to
$(6,335,000) at March 31, 2006, as a result of the additional $4,395,000 of
short-term borrowings utilized to finance the construction of the Pinnacle
Project. The $(6,335,000) working capital deficit is to some degree
temporary berration since most of the $5,495,000 deficit will be
reclassified to long-term debt once the final funding for the Pinnacle
Project is in place. The deficit will be further reduced to the extent that
the $777,000 which will be reimbursed to Beard Technologies for overhead
charges, equipment, etc. is not utilized for working capital (see below).
The Company's principal business is coal reclamation, and this is where
management's operating attention is primarily focused. The Coal Segment has
a signed contract to construct and operate the Pinnacle Project and the
Company commenced construction on the project in September of 2005. The
Company has obtained commitments for (i) $2,800,000 of equity for the
project from a group of investors and (ii) a $9,000,000 bank loan subject
to obtaining a USDA guaranty of 70% of the loan amount. If the guaranty is
not obtained, the pond owner has committed to fund or arrange the funding
for the project. As of May 4, 2006 the pond owner had advanced $6,850,000
to finance the construction. In addition, the segment is actively pursuing
a number other projects which it has under development.
The timing of the coal projects the Company is actively pursuing is
uncertain and their continuing development is subject to obtaining the
necessary financing. With the exception of the Pinnacle Project, no
definitive contracts have as yet been signed, and there is no assurance
that the required financing will be obtained or that any of the projects
will materialize.
At this juncture it is uncertain whether the $9,000,000 loan for the
Pinnacle Project will come from a loan arranged by the pond owner or from
the bank if the USDA guaranty is obtained. We anticipate that this
determination will occur in June of 2006, at which point the limited
liability company formed to own the project will reimburse the Company
$400,000 for 10 months of overhead charges, plus approximately $377,000 for
equipment and other items for which Beard Technologies has not yet been
reimbursed. Regardless of the source of funding, construction on the
project is moving forward rapidly and we expect to have first coal
production and start generating cash flow in July of 2006.
In addition to the cash infusion from the Pinnacle Project, the Company
expects to generate cash of at least $50,000 during 2006 from the
disposition of the remaining assets from two of its discontinued segments,
and can sell certain other assets to generate cash if necessary. In
addition, the Company expects to receive funds from the binding arbitration
scheduled to be completed at the end of June, 2006. Although the Company
believes that it has a strong position in this matter, there is no
assurance that the matters in dispute will be resolved in our favor. See
"PART II. Item 1. Legal Proceedings. McElmo Dome Litigation."
The operating entity in the China Segment commenced fertilizer production
in October, and is currently seeking market acceptance for its products.
Fertilizer production and sales have lagged significantly behind the
Company's original projections, and we currently anticipate that the
segment will remain unprofitable until the last half of 2006.
The Company believes that the cash infusion from the Pinnacle Project,
together with the funds from the new bank revolving credit facility, will
provide sufficient working capital to sustain the Company's activities
until the operations of the Pinnacle Project and the China fertilizer plant
are generating positive cash flow from operations. If such funds are not
sufficient, and if the McElmo Dome arbitration should not be successful or
is only partially successful, then the Company will need to pursue
additional outside financing, which would likely involve further dilution
to our shareholders.
(3) Discontinued Operations
- --- -----------------------
BE/IM Segment
-------------
In 1999 the Management Committee of a joint venture 40%-owned by the
Company adopted a formal plan to discontinue the business and dispose of
its assets. The joint venture was dissolved in 2000 and the Company took
over certain remaining assets and liabilities. The Company recorded no
revenues for this segment for either of the three-month periods ended March
31, 2006 or 2005. The Company recorded a loss of $1,000 and earnings of
$48,000 for the three-month periods ended March 31, 2006 and 2005,
respectively, for the segment. The earnings in 2005 were from the sale of
equipment. As of March 31, 2006, the significant assets related to the
segment's operations consisted primarily of equipment with no estimated net
realizable value. The segment had no significant liabilities at March 31,
2006. The Company is actively pursuing opportunities to sell the segment's
few remaining assets and expects the disposition to be completed by
December 31, 2006.
WS Segment
----------
In 2001, the Company made the decision to cease pursuing opportunities in
Mexico and the WS Segment was discontinued. The bulk of the segment's
assets were sold in 2001. The segment recorded no revenues for either the
first quarter of 2006 or 2005. The Company recorded a loss of $27,000 for
the first quarter of 2006 as a result of moving certain assets to a
location near its headquarters to facilitate their sale. The Company
recorded earnings of $40,000 as its share of operating results for the
discontinued segment for the first quarter of 2005, which included gains on
the sale of equipment totaling $43,000. The Company is actively pursuing
the sale of the remaining assets and expects to have them sold or otherwise
disposed of by December 31, 2006. As of March 31, 2006, the significant
assets of the WS Segment were fixed assets totaling $20,000. The
significant liabilities of the segment consisted of trade accounts payable
and other accrued expenses totaling $43,000. It is anticipated that all of
the liabilities of the segment will be paid prior to December 31, 2006.
(4) Convertible Preferred Stock
- --- ---------------------------
Effective January 1, 2003, the Company's preferred stock became convertible
into common stock. On March 31, 2006 and 2005, each share of the Company's
preferred stock was convertible into 10.63040274 (295,929) and 10.31114354
(287,041) shares of common stock, respectively. The conversion ratio is
adjusted periodically (i) for stock splits, (ii) as additional
warrants/options or convertible notes are issued, and (iii) as additional
shares of stock are credited to the accounts of the Company's Chairman or
President in the Company's 2005 Deferred Stock Compensation Plan (the "DSC
Plan"), in each case at a value of less than $1.29165 per share. Fractional
shares will not be issued, and cash will be paid in redemption thereof.
(5) 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. Included in the weighted
average number of common shares outstanding are the shares issuable
according to the terms of the 2005 DSC Plan. The shares in the 2005 DSC
Plan are considered common stock equivalents because the covered
individuals may resign their positions at will which would also terminate
their participation in the DSC Plan resulting in the issuance of the
shares. In the fourth quarter of 2005 four of the five participants
elected, irrevocably, to receive a portion of their shares in the 2003-2
DSC Plan over periods ranging from two to 10 years. Those shares were
included in the calculation of the common stock equivalents up to the date
of those elections in 2005 but are excluded from the 2006 computation
except for 42,370 shares to be distributed in 2006. As the remaining shares
are distributed in future years, they will then be included in the
computation of shares outstanding. 523,913 of such shares from the 2003-2
DSC Plan remain to be distributed in the years 2007 through 2014. Diluted
earnings per share reflect the potential dilution that could occur if the
Company's outstanding options and warrants were exercised (calculated using
the treasury stock method) and if the Company's preferred stock and
convertible notes were converted to common stock.
