-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B+rrm3V9e2BKFRtlyIN5PmeJhnl2Suh7PXHybqnxiY8jOfXS5MaHAj7wtomq/5o4 cnGVsVhTjmsWD2qU/bfmQQ== 0000909334-00-000055.txt : 20000417 0000909334-00-000055.hdr.sgml : 20000417 ACCESSION NUMBER: 0000909334-00-000055 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEARD CO /OK CENTRAL INDEX KEY: 0000909992 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 730970298 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12396 FILM NUMBER: 601999 BUSINESS ADDRESS: STREET 1: 5600 N MAY AVE STREET 2: STE 320 CITY: OKLAHOMA CITY STATE: OK ZIP: 73112 BUSINESS PHONE: 4058422333 MAIL ADDRESS: STREET 1: 5600 N MAY STREET 2: STE 320 CITY: OKLAHOMA CITY STATE: OK ZIP: 73112 FORMER COMPANY: FORMER CONFORMED NAME: BEARD INVESTMENT CO DATE OF NAME CHANGE: 19930730 10-K 1 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, 1999 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) Common Stock, $.001 par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 closing price of registrant's common stock on the American Stock Exchange as of the close of business on February 29, 2000 was $3,465,000. The number of shares outstanding of each of the registrant's classes of common stock as of February 29, 2000 was Common Stock $.001 par value - 2,438,724 DOCUMENTS INCORPORATED BY REFERENCE: None THE BEARD COMPANY FORM 10-K For the Fiscal Year Ended December 31, 1999 TABLE OF CONTENTS PART I Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for the Company's Common Equity and Related Stockholder Matters Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure PART III Item 10. Directors, Executive Officers and Significant Employees of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K SIGNATURES 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 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. THE BEARD COMPANY FORM 10-K 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 we 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 and was later 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 outside of the oil and gas industry which Beard management believed to have either high growth potential or better-than-average profit potential. This is now our principal business. We have started or acquired a number of new businesses and invested in new business opportunities with the intent of growing profitable businesses and converting our investments into shareholder value, perhaps through sale, a spin-off or rights offering to shareholders, or public offerings. 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 as needed. Under this scenario we formed in 1981 a joint venture for the extraction, production and sale of crude iodine, which we managed until the decision was made to discontinue such operations at year-end 1999. In 1987 we formed a dry ice company which we nurtured and sold for a healthy profit in 1997. In 1990 we bought a distressed real estate development which we successfully operated for seven years before selling it in 1997. In 1990 we also acquired an alternative fuels research and development company which we sold in 1994 for a profit while retaining certain technology which it patented for commercial development. In 1997 we invested in an environmental remediation company which we believed had considerable profit potential but which has not produced any commercial results to date. In 1998 we formed a subsidiary to enter the interstate travel business and another to conduct operations in the People's Republic of China where we are pursuing coal reclamation, environmental opportunities and related marketing opportunities. In October 1998 we formed a subsidiary in Mexico which commenced operations in January 1999 working as a subcontractor testing natural gas wells which Petroleos Mexicanos ("Pemex") is drilling in northeastern Mexico. In July 1999 we formed starpay(trademark).com, inc. ("starpay") which is an e-Commerce startup company that has developed a proprietary payment system to be used exclusively for Internet transactions and which will provide state-of-the-art security for purchasing transactions. In October 1999 we formed another Mexican subsidiary which designed and furnished to Pemex in November five custom fabricated sand separators for use in their operations. 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 contracting business, others in the environmental business, plus our recent 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. Our focus is on building long-term value for our shareholders. In recognition of our philosophy and our business approach, the Company believes that we should be viewed from the perspective of our actual net earnings or losses rather than from the normal perspective of earnings or losses from continuing operations. In this context our earnings for the last five years, net of losses, totaled $1,040,000, or an average of $208,000 per year. 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 on such date, which accounted for 53% of consolidated revenues and 84% of segment revenues in 1999 and for 93% of consolidated revenues and all of the segments revenues in 1998 had a material detrimental effect upon the Company's profitability during the last 11 months of 1999 (See "Continuing Operations---Coal Reclamation Activities---The MCN Projects---Dependence of the Segment on a Single Customer"). Treasury Stock Repurchase Program. On September 23, 1998, the Company announced plans to repurchase up to 200,000 shares of its currently outstanding common stock. The initial purchase of shares was made on September 30, 1998. The Company repurchased 55,500 shares under the program in 1998 and 86,275 shares in 1999 at a total cost of $591,000. Repurchase of shares was suspended in August of 1999. Operating Segments. In 1999 the Company operated within the following operating segments: (1) the coal reclamation ("Coal") Segment, which is in the business of operating coal fines reclamation and/or briquetting facilities in the U.S. and is pursuing the development of advanced fine coal preparation processes; (2) the carbon dioxide ("CO2") Segment, comprised of the production of CO2 gas; (3) the natural gas well servicing ("WS") Segment, conducted by two companies operating in northeastern Mexico, comprised of: (i) a 50%-owned company (accounted for as an equity investment) involved in natural gas well testing operations, and (ii) a 100%-owned company that has designed a sand separator for use on gas wells; (4) the environmental remediation ("ER") Segment, consisting of the remediation of polycyclic aromatic hydrocarbon ("PAH") contamination; (5) the China ("China") Segment, which is pursuing (i) the sale of coal equipment, (ii) environmental opportunities, (iii) the sale of technical services, and (iv) the operation of coal fines reclamation facilities in China; and (6) the e- Commerce ("e-Commerce") Segment, consisting of the development and implementation of systems and technologies related to Internet commerce. Discontinued Operations---ITF Segment. In April 1999 the Company adopted a plan to dispose of its voting and operational control of Interstate Travel Facilities, Inc., whose activities had previously been conducted as the "ITF" Segment. Those operations were reflected as discontinued operations in 1998. The majority of the assets of the ITF Segment were disposed of in November 1999 in exchange for the release of certificates of deposit totaling $327,000, the cancellation of $440,000 of debt and accrued interest, and the assumption of debt totaling $2,149,000 and accounts payable totaling $126,000. At year-end 1999, the ITF Segment