UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the period ended March 31, 2003
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-12396
THE BEARD COMPANY
(Exact name of registrant as specified in its charter)
Oklahoma 73-0970298
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, Oklahoma 73112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 842-2333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of April 30, 2003.
Common Stock $.001333 par value - 1,828,845
THE BEARD COMPANY
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements............................................... 3
Balance Sheets - March 31, 2003 (Unaudited) and
December 31, 2002............................................... 3
Statements of Operations - Three Months
ended March 31, 2003 and 2002 (Unaudited)....................... 4
Statements of Shareholders' Equity - Year ended December 31, 2002
and Three Months ended March 31, 2003 (Unaudited)............... 5
Statements of Cash Flows - Three Months ended
March 31, 2003 and 2002 (Unaudited)............................. 6
Notes to Financial Statements (Unaudited)............................ 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 21
Item 4. Controls and Procedures............................................ 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 22
Item 2. Changes in Securities and Use of Proceeds.......................... 22
Item 6. Exhibits and Reports on Form 8-K................................... 23
Signatures................................................................. 24
Certifications............................................................. 25
THE BEARD COMPANY AND SUBSIDIARIES
Balance Sheets
March 31, December 31,
Assets 2003 2002
------ ------------ ------------
Current assets:
Cash and cash equivalents $ 50,000 $ 79,000
Accounts receivable, less allowance for doubtful
receivables of $80,000 in 2003 and 2002 239,000 133,000
Prepaid expenses and other assets 21,000 20,000
Assets of discontinued operations held for resale 341,000 343,000
------------ ------------
Total current assets 651,000 575,000
------------ ------------
Notes receivable 30,000 30,000
Investments and other assets 74,000 67,000
Property, plant and equipment, at cost 1,801,000 1,794,000
Less accumulated depreciation, depletion and amortization 1,278,000 1,259,000
------------ ------------
Net property, plant and equipment 523,000 535,000
------------ ------------
Intangible assets, at cost 180,000 114,000
Less accumulated amortization 83,000 57,000
------------ ------------
Net intangible assets 97,000 57,000
------------ ------------
$ 1,375,000 $ 1,264,000
============ ============
Liabilities and Shareholders' Equity (Deficiency)
Current liabilities:
Trade accounts payable $ 85,000 $ 138,000
Accrued expenses 184,000 177,000
Short-term debt 300,000 300,000
Short-term debt - related entities 25,000 111,000
Current maturities of long-term debt 8,000 8,000
Liabilities of discontinued operations held for resale 124,000 125,000
------------ ------------
Total current liabilities 726,000 859,000
------------ ------------
Long-term debt less current maturities 1,416,000 853,000
Long-term debt - related entities 3,511,000 3,388,000
Other long-term liabilities 108,000 108,000
Redeemable preferred stock of $100 stated value;
5,000,0000 shares authorized;
27,838 shares issued and
outstanding in 2002 (note 4) - 889,000
Shareholders' equity (deficiency):
Convertible preferred stock of $100 stated value;
5,000,000 shares authorized; 27,838 shares issued
and outstanding 2003 (note 4) 889,000 -
Common stock of $.001333 par value per share; 7,500,000
shares authorized; 2,123,898 shares issued
and outstanding in 2003 and 2002 3,000 3,000
Capital in excess of par value 38,263,000 38,207,000
Accumulated deficit (41,680,000) (41,182,000)
Accumulated other comprehensive loss (15,000) (15,000)
Treasury stock, 295,053 shares, at cost, in 2003 and 2002 (1,846,000) (1,846,000)
------------ ------------
Total shareholders' equity (deficiency) (4,386,000) (4,833,000)
------------ ------------
Commitments and contingencies (note 7)
$ 1,375,000 $ 1,264,000
============ ============
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Operations
(Unaudited)
For the Three Months Ended
--------------------------
March 31, March 31,
2003 2002
------------ ----------
Revenues:
Coal reclamation $ 42,000 $ 1,000
Carbon dioxide 127,000 86,000
China - -
e-Commerce 25,000 -
Other - 3,000
----------- -----------
194,000 90,000
----------- -----------
Expenses:
Coal reclamation 110,000 119,000
Carbon dioxide 33,000 31,000
China - -
e-Commerce - -
Selling, general and administrative 423,000 253,000
Depreciation, depletion and amortization 46,000 23,000
Other 15,000 15,000
----------- -----------
627,000 441,000
----------- -----------
Operating profit (loss):
Coal reclamation (89,000) (147,000)
Carbon dioxide 84,000 47,000
China (162,000) -
e-Commerce (8,000) (36,000)
Other, primarily corporate (258,000) (215,000)
----------- -----------
(433,000) (351,000)
Other income (expense):
Interest income - 27,000
Interest expense (128,000) (67,000)
Equity in net earnings (loss) of unconsolidated affiliates 43,000 (31,000)
Gain on sale of assets - 9,000
----------- -----------
Loss from continuing operations before income taxes (518,000) (413,000)
Income tax benefit (expense) (note 6) - -
----------- -----------
Loss from continuing operations (518,000) (413,000)
Earnings (loss) from discontinued operations (note 3) 20,000 (48,000)
----------- -----------
Net loss $ (498,000) $ (461,000)
=========== ===========
Net earnings (loss) per average common share outstanding:
Basic and diluted:
Loss from continuing operations $ (0.28) $ (0.22)
Earnings (loss) from discontinued operations 0.01 (0.03)
----------- -----------
Net loss $ (0.27) $ (0.25)
=========== ===========
Weighted average common shares outstanding - basic and diluted 1,829,000 1,829,000
=========== ===========
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Shareholders' Equity (Deficiency)
Accumulated Total
Capital in Other Shareholders'
Preferred Common Excess of Accumulated Comprehensive Treasury Equity
Stock Stock Par Value Deficit Income Stock (Deficiency)
----- ----- --------- ------- ------ ----- ------------
Balance, December 31, 2001 $ - $ 3,000 $ 38,081,000 $(36,568,000) $(14,000) $(1,846,000) $( 344,000)
Net loss - - - (4,614,000) - - (4,614,000)
Comprehensive income:
Foreign currency translation
adjustment - - - - (1,000) - (1,000)
-----------
Comprehensive loss - - - - - - (4,615,000)
-----------
Issuance of stock warrants - - 11,000 - - - 11,000
Reservation of shares pursuant to deferred
compensation plan - - 115,000 - - - 115,000
--------- ------- ------------ ------------ -------- ---------- -----------
Balance, December 31, 2002 - 3,000 38,207,000 (41,182,000) (15,000) (1,846,000) (4,833,000)
Net loss, three months ended March 31, 2003
(unaudited) - - - (498,000) - - (498,000)
Comprehensive income:
Foreign currency translation
adjustment (unaudited) - - - - - - -
-----------
Comprehensive loss (unaudited) - - - - - - (498,000)
-----------
Expiration of mandatory redemption
option for preferred stock (unaudited) 889,000 - - - - - 889,000
Issuance of stock warrants (unaudited) - - 12,000 - - - 12,000
Reservation of shares pursuant to deferred
compensation plan (unaudited) - - 44,000 - - - 44,000
--------- ------- ------------ ------------ -------- ----------- -----------
Balance, March 31, 2003 (unaudited) $ 889,000 $ 3,000 $ 38,263,000 $(41,680,000) $(15,000) $(1,846,000) $(4,386,000)
========= ======= ============ ============ ======== =========== ===========
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Cash Flows
(Unaudited)
For the Three Months Ended
--------------------------
March 31, 2003 March 31, 2002
-------------- --------------
Operating activities:
Cash received from customers $ 69,000 $ 150,000
Cash paid to suppliers and employees (543,000) (317,000)
Interest received - 22,000
Interest paid (66,000) (5,000)
Operating cash flows of discontinued operations (5,000) (158,000)
---------- ----------
Net cash used in operating activities (545,000) (308,000)
---------- ----------
Investing activities:
Acquisition of property, plant and equipment (12,000) (5,000)
Acquisition of intangibles - (11,000)
Proceeds from sale of assets 1,000 18,000