Diluted loss per share from continuing operations in the statements of
operations for the three month periods ended March 31, 2006 and March 31,
2005 exclude all potential common shares issuable upon conversion of
convertible preferred stock, convertible notes or exercise of options and
warrants as the effect would be anti-dilutive due to the Company's losses
from continuing operations.
For the Three Months
Ended March 31,
--------------------------------------
2006 2005
--------------------------------------
Basic and diluted EPS:
Weighted average common shares outstanding 5,522,565 5,018,649
Shares in the 2003-2 Deferred Stock Compensation Plan treated as
common stock equivalents 42,370 729,708
Shares in the 2005 Deferred Stock Compensation Plan treated as
common stock equivalents 27,164 -
--------------------------------------
5,592,099 5,748,357
======================================
(6) Income Taxes
- --- ------------
In accordance with the provisions of the Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), the
Company's net deferred tax asset is being carried at zero book value, which
reflects the uncertainties of the Company's utilization of the future net
deductible amounts. The Company recorded provisions of none and $19,000 for
federal alternative minimum taxes for the three months ended March 31, 2006
and 2005, respectively.
At March 31, 2006, the Company estimates that it had the following income
tax carryforwards available for both income tax and financial reporting
purposes (in thousands):
Expiration
Date Amount
---- ------
Federal regular tax operating loss carryforwards 2006-2008 $45,680
Tax depletion carryforward Indefinite $3,000
(7) 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.
(8) Business Segment Information
- --- ----------------------------
The Company manages its business by products and services and by
geographic location (by country). The Company evaluates its operating
segments' performance based on earnings or loss from operations before
income taxes. The Company had five reportable segments in the first
quarter of 2006 and four segments in the first quarter of 2005. The
segments are Coal, Carbon Dioxide, China, and e-Commerce, with the new Oil
& Gas Segment added as a reportable segment in 2006. The Company conducted
business in the Oil & Gas Segment in 2005 but those activities were not
previously significant enough to be treated as a separately reportable
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
focusing on the construction and operation of organic chemical compound
fertilizer plants in China. The e-Commerce Segment consists of a 71%-owned
subsidiary whose current strategy is to develop business opportunities to
leverage the subsidiary's intellectual property portfolio of Internet
payment methods and security technologies. The Oil & Gas Segment consists
of the production of oil and gas.
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 Oil & Gas Totals
---- ------- ----- ---------- --------- ------
Three months ended
------------------
March 31, 2006
--------------
Revenues from
external customers $ 6 $ 335 $ 80 $ 5 $ 56 $ 482
Segment profit (loss) (258) 289 (239) (24) 45 (187)
Segment assets 6,197 520 649 23 362 7,751
Three months ended
------------------
March 31, 2005
--------------
Revenues from
external customers $ - $ 218 $ - $ 25 $ - $ 243
Segment profit (loss) (178) 161 (124) (13) (5) (159)
Segment assets 331 467 203 28 113 1,142
Reconciliation of total reportable segment loss to consolidated loss from
continuing operations before income taxes is as follows for the three
months ended March 31, 2006 and 2005 (in thousands):
2006 2005
-------------------- -------------------
Total loss for reportable segments $ (187) $ (159)
Net corporate costs not allocated to segments (418) (285)
-------------------- -------------------
Total consolidated loss from continuing
operations $ (605) $ (444)
==================== ===================
THE BEARD COMPANY AND SUBSIDIARIES
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 OUR 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 WE BELIEVE THAT
THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE
CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT.
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM OUR
EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED UNDER "ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
ELSEWHERE IN THIS REPORT. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING
STATEMENTS ATTRIBUTABLE TO US, OR PERSONS ACTING ON OUR BEHALF, ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS. WE ASSUME NO DUTY TO
UPDATE OR REVISE OUR FORWARD-LOOKING STATEMENTS BASED ON CHANGES IN INTERNAL
ESTIMATES OR EXPECTATIONS OR OTHERWISE.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
-------------
The following discussion focuses on material changes in our financial
condition since December 31, 2005 and results of operations for the quarter
ended March 31, 2006, compared to the prior year first quarter. Such discussion
should be read in conjunction with our financial statements including the
related footnotes.
In preparing the discussion and analysis, we have presumed readers have
read or have access to the discussion and analysis of the prior year's results
of operations, liquidity and capital resources as contained in our 2005 Form
10-K (the "Form 10-K").
Overview
- --------
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 focusing on the
construction and operation of plants that manufacture environmentally friendly
organic chemical compound fertilizer ("OCCF") in China. The e-Commerce Segment
is engaged in a strategy to develop business opportunities to leverage the
subsidiary's intellectual property portfolio of Internet payment methods and
security technologies. The Oil & Gas Segment consists of the production of oil
and gas.
Our revenues from continuing operations are on an uptrend; they increased
in 2004 and 2005, and are expected to increase sharply in 2006. We anticipate
higher revenues in the CO2 Segment due to increased production and better
pricing resulting from implementation of the McElmo Dome Settlement Agreement
(the "Settlement"). Eight new gas wells came on stream in Colorado beginning in
June of 2005, resulting in our first oil and gas revenues in many years. We
recognized our first revenues from production from our fertilizer plant in China
in October of 2005; the plant is expected to have a meaningful buildup of
production beginning in the last half of 2006. And, most significantly, we
anticipate that we will commence production from our coal reclamation project in
West Virginia (the "Pinnacle Project") in July of 2006.
Although we incurred operating losses and negative cash flows from
operations during each of the last seven years, with both our Coal and China
Segments finally coming on stream, we expect to go a long way toward reversing
this trend in the last half of 2006.
Material changes in financial condition - March 31, 2006 as compared with
- -------------------------------------------------------------------------
December 31, 2005.
