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, 2001
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
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 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, 2002 was $997,000.
The number of shares outstanding of each of the registrant's classes of common
stock as of February 28, 2002 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, 2001
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......... 34
Item 8. Financial Statements and Supplementary Data........................ 35
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................... 62
PART III
Item 10. Directors, Executive Officers and Significant Employees
of the Registrant.................................................. 62
Item 11. Executive Compensation............................................. 64
Item 12. Security Ownership of Certain Beneficial Owners and Management..... 66
Item 13. Certain Relationships and Related Transactions..................... 68
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K... 69
SIGNATURES................................................................... 74
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)
which was formed 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 opportunities and related
marketing opportunities. In 1999 we formed starpay(TM).com, inc., 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.
As can be seen from the above, Beard should be viewed as a company whose
principal business is starting and/or acquiring businesses, nurturing and
growing them, weeding out the losers, and riding with the winners until such
time as the market is willing to pay us more than the Company's management
thinks they are worth.
Loss of Significant Contract. The Company's current results have been
severely impacted as a result of the loss of a major contract effective January
31, 1999. The Company's principal business is coal fines reclamation, and the
termination of the Coal Segment's major contract, which accounted for 53% of
consolidated revenues and 84% of segment revenues in 1999 and for 93% of
consolidated revenues and all of the segment's revenues in 1998 has had a
material detrimental effect upon the Company's profitability since such
termination (See "Coal Reclamation Activities---The MCN Projects---Dependence of
the Segment on a Single Customer").
Operating Segments. In 2001 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 utilize the patented AirLance Compost
Systems(TM) composting technology; 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.
Discontinued Operations---ITF Segment. In 1999 the Company adopted a plan
to dispose of Interstate Travel Facilities, Inc. whose activities had previously
been conducted as the "ITF" Segment. Those operations were reflected as
discontinued operations in 1998 and the Company recorded losses for the ITF
Segment totaling $2,419,000, including a $1,603,000 loss from discontinuing
such operations 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
related to discontinuing such operations. The Company continued to operate the
two remaining C-stores during most of 2000 while it was attempting to market
them. Such operations were suspended during the fourth quarter of 2000 in order
to minimize further losses. In 2000, the Company recorded losses totaling
$591,000, including an additional charge of $420,000 related to discontinuing
such operations. The additional charge of $420,000 included $60,000 of losses
expected to be incurred by the segment from the date of shutdown through the
anticipated disposal date of the remaining assets; $360,000 of the loss
represented an additional reduction in the estimated realizable value of the
remaining C-stores and related assets as of year-end 2000. The discontinued ITF
Segment had actual operating losses of $67,000 for the year 2001. $60,000 of the
losses were charged against the loss accrual recorded in the fourth quarter of
2000 and the remaining $7,000 was charged to operations. In December 2001 the
Company recorded an additional charge of $114,000. $100,000 of such amount
represented an additional reduction in the estimated realizable value of the
remaining C-stores and related assets as of year-end 2001; $14,000 represented
additional losses expected to be incurred by the segment during 2002 through the
anticipated disposal date of the remaining assets. As of December 31, 2001, the
significant assets related to the ITF Segment consisted primarily of the two
remaining C-stores with a total recorded value of $407,000. Liabilities of the
segment, consisting of trade accounts payable and accrued expenses, totaled
$23,000. The Company is actively seeking opportunities to sell the remaining
C-stores and expects them to be sold during 2002. No further charges are
anticipated in connection with such activities.
Discontinued Operations---BE/IM Segment. 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
("BE/IM") Segment. Beard owned 40% of NABR, which was not a consolidated entity
and had previously been accounted for as an equity investment.
The joint venture was dissolved in September of 2000, and the Japanese
partners received their final distribution of cash in December of 2000, with the
Company taking over the remaining assets and liabilities. Shut down of the
segment's larger plant was completed in September 2000, and the Company is still
in the process of disposing of its equipment. The Company intends to sell the
smaller plant as a going concern. The Company recorded a charge of $540,000 in
1999 and a gain of $179,000 in 2000. The Company recorded losses of $111,000 in
2001 from the operation of the smaller plant, which were not anticipated in the
loss accrual of 1999. At year-end 2001, the significant assets related to NABR's
operations consisted primarily of two iodine extraction plants, brine collection
wells and iodine inventory having a recorded value of $147,000, with liabilities
totaling $249,000. The Company does not anticipate further charges in connection
with such activities.
Discontinued Operations---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's share of operating losses from the discontinued segment in
2001 was $619,000. Beard's share of operating losses from the 50%-owned company
(accounted for as an equity investment) was $393,000 which included a provision
of $72,000 for estimated losses from the discontinuation of operations. The
remaining $226,000 of losses for the last half of the year were associated with
the operations of the 100%-owned company and were not anticipated in the loss
accrual.
As of December 31, 2001 the WS Segment had cash of $15,000 and accounts
receivable totaling $30,000. The significant liabilities of the segment
consisted of taxes payable, trade accounts payable and other accrued expenses
totaling $52,000. It is anticipated that the companies in the segment will be
dissolved in May of 2002.
Discontinued Operations---ER Segment. In March of 2001 the Company deter-
mined 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 2001 or in 2000. ISITOP's operating
losses totaled $17,000 in 2001. The segment's operating losses totaled $142,000
in 2000. ISITOP had no significant assets or liabilities at December 31, 2001.
Net Operating Loss Carryforwards. Beard has approximately $52.6 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 "Loss of Significant Contract" above and "Coal Reclamation
Activities") at January 31, 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 ($350,000) at year-end 2001.
The Company continues to take steps to mitigate future funding requirements
by its poorly performing subsidiaries. The Coal Segment is working on four new
pond reclamation projects, all of which are expected to mature into operating
projects for Beard Technologies during 2002 and 2003 (see "Coal Reclamation
Activities---Projects in Advanced Stages" below). The discontinued ITF Segment,
which consumed $400,000 of cash in 1999, $22,000 of cash in 2000 and $60,000 of
cash in 2001 is expected to generate cash in 2002 as its remaining assets are
sold. While the discontinued BE/IM Segment contributed $482,000 of cash to the
Company in 2000, it utilized cash of $60,000 in 2001. It is expected to
contribute $84,000 or more of cash to Beard in 2002 as its remaining assets are
liquidated. The WS Segment, which consumed $1,251,000 of cash in 1999 and
$795,000 of cash in 2000, generated $344,000 of cash in 2001 as the Company
recouped a portion of its investment. In the meantime related parties have
provided $2.6 million of working capital until (i) a financing currently being
pursued has been finalized and is in place, (ii) the anticipated McElmo Dome
settlement has been distributed, and (iii) the contemplated new coal projects
and projects under development in China are underway. (See "Recent Developments"
below).
Recent Developments
McElmo Dome Litigation. At the Final Hearing held in Denver on April 8,
2002 the federal judge approved a class action settlement of $51 million in cash
to settle the lawsuit, and said that the settlement was "fair, reasonable and
adequate." It is expected that the final order in the case will be issued during
the week of April 15. Distribution of the proceeds will be delayed until all
appeal periods have run. The Company believes the settlement will be concluded
in the May to June time frame of this year with anticipated proceeds to the
Company in excess of $3.5 million. Distribution of the contemplated proceeds
will have a significant impact upon the Company's liquidity. Third parties have
been attempting to intervene in the case. Accordingly, there is the possibility
that appeals could delay the settlement or that intervening parties could
ultimately cause the settlement to be overturned. We believe it is unlikely that
the settlement will be overturned. (See Item 3. Legal Proceedings---McElmo Dome
Litigation").
Private Placement of Notes and Warrants. The Company has retained an
investment banking firm on a best efforts basis to sell $1,000,000 of 10%
subordinated notes to accredited investors. The Notes will be priced at an
approximate discount of 6.5% so as to have an effective yield to maturity of
15%. The Company has agreed to redeem the Notes within 10 days of receipt of the
McElmo Dome settlement. The Notes will mature on September 30, 2003; however, if
they have not been redeemed by such date they will automatically be extended to
March 31, 2005 and the Note purchasers will be granted a security interest in
the McElmo Dome Field. Assuming all of the Notes are sold, the Note purchasers
have the contingent right to receive up to 200,000 Warrants, depending upon the
length of time their Notes are held. The investment banking firm will receive
45,000 Warrants. The Warrants will 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.
The exercise price will be reduced to $0.75 per share if the Notes have not been
redeemed by September 30, 2003.
The securities offered have not been and will not be registered under the
Securities Act of 1933 or any state securities laws and may not be offered or
sold absent registration or an applicable exemption from the registration
requirements.
starpay License Agreement. In November of 2001 the owner of U.S. Patent No.
5,903,878 granted to starpay the exclusive marketing rights, with respect to
certain identified clients, for security software and related products and
applications. starpay believes that this alliance strongly enhances its
intellectual property portfolio of electronic payment technologies. On March 20,
2002, starpay's marketing rights 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. 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. Any settlement and/or judgment resulting from starpay's prosecution of
Patent claims will be split 50/50 following reimbursement to starpay (from the
settlement and/or judgment monies) for litigation related expenses incurred,
including defense of any counterclaims. (See "Continuing Operations---
e-Commerce").
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 Peoples' Republic
of China, focusing on the installation and construction of facilities which
utilize the patented AirLance Compost Systems(TM) composting technology.
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 16 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. During the next four
years EI patented its mulled coal technology. The Company sold EI in 1994,
retaining certain assets and the patent rights to the mulled coal technology
which were contributed to a wholly-owned subsidiary, Beard Technologies, Inc.
("BTI").
In February 1996 BTI completed a 23-month contract for the U.S. Department
of Energy to demonstrate the commercial feasibility of the mulled coal
technology. Subsequent efforts to market the technology, in both the U.S. and
China, were unsuccessful and the Company has suspended such efforts.
Impact of Section 29. In late 1997 and early 1998 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. On June 30, 1998, Beard Technologies finalized agreements
with MCNIC Pipeline & Processing Company ("MCNIC"), 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. The purchase was
financed by a $24 million loan from MCNIC. Under the agreements, which became
effective April 1, 1998, Beard Technologies operated and maintained the six
beneficiation plants and six briquetting plants for MCNIC 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, it
was originally contemplated 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. Effective January 31,
1999, MCNIC terminated the operating agreements and assumed ownership of the
equipment, thereby relieving Beard Technologies of its debt obligation to MCNIC.
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 contract
with the Union, and brought each project into production of clean coal from the
ponds and alternative fuel from the briquetting plants by the required deadline.
Current Focus on Coal Reclamation. Since the termination of the MCNIC
agreements Beard Technologies has continued to focus its efforts on coal
reclamation. During such time Beard Technologies has called on numerous coal
producers and utilities, particularly those having ponds which it believes have
large reserves of recoverable coal fines.
Projects in Advanced Stages. Beard Technologies currently has four major
projects in various stages of development, all of which, subject to arranging
necessary financing, are expected to mature into operating projects during 2002
and 2003. In each case core holes have been drilled and sample analyses have
been completed with favorable results. The projects are in four different states
and involve four different parties. On three of the projects we are negotiating
with the pond owners concerning the installation of a preparation plant to
recover clean coal. The fourth project involves the transfer of a large amount
of non-recoverable slurry to a new disposal area, and may ultimately result in
the installation of a preparation plant.
The first three projects require the arrangement of necessary financing;
the fourth would require no financing. 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 on
the three projects. Although the timing of the four projects is uncertain, they
are all considered to have a high probability of activity, subject to obtaining
the necessary financing on the first three. However, no definitive contracts
have as yet been signed, and there is no assurance that the required financing
will be obtained or that any or all of the projects will materialize.
Improved Drilling and Lab Capabilities. During the year 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, the company is now able to offer state of the art drilling and
analytical services to commercial clients who are independently investigating
their own projects. During 2000 the company drilled core holes for eight
different commercial clients, and 80% of the cores were analyzed at Beard
Technologies' laboratory. During 2001 the company drilled core holes for six
different commercial clients, and 82.6% of the cores were analyzed at Beard
Technologies' laboratory.
Recent Developments: Sharp Increase in Natural Gas Prices; Effect on Coal
Pricing. The sharp increase in natural gas prices in late 1999 and continuing
throughout 2000 had a major impact upon the electric power generating industry.
In particular, during late 2000 and early 2001 natural gas was in extremely
short supply and spot prices for natural gas increased to record levels. This
caused severe problems in southern California. The two major electric utilities
serving the area both threatened bankruptcy because of the gas supply problem
and the sharp increase in gas prices resulting from the previous deregulation of
the industry. Similar imbalances occurred to a lesser degree over much of the
country. The shortages have 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
spot price for coal has moved up, narrowing the price differential between coal
and natural gas on a btu basis.
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.
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
----- ----------
12/31/01 22.8%
12/31/00 27.5%
12/31/99 63.4%
Revenues from the MCN Projects accounted for none of the Coal Segment's
revenues from continuing operations in 2001, for 35% of such revenues in 2000
and for 84% of such revenues in 1999. Termination of the MCNIC operating
agreements effective January 31, 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.
Employees. As of December 31, 2001, the Coal Segment employed six full time
employees.
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 44 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 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. In 1999 Beard sold 1,536,000 Mcf
attributable to its working and overriding royalty interests at an average price
of $.27 per Mcf. Beard was underproduced by 78,000 Mcf on the sale of its share
of McElmo Dome gas at year-end 2001.