Proceeds from sale of assets of discontinued operations 45,000 44,000
Investment in and advances to fifty percent-owned
subsidiary in Mexico (1,000) (4,000)
Investment in and advances to fifty percent-owned
subsidiary in China (9,000) (169,000)
Advances for notes receivable - (2,000)
Payments on notes receivable - 20,000
Other 45,000 36,000
---------- ----------
Net cash provided by (used in) investing activities 69,000 (73,000)
---------- ----------
Financing activities:
Proceeds from term notes 850,000 -
Payments on line of credit and term notes (302,000) (2,000)
Proceeds from related party debt 157,000 370,000
Payments on related party debt (192,000) (5,000)
Capitalized costs associated with issuance of
subordinated debt (66,000) -
---------- ----------
Net cash provided by financing activities 447,000 363,000
---------- ----------
Net decrease in cash and cash equivalents (29,000) (18,000)
Cash and cash equivalents at beginning of period 79,000 55,000
--------- ----------
Cash and cash equivalents at end of period $ 50,000 $ 37,000
========== ==========
Continued
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Cash Flows
(Unaudited)
Reconciliation of Net loss to Net Cash Used in Operating Activities
For the Three Months Ended
-----------------------------
March 31, 2003 March 31, 2002
-------------- --------------
Net loss $(498,000) $(461,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, depletion and amortization 46,000 23,000
Depreciation, depletion and amortization of
discontinued operations - 1,000
Gain on sale of assets - (11,000)
Gain on sale of assets of discontinued operations (45,000) (36,000)
Equity in operations of unconsolidated affiliates (43,000) 36,000
Non cash compensation expense 57,000 -
Net cash used by discontinued operations offsetting
accrued impairment loss - (4,000)
(Increase) decrease in accounts receivable, prepaid
expenses andother current assets (66,000) 6,000
Decrease in inventories - 56,000
Increase in accounts payable, accrued
expenses and other liabilities 4,000 82,000
---------- ----------
Net cash used in operating activities $(545,000) $(308,000)
========== ==========
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Notes to Financial Statements
March 31, 2003 and 2002
(Unaudited)
(1) Summary of Significant Accounting Policies
- --- ------------------------------------------
Basis of Presentation
---------------------
The accompanying financial statements and notes thereto have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain disclosures normally prepared in
accordance with accounting principles generally accepted in the United
States have been omitted. The accompanying financial statements and notes
thereto should be read in conjunction with the audited consolidated
financial statements and notes thereto included in The Beard Company's 2002
annual report on Form 10-K.
The accompanying financial statements include the accounts of The Beard
Company and its wholly and majority-owned subsidiaries in which The Beard
Company has a controlling financial interest ("Beard" or the "Company").
Subsidiaries and investees in which Beard does not exercise control are
accounted for using the equity method. All significant intercompany
transactions have been eliminated in the accompanying financial statements.
The financial information included herein is unaudited; however, such
information reflects solely normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation of the results for
the interim periods presented.
The results of operations for the three-month period ended March 31, 2003,
are not necessarily indicative of the results to be expected for the full
year.
The Company's current significant operations are within the following
segments: (1) the Coal Reclamation ("Coal") Segment, (2) the Carbon Dioxide
("CO2") Segment, (3) the China ("China") Segment, 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
continuing to pursue environmental opportunities in China focusing on the
installation and construction of facilities which utilize the proprietary
composting technology of Real Earth United States Enterprises, Inc. The
e-Commerce Segment consists of a 71%-owned subsidiary whose activities are
aimed at developing business opportunities to leverage starpay.com,
l.l.c.'s intellectual property portfolio of Internet payment methods and
security technologies.
As discussed in note 3: (1) In 1999, the Company's Board of Directors
adopted a formal plan to discontinue its interstate travel facilities
business (the "ITF" Segment); (2) in 1999 the Management Committee of North
American Brine Resources ("NABR") adopted a plan to discontinue its brine
extraction/iodine manufacturing business which comprised the Company's
("BE/IM") Segment; and (3) in May 2001 the fixed assets of the 50%-owned
company (accounted for as an equity investment) involved in the Natural Gas
Well Servicing ("WS") Segment were sold and in August 2001, the Company
ceased pursuing opportunities in Mexico and the segment was discontinued.
Investments
-----------
The Company owns a 50% interest in ABT-Beard, L.L.C. ("ABT-Beard"), which
was pursuing environmental opportunities in China. ABT-Beard had no
revenues for either the first quarter of 2003 or 2002. ABT-Beard incurred
losses of $9,000 and $146,000 for the first quarter of 2003 and 2002,
respectively. As a result of a controversy which developed between the
Company and its partner in ABT-Beard and the inability to resolve the
differences, the Company filed suit against its partner in November of 2002
to terminate the business relationship. Due to the uncertainties associated
with this litigation, the Company fully impaired its investment and all
receivables associated with the partnership in the fourth quarter of 2002.
See notes 2 and 7 below.
Impact of Recently Issued Accounting Standards Not Yet Adopted
--------------------------------------------------------------
In September 2001, the FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations. Statement No. 143 applies to the initial
measurement and subsequent accounting for obligations associated with the
sale, abandonment, or other type of disposal of long-lived tangible assets.
The statement requires that asset retirement obligations be recognized at
fair value when the obligation is incurred.
The Company has adopted FASB Statements No. 143 effective January 1, 2003
for the fiscal year ended December 31, 2003 and the impact is not material.
Reclassifications
-----------------
Certain 2002 balances have been reclassified to conform to the 2003
presentation. As described in note 3, the Company discontinued three of its
segments. As a result the 2002 statement of operations has been
reclassified to reflect the segments' operations as discontinued.
(2) Ability to Fund Operations and Continue as a Going Concern
- --- ----------------------------------------------------------
Overview
--------
The accompanying financial statements have been prepared based upon the
Company's belief that it will continue as a going concern. Despite the fact
that the Company's revenues from continuing operations have declined in
each of the last four years and the Company has incurred operating losses
and negative cash flows from operations during each of the last five years,
the Company is of the belief (i) that it will commence a project in both
its Coal Segment and its China Segment during 2003 and (ii) that the
long-awaited Settlement in the McElmo Dome litigation will be received in
the May-July time frame of this year. Receipt of the Settlement in the
expected time frame would ensure that 2003 will be a profitable year while
at the same time materially enhancing the Company's liquidity and
bolstering its balance sheet ratios. Meanwhile, the Company expects to
finalize negotiations currently in progress on a major coal project,
including the financing thereof, which would ensure that its Coal Segment
will become profitable beginning in late 2003 or early 2004. (See
Additional Details below). Negotiations are also underway for a new
composting project in China and the financing therefor. In addition, the
Company finalized its first licensing arrangement in its e-Commerce Segment
in March of 2003. Although the e-Commerce licensing arrangement will not
make the segment profitable this year, the Company believes the arrangement
has the potential to make the segment profitable in 2004 or 2005.