- ------------------
The following table reflects changes in our financial condition during the
periods indicated:
March 31, December 31, Increase
2006 2005 (Decrease)
---- ---- ----------
Cash and cash equivalents $ 198,000 $ 363,000 $ (165,000)
Working capital $ (6,335,000) $ (2,448,000) $ (3,887,000)
Current ratio 0.09 to 1 0.25 to 1
During the first quarter of 2006, our working capital decreased by
$3,887,000 from $(2,448,000) as of December 31, 2005. The limited liability
company ("BPLLC") formed to own the Pinnacle Project has negotiated a short-term
loan of up to $9,000,000 from the pond owner, PinnOak Resources, LLC
("PinnOak"), to finance the construction of the project. BPLLC's borrowings
under this facility increased from $1,100,000 to $5,495,000 during the first
quarter of 2006. Although such borrowings are expected to increase further
during the next 30 to 60 days, our working capital position will improve
significantly once the permanent financing for the Pinnacle Project has been
finalized. As a result, the size of our March 31 working capital deficit is
believed to be temporary. At this juncture it is uncertain whether the
$9,000,000 loan will come from a loan arranged by PinnOak or from the bank if
the USDA guaranty is obtained. We anticipate that this determination will occur
no later than June of 2006 and that our agreements with PinnOak (some of which
are still in the final negotiation stage) will be finalized at that point. If
the USDA guaranty is obtained, a portion of the $9,000,000 bank loan will be
utilized to pay off the loans from PinnOak, so the $5,495,000 of short-term
construction debt incurred through March 31 will be replaced by long-term (six
year) bank debt. If the USDA guaranty is not obtained, and PinnOak arranges for
the funding of the project, BPLLC's short-term note to PinnOak will be replaced
by a $9,000,000 note with a term of approximately three and one-half to four
years. If PinnOak assumes control of the project, BPLLC will be owned 75% by
PinnOak and 25% by Beard Technologies, instead of the 50% ownership each company
now has of BPLLC.
In either event BPLLC will be obligated, once the remaining draft
agreements have been finalized and executed, to reimburse us in July for
overhead charges through June totaling $400,000, plus approximately $377,000 for
BTI equipment and other project expenses incurred but not yet billed to the
Pinnacle Project. Regardless of the source of funding, construction on the
project is moving forward rapidly and we expect to have first coal production
and start generating cash flow in July of 2006.
In addition, we obtained a reducing revolving credit facility from a local
bank in the amount of $350,000 in March of 2006. $200,000 of this facility had
been utilized at March 31, 2006, of which $115,000 were used to repay loans from
related parties. Our CO2 Segment provided working capital of $299,000. We used
$40,000 to repay debt and accrued interest, including $24,000 to related
parties. We used $258,000 of working capital to help fund the operations of the
Coal Segment. We utilized a total of $239,000 in connection with the fertilizer
operations in China. Also, we used $29,000 to fund the activities of the
e-Commerce Segment. We utilized the remainder of the working capital to fund
other operations.
Our principal business is coal reclamation, and this is where management's
operating attention is primarily focused. The Coal Segment has a signed contract
on the Pinnacle Project, and is actively pursuing seven other projects which it
has under development. With the exception of the Pinnacle Project, no definitive
contracts have been signed, and there is no assurance that the required
financing will be obtained or that any of the projects will materialize.
In February of 2006 we sold an additional $193,000 of our 12% Convertible
Subordinated Notes due August 31, 2009, and terminated the private placement
commenced in June of 2005. Sale of these notes added $191,000 to working capital
after sales commissions and expenses.
As discussed in our 2005 Form 10-K, sales at our fertilizer manufacturing
plant in China have developed more slowly than anticipated, and this has
necessitated that both we and our 50% partner loan additional funds to support
the operations until the plant starts generating positive cash flow. During the
first quarter of 2006, we and our partner each advanced US$106,000 in order to
support such operations. We have each advanced an additional US$33,000 to date
in the second quarter of 2006 for such purpose. We believe that no additional
advances will be required after August of 2006.
We believe that the $777,000 we will receive as a result of the final
funding of the Pinnacle Project will provide sufficient working capital to
sustain our activities until the Pinnacle Project and the China fertilizer plant
are generating positive cash flow from operations. Although we feel there is a
high degree of certainty that both projects will achieve this result, there is
no assurance that such will be the case. If there are further delays in funding
the Pinnacle Project, or continuing delays in meeting our budgeted projections
in China, then a major restructuring of our operations will become necessary in
the near term in order that we can continue as a going concern.
In addition, we expect to receive funds following the arbitration that will
be concluded on June 30, 2006. (See "PART II - Item 1. Legal Proceedings. McElmo
Dome Litigation"). Although there is no assurance this will occur, we estimate
that we could receive as much as $540,000 in the third quarter should the
matters be resolved in the Plaintiffs' favor.
Material changes in results of operations - Quarter ended March 31, 2006 as
- ---------------------------------------------------------------------------
compared with the Quarter ended March 31, 2005.
- -----------------------------------------------
We recorded a $633,000 loss for the first quarter of 2006 compared to the
$375,000 loss reported for the first quarter of 2005. The operating loss in the
Coal Segment increased by $80,000 to $258,000 for the first quarter of 2006. The
operating profit in the CO2 Segment increased $128,000. The China Segment
incurred an operating loss of $239,000 for the first quarter of 2006 compared to
$124,000 for the same period in 2005. The e-Commerce Segment incurred operating
losses of $24,000 for the first quarter of 2006 compared to $13,000 in the first
quarter of 2005. The new Oil & Gas Segment recorded a profit of $45,000 for
the first quarter of 2006 compared to a loss of $5,000 for the same period in
2005. The operating loss in Other activities for the first quarter of 2006
increased $14,000 compared to the same period in 2005. As a result, the
operating loss for the current quarter increased $42,000 to $422,000 versus
$380,000 in the corresponding quarter of the prior year.
Operating results of our primary operating Segments are reflected below:
2006 2005
---- ----
Operating profit (loss):
Coal reclamation $(258,000) $(178,000)
Carbon dioxide 289,000 161,000
China (239,000) (124,000)
e-Commerce (24,000) (13,000)
Oil & gas 45,000 (5,000)
--------------- --------------
Subtotal (187,000) (159,000)
Other (235,000) (221,000)
--------------- --------------
$(422,000) $(380,000)
=============== ==============
The "Other" in the above table reflects primarily general and corporate
activities, as well as our other activities.