had $847,000 of assets remaining, consisting of two convenience stores with related property, plant, equipment and inventory, and liabilities totaling $247,000 consisting primarily of trade payables and accrued liabilities. The Company is aggressively pursuing the sale of the remaining assets and anticipates disposing of same and paying off the outstanding liabilities during the second quarter of 2000. The Company took an additional charge of $434,000 in the fourth quarter of 1999 related to discontinuing the ITF Segment and does not expect further charges in connection with such activities. Discontinued Operations---BE/IM Segment. In December of 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. The decision reflected primarily the outlook for future profitability of the partnership given the decreasing production of the NABR plants and the falling worldwide price of iodine. NABR was formed in 1981 to engage in the extraction, production and sale of crude iodine. The Beard Company serves as the manager of NABR, a 40%-owned investment, which is not a consolidated entity and had previously been accounted for as an equity investment. As a result of the Management Committee's decision, NABR's activities have been reflected as discontinued operations for calendar year 1999 and for all prior years. At year-end 1999, the NABR had $1,326,000 of assets remaining, consisting primarily of cash, two iodine extraction plants, brine collection wells and iodine inventory, with liabilities totaling $725,000 including the accrual of the estimated cost of shutting down and/or disposing of the various facilities. NABR intends to shut down the larger plant in April 2000 and dispose of the equipment. It is negotiating to sell the smaller plant as a going concern. NABR expects to dispose of all the assets and pay off the outstanding liabilities prior to year-end 2000. The Company recorded a charge of $540,000 in the fourth quarter of 1999 in connection with the discontinuance of the BE/IM Segment and does not anticipate further charges in connection with such activities. 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 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. Unless the context otherwise requires, references to Beard and the Company herein include Beard and its consolidated subsidiaries, including Beard Oil. Recent Developments - ------------------- New Coal Fines Operating Agreements. In November 1999 the Company signed letters of intent with a major coal company which are expected to result in the installation by the Company of two coal wash plants targeted to be in operation in the third and fourth quarter, respectively, of 2000. The definitive agreements for these projects are currently in the process of being finalized. Once these plants have been installed and are ramped up to full production, it is anticipated that the Company's financial results will improve significantly. However, there is no assurance that the projects will be finalized. Temporary Shutdown of Well Servicing Operations. Pemex is changing its procedures for the handling of well servicing contracts. In the past these contracts have usually been "rolled over" so that there has been continuity of operations. Currently these contracts are being allowed to expire, and several new contracts will be let in April and May of 2000. The two companies that comprise the WS Segment will be bidding on the new contracts directly with Pemex, and are also in discussions to subcontract their services to a large service company that will be a bidder on a major new contract. Meanwhile, all of the WS Segment's operations in Mexico were suspended as of January 29, 2000, and most of its personnel have been placed on furlough. There is a shortage of well control equipment in Mexico, and we expect that the WS Segment will receive new contracts and will resume its activities in the second quarter of 2000. However, there is no assurance of this. In the event the WS Segment is not the successful bidder, the Company will need to evaluate the viability of its Mexican operations. New Activities in China. During the first quarter of 2000 Beard Sino-American Resources Co., Inc. ("BSAR") entered into Memorandums of Understanding (the "MOU's") which may ultimately result in the formation of cooperative joint ventures for the installation of two composting facilities in China. The first facility is to be located in Handan County in Hebei Province and the second facility is to be located in Shijiazhuang, Hebei Province. The MOU's are conditioned upon our partners obtaining the necessary financing and all required governmental approvals. Effect of Recent Developments on Liquidity. The termination of the MCN Projects (see "Loss of Significant Contract" above and "Continuing Operations---Coal Reclamation Activities") at January 31, 1999 had a material detrimental effect upon the Company's profitability during the last 11 months of 1999. Primarily as a result of the loss of its major revenue stream, coupled with the funds required to support the activities of its various startup activities, the Company's working capital decreased from $4,994,000 at year-end 1998 to $572,000 at year-end 1999. The Company has taken steps to mitigate future funding requirements by its poorly performing subsidiaries. The Coal Segment is expected to improve its profitability as soon as the agreements for the new coal fines plants have been executed and the plants have been installed (see "New Coal Fines Operating Agreements" above). The discontinued ITF Segment, which consumed $2,239,000 of cash in 1998 and $400,000 of cash in 1999, is expected to generate cash in 2000 as its remaining assets are sold. The discontinued BE/IM Segment is expected to contribute $400,000 or more of cash to Beard in 2000 as its assets are liquidated. The WS Segment, which consumed $1,251,000 of cash in 1999 as the Company funded its investment as well as a portion of our partner's investment, is targeted to break even cash-wise in 2000. We have just concluded an arrangement with a related party that has provided a $1 million working capital line until the new coal agreements are signed and alternative financing currently being pursued has been finalized and is in place. 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 and/or briquetting facilities in the U.S. and is pursuing the development of advanced fine coal preparation processes. 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. Natural Gas Well Servicing Operations. The Company's natural gas well servicing activities comprise the ("WS") Segment, which is conducted by two companies operating in northeastern Mexico. These operations are carried on by: (i) a 50%-owned company (accounted for as an equity investment) involved in natural gas well testing operations, and (ii) a 100%-owned company that has designed a sand separator for use on gas wells and has had five of them custom fabricated for use on a trial basis. Environmental Remediation. The Company's environmental remediation activities comprise the ("ER") Segment, which is conducted by ISITOP, Inc., ("ISITOP"). ISITOP specializes in the remediation of polycyclic aromatic hydrocarbon ("PAH") contamination, and has been attempting to develop a commercial market for the chemical process for which it is the sole U.S. licensee. 