During the 12 months ended December 31, 2002 and through March 31, 2003,
the Company has taken a number of steps to reduce its negative cash flow.
The Company's Chairman and President have deferred a portion of their base
salary into the Company's Deferred Stock Compensation Plan (the "DSC
Plan"). The Company's outside directors have deferred all of their
directors' fees into such Plan. The President of Beard Technologies has
deferred a portion of his salary until the Settlement has occurred. The
Company has suspended its 100% matching contribution (up to a cap of 5% of
gross salary) under its 401(k) Plan. All of these measures have helped and
will continue to help until the Settlement has occurred. The negative
result has been a substantial amount of dilution to the Company's common
equity. During such period 225,000 warrants were issued in connection with
the two private debt placements, and 169,000 Stock Units were accrued in
the participants' accounts as a result of deferrals of salary into the DSC
Plan. A minor amount of dilution has also occurred due to an adjustment to
the Preferred Stock conversion ratio resulting from the issuance of the
warrants and the salary deferrals.
Meanwhile, despite the recent poor financial results and the deterioration
of its financial condition, the Company has demonstrated the ability to
maintain its viability as a going concern. During the 12 months ended
December 31, 2002 and through March 31, 2003, the Company has successfully
completed two private debt placements totaling $1,800,000 while at the same
time increasing its lines of credit from a total of $2,925,000 to a total
of $3,450,000. During such period it has remained in compliance on all of
its debt obligations. On March 31, 2003, the Company made the required
semi-annual $61,000 interest payment on its 10% subordinated notes due
September 30, 2003, and still had $125,000 available on its existing line
of credit from the Unitrust which, coupled with anticipated proceeds from
the sale of assets, it believes will be adequate to carry it until the
anticipated Settlement of more than $3,900,000 is received. Receipt of the
Settlement in the indicated time frame would ensure that the Company will
remain viable as a going concern at least through December 31, 2003.
Distribution of the Settlement proceeds will be delayed until the petition
to the U. S. Supreme Court has been decided. Although there is the
possibility that the appeal process would delay the Settlement into late
2003 or that the objecting parties could ultimately cause the Settlement to
be overturned, the Company believes it is unlikely that the Settlement will
be overturned. A delay in receiving the funds until late 2003 would require
that the Company seek additional financing, and there is no assurance this
would be accomplished. In such event the Company might need to take severe
measures, including further reduction of overhead expenses, in order to
ensure the Company's ability to continue as a going concern.
Additional Details
------------------
Despite continuing operating losses during the past twelve months, the
Company's cash and cash equivalents increased slightly from $37,000 at
March 31, 2002 to $50,000 at March 31, 2003. To mitigate potential
liquidity problems, the Company's lines of credit from an affiliate of the
Company's chairman were increased from $2,350,000 in September of 2001 to
$2,500,000 in January of 2002, to $2,625,000 in February of 2002, to
$3,000,000 in October of 2002, and to $3,150,000 in November of 2002. As a
result of the private debt placement completed in February of 2003 and
increased availability of credit from these lines, working capital improved
$209,000 during 2003.
The Company's principal business is coal reclamation, and this is where
management's operating attention is primarily focused. The Coal Segment
currently has several projects in various stages of development which,
subject to arranging necessary financing, are ultimately expected to mature
into operating projects. The segment has entered into a memorandum of
understanding on one of these projects and expects to reach a definitive
agreement on the project during the second quarter of 2003. Negotiations
are in progress with a third party to form a joint venture or limited
liability company that would provide the initial working capital and
guarantee the necessary equipment financing for the project. The timing of
the project is uncertain but, subject to obtaining the necessary financing,
it is considered to have a high probability of activity. However, no
definitive contracts have as yet been signed, and there is no assurance
that the required financing will be obtained or that the project will
materialize.
After more than four years of development activity by the China Segment,
and just when it appeared that its efforts were finally starting to bear
fruit, a controversy arose between the Company and its technology partner
concerning their legal rights and relationships. Lengthy negotiations and
discussions were unsuccessful in arriving at a mutually agreeable solution.
In November of 2002 the Company filed suit to terminate the relationship.
Our partner filed a counterclaim to which the Company has subsequently
responded. The outcome of the litigation cannot presently be determined. An
impairment provision in the amount of $759,000 was established in the
fourth quarter of 2002 to write down most of the Company's investment in
China. Accordingly, all of the projects which were under development in
China are on indefinite hold until the outcome of the litigation has been
determined. The segment has obtained an exclusive license agreement for
another technology in China and is now pursuing new projects. Negotiations
are in progress on the first of these, and there is ample room and an
adequate market for a number of such projects in the same area.
Key to the Company's liquidity is the anticipated settlement of a lawsuit,
in which the Company is a Plaintiff, which has been in progress since 1996.
A Settlement Agreement was signed among the attorneys for the Plaintiffs
and the Defendants in September of 2001. On May 6, 2002, the federal judge
issued a final judgment approving the Settlement and ordered that a
settlement fund of $50.4 million in cash be established to settle the
litigation. In late May, 2002, 11 parties (the "Objectors") who objected to
the Settlement and who were entitled to receive approximately $107,000
thereof filed appeals to the final approval of the Settlement. On December
24, 2002, the Tenth Circuit Court of Appeals issued an opinion affirming
the May 6, 2002 decision. On March 24, 2003 the Objectors filed a Petition
for a Writ of Certiorari asking the U.S. Supreme Court for review. On April
1 Plaintiff's counsel advised the Court that they do not intend to file a
response to the Petition unless one is requested by the Court. Counsel has
also advised that the vast majority of petitions are ruled upon within
three to 12 weeks, and that most petitions are disposed of within 2-1/2
weeks. If the U.S. Supreme Court denies the Petition, the Settlement is
expected to be final between early May and late June of 2003, meaning the
distribution of Settlement funds can begin at that time according to the
terms of the Settlement Agreement. Distribution of the proceeds will be
delayed until the petition to the U.S. Supreme Court has been decided. The
Company believes the Settlement will be concluded within the time frame
indicated with anticipated proceeds to the Company in excess of $3.9
million. Distribution of the contemplated proceeds will have a significant
impact upon the Company's liquidity. Although there is the possibility that
the appeals process could delay the Settlement into late 2003 or that the
objecting parties could ultimately cause the Settlement to be overturned,
the Company believes it is unlikely that the Settlement will be overturned.
To further bolster working capital, the Company on May 31, 2002 completed
the private placement of $1,200,000 of 10% subordinated notes due September
30, 2003 (the "2002 Notes"), to "bridge the gap" until the settlement funds
are distributed or until the anticipated Coal and China projects achieve
positive cash flow. The Company has agreed to redeem the 2002 Notes within
10 days of receipt of the McElmo Dome Settlement. In the event the 2002
Notes have not been redeemed by the maturity date, they will be
automatically extended to March 31, 2005. An investment banking firm
received warrants to purchase 45,000 shares of Company common stock as part
of its sales compensation in connection with the offering. The note holders
have the contingent right to receive up to 240,000 additional warrants
depending upon the length of time their notes are held. As of May 13, 2003,
a total of 186,500 of such warrants had been issued to the note holders.
Related parties purchased $320,000 of the offering, and had received a
total of 42,000 warrants as of such date. All of the warrants issued in
connection with the 2002 Notes have a 5-year term and have an exercise
price of $1.00 per share during the first three years and $1.25 per share
thereafter.