Coal reclamation
- ----------------
The segment recorded $6,000 in revenues in the first quarter of 2006
compared to none for the same period in 2005. Operating costs increased $82,000
to $258,000 for the first quarter of 2006 compared to $176,000 for the same
period in 2005, as the segment became further involved in the construction of
the Pinnacle Project and expanded its marketing efforts in view of the dramatic
increase in coal prices. The net result was a corresponding increase in the
segment's operating loss.
Once the funding for the Pinnacle Project has been finalized and the draft
agreements on the project have been executed, we expect to book $400,000 of
overhead charges to the project ($50,000 per month for the period from September
of 2005 through January of 2006, and $30,000 per month for the period from
February through June of 2006), and will continue to book a charge of $30,000
per month thereafter for the life of the project. Such charges will be offset by
our percentage of ownership in the project. As a result, we will pick up
$400,000 of cash which will be borrowed by the project, and record a net profit
of $200,000 to $300,000 depending upon our ownership in the project.
Carbon dioxide
- --------------
First quarter 2006 operations reflected an operating profit of $289,000
compared to $161,000 for the 2005 first quarter. The sole component of revenues
for this segment is the sale of CO2 gas from the working and overriding royalty
interests of our carbon dioxide producing unit in Colorado. Operating revenues
in this segment increased $117,000 or 54% to $335,000 for the first three months
of 2006 compared to $218,000 for the same period in 2005. The increase in
revenue was primarily due to an increase in pricing, together with a slight
increase in paid volumes to our interest, and was aided by an $11,000 decrease
in lifting costs for the current quarter.
China
- -----
The China Segment incurred an operating loss of $239,000 for the first
three months of 2006 compared to $124,000 for the same period in 2005. The
segment had $186,000 in additional operating and SG&A costs for the first
quarter of 2006 compared to the same period in 2005 as its initial fertilizer
plant conducted operations for the first full quarter of its existence in 2006.
e-Commerce
- ----------
The e-Commerce Segment incurred an operating loss of $24,000 for the first
quarter of 2006 versus an operating loss of $13,000 in the prior year quarter.
The segment recorded revenues of $5,000 of royalty fee income in the first
quarter of 2006 compared to $25,000 in patent license fees in the prior year
quarter. Under the segment's patent license agreement, the provision for an
annual license fee of $25,000 terminated at the end of the first quarter of
2005. The segment will continue to receive royalty fee income according to the
terms of the agreement. The segment incurred $8,000 less in SG&A costs in the
2006 first quarter than it did in the comparable 2005 quarter. Because of the
snail's pace at which the Visa lawsuit has been progressing, we have granted
Marc Messner's request to spend a portion of his time for six months assisting
his wife in her newly purchased business. Accordingly, he is receiving only half
his normal salary during the period from February 1 through July 31, 2006.
Oil & Gas
- ---------
Our newest segment, Oil & Gas, is a familiar one to management. In recent
years we have acquired federal and state oil and gas leases in several states.
Through a farmout arrangement with another entity, eight gas wells were drilled
on one of these leases in Colorado and placed in production in the fourth
quarter of 2005. We have a 22.5% working interest in seven of these wells and a
3.6% override until payout and a 22.5% working interest after payout in the
other well. We also have overriding royalty interests in 12 wells located in
Wyoming which began production in 2005. The segment recorded $56,000 in revenues
for the first quarter of 2006 compared to none for the same period in 2005.
Operating costs totaled $7,000 and $5,000 for the first quarter of 2006 and
2005, respectively. As a result, the segment contributed $45,000 of operating
profit for the first quarter of 2006 compared to a loss of $5,000 for the same
period in the prior year.
Other activities
- ----------------
Other operations, consisting primarily of general and corporate activities,
generated a $14,000 larger operating loss for the first quarter of 2006 as
compared to the same period last year. The increased loss for the first quarter
of 2006 compared to the same period in 2005 was primarily the result of
additional professional fees.
Selling, general and administrative expenses
- --------------------------------------------
Our selling, general and administrative expenses ("SG&A") in the current
quarter increased to $218,000 from $207,000 in the 2005 first quarter.
Professional fees increased $15,000 for the 2006 quarter compared to the same
period in 2005. Rent increased $3,000 for the same period. Net decreases in
several other expense classifications partially offset these increases -
resulting in a net $11,000 increase.
Depreciation, depletion and amortization expenses
- -------------------------------------------------
Depreciation, depletion and amortization expenses ("DD&A") increased
$19,000 for the first quarter of 2006 compared to the same period of 2005. The
increase was primarily due to the amortization of capitalized costs associated
with the three debt issues completed in 2004 and 2005 and depreciation on
additional equipment purchased for the fertilizer plant in the China Segment,
the new Oil & Gas Segment and the Coal Segment projects under development.
Other income and expenses
- -------------------------
The other income and expenses for the first quarter of 2006 netted to a
loss of $183,000 compared to $64,000 for the same period in 2005. Interest
income was $1,000 for the first quarter of 2006 compared to $5,000 for the same
period in 2005. Interest expense was $6,000 higher in the first quarter of 2006
compared to the first quarter of 2005 reflecting the three debt offerings
completed in 2004 and 2005. Our equity in earnings of unconsolidated affiliates
reflected net income of $51,000 for the first quarter of 2006 compared to
$114,000 for the same period in 2005. We recorded $51,000 as our share of
earnings from our investment in Cibola Corporation compared to $995,000 in the
prior year quarter. While we owned 80% of the common stock of Cibola, we did not
have financial or operating control of this gas marketing subsidiary. According
to the terms of an agreement with the minority common and preferred shareholders
of Cibola, the net worth of Cibola would had to have reached $50,000,000 before
we could begin to receive our 80% share of any excess. Since we felt this was
unlikely, we also recorded an impairment of $881,000 for the three months ended
March 31, 2005. The interest expense totals include $30,000 to Cibola for the
three months ended March 31, 2005. This impairment and the interest charges
reduced the net earnings from our investment in Cibola to the actual cash
distributions received of $84,000 for the first quarter of 2005. The majority of
the amount received in the first quarter of 2006 was the result of a negotiated
settlement with the minority common shareholders regarding the termination of
the agreement effective December 1, 2005. We realized gains on sale of assets
for the three months ended March 31, 2005 totaling $21,000 compared to none for
the same period in 2006. We realized $5,000 and $30,000 reductions in expenses
attributable to our operations in China for the first quarters of 2006 and 2005,
respectively, as a result of the 50% minority interest held by our investor in
the start-up LLC included as a consolidated subsidiary in these financial
statements.