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, coal reclamation and related marketing opportunities in the People's Republic of China. e-Commerce. The Company's e-Commerce activities comprise the ("e-Commerce") Segment, which is conducted by starpay.com(trademark), inc. ("starpay"). starpay is pursuing the development of a virtually secure payment system to be used exclusively for Internet transactions. (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 six operating segments: Coal, CO2, WS, ER, 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 General. In January of 1999 the Company's coal reclamation activities consisted of its management of six coal fines reclamation and briquetting facilities located in three states in the U.S. Since the termination of its agreements to operate these facilities the Company has primarily been seeking other coal reclamation contracts while continuing to pursue the development of advanced fine coal preparation processes. In November of 1999 letters of intent were signed with a major coal company which are expected to result in BTI's installing two coal wash plants targeted to be in operation in the second and third quarters, respectively, of 2000. The definitive agreements for these projects are currently in the process of being finalized. However, no assurance can be given that the projects will be finalized. History/Formation 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 four years that Beard owned EI, EI developed a new technology known as M/C Technology. In May 1994 Beard sold EI to a subsidiary of The Williams Companies, Inc., retaining certain assets and the patent rights to the M/C Technology which Beard contributed to a wholly-owned subsidiary, BTI. Thereafter, as discussed below, BTI has attempted to pursue the commercial development of the M/C Technology. See "Commercial Development Activities." The M/C Technology. Underground coal mines have always produced a certain amount of fine coal which is difficult to clean and to market due to handling problems. Existing washing processes used to deal with this problem are all wet processes, and the end product must be dewatered to make it acceptable in the market place, which is difficult and usually expensive. The Mulled Coal process is an innovative and inexpensive solution to fine coal handling problems. It is a process which involves the addition of a low cost specifically formulated reagent to wet fine coal in a simple mixing step to produce a material ("Mulled Coal") that handles, stores and transports like dry coal. But, unlike thermally dried fine coal, Mulled Coal is not dusty, will not rewet, will not freeze, and causes no environmental or safety hazards related to fugitive coal dust. Patent Protection. The U.S. patent for the M/C Technology was issued in 1993. Since then patents have been issued for Australia, China, Europe (enforceable in Germany, Great Britain, Italy and Spain), Poland and South Africa. Patent applications are still pending in several other nations. Department of Energy Contract; Attempts to Commercialize the M/C Technology. From March 1994 to March 1996 the United States Department of Energy funded most of the cost of a project to demonstrate the feasibility of the M/C Technology. Results of the project were highly encouraging, and BTI focused most of its attention for the next two years on efforts to make coal producers aware of the technology and its advantages. Although a number of viable projects were developed, the parties involved were for the most part focusing on Section 29 projects which appeared to offer much greater profit potential. Impact of Section 29. In late 1997 and early 1998 there was significant activity 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. In certain cases where the Internal Revenue Service (the "IRS") has granted a favorable tax ruling concerning a facility, it has also ruled that a qualifying facility may be a mobile facility that can be moved from one coal fines source to another as fines are depleted at each successive site. The MCN Projects. On June 30, 1998, the Company, through a subsidiary, Beard Mining, L.L.C. ("BMLLC"), acquired coal fines extraction and beneficiation equipment located at six coal slurry impoundment sites (the "MCN Projects") for a purchase price of $24,000,000. Three of the sites were located in West Virginia, two in Kentucky, and one in Ohio. BMLLC financed the purchase with a $24,000,000 note to MCNIC Pipeline & Processing Company ("MCNIC"), a subsidiary of MCN Energy Group Inc. ("MCN"), secured solely by the equipment. BMLLC leased the equipment to BTI, which operated and maintained the equipment and six briquetting plants for six limited liability companies (the "LLC's"), each of which is a subsidiary of MCNIC. The monthly lease payments equalled 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. Under the agreements, BTI provided services to the LLC's for which it received a minimum profit of $100,000 per month, effective April 1, 1998, so long as the contracts remained in effect. During the time BTI was operating the six beneficiation plants and the six briquetting plants for MCNIC it was, to the best of the Company's knowledge, the largest operator of coal recovery plants in the world. In November 1998, MCN announced that it had taken a special charge of $133,782,000 pre-tax to write-down the MCN Projects. The LLC's subsequently terminated the operating agreements effective as of January 31, 1999. On March 19, 1999, BTI assigned all of its membership interest in BMLLC to MCNIC effective as of January 31, 1999. Since BMLLC owned the beneficiation equipment located at the sites, the agreement effectively assigned all of Beard's ownership interest in the property, plant and equipment to MCNIC in exchange for a full release of the $23,053,000 of remaining indebtedness related to such items and all liabilities and obligations related thereto. BTI continued to absorb part of the operating costs and continued to provide security and limited supervision at the six sites through May 1999 while it was negotiating with MCNIC concerning a proposal to form one or two limited liability companies, to be owned by BTI and MCNIC, to pursue the development of one or two of the six MCN Projects. These negotiations were unsuccessful. Current Focus on Coal Reclamation. Since the termination of the MCNIC agreements BTI has continued to focus its efforts on coal reclamation. During the past year BTI has called on numerous coal producers and utilities, particularly those having ponds which it believes have large reserves of recoverable coal fines. Marketing efforts are no longer focused on the commercial development of BTI's M/C Technology. We feel there are many projects that have commercial potential with or without the use of such technology. However, BTI is continuing to pursue the development of advanced fine coal preparation processes and will continue to pursue the licensing of its M/C Technology in foreign countries. Letters of Intent. In mid-1999 BTI began work on the development of two new pond recovery/Section 29 briquetting plant projects in the Illinois Coal Basin. In late 1999 BTI carried out an extensive slurry pond core drilling program that proved up reserves of sufficient quality, quantity and recovery rates to justify the projects. In November 1999, BTI executed letters of intent with a large coal company and a Section 29 operator pursuant to which BTI will be the owner and operator of the slurry pond dredging systems and the fine coal preparation plants that will produce clean recovered coal from two ponds that will provide the feed stock for two briquetting plants. BTI will turnkey the coal recovered from the ponds and run through the wash plants to the Section 29 operator. The first plant is tentatively scheduled to come on stream in July of 2000. The second plant is expected to start up about four months later. The definitive agreements for these projects are currently in the process of being finalized. However, finalization of definitive agreements and commencement of plant operations in 2000 are not assured. 