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
777 million cubic feet per day in the fourth quarter of 1999 and to 800 million
cubic feet per day in the fourth quarter of 2000 and 2001.
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 and oil and gas 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, 2001, Beard was underproduced by 406,000 Mcf on the sale of its share of
Bravo Dome gas. The Company sold no CO2 gas from Bravo Dome in 2001, 2000 or
1999 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:
Fiscal Net CO2
Year Production
Ended (Mcf)
----- -----
12/31/01 1,327,000
12/31/00 1,319,000
12/31/99 1,536,000
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
----- ------ ------
12/31/01 $0.33 $0.06
12/31/00 $0.36 $0.05
12/31/99 $0.27 $0.06
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.
Percent of
Consolidated
Revenues from
Fiscal Year Continuing
Ended Operations
----- ----------
12/31/01 73.4%
12/31/00 65.7%
12/31/99 29.4%
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, 2001, Beard held a working interest in a total of 394 gross
(0.44 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............................................ 44 0.239
New Mexico.......................................... 350 0.205
--- -----
Total....................................... 394 0.444
=== =====
Employees. As of December 31, 2001, 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
Beard Sino-American Resources Co., Inc. In 1998 the Company opened an
office in Beijing, People's Republic of China. Later that year the Company
formed Beard Sino-American Resources Co., Inc. ("BSAR"), a wholly-owned
subsidiary of Beard, to serve as the joint venture partner for all of the
Company's activities in China. In 1999 BSAR established a Representative Office
in Beijing.
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.
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. The life of each CJV will be 20 years after
which the facilities will revert to the Chinese partners. In each case the
Chinese partners have committed to provide the funding for the facilities and
the necessary financing and working capital. BSAR will have an interest from
inception in each CJV determined by BSAR's equity contribution for bringing the
technology to China, and will also receive an operating fee. Progress is
dependent upon the Chinese partners fulfilling their commitments.
The initial plant, located at Baoding City in Hebei Province, is currently
under construction. Upon completion, it will have the capacity to produce 60,000
metric tons of organic-chemical compound fertilizer ("OCCF") per year with
projected annual sales of US $10,000,000. Construction was temporarily delayed
due to cold weather and is now targeted to resume in the spring of 2002. The
project is currently running about six weeks behind our revised schedule, with
facility startup and testing now expected to commence in the fall of 2002. We
received the first installment (US $61,571, net of tax of approximately $10,000)
of the fabrication license fee for this plant in December of 2001, with the next
installment anticipated this summer. BSAR has a 12-1/2% equity interest in the
CJV constructing this facility.
BSAR has also signed an agreement with a Chinese fertilizer company to form
another CJV which will build a 50,000 metric ton facility in Qihe City in
Shandong Province to produce an organic fertilizer from compost (no added
chemical fertilizer enhancement). Our partner in this project is a Chinese
fertilizer company that had already started construction of a plant facility,
with footings and structural columns in place, prior to entering into the CJV.
We are presently assessing what modifications to the existing construction will
be required. Project construction is expected to resume in the spring of 2002
with production startup scheduled to commence this fall. Projected revenues for
this facility are US $4,800,000 per year. BSAR expects to have a 15% equity
interest in this CJV.
The third CJV, which calls for the construction of an OCCF plant in the
City of Handan, is on indefinite hold.
All of the plants will use the patented AirLance Compost Systems(TM)
composting technology of American BioTech, Inc. ("ABT"). BSAR is the licensee of
ABT's technology in China. BSAR will receive front-end fees from each of the
projects during their respective construction periods and operating fees
thereafter. If the two plants currently under construction progress on schedule,
they are projected to generate fabrication license fees, management fees and
installation fees in 2002 which will more than cover BSAR's projected overhead
as well as its required injections of registered capital for the projects during
the year.
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.
Other Projects. In addition to Baoding, Qihe City and Handan, BSAR is
currently pursuing four other projects which are considered to have a high
probability for activity. The four additional projects, if they materialize,
would result in contracts in which BSAR would receive substantial front-end fees
with no equity interest. These four projects differ from the three CJV's
described above, in which Beard will be an equity interest owner and share in
the costs and profits. One of these projects would involve the manufacture of
Class A compost from sewage sludge, while the other three would involve the
manufacture of Class B compost from municipal solid waste.
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 patented AirLance Compost Systems(TM) composting
technology.
The China Segment generated its initial revenues, totaling $72,000, before
taxes of approximately $10,000, in December 2001. However, since it is an
unconsolidated entity, it accounted for none of the Company's consolidated
revenues from continuing operations during the last three years.
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.
Employees. As of December 31, 2001, the China Segment employed five full
time employees.
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. In early 2001 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%. At year-end 2001, starpay.com, l.l.c. was formed and starpay.
com, inc. was merged into it.
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.
We believe that the starpay payment system offers safer, easier and more
flexible purchasing options and account features than are presently available on
the Internet today. Furthermore, because of starpay's unique transaction
methodology, if the user's account information is stolen from a merchant's web
site there is still no liability exposure to the user, the merchant, the issuing
bank or to starpay. The starpay system also addresses the merchant's exposure to
non-repudiation issues associated with Internet purchasing.
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. In summary, the starpay
process provides significant security components to both the vendor and
consumer, with a focus on ease of or transparent use to the vendor and the
potential for absolute transaction security for the consumer. 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. starpay received a Notice of Allowance dated
November 27, 2001, from the U.S. Patent and Trademark Office on the application
titled "Method for Marketing and Redeeming Vouchers for use in Online
Purchases." starpay has been assigned U.S. Patent No. 6,370,514, and we have
been advised that the issue date of the patent will be April 9, 2002. All claims
submitted in this application were allowed.
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 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.
On March 20, 2002, starpay's marketing rights 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. 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. Any settlement and/or judgment resulting from
starpay's prosecution of Patent claims will be split 50/50 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 are currently
exchanging dialogue and sharing information with each party needed to explore
affiliations that may be mutually advantageous. 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 in the process of initiating contact with them
at this time.
starpay has identified three Internet gift sites that offer online gift
certificate services that potentially conflict with our issued voucher patent.
We have contacted two of these companies, and both have indicated that they are
open to exploring a mutually beneficial affiliation and to discuss any potential
interference issues once our patent number has been assigned. starpay intends to
contact the other company upon further technical review.
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.
Employees. As of December 31, 2001, the e-Commerce Segment had one full
time employee and utilized two of the Company's full time employees on a part
time basis.
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 four years.
Because of losses incurred in fourth quarter of 2001, the Company's net worth
became negative as of December 31, 2001. 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.
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. There is also the possibility that appeals could delay the
Settlement; however, the Company believes that, in such event, it would still be
able to achieve profitability prior to March 31, 2005.
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 three major
projects pending 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.
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.
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 two convenience store locations with related property,
plant and equipment, iodine extraction plants 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,
2002, at a current annual rental of $86,000. In addition, Beard's subsidiaries
lease space at other locations as required to serve their respective needs.
Employees. As of December 31, 2001, Beard employed 21 full time and three
part time employees in all of its operations, including nine 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 2001. See "McElmo Dome 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 10-12). 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.
Plaintiffs further allege that defendants have a conflict of interest
because they are simultaneously producers and users of CO2 from the Field, and
that they have controlled and depressed the price of CO2 from the Field by (i)
reducing the delivered price of CO2 while (ii) simultaneously inflating the cost
of transportation from the Field to West Texas. Plaintiffs have alleged a total
of 10 claims against the defendants, including violations of the provisions of
the antitrust laws. Should Plaintiffs prevail on all of their claims, the
maximum total damages (after trebling) would be approximately $51.3 million plus
Plaintiffs' reasonable attorneys' fees.
When the Court denied Plaintiffs' class motion in March of 2000, the CO2
Claims Coalition arranged for the filing of three additional cases, one on
behalf of each royalty owner, each overriding royalty owner and each small share
working interest owner. The aggregate Plaintiffs' interests in these cases is
greater than the aggregate Plaintiffs' interests in the present case with damage
claims proportionately the same. The CO2 Claims Coalition is entitled to 5% of
any recovery in these cases to compensate it for the expenditures made to date,
and will also be reimbursed for one-half of its expenses from any recovery in
these cases.
Significant progress was made during 2001 in connection with the
litigation. A Settlement Agreement (the "Agreement") was signed among the
attorneys for the Plaintiffs and the Defendants on September 21, 2001. At the
Final Hearing held in Denver on April 8, 2002 the federal judge approved a class
action settlement of $51 million in cash to settle the lawsuit, and said that
the settlement was "fair, reasonable and adequate." It is expected that the
final order in the case will be issued during the week of April 15. Distribution
of the proceeds will be delayed until all appeal periods have run. The Company
believes the settlement will be concluded in the May to June time frame of this
year with anticipated proceeds to the Company in excess of $3.5 million.
Distribution of the contemplated proceeds will have a significant impact upon
the Company's liquidity. Third parties have been attempting to intervene in the
case. Accordingly, there is the possibility that appeals could delay the
settlement or that intervening parties could ultimately cause the settlement to
be overturned. We believe it is unlikely that the settlement will be overturned.
The Company has expensed all of its share, totaling $375,000 from 1996
through year-end 2001, 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 12 to the Company's Financial Statements).
To the extent the settlement proceeds result in net income for the Company for
the year 2002, one-third of consolidated net income will be paid to the
preferred shareholders under terms of the redemption features of the Company's
mandatorily redeemable preferred stock. (See Note 5 to the Company's Financial
Statements).
The Company has joined with several other Plaintiffs in securing a $300,000
loan for the benefit of the Plaintiffs' group to assist in meeting its current
obligations. The Company has provided a $75,000 certificate of deposit as
collateral for one-fourth of the loan amount in addition to the legal expenses
recited above.
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.
Since September 28, 2000, the Company's common stock has traded on the OTC
Bulletin Board ("OTCBB")(A) under the ticker symbol BRCO. From September 21
through September 27, 2000, such shares were quoted in the over-the-counter
market (Pink Sheets)(B) under the same symbol, although no shares traded during
such period. The following table sets forth the range of reported high and low
bid quotations for such shares in the respective markets from September 21, 2000
through December 31, 2001:
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
2000 High Low
---- ---- ---
Fourth quarter $ 9/16 $ 3/16
Third quarter 5/16 1/4
- ---------------
(A) The reported quotations were obtained from the OTCBB Web Site.(C)
(B) The reported quotations were obtained from Pink Sheets LLC.(C)
(C) In both cases, such over-the-counter market quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
Prior to September 21, 2000, the Company's common stock traded on the
American Stock Exchange(R) ("ASE") under the ticker symbol BOC. The following
table sets forth the high and low sales price for the Company's common stock, as
reflected in the ASE monthly detail reports, for each full quarterly period
within the period from January 2, 2000 through September 20, 2000:
2000 High Low
---- ---- ---
Third quarter $2 $ 5/8
Second quarter 2-3/8 1-5/8
First quarter 2-15/16 2
(b) Holders.
As of February 28, 2002, the Company had 426 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 redemption
provisions of the Beard preferred stock limit the Company's ability to pay cash
dividends.
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 34 of this report.
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(in thousands, except per share data)
Statement of operations data:
Revenues from continuing operations $ 602 $ 717 $ 1,421 $ 9,238 $ 562
Interest income 177 136 228 400 183
Interest expense (207) (60) (170) (964) (134)
Loss from continuing operations (1,453) (1,392) (1,571) (89) (1,314)
Earnings (loss) from
discontinued operations (868)(a) (1,637) (1,828)(b) (3,768)(c) 10,328(d)
Net earnings (loss) (2,321) (3,029) (3,399) (3,857) 9,014
Net earnings (loss) attributable to
common shareholders (2,321) (3,029) (3,399) (3,857) 5,225
Net earnings (loss) per share -
basic and diluted:
Loss from continuing operations (0.79) (0.76) (0.86) (0.05) (0.62)
Net earnings (loss) (1.27) (1.66) (1.85) (2.02) 2.48
Balance sheet data:
Working capital (350) (159) 981 5,378 10,352
Total assets 4,058 5,087 6,804 37,337 20,952
Long-term debt (excluding
current maturities) 2,513 1,428 13 25,780 519
Redeemable preferred stock 889 889 889 889 889
Total common shareholders' equity
(deficiency) (344) 1,883 4,666 8,387 12,433
- ---------------
(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 4 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 4 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 and for all prior years. (See note 4 of
notes to financial statements).
(d) Beard sold the business and substantially all of the assets of Carbonic
Reserves, an 85%-owned subsidiary, in 1997 with the results of such
operations, including the 1997 gain on sale, reported as discontinued
operations in 1997 and for all prior years. (See note 4 of notes to
financial statements).
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 2001 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 patented AirLance Compost
Systems(TM) composting technology. 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 reflect losses of $1,453,000,
$1,392,000, and $1,571,000 in 2001, 2000, and 1999, respectively.