Income taxes
- ------------
We recorded a provision of $19,000 for federal alternative minimum taxes
for the first quarter of 2005 compared to none for the same period in 2006. We
have not recorded any financial benefit attributable to its various tax
carryforwards due to uncertainty regarding their utilization and realization.
Discontinued operations
- -----------------------
Our financial results included losses of $28,000 from our discontinued
operations for the first quarter of 2006 compared to earnings of $88,000 for the
same period in 2005, as a result of the discontinuance of two of our segments.
The losses in 2006 were the result of expenses associated with transporting
equipment for resale to a location near our headquarters which is expected to
facilitate the sale of that equipment. The first quarter of 2005 benefited from
the disposition of assets which generated gains of $91,000 offset by expenses of
$3,000. As of March 31, 2006, assets of discontinued operations held for resale
totaled $20,000 and liabilities of discontinued operations totaled $43,000. We
believe that all of the assets of the discontinued segments have been written
down to their realizable value. We are actively pursuing opportunities to sell
the remaining assets and expect the dispositions to be completed by December 31,
2006.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
- ------- -----------------------------------------------------------
At March 31, 2006, we had total debt of $13,649,000 which included
$5,495,000 of short-term debt to a related party and $202,000 of accrued
interest to a related party which was treated as a long-term obligation.
Included in the remaining $7,952,000 of debt was $7,213,000 of long-term debt
which had fixed interest rates; therefore, our interest expense and operating
results would not be affected by an increase in market interest rates for this
portion of the debt. At March 31, 2006, a 10% increase in market interest rates
would have reduced the fair value of our debt by $86,000.
We have no other market risk sensitive instruments.
Item 4. Controls and Procedures.
- ------- ------------------------
Our principal executive officer and principal financial officer have
participated in and supervised the evaluation of our disclosure controls and
procedures that are designed to ensure that information required to be disclosed
by the issuer in the reports it files is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include
controls and procedures designed to ensure that the information required to be
disclosed in the reports that it files is accumulated and communicated to our
management, including our principal executive officer or officers and principal
financial officer to allow timely decisions regarding required disclosure. Based
on their evaluation of those controls and procedures as of a date within 90 days
of the date of this filing, our CEO and CFO determined that the controls and
procedures are adequate and effective. The evaluation resulted in no significant
changes in those controls or in other factors that could significantly affect
the controls, and no corrective actions with regard to significant deficiencies
and material weaknesses.
PART II. OTHER INFORMATION.
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Item 1. Legal Proceedings.
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McElmo Dome Litigation. In 1996 we joined with other Plaintiffs in filing
in U.S. District Court for the District of Colorado a suit against Shell Oil
Company, Shell Western E & P, Inc., Mobil Producing Texas and New Mexico, Inc.
and Cortez Pipeline Company, a partnership (collectively, the "Defendants").
Plaintiffs' complaint alleged damages caused by Defendants' wrongful
determination of the value of CO2 produced from the McElmo Dome Field (the
"Field"---see "Carbon Dioxide Operations" at pages 9-11 of our Form 10-K) and
the corresponding wrongful underpayment to Plaintiffs.
A Settlement Agreement was signed in 2001 (the "Settlement"). The
Settlement became final in 2003 and we received our share in three installments
totaling $4,094,000 in 2003 and 2004. The Settlement proceeds resulted in net
income of $3,976,000, after alternative minimum taxes of $118,000.
Subsequent to the Settlement several issues have arisen concerning
implementation of the Settlement Agreement that are currently in dispute which
may result in additional money being owed to the Plaintiffs in the litigation. A
mediation held in Denver in March of 2005 was unsuccessful. In July of 2005, the
party who served as the court-appointed fairness expert in the McElmo Dome
Litigation rendered his advisory opinion on the merits of several issues
currently in dispute concerning implementation of the Settlement Agreement. The
advisory opinion, which was not binding on the parties, failed to resolve the
matter and in October 2005 the parties agreed to proceed to binding arbitration.
The three arbitrators selected held a preliminary hearing in Albuquerque on
March 1, 2006. The parties presented their respective positions concerning
various procedural issues and established a scheduling and procedure order. A
hearing on the merits is scheduled to be held in Albuquerque on June 26-30,
2006, with an award to be issued within 30 days thereafter. We estimate that, if
all of the matters in dispute should be resolved in the Plaintiffs' favor, we
could receive as much as $540,000 for our share of the money in dispute. The
matters which are currently the subject of arbitration extend through 2005.
Coalition Managers Litigation. In April of 2002 a suit was filed in the
U.S. District Court of Colorado (Harry Ptasynski v. John M. Cogswell, et
al---Case No. 02-WM-0830 (OES) against the attorneys and managers (including our
Chairman) of the CO2 Claims Coalition, LLC (the "Coalition"---one of the
Plaintiffs in the preceding lawsuit which has now been settled). We are not a
defendant in the suit, which was initially brought by Ptasynski and another
party which later dismissed itself from the action. In this action Ptasynski is
seeking to recover a share of the proceeds of the Coalition's settlement against
the Defendants in the McElmo Dome lawsuit despite the fact that he opted out of
the lawsuit in order to pursue his own claims in a separate lawsuit against the
Defendants in Texas. Although his case was initially successful in Texas it was
later overturned on appeal.
The Coalition held back $1 million of the Settlement proceeds to defend the
costs of the Ptasynski suit until such time as its outcome has been determined.
Presently approximately $735,000 remains in the defense fund. Once the case has
been resolved, any remaining funds net of costs will be distributed to the
Coalition members, including us. In March of 2004 the Court dismissed the claims
against the attorneys and several of the claims against the managers but gave
the Plaintiff the opportunity to make additional arguments as to why other
claims should not be dismissed. In April of 2004 Plaintiff asked the Court not
to dismiss the remaining claims and moved to file a Second Amended Complaint
against the managers and, for the first time, against the Coalition. In May of
2004 the Defendants asked the Court to dismiss Plaintiff's new Complaint.