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) the operation of coal briquetting facilities owned by third parties; (iii) core drilling of slurry ponds and evaluation of recoverable coal reserves; (iv) consulting reclamation technology; (v) technical services; and (vi) proprietary coal reclamation technology. 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 ----------- ------------- 12/31/99 63.4% 12/31/98 92.9% 12/31/97 00.2% It is important to note that revenues from the MCN Projects accounted for 84% of the Coal Segment's revenues from continuing operations in calendar year 1999 and for all of such revenues in calendar year 1998. Termination of the MCNIC operating agreements effective January 31, 1999 had a material detrimental effect upon the Company's profitability during the last 11 months of 1999 and during the first quarter of 2000. The Company's revenues and profitability will continue to be negatively impacted until the new coal contracts currently being negotiated have been finalized and until the first of the two plants involved has ramped up to full production. Facilities. BTI leases an office and laboratory facilities from the Applied Research Center at the University of Pittsburgh ("UPARC"). The UPARC facilities give BTI 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, 1999, the Coal Segment employed eight 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 0.545610% working interest (0.471926% net revenue interest) and an overriding royalty interest equivalent to a 0.092190% net revenue interest in the Unit, giving it a total 0.564116% 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. Shell CO2 Company Ltd. ("Shell Ltd.") is the operator. There are 41 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 97% CO2. In 1999 Beard sold 1,536,000 Mcf (thousand cubic feet) attributable to its working and overriding royalty interests at an average price of $.27 per Mcf. In 1998, Beard sold 2,187,000 Mcf attributable to its working and overriding royalty interests at an average price of $.28 per Mcf. In 1997 Beard sold 1,617,000 Mcf attributable to its working and overriding royalty interests at an average price of $.31 per Mcf. Beard was overproduced by 243,000 Mcf on the sale of its share of McElmo Dome gas at year-end 1999. In July of 1996 Shell Ltd. advised the working interest owners that current demand for McElmo Dome CO2 had increased from less than 600 million cubic feet per day in 1995 to over 700 million cubic feet per day, and was expected to increase to one billion cubic feet per day beginning in mid-1997. In order to meet such demand, Shell Ltd. commenced a $47 million development program in July of 1996 which was completed in 1998. Beard expended a total of $256,000 for its share of the development costs through 1998. 1998 CO2 revenues increased to $616,000 in 1998 from $503,000 in 1997 reflecting the successful development and the resultant higher rate of production. As a result of the development program, 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 CO2 production decreased to 657 million cubic feet per day in April 1999. With the subsequent sharp increase in oil prices in late 1999 and early 2000, CO2 demand for tertiary recovery is once again increasing, and CO2 production had increased back to 810 million cubic feet per day in December 1999. 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, 1999, Beard was underproduced by 267,000 Mcf on the sale of its share of Bravo Dome gas. The Company sold no CO2 gas from Bravo Dome in 1999, 1998 or 1997 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 265 producing wells are approximately 2,500 feet deep. The gas is approximately 98% 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) -------- --------- 12/31/99 1,536,000 12/31/98 2,187,000 12/31/97 1,617,000 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 ----------- ------------- --------------- 12/31/99 $0.27 $0.06 12/31/98 $0.28 $0.05 12/31/97 $0.31 $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 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. Percent of Consolidated Revenues from Fiscal Year Continuing Ended Operations - ----------- ------------- 12/31/99 27.8% 12/31/98 6.7% 12/31/97 87.5% Productive Wells and Acreage. 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, 1999, Beard held a working interest in a total of 306 gross (0.25 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................. 41 0.224 New Mexico ............. 265 0.029 --- ----- 306 0.253 === ===== Employees. As of December 31, 1999, 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. NATURAL GAS WELL SERVICING OPERATIONS TESTCO INC. de MEXICO, S.A. de C.V. In October 1998 the Company formed ITS-Testco, L.L.C., an Oklahoma limited liability company in which the Company has 50% ownership (the "LLC"). The LLC owns 100% of a subsidiary, TESTCO INC. de MEXICO, S.A. de C.V. ("Testco de Mexico"), which was also formed in October 1998 to conduct natural gas well testing operations in northeastern Mexico. Testco de Mexico works as a subcontractor to contractors working for Petroleos Mexicanos ("Pemex") testing natural gas wells which Pemex is drilling just south of the southernmost Texas border. The LLC owns most of the equipment which is being utilized by and leased to Testco de Mexico. Neither the LLC nor Testco de Mexico had any operations, other than startup costs, in 1998. The LLC began leasing equipment to Testco de Mexico in January 1999 when Testco de Mexico commenced its actual well testing operations. Incorporated Tank Systems de Mexico, S.A. de C.V. In August 1999 the Company formed ITS, Inc. ("ITS"), an Oklahoma corporation which the Company owns 100%. ITS owns 100% of a Mexican subsidiary, Incorporated Tank Systems de Mexico, S.A. de C.V. ("ITS de Mexico") which was organized in September 1999. ITS has designed a sand separator (patent applied for) to meet the specific requirements of Pemex. ITS de Mexico has had five of the separators custom fabricated which it was renting to Pemex prior to the temporary shutdown. ITS de Mexico had installed the separators at specific locations designated by Pemex and was renting the separators to them on a trial basis. At the conclusion of the trial period Pemex has advised that they will consider entering into a long-term lease with an option to purchase. Principal Products and Services. The principal products and services supplied by the Company's WS Segment are the services, provided by the furnishing of (i) properly trained personnel, (ii) specially designed equipment and (iii) technological expertise, which it provides to customers who need such services to test high pressure natural gas wells or to solve pipeline maintenance problems. Dependence of the Segment on a Single Customer. The WS Segment accounted for the following percentages of the Company's consolidated revenues from continuing operations for each of the last three years. All of the Company's WS revenues were received from Pemex in connection with the lease of sand separators. Percent of Consolidated Revenues from Fiscal Year Continuing Ended Operations - ----------- -------------- 12/31/99 5.5% 12/31/98 -0-% 12/31/97 -0-% Because the Company owns only 50% of the LLC and thus only 50% of Testco de Mexico it is not a consolidated entity and accordingly (i) the Company's investment in such entities is accounted for by the use of the equity method, and (ii) the revenues of such entities were not included in the Company's consolidated revenues. The Company recorded $229,000 and $35,000 of loss as its share of the LLC's operating losses in 1999 and 1998, respectively. All of Testco de Mexico's revenues (and thus indirectly all of the LLC's revenues) were from work performed for one subcontractor to Pemex. It should be noted that all of the WS Segment's revenues are directly attributable to work being performed by or for Pemex, and that all of the equipment involved has been specifically designed to meet the needs and requirements of Pemex. Accordingly, future results of operations of the WS Segment are totally dependent upon the Segment's continuing ability to attain contracts and/or subcontracts from Pemex. In this regard, it should be noted that Pemex recently changed its procedures for the handling of well servicing contracts. In the past these contracts were usually "rolled over" so that there has been continuity of operations. Now these contracts are being allowed to expire, and several new contracts will be let in April and May of 2000. The two companies that comprise the WS Segment will be bidding on the new contracts directly with Pemex, and are also in discussions to subcontract their services to a large service company that will be a bidder on a major new contract. Meanwhile, all of the WS Segments operations in Mexico were suspended as of January 29, 2000, and most of its personnel have been placed on furlough. There is a shortage of well control equipment in Mexico, and we expect that the WS Segment will receive new contracts and will resume its activities in the second quarter of 2000. However, there is no assurance of this. In the event the WS Segment is not the successful bidder, the Company will need to evaluate the viability of its Mexican operations. Facilities. Testco de Mexico is occupying a small office, yard and warehouse which it leases in Reynosa, Tamaulipas, Mexico. ITS de Mexico leases office space and personnel from Testco de Mexico. Market Demand and Competition. The well servicing industry is highly competitive, and the WS Segment must compete against significantly larger companies, as well as several small independent concerns. Competition is largely on the basis of technological expertise and customer service. Employees. As of December 31, 1999, the WS Segment had 2 full time employees. Financial Information. Financial information about the Company's well servicing operations is contained in the Company's Financial Statements. See Part II, Item 8---Financial Statements and Supplementary Data. ENVIRONMENTAL REMEDIATION General. The Company and its management have considerable expertise in the environmental area stemming from previous experience as the founder, as officers and directors, and as the principal shareholder of USPCI, Inc. (NYSE) from 1968 until its takeover by Union Pacific Corporation in 1987-88. ISITOP, Inc. In January of 1997, Beard changed the name of a wholly-owned, inactive subsidiary to ISITOP, Inc. ("ISITOP"). ISITOP has obtained an exclusive license for the United States from a company which has developed a chemical (54GOTM 901) and has tested a process which utilizes such chemical for the remediation of PAH contamination. U.S. Patent #5,670,460 for method and composition for 54GOTM Products was granted September 23, 1997. This patent covers all applications utilizing 54GOTM Products, including ISITOP's applications. ISITOP is 80%-owned by Beard and 20%-owned by three members of ISITOP's management team, two of whom are also the principals of the company from which the license was obtained. Pursuant to employment agreements and other related agreements these three parties also have options to acquire an additional 30% of ISITOP following payout of all sums owed by ISITOP to Beard. Attempts to Commercialize ISITOP's Technology. Following the formation of ISITOP in early 1997 the company focused its attention during the next two years on efforts to obtain contracts to clean up old creosote sites. Creosote sites appeared to be the ideal target for ISITOP'S technology since the U.S. alone is believed to have over 700 wood preserving plants which are estimated to use or produce more than 495,000 tons of creosote and creosote byproducts per year. Creosote mixtures contain many compounds that are known to cause several forms of cancer in animals and have been linked to several types of cancer in humans. The specific chemical family of cancer producing agents found in creosote are a group of molecules that are made up of several connected ring structures known as polycyclic aromatic hydrocarbons ("PAH's"). However, with the exception of a small field test near Durango, Colorado in May of 1997 where ISITOP successfully cleaned up 72 cubic yards of creosote contaminated soil, such efforts have produced no commercial contracts. In late 1998 and throughout much of 1999 ISITOP focused most of its efforts on one major project where it proposed using a bioslurry reactor system which it had developed to remediate oil field hydrocarbon materials for a major oil company. This project is now on hold while the oil company evaluates the cost of off-site programs versus ISITOP's system. ISITOP also developed a process for cleaning tanks at creosote treating facilities and a similar procedure to clean rail cars used to transport liquid creosote. Neither of these initiatives produced commercial contracts. At the beginning of 2000, ISITOP determined to broaden the scope of its marketing efforts. The company has identified 27 opportunities which are currently in various stages of study or investigation. In addition, ISITOP has entered into a teaming agreement with a much larger company which gives them additional scientific and engineering expertise, along with surface soil washing equipment and in-situ expertise to implement some of these projects. Principal Products and Services. ISITOP's bioslurry reactor system consists of three major steps. The first step is to treat the contaminated material with a proprietary family of surfactants, called 54GOTM 901, which separate the large ring compounds and/or disperse significant amounts of the hydrocarbon components. This separates the bond of molecules, allowing for microbial penetration and rendering the mixture ready for bioremediation. The next step of the ISITOP process is to wash the mixture of contaminated material to further enhance the molecular separation process. The final step is adding a solution from an on-site catalyst generator that enhances in place microbes, thus expediting the bioremediation process. Despite the dearth of commercial projects to date, ISITOP continues to believe that it has positioned itself and its technologies to become a significant player in the remediation market. The ER Segment accounted for less than 3% of the Company's consolidated revenues for each of the last three years. Facilities. ISITOP is furnished office space in Farmington, New Mexico as part of its arrangement with the company from which it obtained its license. It also has an office in Ft. Collins, Colorado. Market Demand and Competition. The environmental remediation industry is highly competitive, and in such activities ISITOP must compete against major service companies, as well as a number of small independent concerns. Competition is largely on the basis of customer service. Beard's approach has been to seek out niches of opportunity where it perceives that customers are not being adequately served, and then to provide services using well- trained personnel at reasonable rates. The regulatory