On February 21, 2003, the Company completed the sale of $600,000 of
subordinated notes (the "2003 Notes") to accredited investors. A $550,000
note was sold by an investment banking firm which received a 5% commission
thereon. The purchaser received a 5% Loan Fee on this note, which bears a
5% coupon. A $50,000 note was sold by the Company to affiliates of the
Company and bears a 10% coupon. The 2003 Notes were accompanied by warrants
to purchase a total of 60,000 shares of Beard common stock at $0.50 per
share. The Company has agreed to redeem the 2003 Notes within 10 days of
receipt of the second installment of the McElmo Dome Settlement. The 2003
Notes will mature on April 1, 2004; however, if they have not been redeemed
by such date they will automatically be extended to January 1, 2005.
In addition, the Company expects to generate cash from the disposition of
the remaining assets from the discontinued ITF, BE/IM and WS Segments, and
can sell certain other assets to generate cash if necessary.
The Company believes that the cash generated from the private debt
placement just completed, coupled with the cash expected to be generated
from the sale of assets and the anticipated distribution of the settlement
funds will be sufficient to enable the Company to continue operations
through 2003 and until the operations of the projects under development in
the Coal and China Segments have come on stream and the Company is
generating positive cash flow.
(3) Discontinued Operations
- --- -----------------------
ITF Segment
-----------
In 1999 the Company's Board of Directors adopted a formal plan to
discontinue its interstate travel facilities ("ITF") Segment and recorded
losses totaling $2,419,000 from discontinuing the segment in 1998. ITF
disposed of all of its assets in 1999 except two convenience stores
("C-stores"), including their remaining equipment and inventory, and was
relieved of all outstanding indebtedness related to the assets. Additional
losses of $214,000, $420,000, and $114,000 were recorded by the
discontinued segment in 1999, 2000 and 2001, respectively. The 2001 loss
included a $100,000 impairment in the carrying value of the facilities and
$14,000 for anticipated operating losses through the expected disposal date
of the remaining assets. In 2002, the Company recorded losses totaling
$85,000, including a $1,000 gain on the sale of assets and an additional
charge of $77,000 to impair the carrying value of the remaining facilities.
The Company sold one of the C-stores with related property, plant and
equipment in November of 2002 for $169,000.
ITF recorded no revenues for the three months ended March 31, 2002 and
incurred $4,000 of losses for the same period which were charged against
the loss accrual recorded in 2001. Included in the losses was a $2,000 gain
on the sale of equipment. ITF recorded no revenues for the three months
ended March 31, 2003 and incurred $8,000 of losses for the same period.
Such losses were charged to operations.
As of March 31, 2003, the significant assets related to the ITF Segment
consisted primarily of the remaining C-store and other assets with a total
recorded value of $147,000. The significant liabilities of the segment
consisted of trade accounts payable and accrued expenses totaling $3,000.
The remaining C-store and related assets were sold on April 17, 2003. Net
proceeds to the Company were $158,000.
BE/IM Segment
-------------
In 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 in NABR, which was accounted for under
the equity method. As a result, Beard's share of NABR's operating results
has been reported as discontinued for all periods presented in the
accompanying statements of operations. The joint venture was dissolved in
September 2000 and the Japanese partners received their final distribution
of cash in December 2000, with the Company taking over the remaining assets
and liabilities.
In 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 $572,000 of anticipated operating losses through April
2000 (the date operations ceased for the larger of its two plants) and
costs of ceasing operations. NABR's revenues for the smaller of the two
plants were none and $77,000 for the three months ended March 31, 2003 and
2002, respectively. NABR's operating losses for the three months ended
March 31, 2003 and 2002 were none and $37,000, respectively, and were not
anticipated in the loss accruals recorded in 1999. NABR charged $3,000 and
$2,000 for the three months ended March 31, 2003 and 2002, respectively,
against the accrual for anticipated expenses related to the shutdown of the
larger of its two plants.
As of March 31, 2003, the significant assets related to NABR's operations
consisted primarily of equipment with an estimated net realizable value of
$31,000. The significant liabilities related to NABR's operations consisted
primarily of accrued expenses totaling $62,000 related to the shutdown of
operations. The Company is actively pursuing opportunities to sell NABR's
assets and expects the disposition to be completed by December 31, 2003.
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. 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.
The segment recorded no revenues for either the first quarter of 2003 or
2002. Beard's share of operating results from the discontinued segment were
income of $28,000 and losses of $11,000 for the three months ended March
31, 2003 and 2002, respectively. These results for the first quarter of
2003 and 2002 included gains on sales of equipment totaling $45,000 and
$36,000, respectively. For the first quarter of 2002, Beard's share of
operating losses from the 50%-owned company was $4,000. The remaining
$7,000 of losses incurred in the three months ended March 31, 2002 were
associated with the operations of the wholly-owned company and were not
anticipated in the loss accrual.
As of March 31, 2003, the significant assets of the WS Segment consisted of
accounts receivable totaling $17,000 and fixed assets with a recorded value
of $144,000. The significant liabilities of the entity consisted of trade
accounts payable and accrued expenses totaling $58,000. It is anticipated
that all liabilities of the segment will be paid prior to December 31,
2003.
(4) Redeemable Preferred Stock
- --- --------------------------
The Company's preferred stock was mandatorily redeemable through December
31, 2002, from one-third of Beard's "consolidated net income" as defined.
Each share of Beard preferred stock became convertible into Beard common
stock on January 1, 2003, and was convertible into 4.40641266 (122,665)
shares on March 31, 2003. The conversion ratio will be adjusted as
additional warrants are issued or as additional shares of stock are
credited to the accounts of the Company's Chairman or President in the
Company's Deferred Stock Compensation Plan. Fractional shares will not be
issued, and cash will be paid in redemption thereof.
(5) Loss Per Share
- --- --------------
Basic loss per share data is computed by dividing loss attributable to
common shareholders by the weighted average number of common shares
outstanding for the period.
Diluted loss per share in the statements of operations exclude potential
common shares issuable upon conversion of redeemable preferred stock or
exercise of stock options as a result of losses from continuing operations
for all periods presented.
(6) Income Taxes
- --- ------------
In accordance with the provisions of the Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), the
Company's net deferred tax asset is being carried at zero book value, which
reflects the uncertainties of the Company's utilization of the future net
deductible amounts. The Company recorded no provision for taxes for the
three months ended March 31, 2003 or 2002.
At March 31, 2003, the Company estimates that it had the following income
tax carryforwards available for both income tax and financial reporting
purposes (in thousands):
Expiration
Date Amount
---- ------
Federal regular tax operating loss carryforwards 2004-2009 $ 55,100
Tax depletion carryforward Indefinite $ 5,500
(7) Commitments and Contingencies
- --- -----------------------------
In the normal course of business various actions and claims have been
brought or asserted against the Company. Management does not consider them
to be material to the Company's financial position, liquidity or results of
operations.
The Company has an indemnity obligation to its institutional preferred
stockholder and one of its assignees for certain losses (i) arising out of
the ownership and/or operation of Beard Oil's former oil and gas assets,
including environmental liabilities; (ii) arising under any employee
benefit or severance plan; or (iii) relating to any misrepresentation or
inaccuracy in any representation made by the Company or Beard Oil in
connection with the Restructure (collectively, the "Obligations"). Neither
Beard nor Beard Oil is presently aware of any material liabilities existing
as a result of such Obligations.