On April 25, 2006, Magistrate Hagerty entered an Amended Scheduling Order
in the civil action, pursuant to which discovery in this case has recommenced,
with motions for summary judgment scheduled on August 31, 2006, and a five-day
trial to commence on December 11, 2006.
We consider the Plaintiff's claims to be without merit. We will receive
approximately 22% of the remaining funds, if any, once the suit has been
resolved.
Visa Litigation.
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In May of 2003 our 71%-owned subsidiary, starpay.com, l.l.c., along with
VIMachine, Inc. filed a suit in the U. S. District Court for the Northern
District of Texas, Dallas Division against Visa International Service
Association and Visa USA, Inc., both d/b/a Visa (Case No. CIV:3-03-CV0976-L).
VIMachine is the holder of U.S. Patent No. 5,903,878 (the "VIMachine Patent")
that covers, among other things, an improved method of authenticating the
cardholder involved in an Internet payment transaction. In July of 2003, the
Plaintiffs filed an Amended Complaint. The suit seeks damages and injunctive
relief (i) related to Visa's infringement of the VIMachine Patent; (ii) related
to Visa's breach of certain confidentiality agreements express or implied; (iii)
for alleged fraud on the Patent Office based on Visa's pending patent
application; and (iv) under California's common law and statutory doctrines of
unfair trade practices, misappropriation and/or theft of starpay's intellectual
property and/or trade secrets. In addition, Plaintiffs are seeking attorney fees
and costs related to the foregoing claims. If willfulness can be shown,
Plaintiffs will seek treble damages.
In August of 2003 the Defendants filed a motion to dismiss the second,
third and fourth claims. Despite objections to such motion by the Plaintiffs,
the Judge in February of 2004 granted Defendants' motion to dismiss the second
and third causes of action, and denied the motion insofar as it sought to
dismiss the fourth cause of action. Accordingly, Plaintiffs' fourth claim
(misappropriation and/or theft of intellectual property and/or trade secrets)
will continue to move forward.
In February of 2004 Defendants filed an Answer to Plaintiffs' Amended
Complaint. In such filing Visa denied each allegation relevant to claim four.
Visa asked that the VIMachine Patent be declared invalid, and, even if it is
found valid, Visa asked that they be found not to infringe the VIMachine Patent.
Visa asked for other related relief based on these two allegations.
In April and May 2004, Plaintiffs filed their Patent Infringement
Contentions and a supplement thereto detailing Visa's alleged infringement of
the majority of the patent claims depicted in the VIMachine Patent.
Subsequently, in May 2004, Defendants filed Preliminary Invalidity Contentions
requesting the VIMachine Patent be found invalid.
From May through October 2004, the Plaintiffs and Defendants submitted
numerous filings related to interpretation of the terms and phrases set out in
the VIMachine Patent claims. A hearing regarding patent claim construction (a
"Markman hearing") was held in October of 2004, allowing both parties to present
oral arguments before the Court regarding the claim construction issues. On
January 4, 2005, Magistrate Judge Sanderson filed a Report and Recommendation of
the United States Magistrate Judge addressing his findings and recommendations
with respect to the claim constructions to be applied to the VIMachine Patent.
Judge Sanderson found that 24 of the 28 claims asserted by the Plaintiffs were
valid. Both parties have pursued modifications of the Magistrate's
recommendations in the form of an appeal to District Judge Lindsey and are
awaiting the Court's final ruling on claim construction issues.
In July of 2005 the Federal Circuit Court of Appeals issued an en banc
decision in the patent case of Phillips v. AWH Corp. (the "Phillips Case"). That
is, instead of relegating the case to a three-judge panel, it was heard by the
entire Federal Circuit bench. The Federal Circuit attempted to explain how the
operative language in patents is to be interpreted. One key question before the
Court was to which sources of information the trial court should refer when
construing patent claims.
Subsequent to the Federal Circuit's decision in July, Defendants requested
and the Court ordered supplemental briefs to the Court addressing Magistrate
Judge Sanderson's Report and Recommendation respective to the Markman hearing in
light of the Federal Circuit's en banc decision in the Phillips Case. Both
parties filed their supplemental briefs in August 2005. Oral arguments regarding
these issues were held in November of 2005. On January 19, 2006, Magistrate
Judge Sanderson filed his final Report and Recommendation on the Markman issues
to District Judge Lindsay who will in turn provide the Court's final ruling on
claim construction issues. In his report Judge Sanderson found no reason to
change any portions of his recommendations filed on January 4, 2005, in light of
the Federal Circuit's decision in the Phillips Case. A final Markman ruling is
expected to occur at any time. Thereafter, a revised Scheduling Order will be
prepared setting out a new trial date.
During the first quarter of 2000 starpay's trade secrets were relayed to
Visa verbally in face-to-face conferences and telephone calls, as well as in
correspondence by post and electronic mail. After receiving starpay's technology
and ideas, Visa filed a series of provisional patent applications beginning in
April of 2000 using starpay's trade secrets. At the same time, Visa wrongfully
incorporated starpay's trade secrets in to its Visa Payer Authentication Service
("VPAS"). VPAS infringes the VIMachine Patent. From early 2000 until recently,
starpay tried on several occasions to enter into meaningful negotiations with
Visa to resolve their intellectual property concerns. Visa has continually
denied their infringement of the VIMachine Patent and starpay's assertion that
Visa has appropriated starpay's trade secrets.
In November of 2000 Visa publicly announced that it was testing VPAS. In
September of 2001 Visa stated that, once rolled out globally, it expected VPAS
to reduce Internet payment disputes by at least 50%. In an October 2004, news
release, Visa depicted Verified by Visa as "the leading security standard for
authentication of Internet transactions." In this release Visa announced that
Verified by Visa had "recorded an increase of close to 200% in the number of
transactions for the quarter ending in September 2004," and that "total Verified
by Visa card volume for the first nine months of 2004 was $5.4 billion." In
April of 2005 Visa announced that "transaction volume during the first quarter
of 2005 had increased more than 230% over last year." Towards the end of 2005
Visa announced that Verified by Visa had "$7 billion in volume during the first
half of the year......a 194% year-over-year increase." Since late 2005,
Plaintiffs have not seen or received public information bearing on the
transaction volume within the Verified by Visa system.