environment is rapidly changing, at times creating new markets which the larger companies in the industry do not recognize or have no desire to pursue, and thus creating opportunities for smaller, aggressive entities such as Beard and ISITOP. ISITOP had no revenues in 1999. It provided its services to only one customer in 1998, but such revenues totaled only $8,000. In 1997 it provided services to a different customer, and such revenues totaled only $13,000. The loss of either customer would not have a material adverse effect on the Company and its subsidiaries as a whole. Availability of Raw Materials. Materials used in the ER Segment, as well as products purchased for resale, are available from a number of competitive manufacturers. Seasonality. The environmental remediation business is seasonal, as there is a tendency for field operations to be reduced in bad weather. Employees. As of December 31, 1999, the ER Segment employed two full time employees. Financial Information. Financial information about the ER Segment is set forth 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 July of 1998 the Company opened an office in Beijing, People's Republic of China. In November of 1998 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 early 1999 BSAR established a representative office in Beijing. Qitaihe Lushon Joint Venture. In July of 1998 the Company entered into a Memorandum of Understanding to establish a joint venture to utilize BTI's M/C Technology in two coal preparation plants in China. The plants were to have been installed in Heilongjiang Province in northeastern Manchuria. However, after repeated delays, it now appears that installation of the plants is unlikely due to changes in the political and business environment in China. Changes in the coal industry where the Coal Ministry has shut down more than 1,000 coal mines has caused us to defer our plans indefinitely. Centrifuge Distributorship. In February of 1999 the Company became the exclusive distributor in China for Decanter Machine, Inc. ("Decanter"). Decanter is the largest U.S. manufacturer of centrifuges for the coal industry. Under the agreement Beard acts as an independent contractor in promoting the sale of Decanter products in China. BSAR held a seminar for 40 representatives from the coal industry in January of 2000 in Beijing which was well received by the participants and appears to have generated interest for future centrifuge sales. Based upon the response at the seminar, BSAR has agreed to put a technical service center in China once it has sold several centrifuges. Environmental Opportunities. One of the major changes underway in China is a tremendous push to clean up the environment, with particular focus on reducing air pollution. One of their major problems involves the current landfilling of municipal solid waste (MSW). China's present options to landfilling are primarily incineration and gasification, both of which result in significant negative impact to the environment. BSAR presented to municipal and county governments in China the option of receiving MSW, segregating and recovering appropriate materials for recycling, and further treating the organic fraction through composting. BSAR has entered into a Memorandum of Understanding which is expected to lead to the formation of a cooperative joint venture with the Handan County Construction Environmental Protection Bureau Heating Company ("Handan") and has aligned itself with a major fertilizer producer which is considering providing our share of the financing for the project. If the joint venture proceeds as contemplated, the $9 million cost of the initial plant (a 200 ton per day composting facility to be located at Handan City) will be provided by the fertilizer producer and Handan who will provide up to $5.3 million of equity and arrange for the necessary financing. BSAR would have a carried interest from inception in the plant and also receive an operating fee. If the plant proceeds as planned and performs as anticipated, we envision that it would be the precursor of many such plants throughout China. BSAR has also entered into a Memorandum of Understanding for a second project which is expected to commence construction shortly after the Handan City project is operational. Installation of the second facility, which is to be located in Shijiazhuang, Hebei Province, is also subject to our partners obtaining the necessary financing and all required governmental approvals. BSAR would also have a carried interest from inception in this plant and receive an operating fee. Principal Products and Services. The principal products and services supplied by the Company's China Segment are (i) sales of coal equipment; (ii) environmental technology; (iii) technical services; and (iv) M/C Technology. The China Segment has generated no revenues to date and accordingly 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 coal reclamation industry and the environmental 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, 1999, the China Segment employed three 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(trademark), inc. 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 (the "MOU's") with (i) a Web site development company and (ii) a patent attorney who agreed to join forces to develop the concept. The MOU's 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 June and July of 1999 three patent applications were filed embodying the features of the invention. In July 1999 starpay.com(trademark), 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 February 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%). In January and April of 2000, starpay filed two additional patent applications which have considerably broadened the scope and, starpay believes, the potential of its patent claims. In November 1999 the Company announced that starpay was in the process of seeking venture capital funding to complete the development of its technology. In January 2000 the Company announced that starpay had elected two new directors to its Board, one of whom has agreed to assist starpay as a consultant in its pursuit of strategic alliances. The Company also announced that starpay had engaged a consultant to assist in revising its Business Plan and in creating strategic alliances. The starpay Technology. 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. Unlike conventional credit, debit or prepaid cards, the patent-pending starpay system cannot be used in person, nor can it be used to order goods by telephone. The starpay system is an Internet-only application that gives the user total control over the use of their e-Commerce purchasing account and thus the ultimate feeling of security. Cybertheft of a user's starpay identification number, PIN number and other transaction information during transmission from the user to the merchant is virtually impossible due to the difficulty of overcoming starpay's proprietary back-end security technology. 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 or to starpay. The starpay system also addresses the merchant's exposure to non-repudiation issues associated with Internet purchasing. We believe starpay's security features and associated secure transaction technology are significantly more advanced and secure than any known technology in use today. starpay Features. starpay will be available in four distinct systems, all of which are patent pending and provide account features unavailable through conventional e-Commerce purchasing methods. These systems include: (i) a credit based purchasing system, (ii) a debit based purchasing system, (iii) a pre-paid based purchasing system, and (iv) a gift certificate and coupons system. In addition, the starpay security technology will serve as a springboard for an entire family of security products including user authentication and security access products. 