In November of 2002, the Company filed suit in the Western District of
Oklahoma to terminate ABT-Beard and the Company's business relationship
with American Bio Tech, Inc. ("ABT"), the other party in ABT-Beard.
Additionally, the Company is seeking recovery of costs, expenses and
attorney's fees. In January of 2003, ABT filed its answer and asserted
counterclaims against the Company and third-party claims against Beard
Sino-American Resources, Co., Inc., Beijing Beard Biotech Engineering Co.,
Inc., Cambridge/ABT Beard Handan Venture, L.L.C., William M. Beard, Riza E.
Murteza, and Mark E. Voth. The Company and the other defendants have filed
an answer denying liability and intend to vigorously defend such claims.
Management feels that the claims of ABT are without merit and expect no
material liabilities as a result of ABT's suit against the Company and the
other defendants.
(8) Business Segment Information
- --- ----------------------------
The Company manages its business by products and services and by geographic
location (by country). The Company evaluates its operating segments'
performance based on earnings or loss from operations before income taxes.
The Company had four reportable segments in the first quarter of 2003 and
2002: Coal, Carbon Dioxide, China and e-Commerce.
The Coal Segment is in the business of operating coal fines reclamation
facilities in the U.S. and provides slurry pond core drilling services,
fine coal laboratory analytical services and consulting services. The CO2
Segment consists of the production of CO2 gas. The China Segment is
pursuing environmental opportunities in China focusing on the installation
and construction of facilities which utilize the proprietary composting
technology of Real Earth United States Enterprises, Inc. The e-Commerce
Segment consists of a 71%-owned subsidiary whose activities are aimed at
developing business opportunities to leverage starpay.com, l.l.c.'s
intellectual property portfolio of Internet payment methods and security
technologies.
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
---- ------- ----- ---------- ------
Three months ended
------------------
March 31, 2003
--------------
Revenues from
external customers $ 42 $ 127 $ - $ 25 $ 194
Segment profit (loss) (89) 84 (171) (9) (185)
Segment assets 72 491 452 38 1,053
Three months ended
------------------
March 31, 2002
--------------
Revenues from
external customers $ 1 $ 86 $ - $ - $ 87
Segment profit (loss) (138) 47 (146) (36) (273)
Segment assets 1,580 404 463 63 2,510
Reconciliation of total reportable segment loss to consolidated loss from
continuing operations before income taxes is as follows for the three
months ended March 31, 2003 and 2002 in thousands):
2003 2002
------------ ------------
Total loss for reportable segments $ (185) $ (273)
Eliminate loss from China operations accounted for
as an equity investment - 146
Equity in loss from China operations accounted for
as an equity investment (9) (73)
Net corporate costs not allocated to segments (324) (213)
------------ -----------
Total consolidated loss from continuing
operations $ (518) $ (413)
============ ============
THE BEARD COMPANY AND SUBSIDIARIES
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS REPORT INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACTS INCLUDED OR INCORPORATED BY REFERENCE IN THIS
REPORT, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE COMPANY'S FUTURE
FINANCIAL POSITION, BUSINESS STRATEGY, BUDGETS, PROJECTED COSTS AND PLANS AND
OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, ARE FORWARD-LOOKING STATEMENTS.
IN ADDITION, FORWARD-LOOKING STATEMENTS GENERALLY CAN BE IDENTIFIED BY THE USE
OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "INTEND,"
"PROJECT," "ESTIMATE," "ANTICIPATE," "BELIEVE," OR "CONTINUE" OR THE NEGATIVE
THEREOF OR VARIATIONS THEREON OR SIMILAR TERMINOLOGY. ALTHOUGH THE COMPANY
BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE
DISCLOSED UNDER "ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS REPORT. ALL
SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY, OR PERSONS ACTING ON ITS BEHALF, ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY THE CAUTIONARY STATEMENTS. THE COMPANY ASSUMES NO DUTY TO UPDATE OR
REVISE ITS FORWARD-LOOKING STATEMENTS BASED ON CHANGES IN INTERNAL ESTIMATES OR
EXPECTATIONS OR OTHERWISE.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion focuses on material changes in the Company's
financial condition since December 31, 2002 and results of operations for the
quarter ended March 31, 2003, compared to the prior year first quarter. Such
discussion should be read in conjunction with the Company's financial statements
including the related footnotes.
In preparing the discussion and analysis, the Company has presumed readers
have read or have access to the discussion and analysis of the prior year's
results of operations, liquidity and capital resources as contained in the
Company's 2002 Form 10-K.
The Coal Segment is in the business of operating coal fines reclamation
facilities in the U.S. and provides slurry pond core drilling services, fine
coal laboratory analytical services and consulting services. The CO2 Segment
consists of the production of CO2 gas. The China Segment is pursuing
environmental opportunities in China focusing on the installation and
construction of facilities which utilize the proprietary composting technology
of Real Earth United States Enterprises, Inc ("REUSE"). The e-Commerce Segment
consists of a 71%-owned subsidiary whose activities are aimed at developing
business opportunities to leverage starpay.com, l.l.c.'s intellectual property
portfolio of Internet payment methods and security technologies.
In 1999 the Company adopted a plan to discontinue its ITF Segment, and
those operations were reflected as discontinued operations in 1998. The majority
of the assets of the ITF Segment were disposed of in 1999 and the Company is
pursuing the sale of the remaining assets. In 1999 the Company adopted a plan to
discontinue its BE/IM Segment, and those operations have since been reflected as
discontinued. The Company is now in the process of liquidating those assets. In
May 2001 the fixed assets of the 50%-owned company (accounted for as an equity
investment) involved in the WS Segment were sold. In August 2001 the Company
ceased pursuing opportunities in Mexico related to the sand separator assets
previously operated in Mexico in the WS Segment, and the Company has since been
pursuing the sale of the segment's remaining assets. As a result, the operations
of the WS Segment have now been reflected as discontinued.
Material changes in financial condition - March 31, 2003 as compared with
December 31, 2002.
The following table reflects changes in the Company's financial condition
during the periods indicated:
March 31, December 31, Increase
2003 2002 (Decrease)
---- ---- ----------
Cash and cash equivalents $ 50,000 $ 79,000 $ (29,000)
Working capital $ (75,000) $ (284,000) $ 209,000
Current ratio 0.90 to 1 0.67 to 1
During the first quarter of 2003, the Company's working capital increased
by $209,000 from $(284,000) as of December 31, 2002. Related entities of the
Chairman of the Board made net advances of $25,000 to the Company. The Company
obtained $600,000 through the private placement of another issue of 10%
Subordinated Debt. $50,000 of this amount were to a related entity of the
Company's Chairman and President. $89,000 of working capital were used to help
fund the operations of the Coal Segment. A total of $162,000 was utilized in the
pursuit of environmental opportunities in China. $32,000 were used to fund the
activities of the e-Commerce Segment. The remainder of the working capital was
utilized to fund other operations.
The Company's principal business is coal reclamation, and this is where
management's operating attention is primarily focused. The Coal Segment
currently has several projects in various stages of development which, subject
to arranging necessary financing, are ultimately expected to mature into
operating projects. The segment has entered into a memorandum of understanding
on one of these projects and expects, despite repeated delays, to reach a
definitive agreement on the project during the second quarter of 2003.