Both sides anticipate filing dispositive motions during the summer or fall
of 2006. Until Judge Lindsey rules regarding pending claim construction issues,
there is no scheduling order in place. Plaintiffs will push for a trial date in
calendar year 2006 or early 2007.
Item 1A. Risk Factors.
- -------- -------------
Only the Risk Factors enumerated below have changed since the Form 10-K:
Lack of Profitable Operations in Recent Periods. Although we were
profitable in 2004 as a result of the McElmo Dome Settlement (see "Item 1. Legal
Proceedings---McElmo Dome Litigation" above for complete details), we have
suffered net operating losses during each of the last seven years. Until we can
demonstrate the ability to generate positive cash flow from operations, this
shortcoming will impede our ability to borrow funds and may impact our ability
to achieve profitability in the future.
There is no certainty that we will be able to achieve or sustain
profitability or positive cash flows from operating activities in the future.
Our Financial Position. Our net worth became negative as of December 31,
2001, and the deficiency increased to ($5,333,000) at year-end 2003. Receipt of
the second installment of the Settlement reduced the deficiency to ($4,144,000)
at year-end 2004. Such deficiency increased to ($6,554,000) at March 31, 2006,
and will continue to increase until we are able to achieve profitability in our
Coal and China Segments. Our business will continue to require substantial
expenditures. Our inability to generate positive cash flow from operations has
limited our ability to borrow funds and impacted our ability to achieve
profitability. We must achieve a turnaround in both our China and Coal Segments
this year. If a turnaround is not successful or is only partially successful, we
will need to pursue additional outside financing which would likely involve
further dilution to our shareholders. We cannot assure that we will be able to
obtain additional financing on terms that we deem acceptable, or at all.
We have substantial indebtedness and may not have enough revenues to pay
our debts. As of March 31, 2006, we had $13,649,000 of total debt outstanding,
including $202,000 of accrued interest to an affiliate of the Chairman,
$5,620,000 of which is due in 2006. If we obtain the USDA Guaranty for a loan
for the Pinnacle Project, $5,495,000 of the $5,620,000 of debt due in 2006 would
be repaid to PinnOak from the proceeds of the USDA Guaranteed loan. If we do not
obtain the USDA Guaranty for the Pinnacle Project, PinnOak has agreed to either
fund or arrange for funding of the project and we expect to replace the current
note with a long term note with a term of three and one-half to four years,
which would also defer all or a portion of the $5,495,000 principal payable to
PinnOak in 2006. We or our subsidiaries may become further indebted. This much
debt could pose substantial risks to our business. The indebtedness may require
us to use available funds for payment of principal and interest instead of
funding our operations. The debt could also inhibit our ability to raise
additional capital. It is possible that we will not have enough cash flow from
our operations to pay the principal and interest on our debt. This would have a
material adverse effect on us.
Limited Liquidity. Our common stock trades on the Over-The-Counter Bulletin
Board. Although we currently have 10 firms making a market in our stock, the
volume of trading has been relatively low and fairly sporadic. Approximately 62%
of our 5,539,000 outstanding shares are held by management and another 8.4% are
held by a long-term institutional holder. In addition, there is substantial
potential dilution, with preferred shares convertible into 296,000 shares,
presently exercisable warrants and options totaling 672,000 shares, notes
convertible into 2,750,000 shares at March 31, 2006, and a total of 566,000
shares at March 31, 2006 in two DSC Plans scheduled for distribution in 2006 and
future years.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
- ------- ------------------------------------------------------------
Not applicable.
Item 3. Default upon Senior Securities.
- ------- -------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
Not applicable.
Item 5. Other Information.
- ------- ------------------
In a Form 8-K filed on February 8, 2006 we disclosed that, effective as of
February 7, 2006, we entered into an agreement (the "Agreement") with PinnOak
Resources, LLC ("PinnOak"). The contract was made in the ordinary course of
business by two of our wholly-owned subsidiaries, Beard Technologies, Inc.
("BTI") and Beard Pinnacle, LLC ("BPLLC"). The Agreement, which was filed as
Exhibit 99.1 of the Form 8-K, provided among other things, that in the event
BPLLC had not obtained a USDA Loan Guaranty or other third party loan to finance
the development and operation of the Pinnacle Project on or before April 1, 2006
(the "Trigger Date"), then PinnOak would assume control over the project. The
Agreement also provided that PinnOak would loan up to $5,100,000 to finance the
project. The February 8 filing also indicated that the total advances under the
Agreement had increased to $2,725,000 on such date. A copy of the Amended and
Restated Promissory Note dated February 7, 2006 was filed as Exhibit 99.2 of the
Form 8-K, and a copy of BTI's guaranty of the note was filed as Exhibit 99.3 of
the Form 8-K. (See Exhibits 10.3, 10.4 and 10.5 hereof).
We disclosed in our Form 10-K filed on April 17, 2006, that on March 23,
2006, the amount of BPLLC's note to PinnOak was increased from $5,100,000 to
$9,000,000 and that the Trigger Date had been extended from April 1, 2006 to May
1, 2006. The appropriate Exhibits are attached hereto as Exhibits 10.6 and 10.7.
Advances of $865,000 and $1,015,000 were made on February 22 and March 8,
which increased the total advances under the Agreement to $3,590,000 and
$4,605,000, respectively. Additional advances totaling $890,000 made on March 22
and March 23 increased the total borrowings to $5,495,000, and advances of
$415,000 and $940,000 made on April 12 and May 4 increased the total advances
under the Agreement to $6,850,000 as reported in the Form 8-K filed on May 4,
2006 (the "May 4 Filing"). We also disclosed in the May 4 Filing that the
Trigger Date had been extended from May 1, 2006 to June 1, 2006. A copy of the
Third Amended and Restated Promissory Note dated May 1, 2006 was filed as
Exhibit 99.1 of the Form 8-K, a copy of the Amended Guaranty of the note was
filed as Exhibit 99.2 of the Form 8-K, and a copy of an amended Schedule of
Advances was filed as Exhibit 99.3 of the May 4 Filing.
Item 6. Exhibits.