In 1999 the Company adopted a plan to dispose of Interstate Travel
Facilities, Inc., whose activities had previously been conducted as the "ITF"
Segment. Those operations were reflected as discontinued operations in 1998 and
the Company recorded losses for the ITF Segment totaling $2,419,000, including
a $1,603,000 loss from discontinuing such operations 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 related to discontinuing such
operations. The Company continued to operate the two remaining facilities during
most of 2000 while it was attempting to market them. The operation of both
stores was suspended during the fourth quarter of 2000 in order to minimize
further losses. In 2000, the Company recorded losses totaling $591,000,
including an additional charge of $420,000 related to discontinuing such
operations. In 2001 the Company recorded losses totaling $121,000, including an
additional charge of $114,000 related to discontinuing such operations, and does
not expect further charges in connection with such activities. At year-end 2001,
the discontinued ITF Segment had $407,000 of assets remaining, consisting
primarily of two convenience stores with related property, plant, and equipment,
and liabilities totaling $23,000 consisting primarily of trade payables of
$9,000 and accrued liabilities of $14,000. 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 operating results in 1999 were reflected as
an $82,000 loss from discontinued operations. In addition, in December 1999,
Beard recorded a $540,000 loss, which represented its share of NABR's $1,350,000
estimated loss from the discontinuation of operations. NABR's loss included
$778,000 which represented the difference in the estimated amounts to be
received from the assets' disposition and the asset's recorded values as of
December 31, 1999, and $572,000 of anticipated operating losses through April
2000 (the date operations ceased) and the costs of ceasing operations. 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 segment's larger plant,
which produced its last iodine in April 2000, was shut down in September 2000
and the Company is now working to dispose of its equipment. The Company intends
to sell the smaller plant as a going concern. 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, and does not expect any additional charges in
connection with such activities. At year-end 2001, the significant assets
related to NABR's operations consisted primarily of equipment and inventory with
estimated net realizable values of $71,000 and $76,000, respectively. The
significant liabilities related to NABR's operations consisted primarily of
accounts payable of $7,000 and accrued expenses of $242,000. 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 $21,000 and $65,000 of the holdback
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. Beard's share of operating losses from
the discontinued segment were $619,000 for the year ended December 31, 2001.
Beard's share of operating losses from the 50%-owned company (accounted for as
an equity investment) were $393,000 which included a provision of $72,000 for
estimated losses from the discontinuation of operations. The remaining $226,000
of losses for the year ending December 31, 2001 were associated with the
operations of the sand separator company and were not anticipated in the loss
accrual. These losses included $107,000 loss incurred on the sale of the five
sand separators owned by the wholly-owned subsidiary of the Company. See note 4
to the financial statements.
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 2001, 2000 and 1999 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 $137,000 in 2001---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, and $544,000 in 2001.
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
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.
1999 results of operations reflected a $170,000 reduction in the operating
profit of the CO2 Segment versus 1998 reflecting decreased CO2 production and
demand. The China Segment generated no revenues, but incurred $277,000 of
selling, general and administrative expenses related to its startup activities.
The e-Commerce Segment generated no revenues but incurred $129,000 of SG&A
expenses related to its startup activities. Despite the fact that the Company's
loss from continuing operations increased $1,482,000, its total net loss
decreased $458,000, reflecting the $1,940,000 decrease in losses from
discontinued operations.
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 2001, 2000, and 1999 were
$(1,243,000), $(2,552,000), and $(1,709,000), respectively, while capital
additions from continuing operations were $71,000, $422,000 and $1,176,000,
respectively, as indicated in the table below:
2001 2000 1999
---- ---- ----
Coal $ 17,000 $ 371,000 $1,135,000
Carbon dioxide 17,000 4,000 10,000
e-Commerce - 8,000 -
Other 37,000 39,000 31,000
---------- ---------- ----------
Total $ 71,000 $ 422,000 $1,176,000
========== ========== ==========
Capital additions in the discontinued WS Segment were $38,000 and $216,000
in 2000 and 1999, respectively. Capital additions in the discontinued ITF
Segment were $13,000 and $59,000 in 2000 and 1999, respectively.
The Company's 2002 capital expenditure budget has tentatively been set at
zero in 2002. This does not include an estimated $1,853,000 to $2,504,000 of
plant costs which may be incurred by the Coal Segment for the project expected
to start this year subject to the availability of financing.
Liquidity. The sale of the Company's dry ice manufacturing and distribution
business in 1997 provided the Company with significant liquid resources.
However, such funds had been substantially utilized by year-end 1999. 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. 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
patented AirLance Compost Systems(TM) composting technology, and the e-Commerce
Segment's success in developing licensing agreements and other fee based
arrangements with companies implementing technology in conflict with our
intellectual property.
During 2001 the Company reduced its working capital by $191,000 from
$(159,000) at year-end 2000. $23,000 was used by the Coal Segment to purchase
equipment. $528,000 was used to fund the operating loss of the Coal Segment.
$751,000 was used to fund net advances to the Company's operations in China.
$427,000 was used to fund net advances to the Company's discontinued well
testing venture in Mexico. In addition, the Company loaned a net additional
$378,000 to its partner which operates the joint venture to fund a portion of
its investment. $121,000 was used to fund the operations of the discontinued ITF
Segment. Another $172,000, was used to fund the startup activities of the
e-Commerce Segment. The bulk of these expenditures were funded by a $1,298,000
increase in debt, $264,000 from the sale of assets, and $876,000 from payments
on notes receivable.
As a result, at December 31, 2001, the Company was in a negative working
capital position with working capital of $(350,000), and a current ratio of 0.61
to 1.
Despite the fact that the Company has had losses from continuing operations
for the past five years, its total net loss during such period totaled only
$3,592,000. The last four years have been particularly disappointing, as the
Company generated net losses totaling $12,606,000, including losses from
continuing operations totaling $4,327,000. The discontinued interstate travel
facilities and natural gas well servicing businesses accounted for $3,565,000
and $2,347,000, respectively, of the losses, but those problems are now behind
us and management expects to dispose of their remaining assets in 2002. The
discontinued iodine business impacted earnings the last two years, but again,
those problems are behind us, and management expects to dispose of its remaining
assets in 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 four major projects in various stages of development, all of
which, subject to arranging necessary financing, are expected to mature into
operating projects during 2002 and 2003. In each case core holes have been
drilled and sample analyses have been completed with favorable results. The
projects are in four different states and involve four different parties. On
three of the projects we are negotiating with the pond owners concerning the
installation of a preparation plant to recover clean coal. The fourth project
involves the transfer of a large amount of non-recoverable slurry to a new
disposal area, and may ultimately result in the installation of a preparation
plant.
The first three projects require the arrangement of necessary financing;
the fourth would require no financing. Negotiations are in progress with a
substantial third party to form a joint venture or limited liability company
that would provide the initial working capital and guarantee the necessary
equipment financing on the three projects. Although the timing of the four
projects is uncertain, they are all considered to have a high probability of
activity, subject to obtaining the necessary financing on the three. However, no
definitive contracts have as yet been signed, and there is no assurance that the
required financing will be obtained or that any or all of the projects will
materialize.
After more than three years of development activity by the China Segment,
it appears that its efforts are finally starting to bear fruit. The segment has
signed contracts and formed Cooperative Joint Ventures ("CJV's") with various
Chinese partners which call for the construction of three compost manufacturing
facilities in which the Company will own an interest and receive an operating
fee. The initial plant, located at Baoding in Hebei Province, broke ground in
March of 2001. Construction was delayed due to cold weather, but is targeted to
resume in the spring of 2002. The first installment (US $61,571, net of tax of
approximately $10,000) of the fabrication license fee for this plant was
received in December of 2001, with the next installment anticipated this summer.
A second plant, located at Qihe City in Shandong Province, is also targeted to
resume construction in the spring of 2002. The third CJV, which calls for the
construction of a plant in the City of Handan, is on indefinite hold. The
segment is currently pursuing four other projects which are considered to have a
high probability for activity. If they materialize they would result in
contracts in which the segment would receive substantial front-end fees with no
equity interest. If the plants currently under construction progress on
schedule, they are projected to generate fabrication license fees, management
fees and installation fees in 2002 which will more than cover the segment's
projected overhead as well as its required injections of registered capital for
the projects during the year.
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 (see
"Item 3. Legal Proceedings---McElmo Dome Litigation"). A Settlement Agreement
was signed by the parties in September of 2001 and a Final Hearing in the matter
was held on April 8, 2002. The Company believes that the Settlement will be
concluded in May or June of this year with anticipated proceeds to the Company
in excess of $3.5 million. Although there is the possibility that appeals
could delay the Settlement or that intervening parties could ultimately cause
the Settlement to be overturned, the Company believes it is unlikely that the
settlement will be overturned.
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. Such lines had been increased to a total of $2,350,000 in
September of 2001, and were subsequently increased to $2,600,000 in January of
2002 to provide additional working capital. The Company is currently pursuing
$1,000,000 of additional financing through the private placement of 10%
subordinated notes due September 30, 2003, with warrants, to provide additional
working capital and improve liquidity and to "bridge the gap" until the
Settlement funds are distributed or until the 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.
Selected liquidity highlights for the Company for the past three years are
summarized below:
2001 2000 1999
---- ---- ----
Cash and cash equivalents $ 55,000 $ 31,000 $ 767,000
Accounts and other receivables, net 175,000 337,000 480,000
Inventory 76,000 129,000 103,000
Trade accounts payable 156,000 167,000 262,000
Current maturities of long-term debt 307,000 30,000 17,000
Long-term debt(1) 2,513,000 1,428,000 13,000
Working capital (350,000) (159,000) 981,000
Current ratio 0.61 to 1 0.79 to 1 2.19 to 1
Net cash used in operations (1,243,000) (2,552,000) (1,709,000)
- ---------------
(1) In 1999 the Company terminated certain debt agreements that resulted in the
removal of $23,053,000 of debt from its balance sheet, and disposed of most
of the assets of its interstate travel facilities segment, resulting in the
removal of an additional $2,563,000 of debt from its balance sheet.
In 2001, the Company had positive cash flow of $24,000. Operations of the
Coal, W/S, China, e-Commerce and E/R Segments resulted in cash outflows of
$1,470,000. (See "Results of operations---Other activities" below).
The Company's investing activities utilized cash of $31,000 in 2001.
Proceeds from the sale of assets provided cash of $264,000 and payments on notes
receivable provided cash of $876,000. Net distributions from the Company's
investment in Cibola provided cash of $131,000. Acquisitions of property, plant
and equipment and intangible assets used cash of $95,000 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 $1,209,000.
The Company's financing activities provided cash flows of $1,298,000 in
2001. The Company received $1,807,000 from its borrowings and utilized $509,000
for payments on lines of credit and term notes.
At year-end 2001 the Company had fully utilized the parent company's
$300,000 bank line of credit which matures on July 15, 2002. At December 31,
2001 the Company had also utilized $2,243,000 of a $2,500,000 line of credit
from a related party which bears interest at 10% until maturity at June 30,
2003. The Company had also fully utilized amounts available under lines of
credit with three affiliates of a related party. These amounts totaled $100,000
and bear interest at 10% until maturity at April 1, 2003. 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 $1,000,000 of financing currently
being pursued has been finalized and is in place.
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 1.86(A) to
1 at year-end 2001. Consolidated debt, which totaled $1,458,000 at year-end
2000, increased to $2,820,000 at year-end 2001. If the Company is successful in
obtaining the $1,000,000 in subordinated notes, it plans to pay down its present
indebtedness with the bank and re-negotiate its credit line with them. It also
intends to pay down a portion of its present indebtedness with the related
parties. This should give the Company ample working capital to operate until the
contemplated coal projects and the composting projects in China are generating
positive cash flow.
- ---------------
(A) Computed by using the market value of the equity in the denominator of the
equation. Using the negative equity of $344,000 would result in ending up
with a meaningless number.
Effect of Reorganization on Liquidity. Through the period ending December
31, 2002, the Company's liquidity will be reduced to the extent it is required
to redeem any of the Beard preferred stock pursuant to the mandatory redemption
provisions (see note 5 to the financial statements).
Results of operations
General. The period from 1997 to 2001 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. The Management Committee
directing the operations of a 40%-owned joint venture engaged in the extraction,
production and sale of crude iodine decided to discontinue operations of the
joint venture in 1999. 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 appears
to be on the threshold of a major breakout. The e-Commerce Segment is
experiencing the normal problems and delays encountered when starting new
businesses. In addition, the Company continues to liquidate assets no longer in
line with the Company's strategic objectives. Operating profit (loss) for the
last three years for the Company's remaining principal operating segments which
the Company controls is set forth below:
2001 2000 1999
---- ---- ----
Operating profit (loss):
Coal $ (544,000) $ (625,000) $ (508,000)
Carbon dioxide 313,000 356,000 296,000
China - (400,000) (279,000)
e-Commerce (172,000) (275,000) (129,000)
----------- ----------- -----------
Subtotal (403,000) (944,000) (620,000)
Other - principally corporate (969,000) (1,076,000) (1,324,000)
----------- ----------- -----------
Total $(1,372,000) $(2,020,000) $(1,944,000)
=========== =========== ===========
Following is a discussion of results of operations for the three-year
period ended December 31, 2001.
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 and 35% of the Coal Segment's 2001 and 2000
revenues, respectively. Operating revenues in this segment were $137,000,
$215,000, and $953,000 in 2001, 2000, and 1999, respectively, with the sharp
decrease in 2000 reflecting the impact of terminating the MCN Projects.
Operating costs decreased to $524,000 in 2001 from $663,000 in 2000 and from
$1,064,000 in 1999. SG&A expenses decreased to $122,000 in 2001 from $158,000 in
2000 and from $204,000 in 1999. The decrease in costs in 2001 and 2000 reflects
the effect of the termination of the MCN Projects. The segment produced an
operating loss of $544,000 in 2001, $625,000 in 2000 and $508,000 in 1999.