Negotiations are in progress with a third party to form a joint venture or
limited liability company that would provide the initial working capital and
guarantee the necessary equipment financing for the project. The timing of the
project is uncertain but, subject to obtaining the necessary financing, it is
considered to have a high probability of activity. However, no definitive
contracts have as yet been signed, and there is no assurance that the required
financing will be obtained or that the project will materialize.
After more than four years of development activity by the China Segment,
and just when it appeared that its efforts were finally starting to bear fruit,
we had a "falling out" with our technology partner and have filed suit to
terminate our business relationship. Accordingly, all of the projects which were
under development in China are on indefinite hold. The segment has obtained an
exclusive license agreement for another technology in China and is now pursuing
new projects. Negotiations are in progress on the first of these, and there is
ample room and an adequate market for a number of such projects in the same
area.
Key to the Company's liquidity is the anticipated settlement of a lawsuit,
in which the Company is a Plaintiff, which has been in progress since 1996. A
Settlement Agreement was signed by the parties in September of 2001. On December
24, 2002 the Tenth Circuit Court of Appeals affirmed the decision of the
Colorado District Court which approved the Settlement. On March 24, 2003 parties
who objected to the Settlement filed a petition with the U.S. Supreme Court. If
the Supreme Court denies the petition, the Settlement is expected to become
final between early May and late June of this year with anticipated proceeds to
the Company in excess of $3.9 million. Although it is possible the Court could
overturn the Settlement, our counsel believe such possibility is remote.
In 2002 the Company supplemented its $300,000 credit line with a commercial
bank by arranging for an increase in its credit line from an affiliate of the
Company's chairman. The long-term line of credit from the related party was
increased from $2,250,000 in September of 2001 to $2,500,000 in January of 2002,
to $2,625,000 in February of 2002, and to $3,000,000 in October of 2002 to
provide additional working capital, and was supplemented by a $150,000
short-term line of credit from the same party in November of 2002. The Company
recently completed the private placement of $600,000 of subordinated notes due
April 1, 2004, with warrants, to provide additional working capital and improve
liquidity in order to "bridge the gap" until the settlement funds are
distributed or until contemplated Coal and China projects achieve positive cash
flow. In addition, the Company will be disposing of the remaining assets from
the discontinued ITF, BE/IM and WS Segments and can sell certain other assets to
generate cash if necessary.
The Company believes that cash and available credit, together with proceeds
from the sale of assets, will be adequate to enable the Company to continue
operations until (i) the settlement funds have been received or (ii) the
operations of the projects under development in the Coal and China Segments have
come on stream and the Company is generating positive cash flow.
Material changes in results of operations - Quarter ended March 31, 2003 as
compared with the Quarter ended March 31, 2002.
The loss for the first quarter of 2003 was $498,000 compared to $461,000
for the 2002 first quarter. The operating loss in the Coal Segment decreased by
$58,000. The China Segment incurred operating losses of $162,000 for the first
quarter of 2003 compared to none for the same period in 2002, as a result of a
change in the manner of accounting presentation for the segment's operations in
China. The operating profit in the CO2 Segment increased $37,000. The e-Commerce
Segment incurred operating losses of $8,000 for the first quarter of 2003
compared to $36,000 in the first quarter of 2002. The operating loss in Other
activities for the first quarter of 2003 inreased $43,000 compared to the same
period in 2002. As a result, the operating loss for the current quarter
increased $82,000 to $433,000 versus $351,000 in the corresponding quarter of
the prior year.
Operating results of the Company's primary operating Segments are reflected
below:
2003 2002
---- ----
Operating profit (loss):
Coal reclamation $(89,000) $(147,000)
Carbon dioxide 84,000 47,000
China (162,000) -
e-Commerce (8,000) (36,000)
--------------- --------------
Subtotal (175,000) (136,000)
Other (258,000) (215,000)
--------------- --------------
$(433,000) $(351,000)
=============== ==============
The "Other" in the above table reflects primarily general and corporate
activities, as well as other activities of the Company.
Coal reclamation
The segment's revenues for the first quarter of 2003 increased $41,000 to
$42,000 compared to $1,000 for the first quarter of 2002. The segment's
consulting and coring business increased sharply in the current quarter as the
Company focused on the four major projects mentioned above. Operating costs
decreased $9,000 to $109,000 for the first quarter of 2003 compared to $119,000
for the same period in 2002, primarily as a result of decreased staffing.
Selling, general and administrative ("SG&A") costs decreased $3,000 for the
three months ended March 31, 2003 compared to the same period in 2002.
Depreciation expense decreased $5,000 to none for the first quarter of 2003
compared to the same period for the prior year. As a result, the operating loss
decreased $58,000 to $89,000 for the first quarter of 2003 compared to the first
three months of 2002.
Carbon dioxide
First quarter 2003 operations reflected an operating profit of $84,000
compared to $47,000 for the 2002 first quarter. The sole component of revenues
for this segment is the sale of CO2 gas from the working and overriding royalty
interests of the Company's two carbon dioxide producing units in Colorado and
New Mexico. Operating revenues in this segment increased $41,000 or 47% to
$127,000 for the first three months of 2003 compared to $86,000 for the same
period in 2002. CO2 gas is often used as an injectant in secondary and tertiary
recovery processes in the oil and gas industry. The increase in revenue, which
was primarily due to an increase in price for the paid volumes to the Company's
interest for CO2 gas during the quarter, was partially offset by a $2,000
increase in lifting costs for the current quarter.
China
The China Segment incurred an operating loss of $162,000 for the first
three months of 2003 compared to none for the same period in 2002. In the prior
year quarter and through November of 2002, the operations of this segment were
conducted through an unconsolidated affiliate. As a result of the controversy
which arose in the latter part of 2002 and the lawsuit which followed, the
Company is now conducting its operations in China through wholly-owned
affiliates. The loss in 2003 is attributable to SG&A expenses as the Company
seeks projects to utilize the proprietary composting technology of REUSE. For
the first quarter of 2002, the Company recorded a $73,000 loss as its 50% share
of the equity in operating results of the unconsolidated affiliate.
e-Commerce
The e-Commerce Segment incurred an operating loss of $8,000 for the first
quarter of 2003 versus an operating loss of $36,000 in the prior year quarter.
The segment finalized its initial patent license agreement in the first quarter
of 2003 and recorded revenues of $25,000 from a license fee compared to none in
the prior year quarter. The segment also incurred $2,000 less in SG&A costs in
the quarter ended March 31, 2003 compared to the first quarter in 2002. The
reduced loss reflects starpay's shift in focus from the development of its
technology to concentrate on developing licensing arrangements and other fee
based arrangements with companies implementing technology in conflict with
starpay's intellectual property.
Other activities
Other operations, consisting primarily of general and corporate activities,
generated a $43,000 larger operating loss for the first quarter of 2003 as
compared to the same period last year. The increased loss for the first quarter
of 2003 compared to the same period in 2002 was due primarily to a $27,000
increase in amortization expense related to capitalized costs associated with
the two debt issues. Additionally, SG&A costs increased approximately $14,000
for the current quarter compared to the same period in the prior year primarily
as a result of expensed costs associated with the issuance of the new debt.
Selling, general and administrative expenses
The Company's selling, general and administrative expenses ("SG&A") in the
current quarter increased to $423,000 from $253,000 in the 2002 first quarter.