- ------- ---------
(a) The following exhibits are filed with this Form 10-Q and are identified by
the numbers indicated:
3.1 Restated Certificate of Incorporation of Registrant as filed with
the Secretary of State of Oklahoma on September 20, 2000. (This
Exhibit has been previously filed as Exhibit 3(i) to Registrant's
Form 10-Q for the period ended September 30, 2000, filed on November
20, 2000, and same is incorporated herein by reference).
3.2 Amended Certificate of Incorporation of Registrant as filed with the
Secretary of State of Oklahoma on July 20, 2004, effective on the
close of business August 6, 2004. (This Exhibit has been previously
filed as Exhibit 3.2 to Registrant's Form 10-K for the period ended
December 31, 2005, filed on April 17, 2006.
3.3 Registrant's By-Laws as currently in effect. (This Exhibit has been
previously filed as Exhibit 3(ii) to Registrant's Form 10-K for the
period ended December 31, 1997, filed on March 31, 1998, and same is
incorporated herein by reference).
4 Instruments defining the rights of security holders:
---------------------------------------------------
4.1 Certificate of Designations, Powers, Preferences and Relative,
Participating, Option and Other Special Rights, and the
Qualifications, Limitations or Restrictions Thereof of the Series A
Convertible Voting Preferred Stock of the Registrant. (This Exhibit
has been previously filed as Exhibit 3(c) to Amendment No. 2, filed
on September 17, 1993 to Registrant's Registration Statement on Form
S-4, File No. 33-66598, and same is incorporated herein by
reference).
10 Material Contracts:
------------------
10.1 Restated and Amended Letter Loan Agreement by and between Registrant
and the Trustees of The William M. Beard and Lu Beard 1988
Charitable Unitrust (the "Unitrust") dated March 3, 2006.
10.2 Second Replacement Renewal and Extension Promissory Note from
Registrant to the Unitrust dated effective February 14, 2005.
10.3 Letter Agreement by and among PinnOak Resources, LLC ("PinnOak"),
Beard Technologies, Inc. ("BTI") and Beard Pinnacle, LLC ("BPLLC")
dated February 7, 2006. (This Exhibit has been previously filed as
Exhibit 99.1 to Registrant's Form 8-K filed on February 8, 2006, and
same is incorporated by reference).
10.4 Amended and Restated Promissory Note from BPLLC to PinnOak dated
February 7, 2006 (the "2/7/06 Note"), but effective as of October 7,
2005. (This Exhibit has been previously filed as Exhibit 99.2 to
Registrant's Form 8-K filed on February 8, 2006, and same is
incorporated by reference).
10.5 Guaranty of the 2/7/06 Note by BTI dated February 7, 2006. (This
Exhibit has been previously filed as Exhibit 99.3 to Registrant's
Form 8-K filed on February 8, 2006, and same is incorporated by
reference).
10.6 Second Amended and Restated Promissory Note from BPLLC to PinnOak
dated March 22, 2006 (the "3/22/06 Note"), but effective as of
October 7, 2005.
10.7 Guaranty of the 3/22/06 Note by BTI dated March 22, 2006.
31 Rule 13a-14(a)/15d-14(a) Certifications:
---------------------------------------
31.1 Chief Executive Officer Certification required by Rule 13a-14(a) or
Rule 15d-14(a).
31.2 Chief Financial Officer Certification required by Rule 13a-14(a) or
Rule 15d-14(a).
32 Section 1350 Certifications:
---------------------------
32.1 Chief Executive Officer Certification required by Rule 13a-14(b)
or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the
United States Code.
32.2 Chief Financial Officer Certification required by Rule 13a-14(b)
or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the
United States Code.
We 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, Attention: Rebecca G. Voth, Secretary.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
(Registrant) THE BEARD COMPANY
/s/ Herb Mee, Jr.
(Date) May 22, 2006 ___________________________________
Herb Mee, Jr., President and
Chief Financial Officer
/s/ Jack A. Martine
(Date) May 22, 2006 ___________________________________
Jack A. Martine, Controller and
Chief Accounting Officer
EXHIBIT INDEX
Exhibit
No. Description Method of Filing
--- ----------- ----------------
3.1 Restated Certificate of Incorporation of Incorporated herein by reference
Registrant as filed with the Secretary of
State of Oklahoma on September 20, 2000.
3.2 Amended Certificate of Incorporation of Incorporated herein by reference
Registrant as filed with the Secretary of
State of Oklahoma on July 20, 2004,
effective on the close of business August
6, 2004.
3.3 Registrant's By-Laws as currently in Incorporated herein by reference
effect.
4.1 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.
10.1 Restated and Amended Letter Loan Filed herewith electronically
Agreement by and between Registrant and
the Trustees of The William M. Beard and
Lu Beard 1988 Charitable Unitrust (the "
Unitrust") dated March 3, 2006.
10.2 Second Replacement Renewal and Extension Filed herewith electronically
Promissory Note from Registrant to the
Unitrust dated effective February 14,
2005.
10.3 Letter Agreement by and among PinnOak Incorporated herein by reference
Resources, LLC ("PinnOak"), Beard
Technologies, Inc. ("BTI") and Beard
Pinnacle, LLC ("BPLLC") dated February 7,
2006.
10.4 Amended and Restated Promissory Note from Incorporated herein by reference
BPLLC to PinnOak dated February 7, 2006
(the "2/7/06 Note"), but effective as of
October 7, 2005.
10.5 Guaranty of the 2/7/06 Note by BTI dated Incorporated herein by reference
February 7, 2006.
10.6 Second Amended and Restated Promissory Filed herewith electronically
Note from BPLLC to PinnOak dated March
22, 2006 (the "3/22/06 Note"), but
effective as of October 7, 2005.
10.7 Guaranty of the 3/22/06 Note by BTI dated Filed herewith electronically
March 22, 2006.
31.1 Chief Executive Officer Certification Filed herewith electronically
required by Rule 13a-14(a) or Rule
15d-14(a).
31.2 Chief Financial Officer Certification Filed herewith electronically
required by Rule 13a-14(a) or Rule
15d-14(a).
32.1 Chief Executive Officer Certification Filed herewith electronically
required by Rule 13a-14(b) or Rule
15d-14(b) and Section 1350 of Chapter 63
of Title 18 of the United States Code.
32.2 Chief Financial Officer Certification Filed herewith electronically
required by Rule 13a-14(b) or Rule
15d-14(b) and Section 1350 of Chapter 63
of Title 18 of the United States Code.