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 $442,000, $471,000, and $418,000 in 2001, 2000,
and 1999, respectively, while operating profits totaled $313,000, $356,000, and
$296,000, respectively, for the three years. CO2 net sales volumes were
1,327,000 Mcf, 1,319,000 Mcf, and 1,536,000 Mcf in 2001, 2000, and 1999,
respectively. The decrease in revenues and operating profits in 2001 versus 2000
is due to a slight increase in net sales volume overcome by a decrease in prices
received for CO2. The increase in revenues and operating profits in 2000 versus
1999 reflects the sharp increase in oil prices in late 1999 and throughout 2000,
and the resultant increased demand for CO2 used for tertiary oil recovery.
China. In 1998 the Company activated Beard Sino-American Resources Co.,
Inc. ("BSAR") to pursue coal reclamation opportunities in China utilizing BTI's
patented mulled coal technology in China. Due to changes in the political and
business environment in China, BSAR shifted its direction in 1999. Coal
reclamation activities have been suspended and BSAR is now focusing all of its
attention on the installation and construction of facilities which utilize the
patented AirLance Compost Systems(TM) composting technology. Since January 1,
2001, the operations of this segment have been conducted through an affiliate.
BSAR had no revenues in 2001, 2000 or 1999, and recorded $400,000 and $279,000
of SG&A expenses, respectively, in 2000 and 1999 while pursuing its various
marketing efforts. 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. ("starpay").
starpay had no revenues in 2001, 2000 or 1999, and recorded $167,000, $275,000
and $129,000 of SG&A expenses, respectively, in such years. 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
$969,000 in 2001, $1,076,000 in 2000 and $1,324,000 in 1999. 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. The operating loss
decreased $248,000 in 2000 versus 1999 due to several factors, including reduced
salary and benefit costs, legal and professional expenses, and other SG&A items
as the Company continued to search for ways to reduce costs. Additionally, the
year 1999 saw the Company incur markedly lower benefit expenses while incurring
slightly higher legal expenses as the Company continued to pursue the CO2
litigation.
Selling, general and administrative expenses. Selling, general and
administrative expenses ("SG&A") decreased to $1.2 million in 2001 from $1.5
million in 2000 and from $1.6 million in 1999. The reduction was partly
attributable to the Coal Segment, which incurred SG&A expense of $122,000,
$158,000, and $204,000 in 2001, 2000, and 1999, respectively. The decreases in
2001 and 2000 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. As of January 2001, those activities are
being conducted through an unconsolidated affiliate and are reflected elsewhere.
SG&A expense incurred by the e-Commerce Segment decreased in 2001 to $167,000
from $272,000 in 2000 after an increase from $129,000 in 1999 reflecting the
segment's level of marketing activity. Other corporate SG&A decreased to
$1,020,000 in 2001 from $1,048,000 in 2000 and $1,333,000 in 1999. The variances
were attributable primarily to reductions in professional fees and in the
Company's 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 $6,000 or 7% to $90,000 in 2001 compared to 2000
due primarily to increases in property, plant and equipment in the Coal Segment.
The Company's depreciation, depletion and amortization expenses decreased
$183,000 or 69% in 2000 from 1999. The fluctuations in DD&A expense for 2000
were primarily attributable to the lower depreciable basis of assets in the Coal
Segment as the Company sold its ownership interest in the entity owning the
equipment for the MCN projects effective in January, 1999.
Interest income. Interest income increased $41,000 to $177,000 from
$136,000 in 2000 after a decrease of $92,000 from $228,000 in 1999. The increase
for 2001 reflects the income on loans to its partners in Mexico and China. The
Company had considerable cash at the beginning of 1998 remaining from the sale
of the assets of its discontinued solid CO2 segment in 1997. The decreases in
2000 from the amount realized in 1999 reflect the decreased amount available to
invest as cash was used to fund other investments and operations.
Interest expense. Interest expense increased $147,000 in 2001 to $207,000
from $60,000 in 2000. Interest expense decreased from $170,000 in 1999 to
$60,000 in 2000. The higher expense in 2001 reflects the increased level of debt
in 2001 as the Company borrowed to meet operating needs and to fund the China
ventures. The high expense in 1999 reflects the high level of debt incurred by
the Coal Segment to fund the acquisition of equipment for the MCN Projects in
such year. The sharp decrease in 2000 reflects the Coal Segment being relieved
of such indebtedness as of January 31, 1999. Although the Company had less than
$100,000 of debt for most of 1999, it incurred considerable interest expense in
January of that year when it had more than $23 million of debt. The Company's
indebtedness increased steadily throughout 2000, but it still incurred less
interest expense than it incurred in 1999.
Equity in earnings of unconsolidated affiliates. The Company's equity in
earnings of unconsolidated affiliates reflected a loss of $167,000 for 2001
compared to earnings of $235,000 in 2000 and $305,000 in 1999. 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. Offsetting the Company's share of the losses of the affiliate 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 Corporation, it does
not have operating or financial control of this gas marketing subsidiary.
Cibola, formed in 1996, contributed $142,000, $237,000 and $308,000 of pre-tax
net income to the Company for fiscal years 2001, 2000 and 1999, respectively,
pursuant to a tax sharing agreement. Such income was down in 2001 and 2000 due
to capital losses incurred on Cibola's investments.
Gain on sale of assets. Gains on the sale of assets totaled $81,000 in
2001, $298,000 in 2000, and $56,000 in 1999. 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 2001, 2000 and 1999 the
Company recognized $41,000, $71,000, and $110,000 for impairments to the
carrying values of investments and other assets relating to the recoverability
of such investments or assets.
Income taxes. The Company has approximately $58.1 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, 2001 and
2000, 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 ($73,000), $8,000 and $36,000 for 2001, 2000 and
1999, 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 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. The joint venture was dissolved effective
September 15, 2000. Shut down of the segment's larger plant was completed in
September 2000 and the Company is now working to dispose of its equipment. The
Company intends to sell the smaller plant as a going concern. Beard's share of
NABR's operating results were $82,000 of losses in 1999 which have been reported
as discontinued in the Company's statements of operations. In addition, the
Company recorded a charge of $540,000 in 1999 and a gain of $179,000 in 2000 in
connection with the discontinuance of the segment's operations. Beard recorded a
loss of $111,000 for 2001 for the net operating expenses of the smaller of the
two plants distributed to the Company in 2000. No further charges are
anticipated in connection with such activities. See Note 4 to the financial
statements.
In 1999 the Company adopted a plan to dispose of Interstate Travel
Facilities, Inc., whose activities had previously been conducted as the "ITF"
Segment. Those operations were reflected as discontinued operations in 1998 and
the Company recorded losses for the ITF Segment totaling $2,419,000, including
a $1,603,000 loss from discontinuing such operations 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 related to discontinuing such
operations. The Company continued to operate the two remaining facilities during
most of 2000 while it was attempting to market them. The operation of both
stores was suspended during the fourth quarter of 2000 in order to minimize
further losses. In 2000, the discontinued ITF Segment incurred operating losses
totaling $351,000. The discontinued ITF Segment charged the first $180,000 of
these operating losses against a 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 of 2000. The discontinued ITF Segment
recorded an additional $420,000 loss in December, 2000; $60,000 represented
losses expected to be incurred by ITF 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. The Company does
not anticipate any further charges in connection with such activities. At
year-end 2001, the discontinued ITF Segment had $407,000 of assets remaining,
consisting primarily of two convenience stores with related equipment, and
liabilities totaling $23,000 consisting primarily of trade payables and accrued
liabilities. See Note 4 to the financial statements.
ITF's operating losses for 1999 were $567,000. $347,000 of such losses were
charged against the loss accrual recorded in 1998 with the remaining $220,000
reflected in loss from discontinued operations in the 1999 statement of
operations. Beard also recorded an additional $214,000 loss in the fourth
quarter of 1999; $180,000 of the loss represented anticipated operating losses
of ITF from December 31, 1999 through the anticipated disposal date of the
remaining assets; $34,000 of the loss represented a reduction in the estimated
realizable values of the remaining assets as of December 31, 1999.
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
hold back of $150,000. $21,000 and $65,000 of the hold back 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.
Beard's share of operating losses from the discontinued segment was
$619,000 for the year ending December 31, 2001. Beard's share of operating
losses from the 50%-owned company (accounted for as an equity investment) were
$393,000 which included a provision of $72,000 for estimated losses from the
discontinuation of operations. The remaining $226,000 of losses for the year
ending December 31, 2001 were associated with the operations of the sand
separator company and were not anticipated in the loss accrual. 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 $1,238,000 and $455,000, respectively for
2000 and 1999.
As of December 31, 2001 the WS Segment had accounts receivable totaling
$45,000 and fixed assets of $150,000. The significant liabilities of the segment
consisted of taxes payable, trade accounts payable and other accrued expenses
totaling $49,000. It is anticipated that all liabilities of the segment will be
paid off prior to the dissolution of the companies in the segment related to the
operations in Mexico in May of 2002.
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 2001,
2000 or in 1999. ISITOP's operating losses totaled $17,000, $142,000 and
$317,000 for 2001, 2000 and 1999, respectively. ISITOP had no significant assets
or liabilities at December 31, 2001.
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 Issued Accounting Standards Not Yet Adopted
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 142, Goodwill and Other Intangible Assets. Statement No. 142
applies to intangible assets acquired individually or with a group of other
assets at acquisition and subsequent to acquisition. According to Statement No.
142, intangible assets are to be recorded at fair value and goodwill will not be
amortized, but assessed annually for impairment.
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.
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 is required to adopt FASB Statements No. 142 and 144 effective
January 1, 2002 for the fiscal year ended December 31, 2002. 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 effects of
Statement No. 142, 143 or 144, but does not believe that adoption of these
accounting standards 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, 2001, the Company had notes receivable of $482,000 and
total debt of $2,820,000. The notes receivable and $2,369,000 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 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, 2001, a 10% increase in market interest rates would have reduced the fair
value of the Company's notes receivable by $4,000 and reduced the fair value of
its debt by $32,000.
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..................................................36
Independent Auditors' Report..................................................37
Financial Statements:
Balance Sheets, December 31, 2001 and 2000.................................38
Statements of Operations, Years ended December 31, 2001, 2000 and 1999.....39
Statements of Shareholders' Equity, Years ended December 31, 2001, 2000
and 1999.................................................................40
Statements of Cash Flows, Years ended December 31, 2001, 2000 and 1999.....41
Notes to Financial Statements, December 31, 2001, 2000 and 1999............43
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, 2001 and 2000, and the related
consolidated statements of operations, shareholders' equity (deficiency), and
cash flows for the years then ended. 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 audit 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, 2001 and 2000, and the results of their operations
and their cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States.
COLE & REED, P.C.
Cole & Reed, P.C.
Oklahoma City, Oklahoma
April 8, 2002
Independent Auditors' Report
The Board of Directors and Stockholders
The Beard Company:
We have audited the statements of operations, shareholders' equity, and cash
flows of the Beard Company and Subsidiaries for the year ended December 31,
1999. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of the operations and the cash flows of the
Beard Company and Subsidiaries for the year ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
Oklahoma City, Oklahoma
April 7, 2000, except as to the last
paragraph of note 1 which is as of
August 31, 2001.