The primary reason for the large increase is the change in treatment of the
operations in China. In 2002, these operations were conducted through an
unconsolidated affiliate and were presented as such in the statement of
operations. In 2003, the China Segment's operations are being conducted,
principally, through wholly-owned subsidiaries. For the first quarter of 2003,
$162,000 of SG&A and depreciation expenses were recorded as segment costs
compared to $73,000 of expenses recorded as equity in earnings of unconsolidated
affiliates for the same period in 2002. This $73,000 represented the Company's
50%-share of the expenses associated with the operations in China. The Company
had funded the entire amount and this was included as a portion of the
impairment recorded in the fourth quarter of 2002. The e-Commerce Segment
recorded $2,000 less in SG&A expenses in the first quarter of 2003 compared to
the same period in 2002 as 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. In addition, the Coal Segment incurred $3,000 less in
SG&A costs in the first quarter of 2003 compared to the same period in 2002 as
the segment reduced expenditures in several accounts, primarily insurance,
vehicle maintenance and subscription expenses. Other activities incurred $14,000
more in SG&A costs for the first quarter of 2003 compared to the same period in
2002 as a result of increased expenses associated with the issuance of the
subordinated debt.
Depreciation, depletion and amortization expenses
DD&A expense increased $23,000 for the first quarter of 2003 compared to
the same period of 2002 primarily as a result of the amortization of capitalized
costs associated with the two debt issues completed since the close of the first
quarter of 2002. The Coal Segment had no DD&A expense in the first quarter of
2003 compared to $5,000 for the prior year quarter as the segment's assets were
fully impaired in the fourth quarter of 2002.
Other income and expenses
The other income and expenses for the first quarter of 2003 netted to a
loss of $84,000 compared to a loss of $62,000 for the same period in 2002.
Interest income was down $27,000 for the first quarter of 2003 compared to the
same period in 2002. Interest expense was $61,000 higher as a result of the
increase in debt, primarily the two debt issues completed in the second quarter
of 2002 and the first quarter of 2003 totaling $1,800,000. The Company's equity
in earnings of unconsolidated affiliates reflected income of $43,000 for the
first quarter of 2003 compared to a loss of $31,000 for the same period in 2002.
The Company reflected a loss of $9,000 associated with the affiliate in China
for the first quarter of 2003 compared to a loss of $73,000 for the same period
in 2002. The losses represent 100% and 50%, respectively, of the losses recorded
by the affiliate in China. As discussed, the Company is involved in litigation
with its former partner in this entity and is seeking dissolution of the entity
and recovery of certain costs associated with its operation. In the interim and
starting in 2003, the Company is recording 100% of costs associated with leased
office space and a computer that the Company is paying for on behalf of the
affiliate. Offsetting the Company's share of losses of the affiliate in China
was the Company's share of the earnings of Cibola Corporation ("Cibola"). Cibola
contributed $53,000 in income for the first quarter of 2003 compared to $42,000
for the same period in 2002. The Company realized a gain on sale of assets for
the three months ended March 31, 2002 of $9,000 compared to none for the same
period in 2003.
Income taxes
The Company recorded no provision for taxes in the first quarter of 2003 or
2002. The Company has not recorded any financial benefit attributable to its
various tax carryforwards due to uncertainty regarding their utilization and
realization.
Discontinued operations
ITF Segment
- -----------
In 1999 the Company's Board of Directors adopted a formal plan to
discontinue its interstate travel facilities ("ITF") Segment and recorded losses
totaling $2,419,000 from discontinuing the segment in 1998. ITF disposed of all
of its assets in 1999 except two convenience stores ("C-stores"), including
their remaining equipment and inventory, and was relieved of all outstanding
indebtedness related to the assets. Additional losses of $214,000, $420,000, and
$114,000 were recorded by the discontinued segment in 1999, 2000 and 2001,
respectively. The 2001 loss included a $100,000 impairment in the carrying value
of the facilities and $14,000 for anticipated operating losses through the
expected disposal date of the remaining assets. In 2002, the Company recorded
losses totaling $85,000, including a $1,000 gain on the sale of assets and an
additional charge of $77,000 to impair the carrying value of the remaining
facilities. The Company sold one of the C-stores with related property, plant
and equipment in November of 2002 for $169,000.
ITF recorded no revenues for the three months ended March 31, 2002 and
incurred $4,000 of losses for the same period which were charged against the
loss accrual recorded in 2001. Included in the losses was a $2,000 gain on the
sale of equipment. ITF recorded no revenues for the three months ended March 31,
2003 and incurred $8,000 of losses for the same period. Such losses were charged
to operations.
As of March 31, 2003, the significant assets related to the ITF Segment
consisted primarily of the remaining C-store and other assets with a total
recorded value of $147,000. The significant liabilities of the segment consisted
of trade accounts payable and accrued expenses totaling $3,000. The remaining
C-store and related assets were sold on April 17, 2003. Net proceeds to the
Company were $158,000.
BE/IM Segment
- -------------
In 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 in NABR, which was accounted for under the equity
method. As a result, Beard's share of NABR's operating results has been reported
as discontinued for all periods presented in the accompanying statements of
operations. The joint venture was dissolved in September 2000 and the Japanese
partners received their final distribution of cash in December 2000, with the
Company taking over the remaining assets and liabilities.
In 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 $572,000 of anticipated operating losses through April 2000 (the
date operations ceased for the larger of its two plants) and costs of ceasing
operations. NABR's revenues for the smaller of the two plants were none and
$77,000 for the three months ended March 31, 2003 and 2002, respectively. NABR's
operating losses for the three months ended March 31, 2003 and 2002 were none
and $37,000, respectively, and were not anticipated in the loss accruals
recorded in 1999. NABR charged $3,000 and $2,000 for the three months ended
March 31, 2003 and 2002, respectively, against the accrual for anticipated
expenses related to the shutdown of the larger of its two plants.
As of March 31, 2003, the significant assets related to NABR's operations
consisted primarily of equipment with an estimated net realizable value of
$31,000. The significant liabilities related to NABR's operations consisted
primarily of accrued expenses totaling $62,000 related to the shutdown of
operations. The Company is actively pursuing opportunities to sell NABR's assets
and expects the disposition to be completed by December 31, 2003.
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. 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.
The segment recorded no revenues for either the first quarter of 2003 or
2002. Beard's share of operating results from the discontinued segment were
income of $28,000 and losses $11,000 for the three months ended March 31, 2003
and 2002 respectively. These results for the first quarter of 2003 and 2002
included gains on sales of equipment totaling $45,000 and $36,000, respectively.
For the first quarter of 2002, Beard's share of operating losses from the
50%-owned company was $4,000. The remaining $7,000 of losses incurred in the
three months ended March 31, 2002 were associated with the operations of the
wholly-owned company and were not anticipated in the loss accrual.
As of March 31, 2003, the significant assets of the WS Segment consisted of
accounts receivable totaling $17,000 and fixed assets with a recorded value of
$144,000. The significant liabilities of the segment consisted of trade accounts
payable and accrued expenses totaling $58,000. It is anticipated that all
liabilities of the segment will be paid prior to December 31, 2003.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
At March 31, 2003, the Company had notes receivable of $30,000 and
long-term debt of $4,935,000. The notes receivable and long-term debt with a
principal balance of $4,786,000 have fixed interest rates and therefore, the
Company's interest income and expense and operating results would not be
affected by an increase in market interest rates for these items. 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 $1,000. At March 31, 2003, a 10% increase in market
interest rates would have reduced the fair value of the Company's notes
receivable by $1,000 and reduced the fair value of its debt by $56,000.
The Company has no other market risk sensitive instruments.
Item 4. Controls and Procedures.