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 on April 6, 2000. Based upon its review of the document, starpay's management believes that its patent-pending payment system is the most secure payment system 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 a 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." Current Status of starpay Development and Funding. At this point starpay is still in the startup mode. The technology has been designed, but funding is needed to complete the programming and testing of all software, purchase and install the necessary hardware, add necessary personnel, negotiate strategic alliances and successfully launch the final product. starpay has engaged a consultant that specializes in Internet and e-Commerce and software development to assist in revising its Business Plan, and to assist in securing the necessary funding and in arranging strategic alliances. The revision to the Business Plan has just been completed. starpay believes that its patent-pending payment system is the most secure payment system available for use on the Internet. If starpay is successful in its fund raising and strategic alliance 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 commercialize its Internet payment system technology. 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, 1999, the e-Commerce Segment utilized three of the Company's full time employees on a part time basis. One of such employees became a full time employee of starpay effective January 1, 2000. 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, Mexico, and China are subject to political developments that the Company cannot accurately predict. Adverse policital 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 reserves and insurance to address probable environmental contingencies, it is possible that those reserves and 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. 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 drilling rigs and equipment, land and improvements, real estate limited partnerships 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, 2000, at a current annual rental of $58,000. In addition, Beard's subsidiaries lease space at several locations as required to serve their respective needs. Employees. As of December 31, 1999, Beard employed 20 full time and five part time employees in all of its operations, including eight full time employees and five 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 1999. See "McElmo Dome Litigation" below. McElmo Dome Litigation. On August 14, 1997, the Company joined with other small working interest owners and royalty owners 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, CO2 overriding royalty interest owners and taxing authorities all of whom have contract or statutory 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, and that during the period between 1984-1995 the plaintiffs have caused damages to the defendants of not less than $590.8 million after 8% interest per annum but before trebling and damages as permitted by law. From 1997 through 1999 the Company incurred legal expenses totaling $249,000 in connection with the suit. Because many of the plaintiffs in the class have elected not to fund all or part of their share of the costs involved (the "Nonparticipants"), the Company has incurred more than its share of such costs for which it is entitled to recover a bonus amount (exact amount to be determined by the Judge) before the Nonparticipants will back in for their share of any recovery. Plaintiffs' lawyers are handling the case on a contingency basis and will receive 50% of any settlement or judgment after deducting all out-of-pocket expenses. In addition, the Company has joined with several other plaintiffs in securing a $300,000 loan for the benefit of the plaintiff group to assist in meeting its current obligations. The Company provided a $75,000 certificate of deposit as collateral for one-fourth of the loan amount. Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders, through the solicitation of proxies or otherwise. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. (a) Market information. The Company's common stock trades on the American Stock Exchanger ("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 two most recent fiscal years. 1999 High Low ---- ---- --- Fourth quarter $ 2-15/16 $ 1-3/4 Third quarter 4-1/4 2-1/2 Second quarter 3-7/8 3-1/8 First quarter 4-3/8 3-3/8 1998 High Low ---- ---- --- Fourth quarter $ 5-1/4 $ 3-1/4 Third quarter 5-15/16 4-1/2 Second quarter 5-1/4 4-5/8 First quarter 5-3/8 4-5/8 (b) Holders. As of February 29, 2000, the Company had 472 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. (See "Business-General development of business"). 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 32 of this report.
1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (in thousands, except per share data) Statement of operations data: Revenues from continuing operations $ 1,503 $ 9,246 $ 575 $ 377 $ 419 Interest income 228 400 183 12 13 Interest expense (170) (964) (134) (62) (4) Loss from continuing operations (2,343) (277) (1,393) (938) (634) Earnings (loss) from discontinued operations (1,056) (3,580) 10,407 623 231 Net earnings (loss) (3,399) (3,857) 9,014 (315) (403) Net earnings (loss) attributable to common shareholders (3,399) (3,857) 5,225 (315) (454) Net earnings (loss) per share - basic and diluted: Loss from continuing operations (0.96) (0.11) (0.50) (0.34) (0.24) Net earnings (loss) (1.39) (1.52) 1.86 (0.11) (0.17) Balance sheet data: Working capital 572 4,994 9,924 1,745 1,989 Total assets 6,804 37,337 20,952 16,473 14,615 Long-term debt (excluding current maturities) 13 25,780 519 2,911 1,454 Redeemable preferred stock 889 889 889 1,200 1,200 Total common shareholders' equity 4,666 8,387 12,433 8,656 8,788 ________ In December 1999, the Management Committee of North American Brine discontinue the business and dispose of its assets. Beard has a 40% ownership interest in NABR, which is 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). 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). 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). In January 1997 Beard adopted a plan to dispose of the assets of its real estate construction and development segment. The results of the segment, including an estimated loss on disposition, were reported as discontinued operations in 1996 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 1999 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, (4) the Environmental Remediation ("ER") Segment, (5) the Natural Gas Well Servicing ("WS") Segment, and (6) the e- Commerce ("e-Commerce") Segment. The Coal Segment is in the business of operating coal fines reclamation and/or briquetting facilities in the U.S. and is pursuing the development of advanced fine coal preparation processes. The CO2 Segment consists of the production of CO2 gas. The China Segment is pursuing (i) the sale of coal equipment, (ii) environmental opportunities, (iii) the sale of technical services, and (iv) the operation of coal fines reclamation facilities in China. The ER Segment consists of services to remediate polycyclic aromatic hydrocarbon contamination. The WS Segment is conducted by two companies operating in northeastern Mexico and consists of (i) a 50%-owned company (accounted for as an equity investment) involved