THE BEARD COMPANY AND SUBSIDIARIES
Balance Sheets
December 31, December 31,
Assets 2001 2000
------ ---- ----
Current assets:
Cash and cash equivalents $ 55,000 $ 31,000
Accounts receivable, less allowance for doubtful
receivables of $107,000 in 2001 and $292,000 in 2000 175,000 337,000
Inventory 76,000 129,000
Prepaid expenses and other assets 56,000 39,000
Current portion of notes receivable (note 7) 180,000 80,000
------------ ------------
Total current assets 542,000 616,000
------------ ------------
Notes receivable (note 7) 108,000 789,000
Investments and other assets (note 6) 652,000 467,000
Property, plant and equipment, at cost (note 8) 4,894,000 5,364,000
Less accumulated depreciation, depletion and amortization 2,184,000 2,198,000
------------ ------------
Net property, plant and equipment 2,710,000 3,166,000
------------ ------------
Intangible assets, at cost (note 9) 48,000 50,000
Less accumulated amortization 2,000 1,000
------------ ------------
Net intangible assets 46,000 49,000
------------ ------------
$ 4,058,000 $ 5,087,000
============ ============
Liabilities and Shareholders' Equity (Deficiency)
-------------------------------------------------
Current liabilities:
Trade accounts payable $ 156,000 $ 167,000
Accrued expenses (note 4) 429,000 578,000
Current maturities of long-term debt (note 10) 307,000 30,000
------------ ------------
Total current liabilities 892,000 775,000
------------ ------------
Long-term debt less current maturities (note 10) 19,000 347,000
Long-term debt - related entities (note 10) 2,494,000 1,081,000
Other long-term liabilities 108,000 112,000
Redeemable preferred stock of $100 stated value;
5,000,0000 shares authorized; 27,838 shares issued
and outstanding in 2001 and 2000 (note 5) 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 2001 and 2000 3,000 3,000
Capital in excess of par value 38,081,000 37,986,000
Accumulated deficit (36,568,000) (34,247,000)
Accumulated other comprehensive loss (14,000) (13,000)
Treasury stock, 295,053, at cost, in 2001 and 2000 (1,846,000) (1,846,000)
------------ ------------
Total common shareholders' equity (deficiency) (344,000) 1,883,000
------------ ------------
Commitments and contingencies (notes 5, 11, and 15)
$ 4,058,000 $ 5,087,000
============ ============
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Operations
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Revenues:
Coal reclamation $ 137,000 $ 215,000 $ 953,000
Carbon dioxide 442,000 471,000 418,000
China - - -
e-Commerce - - -
Other 23,000 31,000 50,000
----------- ----------- -----------
602,000 717,000 1,421,000
----------- ----------- -----------
Expenses:
Coal reclamation 524,000 663,000 1,064,000
Carbon dioxide 96,000 82,000 89,000
China - 400,000 279,000
e-Commerce - - -
Selling, general and administrative 1,232,000 1,480,000 1,630,000
Depreciation, depletion and amortization 90,000 84,000 267,000
Other 32,000 28,000 36,000
----------- ----------- -----------
1,974,000 2,737,000 3,365,000
----------- ----------- -----------
Operating profit (loss):
Coal reclamation (544,000) (625,000) (508,000)
Carbon dioxide 313,000 356,000 296,000
China - (400,000) (279,000)
e-Commerce (172,000) (275,000) (129,000)
Other, principally corporate (969,000) (1,076,000) (1,324,000)
----------- ----------- -----------
(1,372,000) (2,020,000) (1,944,000)
Other income (expense):
Interest income 177,000 136,000 228,000
Interest expense (207,000) (60,000) (170,000)
Equity in net earnings (loss) of unconsolidated
affiliates (167,000) 235,000 305,000
Gain on sale of assets 81,000 298,000 56,000
Impairment of investments and other assets (notes
1 and 17) (41,000) (71,000) (110,000)
Minority interest in operations of consolidated
subsidiaries - 16,000 -
Other 3,000 82,000 100,000
----------- ----------- -----------
Loss from continuing operations before income taxes (1,526,000) (1,384,000) (1,535,000)
Income taxes (note 12) 73,000 (8,000) (36,000)
----------- ----------- -----------
Loss from continuing operations (1,453,000) (1,392,000) (1,571,000)
Discontinued operations (note 4):
Gain (loss) from discontinued operations - 155,000 (82,000)
Gain (loss) from discontinuing brine extraction/
iodine manufacturing activities (111,000) 179,000 (540,000)
Loss from discontinuing other environmental remediation
activities (17,000) (142,000) (317,000)
Loss from discontinuing interstate travel facilities
activities (121,000) (591,000) (434,000)
Loss from discontinued Natural Gas Well Servicing
activities (619,000) (1,238,000) (455,000)
----------- ----------- -----------
Loss from discontinued operations (868,000) (1,637,000) (1,828,000)
----------- ----------- -----------
Net loss $(2,321,000) $(3,029,000) $(3,399,000)
=========== =========== ===========
Net loss attributable to common shareholders (note 5) $(2,321,000) $(3,029,000) $(3,399,000)
=========== =========== ===========
Net loss per average common share outstanding:
Basic and diluted (notes 1 and 13):
Loss from continuing operations $ (0.79) $ (0.76) $ (0.86)
Loss from discontinued operations (0.48) (0.90) (0.99)
----------- ----------- -----------
Net loss $ (1.27) $ (1.66) $ (1.85)
=========== =========== ===========
Weighted average common shares outstanding - basic and diluted 1,829,000 1,829,000 1,839,000
=========== =========== ===========
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Shareholders' Equity (Deficiency)
Accumulated Total
Capital in Other Common
Common Excess of Accumulated Comprehensive Treasury Shareholders'
Stock Par Value Deficit Income Stock Equity (Deficiency)
----- --------- ------- ------ ----- -------------------
Balance, December 31, 1998 $ 3,000 $ 37,747,000 $(27,819,000) $ - $ (1,544,000) $ 8,387,000
Net loss - - (3,399,000) - - (3,399,000)
Comprehensive income:
Foreign currency translation
adjustment - - - 4,000 - 4,000
------------
Comprehensive loss - - - - - (3,395,000)
------------
Issuance of 2,820 shares of treasury
stock for stock option exercises(A) - (24,000) - - 24,000 -
Purchase of 64,706 shares of common
stock(A) - - - - (326,000) (326,000)
-------- ------------ ------------ -------- ------------ ------------
Balance, December 31, 1999 3,000 37,723,000 (31,218,000) 4,000 (1,846,000) 4,666,000
Net loss - - (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 13) - 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 13) - 95,000 - - - 95,000
-------- ------------ ------------ -------- ------------ ------------
Balance, December 31, 2001 $ 3,000 $ 38,081,000 $(36,568,000) $(14,000) $ (1,846,000) $ (344,000)
======== ============ ============ ======== ============ ============
- ---------------
(A) Adjusted to reflect the 3-for-4 reverse stock split effected in September 2000.
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Cash Flows
Year Ended December 31,
-----------------------
2001 2000 1999
------------ ------------ ------------
Operating activities:
Cash received from customers $ 890,000 $ 2,538,000 $ 8,953,000
Cash paid to suppliers and employees (2,240,000) (5,158,000) (10,488,000)
Interest received 142,000 88,000 232,000
Interest paid (108,000) (12,000) (346,000)
Taxes paid 73,000 (8,000) (60,000)
------------ ------------ ------------
Net cash used in operating activities (1,243,000) (2,552,000) (1,709,000)
------------ ------------ ------------
Investing activities:
Acquisition of property, plant and equipment (95,000) (513,000) (1,445,000)
Proceeds from sale of assets 264,000 561,000 88,000
Advances for notes receivable (378,000) (325,000) (960,000)
Payments on notes receivable 876,000 360,000 561,000
Investment in and advances to fifty percent-owned
subsidiary in Mexico (80,000) (619,000) (552,000)
Investment in and advances to fifty percent-owned
subsidiary in China (751,000) - -
Net purchase of certificates of deposit - - (25,000)
Proceeds from redemptions of certificates of deposit - 280,000 -
Distribution from partnership - 482,000 -
Other investments 133,000 273,000 199,000
------------ ------------ ------------
Net cash provided by (used in) investing activities (31,000) 499,000 (2,134,000)
------------ ------------ ------------
Financing activities:
Proceeds from line of credit and term notes 1,807,000 1,386,000 -
Payments on line of credit and term notes (509,000) (69,000) (253,000)
Purchase of treasury stock - - (326,000)
Other - - (1,000)
------------ ------------ ------------
Net cash provided by (used in) financing activities 1,298,000 1,317,000 (580,000)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 24,000 (736,000) (4,423,000)
Cash and cash equivalents at beginning of year 31,000 767,000 5,190,000
------------ ------------ ------------
Cash and cash equivalents at end of year $ 55,000 $ 31,000 $ 767,000
============ ============ ============
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,
-----------------------
2001 2000 1999
------------ ------------ ------------
Net loss $ (2,321,000) $ (3,029,000) $ (3,399,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, depletion and amortization 136,000 111,000 354,000
Gain on sale of assets 9,000 (328,000) (56,000)
Gain from discontinued operations - (334,000) -
Provision for uncollectible accounts and notes 45,000 99,000 11,000
Impairment of investments and other assets 186,000 491,000 110,000
Net cash used by discontinued operations offsetting
accrued losses (164,000) (180,000) (347,000)
Loss from discontinued operations - - 974,000
Equity in net loss of unconsolidated affiliates 480,000 834,000 3,000
Minority interest in operations of consolidated subsidiaries - (16,000) -
Other - 6,000 (64,000)
Decrease in accounts receivable, other
receivables, prepaid expenses and other current assets 211,000 190,000 1,138,000
Decrease in inventories 54,000 73,000 132,000
Increase (decrease) in trade accounts payable,
accrued expenses and other liabilities 121,000 (469,000) (565,000)
------------ ------------ ------------
Net cash used in operating activities $ (1,243,000) $ (2,552,000) $ (1,709,000)
============ ============ ============
Supplemental Schedule of Noncash Investing and Financing Activities:
Exchange of coal extraction and beneficiation equipment
for release of debt obligation $ - $ - $ 23,053,000
============ ============ ============
Accounts payable, accrued expenses and other debt
obligations assumed or cancelled by the purchaser of
the interstate travel facilities' assets $ 38,000 $ - $ 2,715,000
============ ============ ============
Sale of property, plant and equipment for notes receivable $ - $ - $ 80,000
============ ============ ============
See accompanying notes to financial statements
THE BEARD COMPANY AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2001, 2000, and 1999
(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 patented AirLance Compost
Systems(TM) composting technology. 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 4, 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 4, 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 4,
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 4, 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, 2001 or 2000. 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.
Inventory
- ---------
As of December 31, 2001, inventory consisted of iodine, at a cost of $76,000,
located at the manufacturing facilities that were distributed to the Company
upon the dissolution of the joint venture in which the Company had an interest.
As of December 31, 2000, inventory consisted of iodine, at cost of $124,000, and
gasoline and grocery items located at the Company's two remaining interstate
travel facilities, at a fair market value of $5,000.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment 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, comprised primarily of patents, are amortized on
a straight-line basis over their respective estimated useful lives, ranging from
five to 17 years.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
In 2001, 2000, and 1999 the Company recognized $41,000, $71,000 and $110,000 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, 2001 and 2000, the fair value of the long-term debt and notes
receivable were not significantly different than their carrying value 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, the amount of revenue is fixed and determinable and
collectability is assured.
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, 2001 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 2001, 2000, or 1999.
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 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, and equity
investments in unconsolidated affiliates. Notes and leases receivable from five
parties comprised approximately 72% of the December 31, 2001 balances of
accounts receivable, notes receivable, and investments and other assets.
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 2001
and 2000, 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 2000 and 1999 balances have been reclassified to conform to the 2001
presentation. As described in note 4, the Company discontinued two of its
segments. As a result the 2000 and 1999 statements of operations have been
reclassified to reflect the two segments' operations as discontinued.
(2) Ability to Fund Operations
- --- --------------------------
Despite continuing operating losses during the past 12 months, the Company's
cash and cash equivalents increased slightly from $31,000 at December 31, 2000
to $55,000 at December 31, 2001. To mitigate potential liquidity problems, the
Company obtained financing of $1.8 million 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, and were subsequently increased
to $2,600,000 in January of 2002. The sale of the fixed assets of the Company's
50%-owned investee in the well testing business in May of 2001, resulted in
distributions of cash totaling $907,000 to the Company and the reclassification
of a portion of a note receivable from long-term to current. Despite these
inflows, working capital deteriorated $191,000 during 2001.
The Company is focusing on replacing its Coal Segment's revenues and currently
has four major projects in various stages of development, all of which, subject
to arranging necessary financing, are expected to mature into operating projects
during 2002 and 2003. In each case core holes have been drilled and sample
analyses have been completed with favorable results. The projects are in four
different states and involve four different parties. On three of the projects we
are negotiating with the pond owners concerning the installation of a
preparation plant to recover clean coal. The fourth project involves the
transfer of a large amount of non-recoverable slurry to a new disposal area, and
may ultimately result in the installation of a preparation plant. The first
three projects require the arrangement of necessary financing; the fourth would
require no financing. 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 on the three
projects. Although the timing of the four projects is uncertain, they are all
considered to have a high probability of activity, subject to obtaining the
necessary financing on the three. However, no definitive contracts have as yet
been signed, and there is no assurance that the required financing will be
obtained or that any or all of the projects will materialize.
After more than three years of development activity by the China Segment, it
appears that its efforts are finally starting to bear fruit. The segment has
signed contracts and formed Cooperative Joint Ventures ("CJV's") with various
Chinese partners which call for the construction of three compost manufacturing
facilities in which the Company will own an interest and receive an operating
fee. The initial plant, located at Baoding in Hebei Province, broke ground in
March of 2001. Construction was delayed due to cold weather, but is targeted to
resume in the spring of 2002. The first installment (US $61,571, net of tax of
approximately $10,000) of the fabrication license fee for this plant was
received in December of 2001, with the next installment anticipated this summer.
A second plant, located at Qihe City in Shandong Province, is also targeted to
resume construction in the spring of 2002. The third CJV, which calls for the
construction of a plant in the City of Handan, is on indefinite hold. The
segment is currently pursuing four other projects which are considered to have a
high probability for activity. If they materialize they would result in
contracts in which the segment would receive substantial front-end fees with no
equity interest. If the plants currently under construction progress on
schedule, they are projected to generate fabrication license fees, management
fees and installation fees in 2002 which will more than cover the segment's
projected overhead as well as its required injections of registered capital for
the projects during the year.
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. At the
final hearing held in Denver on April 8, 2002 the federal judge approved a class
action settlement of $51 million in cash to settle the lawsuit. It is expected
that the final order in the case will be issued during the week of April 15.
Distribution of the proceeds will be delayed until all appeal periods have run.
The Company believes that the Settlement will be concluded in May or June of
this year with anticipated proceeds to the Company in excess of $3.5 million.
Distribution of the contemplated proceeds will have significant impact upon the
Company's liquidity. Although there is the possibility that appeals could delay
the Settlement or that intervening 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 is currently pursuing a private
placement of $1,000,000 of 10% subordinated notes due September 30, 2003, with
warrants to purchase up to 245,000 shares of Company common stock, to "bridge
the gap" until the settlement funds are distributed or until the anticipated
Coal and China projects achieve positive cash flow. As of April 8, 2002, the
Company had closed on the sale of $250,000 of the Notes. 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 from the pay down of notes
receivable, and can sell certain other assets to generate cash if necessary. See
note 18.