Our principal executive officer and principal financial officer have
participated in and supervised the evaluation of The Beard Company's disclosure
controls and procedures that are designed to ensure that information required to
be disclosed by the issuer in the reports it files is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include controls and procedures designed to ensure that the information required
to be disclosed in the reports that it files is accumulated and communicated to
our management, including our principal executive officer or officers and
principal financial officer to allow timely decisions regarding required
disclosure. Based on their evaluation of those controls and procedures as of a
date within 90 days of the date of this filing, our CEO and CFO determined that
the controls and procedures are adequate and effective. The evaluation resulted
in no significant changes in those controls or in other factors that could
significantly affect the controls, and no corrective actions with regard to
significant deficiencies and material weaknesses.
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings.
McElmo Dome Litigation
- ----------------------
On December 24, 2002, the Tenth Circuit Court of Appeals issued an Opinion
affirming the May 6, 2002 decision of the Colorado District Court which approved
the Settlement, the allocation thereof, attorneys' fees and other matters. On
March 24, 2003, parties objecting to the Settlement filed a Petition for
Certiorari asking the U.S. Supreme Court for review. If the U.S. Supreme Court
denies the Petition, the Settlement is expected to be final between early May
and late June of 2003, meaning the distribution of Settlement funds can begin at
that time according to the terms of the Settlement Agreement. Distribution of
the proceeds will be delayed until the petition to the U.S Supreme Court has
been decided. The Company believes the Settlement will be concluded within the
time frame indicated with anticipated proceeds to the Company in excess of $3.9
million. Although there is the possibility that the appeals process could delay
the Settlement into late 2003 or that the objecting parties could ultimately
cause the Settlement to be overturned, the Company believes it is unlikely the
Settlement will be overturned.
ABT Beard Litigation
- --------------------
In November of 2002, the Company filed suit against American Bio-Tech, Inc.
("ABT") seeking judicial termination of the partnership between the Company and
ABT. In January of 2003, ABT filed its answer and asserted counterclaims against
the Company and third-party claims against various Company affiliates seeking an
unspecified amount of damages plus attorneys' fees and costs. The Company and
the third-party defendants have filed an answer denying liability and stating
their intention to vigorously defend the claims.
Item 2. Changes in Securities.
The Company's preferred stock was mandatorily redeemable through December
31, 2002, from one-third of Beard's "consolidated net income" as defined. Each
share of Beard preferred stock became convertible into Beard common stock on
January 1, 2003, and was convertible into 4.40641266 (122,665) shares on March
31, 2003. The conversion ratio will be adjusted as additional warrants are
issued or as additional shares of stock are credited to the accounts of the
Company's Chairman or President in the Company's Deferred Stock Compensation
Plan. Fractional shares will not be issued, and cash will be paid in redemption
thereof.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed with this Form 10-Q and are identified by
the numbers indicated:
2 Plan of acquisition, reorganization, arrangement, liquidation or
succession:
2(a) Agreement and Plan of Reorganization by and among Registrant, Beard Oil
Company ("Beard Oil") and New Beard, Inc., dated as of July 12, 1993 (see
Addendum A to Part I, which is incorporated herein by reference;
schedules to the Agreement have been omitted). (This Exhibit has been
previously filed as Exhibit 3(b), filed on July 27, 1993 to Registrant's
Registration Statement on Form S-4, File No. 33-66598, and same is
incorporated 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) Promissory Note from Registrant to B & M Limited, a Partnership dated
February 7, 2003.
10(b) Promissory Note from Registrant to Boatright Family, L.L.C. dated
February 21, 2003.
10(c) Form of 2003 Warrant.
10(d) Form of Deed of Trust, Assignment of Production, Security Agreement and
Financing Statement dated as of February 21, 2003.
99 Additional exhibits:
99(a) Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
99(b) Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
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) Three reports on Form 8-K were filed during the period covered by this
report.
On January 10, 2003, the Company reported that on December 24, 2002, the
Tenth Circuit Court of Appeals issued an Opinion affirming the May 6, 2002
decision of Judge Weinshienk of the Colorado District Court which approved the
McElmo Dome Settlement, the allocation thereof, attorney's fees, and other
matters.
On February 25, 2003, the Company reported that it had completed the sale
of $600,000 of Subordinated Notes due April 1, 2004 to a group of private
investors. A $550,000 note was sold by an investment banking firm which received
a 5% commission thereon. The purchaser received a 5% loan fee on this note,
which bears a 5% coupon. A $50,000 note was sold by the Company to affiliates of
the Company and bears a 10% coupon. The notes were accompanied by warrants to
purchase a total of 60,000 shares of Beard common stock at an exercise price of
$0.50 per share. Proceeds of the notes will be used for working capital or to
pay down the Company's lines of credit. The primary purpose of the offering was
to provide funds to enable the Company to "bridge the gap" until it receives its
anticipated $3.9 million share of the Settlement from the McElmo Dome litigation
or until its Coal and China Segments have achieved profitability.
On March 27, 2003, the Company reported that on March 24, 2003, the 11
parties who had previously objected to the McElmo Dome Settlement filed a
Petition for Certiorari with the U.S. Supreme Court.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
(Registrant) THE BEARD COMPANY
HERB MEE, JR.
(Date) May 13, 2003 Herb Mee, Jr., President and
Chief Financial Officer
JACK A. MARTINE
(Date) May 13, 2003 Jack A. Martine, Controller and
Chief Accounting Officer
INDEX TO EXHIBITS
Exhibit
No. Description Method of Filing
--- ----------- ----------------
2(a) Agreement and Plan of Reorganization by Incorporated herein by reference
and among Registrant, Beard Oil Company
("Beard Oil") and New Beard, Inc.,
dated as of July 12, 1993.
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.
3(i) Certificate of Incorporation of The New Incorporated herein by reference
Beard Company as filed with the
Secretary of State of Oklahoma on
September 11, 1997.
3(ii) Registrant's By-Laws as currently in Incorporated herein by reference
effect.
4(a) Certificate of Designations, Powers, Incorporated herein by reference
Preferences and Relative,
Participating, Option and Other Special
Rights, and the Qualifications,
Limitations or Restrictions Thereof of
the Series A Convertible Voting
Preferred Stock of the Registrant.
4(b) Settlement Agreement, with Certificate Incorporated herein by reference
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) Promissory Note from Registrant to B & Filed herewith electronically
M Limited, a Partnership dated February
7, 2003.
10(b) Promissory Note from Registrant to Filed herewith electronically
Boatright Family, L.L.C. dated February
21, 2003.
10(c) Form of 2003 Warrant. Filed herewith electronically
10(d) Form of Deed of Trust, Assignment of Filed herewith electronically
Production, Security Agreement and
Financing Statement dated as of
February 21, 2003.
99(a) Chief Executive Officer Certification Filed herewith electronically
pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002.
99(b) Chief Financial Officer Certification Filed herewith electronically
pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002.
CERTIFICATIONS FOR FORM 10-Q
I, William M. Beard, Chairman of the Board and Chief Executive Officer,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Beard
Company (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
(c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
THE BEARD COMPANY
WILLIAM M. BEARD
(Date) May 13, 2003 William M. Beard, Chairman of the Board
and Chief Executive Officer
CERTIFICATIONS FOR FORM 10-Q
I, Herb Mee, Jr., President and Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Beard
Company (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
(c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
THE BEARD COMPANY
HERB MEE, JR.
(Date) May 13, 2003 Herb Mee, Jr., President and
Chief Financial Officer