The Company expects that the cash expected to be generated from the sale of
assets, the private debt placement currently in progress, and the distribution
of settlement funds will be sufficient to continue operations through 2002 and
until the operations of the projects under development in the Coal and China
Segments have come on stream.
(3) Acquisitions
- --- ------------
ITF Segment
- -----------
In 1998 the Company, through a newly formed subsidiary, Interstate Travel
Facilities, Inc. ("ITF"), acquired four travel facilities and a truck wash
bordering the Interstate Highway system in Oklahoma for a total cash
consideration of $935,000, notes totaling $1,120,000 (valued at $983,000),
assumption of debt totaling $1,336,000 and 20% of the Company's ownership in
ITF.
As discussed in note 4, in April 1999 the Company's Board of Directors approved
a plan to discontinue its ITF Segment.
Coal Segment
- ------------
In June 1998, the Company, through a newly formed subsidiary, Beard Mining,
L.L.C. ("BMLLC"), acquired coal fines extraction and beneficiation equipment
("the Equipment") located at six coal slurry impoundment sites for $24,000,000.
BMLLC financed the purchase with a $24,000,000 loan from MCNIC Pipeline &
Processing Company ("MCNIC") which was secured solely by the Equipment. BMLLC
leased the Equipment to Beard Technologies, Inc. ("BTI") a wholly-owned
subsidiary of Beard, which operated and maintained the Equipment and six
briquetting plants for six limited liability companies (the "LLC's"), each of
which was a subsidiary of MCNIC. The monthly lease payments equaled the monthly
payments due under the promissory note and were reimbursed costs by the LLC's
under BTI's operating agreements with the LLC's.
Concurrent with BMLLC's acquisition of the Equipment, BTI entered into operating
agreements with the LLC's to provide services for which it was being compensated
in 1998 under a cost-plus arrangement pursuant to which it received a minimum
profit of $100,000 per month (the "Operating Agreements"). The operating
agreements provided that, solely for determining BTI's compensation thereunder,
the agreements were deemed to have been effective April 1, 1998.
In December 1998, the LLC's terminated the Operating Agreements effective
January 31, 1999. BTI retained a reduced work force at the plants for security
reasons through April 30, 1999.
In March 1999, BTI and MCNIC entered into an agreement, effective January 31,
1999, whereby BTI assigned its 100% interest in BMLLC to MCNIC in exchange for a
release from MCNIC of any obligations BTI had or would have had as an interest
owner in BMLLC (the "Exchange Agreement"). As a result of the Exchange
Agreement, the Company was relieved of its obligations under the promissory note
and the related loan documents in exchange for its ownership in the Equipment.
The remaining net book value of the Equipment exchanged equaled the remaining
principal balance of the promissory note forgiven. Therefore, no gain or loss
resulted from the transaction.
The above acquisitions were accounted for by the purchase method and
accordingly, the results of operations of the travel facilities and other
acquired assets have been included in the Company's financial statements from
their respective acquisition dates.
The Company considers the acquisition of the travel facilities and the Equipment
as asset acquisitions; therefore, no pro forma financial information has been
reported in the accompanying financial statements.
(4) Discontinued Operations
- --- -----------------------
ITF Segment
- -----------
In April 1999, Beard's Board of Directors adopted a formal plan to discontinue
its ITF Segment. That same month Beard entered into an agreement with ITF and
its minority shareholders which would have resulted in the sale of ITF to the
minority shareholders. The agreement failed to close, and in September 1999
Beard, ITF and the minority shareholders entered into new agreements which were
closed in November 1999. As a result, ITF disposed of two of its travel
facilities and its truck wash. The purchaser assumed the outstanding debt of
$2,149,000 on the properties and equipment and accounts payable totaling
$126,000; the minority shareholders gave up their 20% interest in ITF; $327,000
of C/D's formerly securing the debt were assigned to the Company; and a $440,000
note ($544,000 face value) to the minority shareholders was cancelled. Beard now
has 100% ownership of ITF which owns two C-stores, including their remaining
equipment, and has no outstanding indebtedness related to the assets.
Beard recorded losses totaling $2,419,000, including a $1,603,000 estimated
loss from discontinuing the ITF Segment in 1998. The estimated loss included a
provision of $347,000 for losses expected to be incurred by ITF from January 1,
1999 through disposition. ITF's revenues and actual operating losses for 1999
were $6,487,000 and $567,000, respectively. Losses of $347,000 were charged
against the loss accrual recorded in 1998 with the remaining $220,000 reflected
in the loss from discontinued operations in the 1999 statement of operations.
Beard recorded an additional $214,000 loss in the fourth quarter of 1999;
including $180,000 of anticipated operating losses from December 31, 1999
through the disposal date of the remaining assets; and $34,000 representing a
further reduction in the estimated realizable value of the remaining C-stores as
of December 31, 1999. 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.
As of December 31, 2001, the significant assets related to the ITF Segment
consisted of the two remaining C-stores and other assets with a total estimated
net realizable value of $407,000. The significant liabilities of the segment
consist of trade accounts payable of $9,000 and accrued expenses totaling
$14,000. Beard is actively seeking opportunities to sell the remaining C-stores
and expects the C-stores to be sold by December 31, 2002.
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. For the year 2001, the
Company recorded $111,000 in net operating expenses for the smaller of the two
plants distributed to the Company in 2000. The Company expects no further
charges to income related to the operation of these assets until the time of
their disposition or sale.
As of December 31, 2001, the significant assets related to NABR's operations
consisted primarily of equipment and inventory with estimated net realizable
values of $71,000 and $76,000, respectively. The significant liabilities related
to NABR's operations consisted primarily of accounts payable of $7,000 and
accrued expenses totaling $242,000. The Company is actively pursuing
opportunities to sell NABR's assets and expects the disposition to be completed
by December 31, 2002.
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, 2001, 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.
Beard's share of operating losses from the discontinued segment was $619,000 for
the year ending December 31, 2001. Beard's share of operating losses from the
50%-owned company (accounted for as an equity investment) was $393,000 which
included a provision of $72,000 for estimated losses from the discontinuation of
operations. The remaining $226,000 of losses for the year ending December 31,
2001 were associated with the operations of the wholly-owned companies and were
not anticipated in the loss accrual. These 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 were
$1,238,000 and $455,000, respectively for 2000 and 1999.
As of December 31, 2001 the significant assets of the WS Segment were accounts
receivable totaling $45,000 and fixed assets of $150,000. The significant
liabilities of the segment consisted of trade accounts payable and other accrued
expenses totaling $49,000. It is anticipated that substantially all of the
liabilities of the segment will be paid in May, 2002 when the companies in the
segment previously operating in Mexico will be dissolved.
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 2001,
2000 or in 1999. ISITOP's operating losses totaled $17,000, $142,000 and
$317,000 for 2001, 2000 and 1999, respectively. ISITOP had no significant assets
or liabilities at December 31, 2001.
(5) 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 is mandatorily redeemable through December 31,
2002 from one-third of Beard's "consolidated net income" as defined in the
Restructure agreements. Accordingly, one-third of future "consolidated net
income" through such date will accrete directly to the preferred stockholder and
reduce earnings per common share. Each share of Beard preferred stock which has
not previously been redeemed may be converted into 4.04032754 shares of Beard
common stock after December 31, 2002. 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) in lieu
of the Sellers' share of the required redemption from one-third of 1997 net
income. The Sellers' remaining 31,318 preferred shares were purchased for
$1,000,000 or $31.93 per share.
At December 31, 2001 and 2000, 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.
(6) Investments and Other Assets
- --- ----------------------------
Investments and other assets consisted of the following:
December 31,
------------
2001 2000
---- ----
Certificates of deposit $ 75,000 $ 75,000
Investment in and advances to ITS-Testco, L.L.C. 11,000 241,000
Investment in and advances to ABT-Beard, L.L.C. 440,000 -
Investment in Cibola Corporation 48,000 38,000
Investment in real estate limited partnerships 54,000 52,000
Other assets 24,000 61,000
-------- --------
652,000 467,000
Current investments - -
-------- --------
$652,000 $467,000
======== ========
Certificates of Deposit
- -----------------------
Included in investments and other assets at December 31, 2001 and 2000 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.
Investment in and Advances to ITS-Testco, L.L.C.
- ------------------------------------------------
In 1998, the Company contributed $353,000 for a 50% ownership in ITS-Testco,
L.L.C. ("ITS-Testco"). During 1999, the Company contributed an additional
$301,000 to ITS-Testco. ITS-Testco, through its wholly-owned subsidiary, Testco
Inc de Mexico, S.A. de C.V., is involved in natural gas well testing operations
in northeastern Mexico. The Company does not control ITS-Testco's operations
and, therefore, accounts for its investment using the equity method of
accounting. At December 31, 2001, the Company's carrying value of its investment
in ITS-Testco approximated ($1,069,000) and was $39,000 less than its 50%
ownership in the underlying deficit of ITS-Testco. At December 31, 2000, the
Company's carrying value of its investment in ITS-Testco approximated ($675,000)
which exceeded its 50% ownership in the underlying deficit of ITS-Testco by
$29,000. The Company also had $1,080,000 and $917,000 of receivables due from
ITS-Testco at December 31, 2001 and 2000, respectively, related to advances to
fund operations. The receivables are due on demand and accrued interest at an
annual rate of 8.25% through December 31, 1999. The rate was increased to 8.75%
effective January 1, 2000. Because the Company was committed to funding the
operations of ITS-Testco, the Company's deficit in its investment in ITS-Testco
and advances due from ITS-Testco are combined in the consolidated balance
sheets.
The summarized unaudited financial information of ITS-Testco as of December 31,
2001 and 2000 and for the years then ended is as follows:
2001 2000
---- ----
Current assets $ 79,000 $ 253,000
Current liabilities (3,000) (367,000)
----------- -----------
Working capital (deficit) 76,000 (114,000)
Equipment, net - 1,197,000
Other assets - 70,000
Advances from members (2,138,000) (1,984,000)
Long-term debt - (576,000)
----------- -----------
Members' deficit $(2,062,000) $(1,407,000)
=========== ===========
Revenue $ 107,000 $ 344,000
=========== ===========
Net loss $ (654,000) $(2,129,000)
Foreign currency translation adjustment (1,000) (34,000)
----------- -----------
Comprehensive loss $ (655,000) $(2,163,000)
=========== ===========
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 is pursuing the formation of joint venture entities in
China which will oversee the construction and operation of waste reclamation
facilities. The Company does not control ABT-Beard's operations and, therefore,
accounts for its operations using the equity method of accounting. The Company's
carrying value of its investment in ABT-Beard at December 31, 2001 approximated
($262,000) which was $112,000 less than its 50% ownership in the underlying
equity of ABT-Beard. The difference is a result of the other partner's capital
contributions exceeding the Company's capital contributions. Such difference
will be made up to the Company through future distributions from ABT-Beard to
the owners.
The Company also had $702,000 of receivables due from ABT-Beard at December 31,
2001 related to advances to fund operations. The receivables are due on demand
and accrued interest at an annual rate six percent above the Wall Street Journal
prime rate. The Company expects that a portion of the principal will be repaid
in 2002 but also expects to advance additional monies for subsequent projects
involving ABT-Beard. Inasmuch as the Company is 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 summarized unaudited financial information of ABT-Beard, L.L.C. as of and
for the year ended December 31, 2001 is as follows:
2001
----
Current assets $ 11,000
Current liabilities -
---------
Working capital 11,000
Equipment, net 6,000
Other assets 385,000
Long-term debt (including interest) (702,000)
---------
Members' deficit $(300,000)
=========
Revenue $ 72,000
=========
Net loss $(625,000)
Foreign currency translation adjustment -
---------
Comprehensive loss $(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 $142,000, $237,000, and $308,000
in 2001, 2000 and 1999, 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 $3,000 and $5,000 of income in 2001 and 1999, respectively, and $2,000
of loss in 2000 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 $41,000, $71,000, and $110,000 in 2001, 2000
and 1999, respectively, for economic impairment of other investments.
(7) Notes Receivable
- --- ----------------
As of December 31, 2001 and 2000, the Company had various notes receivable
totaling $179,000 and $253,000, 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, 2001 and 2000. The notes mature from
September, 2003 to February 2005, and are secured by the sold equipment. At
December 31, 2001 and 2000, $71,000 and $80,000, respectively, were due within
one year. 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. At December 31,
2000, the note receivable balance was $586,000. 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, matures in December,
2002 and is secured by a personal guaranty of the owner of Testco, Inc. If the
note has not been repaid at maturity, the Company will extend the maturity and
establish a monthly payment schedule. The Company expects the note to be paid in
full in 2002.
(8) Property, Plant and Equipment
- --- -----------------------------
Property, plant and equipment consisted of the following:
December 31,
------------
2001 2000
---- ----
Land $ 278,000 $ 245,000
Proved and unproved carbon dioxide properties 1,161,000 1,144,000
Buildings 82,000 82,000
Buildings and land improvements 185,000 301,000
Machinery and equipment 1,498,000 1,688,000
Other 180,000 411,000
Coal fines extraction and beneficiation equipment 1,510,000 1,493,000
---------- ----------
$4,894,000 $5,364,000
========== ==========
(9) Intangible Assets
- --- -----------------
Intangible assets are summarized as follows:
December 31,
------------
2001 2000
---- ----
Patent costs $ 45,000 $ 47,000
Other 3,000 3,000
---------- ----------
$ 48,000 $ 50,000
========== ==========
(10) Long-term Debt
- ---- --------------
Long-term debt is summarized as follows:
December 31,
------------
2001 2000
---- ----
Coal (a) $ 8,000 $ 13,000
e-Commerce (b) 18,000 22,000
Interstate Travel Facilities Segment - 42,000
Line of credit (c) 300,000 300,000
Lines of credit including accrued interest -
affiliated entities (d) 2,494,000 1,081,000
---------- ----------
2,820,000 1,458,000
Less current maturities 307,000 30,000
---------- ----------
Long-term debt $2,513,000 $1,428,000
========== ==========
- ---------------
(a) At December 31, 2001 and 2000, the Company's Coal Segment had $8,000 and
$13,000 of various notes payable. The note payable remaining at December
31, 2001 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 $9,000 at December 31, 2001.
(b) At December 31, 2001, the Company's e-Commerce Segment had one note
payable with a balance due of $18,000. 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 $20,000 at December 31, 2001.
(c) At December 31, 2001, the Company had fully utilized a $300,000 line of
credit at a bank. The line bears interest at prime plus one-half percent,
requires monthly payments of interest and matures July 15, 2002. The note
is guaranteed by a related party.
(d) At December 31, 2001, the Company has borrowed $2,343,000 from affiliated
entities of the Chairman of the Company under terms of four unsecured
notes totaling $2,350,000 which bear interest at 10%. The amounts borrowed
on the first note of $2,250,000 and accrued interest are due to be repaid
June 30, 2003. The principal amounts of the other three notes totaling
$100,000 plus accrued interest are due to be repaid April 1, 2003.
The annual maturities of long-term debt subsequent to December 31, 2001 are
$307,000 for 2002, $2,505,000 for 2003, $5,000 for 2004, and $3,000 for 2004.
(11) 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, 2001 are summarized as follows:
2002 $ 182,000
2003 31,000
2004 8,000
---------
$ 221,000
=========
The Company will recover, under terms of the agreement with ABT-Beard, L.L.C.,
$40,000, $9,000 and $2,000 of the future minimum payments for 2002, 2003 and
2004, respectively.
Rent expense under operating leases aggregated $275,000, $201,000, and $197,000
in 2001, 2000 and 1999, respectively. The Company has charged $49,000 of the
amount incurred in 2001 to ABT-Beard, L.L.C.
(12) Income Taxes
- ---- ------------
Total income tax expense (benefit) was allocated as follows:
Year ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Continuing operations $(73,000) $ 8,000 $ 36,000
Discontinued operations (2,000) - 12,000
-------- -------- --------
$(75,000) $ 8,000 $ 48,000
======== ======== ========
Current income tax expense (benefit) from continuing operations consisted of:
Year ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
U. S. federal $(54,000) $ 8,000 $ 34,000
Various states (19,000) - 2,000
-------- -------- --------
$(73,000) $ 8,000 $ 36,000
======== ======== ========
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,
-----------------------
2001 2000 1999
---- ---- ----
Computed U. S. federal statutory benefit $(580,000) $(526,000) $(583,000)
Federal alternative minimum tax (benefit) (54,000) 8,000 34,000
Increase in the valuation allowance
for deferred tax assets 580,000 526,000 583,000
State income tax (benefit) (19,000) - 2,000
--------- --------- ---------
$ (73,000) $ 8,000 $ 36,000
========= ========= =========
The components of deferred tax assets and liabilities are as follows:
December 31,
------------
2001 2000
---- ----
Deferred tax assets - tax effect of:
Net operating loss carryforwards $ 20,047,000 $ 20,180,000
Statutory depletion and investment tax credit carryforwards 2,081,000 2,081,000
Other, principally investments and property, plant and equipment 112,000 8,000
------------ ------------
Total gross deferred tax assets 22,240,000 22,269,000
Less valuation allowance (22,200,000) (22,269,000)
Deferred tax liabilities (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, 2001, the Company had federal regular tax operating loss
carryforwards of approximately $52.6 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.
(13) 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, 2001, 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 1999, 2000 or 2001.
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, $8,000 in 2000, and $9,000 in
1999. 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, 1998(A) 52,500 $ 3.05
Granted - -
Exercised(A) (6,000) 2.67
Forfeited - -
Expired - -
------- --------
Balance at December 31, 1999(A) 46,500 $ 3.09
Granted - -
Exercised - -
Forfeited(A) (5,625) 2.67
Expired - -
------- --------
Balance at December 31, 2000(A) 40,875 $ 3.14
Granted - -
Exercised - -
Forfeited - -
Expired - -
------- --------
Balance at December 31, 2001 40,875 $ 3.14
======= ========
- ---------------
(A) Adjusted to reflect the 3-for-4 reverse stock split effected in September
2000.
At December 31, 2001, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $2.67 - $5.83 and two
years, respectively.
At December 31, 2001 and 2000, the number of options exercisable was 41,000 and
40,000, respectively, 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 and $3.10, respectively.
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, 2001, there
were 228,000 shares reserved for distribution under the plan.
(14) 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 2001, 2000 and 1999,
the Company made matching contributions of $29,000, $40,000, and $73,000,
respectively, to the plans.
(15) 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.
(16) 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 2001, 2000 and 1999: 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 patented AirLance Compost
Systems(TM) composting technology. 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
---- ------- ----- ---------- ------
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 assets 17 17 - 14 48
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 assets 371 4 - 8 383
1999
----
Revenues from external customers
$ 953 $ 418 $ - $ - $ 1,371
Interest income 24 - - - 24
Interest expense 160 - - - 160
Depreciation, depletion and
amortization 194 33 - - 227
Segment profit (loss) (614) 360 (279) (129) (662)
Segment assets 1,407 463 - 13 1,883
Expenditures for segment assets 1,135 10 - - 1,145
Reconciliation of reportable segment revenues to consolidated revenues is as
follows (in thousands):
2001 2000 1999
---- ---- ----
Total revenues for reportable segments $ 651 $ 686 $1,371
Revenues from China operations accounted for as
an equity investment (72) - -
Revenues from corporate activities not allocated
to segments 23 31 50
------ ------ ------
Total consolidated revenues $ 602 $ 717 $1,421
====== ====== ======
Reconciliation of reportable segment interest expense to consolidated interest
expense is as follows (in thousands):
2001 2000 1999
---- ---- ----
Total interest expense for reportable segments $ 38 $ 4 $ 160
Interest expense from China operations
accounted for as an equity investment (34) - -
Interest expense from corporate activities not
allocated to segments 203 56 10
----- ----- -----
Total consolidated interest expense $ 207 $ 60 $ 170
===== ===== =====
Reconciliation of reportable segment depreciation, depletion and amortization to
consolidated depreciation, depletion and amortization is as follows (in
thousands):
2001 2000 1999
---- ---- ----
Total depreciation, depletion and amortization
for reportable segments $ 60 $ 55 $227
Corporate depreciation and amortization
not allocated to segments 30 29 40
---- ---- ----
Total consolidated depreciation, depletion
and amortization $ 90 $ 84 $267
==== ==== ====
Reconciliation of total reportable segment profit (loss) to consolidated loss
from continuing operations is as follows (in thousands):
2001 2000 1999
---- ---- ----
Total profit (loss) for reportable segments $(1,018) $ (994) $ (662)
Eliminate loss from China operations accounted for
as an equity investment 625 - -
Equity in loss from China operations accounted for
as an equity investment (312) - -
Net corporate costs not allocated to segments (821) (390) (873)
------- ------- -------
Total consolidated loss from continuing
operations $(1,526) $(1,384) $(1,535)
======= ======= =======
Reconciliation of reportable segment assets to consolidated assets is as follows
(in thousands):
2001 2000
---- ----
Total assets for reportable segments $ 2,536 $ 2,258
Assets from China operations accounted for as an
equity investment (403)
Investment in equity investee - China operations 440
Assets of discontinued operations 783 792
Corporate assets not allocated to segments 702 2,037
------- -------
Total consolidated assets $ 4,058 $ 5,087
======= =======
Reconciliation of expenditures for segment assets to total expenditures for
assets is as follows (in thousands):
2001 2000
---- ----
Total expenditures for assets for reportable Segments $ 48 $383
Capital expenditures of discontinued operations 3 39
Corporate expenditures not allocated to segments 24 39
---- ----
Total expenditures for assets $ 75 $461
==== ====
11% of segment revenues for 2001 were derived from a customer in China. The
remaining 2001, and all of 2000 and 1999 segment revenues were derived from
customers in the United States. Certain long-lived assets with recorded values
approximating $305,000 at December 31, 2001 are located in China. All remaining
segment assets are located in the United States.
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. During 1999, one customer accounted
for 84% of the Coal Segment's and 58% 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 2001, 2000, and 1999, sales by these two
operators accounted for 68%, 69%, and 30%, 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.
(17) Quarterly Financial Data (unaudited)
- ---- ------------------------------------
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)
Three Months Ended
------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
---- ---- ---- ----
(in thousands except per share data)
Revenues $ 117 $ 134 $ 192 $ 274
Operating loss (511) (621) (389) (499)
Loss from continuing
operations (383) (534) (105) (370)
Loss from discontinued
operations (405) (322) (386) (524)
Net loss (788) (856) (491) (894)
Basic loss per share (0.43) (0.47) (0.27) (0.49)
Diluted loss per share (0.43) (0.47) (0.27) (0.49)
The quarterly information presented above has been restated to conform to the
final year-end 2001 presentation.
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. The Company recorded adjustments in the fourth
quarter of 2000 and 1999 resulting from the discontinuance of NABR (accounted
for under the equity method of accounting) and the interstate travel facilities
operations (see note 4).
(18) Subsequent Events
- ---- -----------------
The Company has retained an investment banking firm on a best efforts basis to
sell $1,000,000 of 10% subordinated notes to accredited investors in a private
placement. The Notes will be priced at an approximate discount of 6.5% so as to
have an effective yield to maturity of 15%. The initial closing in the offering
occurred as of April 5, 2002, with the acceptance of the minimum required
subscriptions of $250,000. The offering will terminate no later than May 31,
2002. The Company intends to use the net proceeds to provide working capital
until the Company receives the anticipated settlement proceeds from the McElmo
Dome litigation. The Company has agreed to redeem the Notes within 10 days of
receipt of the settlement. The Notes will mature on September 30, 2003; however,
if they have not been redeemed by such date they will automatically be extended
to March 31, 2005 and the Note purchasers will be granted a security interest in
the McElmo Dome Field. Assuming all of the Notes are sold, the Note purchasers
have the contingent right to receive up to 200,000 Warrants, depending upon the
length of time their Notes are held. The investment banking firm will receive
45,000 Warrants. The Warrants will 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.
The exercise price will be reduced to $0.75 per share if the Notes have not been
redeemed by September 30, 2003.
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 73
Herb Mee, Jr. President, Chief Financial Officer November 1973 73
and Director (A)
Allan R. Hallock Director December 1986 72
Harlon E. Martin, Jr. Director October 1997 54
Ford C. Price Director March 1988 64
Philip R. Jamison President - Beard Technologies, Inc.(B,C) February 1997 63
Riza E. Murteza President & CEO - Beard Sino-American Resources Co., November 1998 72
Inc. (B,C)
Marc A. Messner President & CEO- starpay.com, l.l.c. (B,C) August 1998 40
Jack A. Martine Controller and Chief Accounting Officer October 1996 52
Rebecca G. Witcher Secretary-Treasurer (A) October 1993 42
- ---------------
(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.
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. From 1993
to 1995 he served as a consultant to Energy International, Inc. ("EI") in
connection with the development of its mulled coal process, and installed and
operated the process in connection with EI's performance of a contract for the
Department of Energy.
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, and as a consultant to a number of other companies
during the interim periods.
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 Term
-------- ----
W. M. Beard 2002
Allan R. Hallock 2003
Ford C. Price 2003
Harlon E. Martin, Jr. 2004
Herb Mee, Jr. 2004
- ---------------
(1) 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.
To the Company's knowledge, based solely on information received from each
reporting person which includes written representations that no other reports
were required during the fiscal year ended December 31, 2001, 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 $100,000, for any of the fiscal years
ended December 31, 2001, 2000 or 1999:
SUMMARY COMPENSATION TABLE
Long Term
Compensation
-----------------------------
Annual Compensation Awards Payouts
- --------------------------------------------- ---------- -------
Securities
Underlying All Other
Name and Options/ LTIP Compen-
Principal Salary (A) Bonus SAR's Payouts sation (C)
Position Year ($) ($) (#) ($) ($)
- -------- ---- --- --- --- --- ---
W. M. Beard 2001 66,000(D) -0-(D) -0- 68,400(D) 3,300(D)
Chairman & CEO 2000 118,250(D) -0-(D) -0- 16,100(D) 5,913(D)
1999 122,375(D) 2,300 -0- 9,625(D) 6,234(D)
Herb Mee, Jr. 2001 132,000 -0-(E) -0- 1,400(E) 6,670(E)
President & CFO 2000 132,000 -0-(E) -0- 1,350(E) 6,600(E)
1999 132,000 1,300 -0- -0- 6,665
- ---------------
(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 Company has 350,000 shares available for issuance
under the Plan; 228,000 were reserved for distribution under the Plan at
December 31, 2001.
(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 2001 Mr. Beard deferred one-half ($66,000) of his salary and all
($2,400) of his length of service bonus for the year; 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; in 1999 Mr. Beard deferred one-fourth
($9,625) of his salary for 3-1/2 months pursuant to the Company's Deferred
Stock Compensation Plan.
(E) In 2001 Mr. Mee deferred all ($1,400) of his length of service bonus for
the year; in 2000 he deferred all ($1,350) of his length of service bonus
for the year pursuant to the Company's Deferred Stock Compensation Plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information, with respect to the named
executive officers, concerning the exercise of options during the Company's last
fiscal year and unexercised options held as of the end of the last fiscal year:
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
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
Mr. Carr received compensation of $7,500 for services rendered during 2001
as a director of Beard. Messrs. Hallock, Martin and Price received $7,500,
$8,000 and $8,000, respectively, of deferred fees under the Company's Deferred
Stock Compensation Plan (the "Plan"). 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. The
non-management directors also receive a small year-end bonus depending upon
their length of service as directors of Beard and Beard Oil. Accordingly,
Messrs. Hallock, Martin, Price, and Carr received $650, $200, $650 and $350,
respectively, in 2001. All of the directors except Mr. Carr 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, Martin and Carr received $4,478, $3,885, $202
and $180, respectively, of such compensation during the year. None of the
directors received additional compensation in 2001 for their committee
participation.
The three eligible non-management directors (Messrs. Hallock, Martin and
Price) were each granted 3,750(A) phantom stock units (the "Units") under the
Company's 1994 Phantom Stock Units Plan on November 1, 1994. Mr. Carr was
awarded 3,750(A) Units when he became eligible on February 22, 1995. All of
these awards were based on an award price of $2.667(B) per share and vested over
a five year period at the rate of 20% per year. Each participant has the option
of receiving payment for his award: (i) as it vests; (ii) at the conclusion of
the award period; or (iii) 50% as it vests, with the other 50% deferred to the
conclusion of the award period. Payments are based upon appreciation in the
market value of the Company's common stock during the appropriate time interval
selected. Mr. Carr received a cash payment of $1,123 in 2000 for 750 Units which
vested on February 22, 2000, and $1,987 in 1999 for 750 Units which vested on
February 22, 1999. Messrs. Hallock and Price received $8,630 each in 2000 for
3,750 Units which vested on November 1, 1999.(A)
- ---------------
(A) All Units and per share prices have been adjusted to reflect the 3-for-4
reverse stock split effected in September 2000.
(B) The market value on November 1, 1994 was $2.50 per share; on February 22,
1995 it was $2.333 per share.(A)
Compensation Committee Interlocks and Insider Participation
Michael E. Carr, who has been elected by the preferred shareholders to
serve as their representative on the Board of Directors, was elected to serve as
a member of the Compensation Committee on April 26, 1994. He served as Senior
Vice President of Beard Oil from December 1986 until October 1993. Mr. Carr's
resignation as a director was accepted by the Company on February 1, 2002. The
sole remaining preferred shareholder has not, to date, elected to fill such
vacancy.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
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, 2002. Unless otherwise noted, the person named has sole voting and
investment powers over the shares reflected opposite his name.
Number of Number of Combined
Preferred Common Common and
Shares and Shares and Preferred
Nature of Percent Nature of Percent Voting
Name and Address Ownership of Class Ownership of Class(8) Percentage(8)
---------------- --------- -------- --------- ----------- -------------
John Hancock Financial Services,
Inc. ("Hancock") 27,838 100.00% 234,030(1)(2) 12.80%(2) 17.85%
57th Floor
200 Clarendon Street
Boston, Massachusetts 02117
Dimensional Fund Advisors, Inc. 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% 206,741(4) 11.30% 10.65%
6301 N. Western, Suite 210
Oklahoma City, OK 73118
W. M. Beard None 0.00% 658,817(5) 35.84% 33.77%
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, OK 73112
Lu Beard None 0.00% 241,639(6) 13.21% 12.45%
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, OK 73112
Herb Mee, Jr. None 0.00% 347,294(7) 18.80% 17.72%
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, OK 73112
- ---------------
(1) Shares are held by Hancock on behalf of itself and affiliated entities.
(2) Excludes the Beard preferred shares which will collectively become
convertible into 5.79% of the outstanding common stock (after conversion)
on January 1, 2003 to the extent not previously redeemed or converted.
(3) Dimensional Fund Advisors, Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 112,296 shares as of
December 31, 2001, all of which shares are held in portfolios of investment
companies and commingled group trusts and separate accounts which
Dimensional serves as investment advisor or investment manager. Dimensional
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, 2002. 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 57,562 and
133,626 shares held for the accounts of Messrs. Beard and Mee,
respectively.
(5) Includes 178,754 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 "1988
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; 57,562 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, 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. Excludes
1,259 shares owned by his wife as to which Mr. Beard disclaims beneficial
ownership.
(6) Represents 240,380 shares owned by the 1988 Unitrust, of which Mr. Beard
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 15,678 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 held by B & M Limited as
to which Mr. Mee shares voting and investment power with Mr. Beard but as
to which Mr. Mee has no present economic interest; and 133,626 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. 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.
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, 2002.
Amount and
Nature of
Beneficial Percent
Name and Address Ownership of Class (7)
---------------- --------- ------------
W. M. Beard................................ 658,817(1) 35.84%
Herb Mee, Jr............................... 347,294(2) 18.80%
Ford C. Price.............................. 13,998(3) ---(6)
Allan R. Hallock........................... 1,875(4) ---(6)
Harlon E. Martin, Jr....................... 750 ---(6)
All directors and executive
officers as a group (7 in number)..... 862,869(5) 46.15%
- ---------------
(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 7,799 shares owned directly by Mr. Price and 2,449 shares held by
an IRA for the benefit of Mr. Price, as to all of which he has sole voting
and investment power, and 3,750 shares held by the FCP Trust as to which he
has shared voting and investment power.
(4) Represents shares held directly by Mr. Hallock as to which he has sole
voting and investment power.
(5) Includes 448,300 shares as to which directors and executive officers have
sole voting and investment power and 414,569 shares as to which they share
voting and investment power with others.
(6) Reflects ownership of less than one (1) percent.
(7) See footnote (8) to table "Security Ownership of Certain Beneficial
Owners."
Item 13. Certain Relationships and Related Transactions.
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, and to
$2,500,000 in January 2002. The interest rate remains at 10% and the loan now
matures on June 30, 2003. As of December 31, 2001, there was a principal balance
of $2,242,781 outstanding on the line of credit. In addition, 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.
PART IV
Item 14. 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 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. ("BTI"), dated May 18, 1998. (This Exhibit
has been previously filed as Exhibit 10(k) to Registrant's Form 10-K
for the period ended December 31, 1998, filed on April 15, 1999, and
same is incorporated herein by reference).*
10(i) Subscription Agreement by and between Cibola Corporation ("Cibola")
and Registrant, dated April 10, 1996. (This Exhibit has been
previously filed as Exhibit 10.1 to Registrant's Form 10-Q for the
period ended June 30, 1996, filed on August 14, 1996, and same is
incorporated 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.
10(t) 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(u) 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(v) 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(w) 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(x) 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(y) 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(z) Renewal Promissory Note from Registrant to the Trustees of the
Unitrust dated January 15, 2002.
10(aa) 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(bb) 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(cc) 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(dd) 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(ee) 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(ff) 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(gg) 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(hh) 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(ii) 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(jj) 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(kk) 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).
23 Consents of Experts and Counsel:
23(a) Consent of Cole & Reed, P.C.
23(b) Consent of KPMG LLP
- ---------------
* Compensatory plan or arrangement.
The Company will furnish to any shareholder a copy of any of the above
exhibits upon the payment of $.25 per page. Any request should be sent to The
Beard Company, Enterprise Plaza, Suite 320, 5600 North May Avenue, Oklahoma
City, Oklahoma 73112.
(b) No reports on Form 8-K were filed during the period covered by this
report.
SIGNATURES
Pursuant to the requirements of 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, 2002 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
- --------- ----- ----
W.M. BEARD
By W.M. Beard Chief Executive Officer April 8, 2002
HERB MEE, JR.
By Herb Mee, Jr. President and Chief April 8, 2002
Financial Officer
JACK A. MARTINE
By Jack A. Martine Controller and April 8, 2002
Chief Accounting Officer
W.M. BEARD
By W.M. Beard Chairman of the Board April 8, 2002
HERB MEE, JR.
By Herb Mee, Jr. Director April 8, 2002
ALLAN R. HALLOCK
By Allan R. Hallock Director April 8, 2002
HARLON E. MARTIN, JR.
By Harlon E. Martin, Jr. Director April 8, 2002
FORD C. PRICE
By Ford C. Price Director April 8, 2002
EXHIBIT INDEX
Exhibit
No. Description Method of Filing
- --- ----------- ----------------
2(a) Agreement and Plan of Reorganization Incorporated herein by reference
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).
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 September
16, 1997.
2(c) Certificate of Merger merging The Incorporated herein by reference
Beard Company into The New Beard
Company as filed with the Secretary
of State of Oklahoma on November 26,
1997.
3(i) Certificate of Incorporation of The Incorporated herein by reference
New 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 Incorporated herein by reference
Certificate of Amendment attached
thereto, by and among Registrant,
Beard Oil, New York Life Insurance
Company, New York Life Insurance and
Annuity Company, John Hancock Mutual
Life Insurance Company, Memorial
Drive Trust and Sensor, dated as of
April 13, 1995.
10(a) Amendment No. One to The Beard Incorporated herein by reference
Company 1993 Stock Option Plan dated
August 27, 1993, as amended June 4,
1998.
10(b) Form of Indemnification Agreement Incorporated herein by reference
dated 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 Incorporated herein by reference
Company Deferred Stock Compensation
Plan dated November 1, 1995, as
amended October 24, 2001.
10(e) Amended and Restated Nonqualified Incorporated herein by reference
Stock Option Agreement by and between
Richard D. Neely and ISITOP, Inc.
("ISITOP"), dated November 12, 1998.
10(f) Amended and Restated Nonqualified Incorporated herein by reference
Stock Option Agreement by and between
Jerry S. Neely and ISITOP, dated
November 12, 1998.
10(g) Nonqualified Stock Option Agreement Incorporated herein by reference
by and between Robert A. McDonald and
ISITOP, dated November 12, 1998.
10(h) Incentive Stock Option Agreement by Incorporated herein by reference
and between Philip R. Jamison and
Beard Technologies, Inc. ("BTI"),
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 Incorporated herein by reference
from Registrant to Cibola, dated
April 10, 1996.
10(k) Security Agreement by and among Incorporated herein by reference
Registrant, Cibola and the Cibola
shareholders, dated April 10, 1996.
10(l) Tax Sharing Agreement by and among Incorporated herein by reference
Registrant, Cibola and the Cibola
shareholders, dated April 10, 1996.
10(m) Guaranty Agreement between Registrant Incorporated herein by reference
and 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 Filed herewith electronically
between Registrant and the Unitrust
dated January 15, 2002.
10(t) Promissory Note from Registrant to Incorporated herein by reference
the Trustees of the Unitrust dated
April 3, 2000.
10(u) Renewal Promissory Note from Incorporated herein by reference
Registrant to the Trustees of the
Unitrust dated September 1, 2000.
10(v) Promissory Note from Registrant to Incorporated herein by reference
the Trustees of the Unitrust dated
October 20, 2000.
10(w) Renewal Promissory Note from Incorporated herein by reference
Registrant to the Trustees of the
Unitrust dated March 31, 2001.
10(x) Renewal Promissory Note from Incorporated herein by reference
Registrant to the Trustees of the
Unitrust dated June 30, 2001.
10(y) Renewal Promissory Note from Incorporated herein by reference
Registrant to the Trustees of the
Unitrust dated September 30, 2001.
10(z) Renewal Promissory Note from Filed herewith electronically
Registrant to the Trustees of the
Unitrust dated January 15, 2002.
10(aa) Promissory Note from Registrant to Incorporated herein by reference
the Trustee of the William M. Beard
Irrevocable Trust "B" (the "B Trust")
dated August 31, 2001.
10(bb) Promissory Note from Registrant to Incorporated herein by reference
the Trustee of the William M. Beard
Irrevocable Trust "C" (the "C Trust")
dated August 31, 2001.
10(cc) Promissory Note from Registrant to B Incorporated herein by reference
& M Limited, a General Partnership
("B&M") dated August 31, 2001.
10(dd) Promissory Note from Registrant to Incorporated herein by reference
Bank of Oklahoma, N.A. ("BOK") dated
August 30, 2000.
10(ee) Extension Promissory Note from Incorporated herein by reference
Registrant to BOK dated September 30,
2000.
10(ff) Extension Promissory Note from Incorporated herein by reference
Registrant to BOK dated March 15,
2001.
10(gg) Extension Promissory Note from Incorporated herein by reference
Registrant to BOK dated June 30,
2001.
10(hh) Guaranty Agreement between the Incorporated herein by reference
Unitrust and BOK dated August 30,
2000.
10(ii) Guaranty Agreement between W. M. Incorporated herein by reference
Beard and BOK dated August 30, 2000.
10(jj) Asset Purchase and Sale Agreement Incorporated herein by reference
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.
10(kk) Asset Purchase and Sale Agreement Incorporated herein by reference
between ITS-Testco, LLC and
Inter-Tech Drilling Solutions, Inc.,
dated May 4, 2001.
23(a) Consent of Cole & Reed, P.C. Filed herewith electronically
23(b) Consent of KPMG LLP Filed herewith electronically