in natural gas well testing operations, and (ii) a wholly-owned company that has designed a sand separator for use on natural gas wells and has had five of them custom fabricated for use on a trial basis. The e-Commerce Segment consists of a subsidiary which is in the process of developing and executing an Internet payment system. The Company's continuing operations reflect losses of $2,343,000, $277,000 and $1,393,000 in 1999, 1998 and 1997, respectively. In October of 1997 the Company sold the business and substantially all of the assets involved in the manufacture and sale of dry ice (solid CO2), taking advantage of an extremely favorable offer which it had received for the business. In August of 1998 Beard's Board of Directors approved a plan to restructure the Company's environmental/resource recovery ("E/RR") Segment. As a result, the coal reclamation activities conducted by Beard Technologies, Inc. ("BTI") and Beard Sino- American Resources Co., Inc. ("BSAR") are now included in the Coal and China Segments of the Company, respectively. The environmental remediation activities conducted by ISITOP, Inc. now comprise the ER Segment. As part of the restructure, the other environmental services operations (the "Other E/S Operations") previously conducted by Whitetail Services, Inc., Horizontal Drilling Technologies, Inc. and Incorporated Tank Systems were discontinued. In April 1999 the Company's Board of Directors adopted a formal plan to discontinue its ITF Segment and entered into agreements with ITF and its minority shareholders to transfer control of ITF to the minority shareholders. The discontinuation of ITF was accounted for as of December 31, 1998. In September 1999 the Company entered into revised agreements with the minority shareholders which resulted in the disposition of a majority of the assets owned by the segment for (i) the release of certificates of deposit in the amount of $327,000, (ii) assumption of debt in the amount of $2,149,000 and accounts payable of $126,000, and (iii) the cancellation of $440,000 of debt and accrued interest to the minority shareholders. The sale closed on November 18, 1999. Operating results for the ITF Segment have been reported as discontinued in the accompanying statements of operations (see Note 4 to the financial statements). Included in the 1998 operating results was a $1,603,000 estimated loss from the discontinuation of the ITF Segment, including an estimated $347,000 for the operating losses expected to be incurred by ITF prior to the final disposition of its assets. 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 from discontinued operations in the fourth quarter of 1999: $180,000 of the loss represents anticipated operating losses of ITF from December 31, 1999 through the anticipated disposal date of the remaining assets and $34,000 of the loss represents additional reduction in the estimated realizable values of the remaining assets as of December 31, 1999. In December 1999 the Management Committee of North American Brine Resources ("NABR") made the decision to discontinue the business which previously comprised the Company's BE/IM Segment. Because the Company owns only 40% of NABR, it is not a consolidated entity, and accordingly its operations had previously been accounted for as an equity investment. Included in the 1999 operating results of discontinued operations is a $540,000 loss which represents Beard's share of the $1,350,000 loss NABR estimated it would incur from the discontinuation of operations. $778,000 of NABR's loss represents the difference in the estimated amounts to be received from disposing of its assets and the assets' recorded values as of December 31, 1999. $572,000 of the loss represents anticipated operating losses through April 2000 (the date operations are expected to cease) and costs of ceasing operations. Beard's share of NABR's operating results were $82,000 and $296,000 of losses in 1999 and 1998, respectively, and $105,000 of income in 1997, which are reported as discontinued operations. See Note 4 to the financial statements. The Company is now focusing its primary attention on the Coal and China Segments, along with its new e-Commerce Segment, which it believes have the greatest 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 1999 were severely impacted by the termination of a major contract. Since April of 1998 the Company had been operating six coal slurry impoundment sites for a subsidiary of a large midwestern utility company under a cost- plus arrangement which guaranteed the Company a minimum operating profit of $100,000 per month. The arrangement was terminated on January 31, 1999. Termination of the contracts was the primary factor that resulted in the Coal Segment's reporting only $953,000 of revenues and a $508,000 operating loss in 1999. Such contracts accounted for all of the Segment's $8,585,000 of revenues and $1,678,000 of operating profit in 1998. The CO2 Segment had a $170,000 reduction in its operating profit versus 1998 reflecting decreased CO2 production and demand. The China Segment generated no revenues, but incurred $279,000 of selling, general and administrative expenses related to its continuing startup activities. The ER Segment reflected a $93,000 increase in operating losses as a result of increased staffing and SG&A expenses as it stepped up its marketing efforts. The WS Segment had $82,000 in revenues and a loss of $213,000 as it started a new subsidiary in the fourth quarter engaged in the rental of sand separators to a customer in northeastern Mexico. Additionally, this segment incurred a loss of $229,000 in 1999 compared to a loss of $35,000 in 1998, its initial year, from its equity investee which provides natural gas well testing services in northeastern Mexico. The e-Commerce Segment generated no revenues but incurred $129,000 of SG&A expenses related to its startup activities. The operating loss from corporate activities at the parent company level decreased $78,000 from 1998 reflecting primarily the allocation of salaries and expenses to the e-Commerce Segment. The results of operations for 1998 reflected improved operating margins from 1997 in the Coal Segment. The Segment had a significant increase in revenues as a result of a contract to operate six coal projects in the eastern United States, which was partially offset by increased expenses due to increased staffing and increased expenditures for chemicals and supplies to operate the six facilities. The CO2 Segment showed a $198,000 improvement in operating margins in 1998 compared to 1997 reflecting increased CO2 production. The China Segment generated no revenues, but incurred $277,000 of selling, general and administrative expenses related to its startup activities. The ER Segment reflected a $115,000 increase in operating losses in 1998 from 1997 as a result of increased staffing and SG&A expenses as it stepped up its marketing efforts. Corporate activities at the parent company level reflected (i) increased staffing; (ii) higher health care and fringe benefit costs; and (iii) higher legal costs associated with the McElmo Dome litigation. 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 provided by (used in) operations during 1999, 1998, and 1997 were $(1,709,000), $(854,000) and $312,000, respectively, while capital additions from continuing operations were $1,392,000, $24,175,000 and $154,000, respectively, as indicated in the table below: 1999 1998 1997 ---- ---- ---- Coal $ 1,135,000 $24,072,000 $ - Carbon dioxide 10,000 41,000 147,000 Natural gas well servicing 216,000 - - Environmental remediation - 6,000 3,000 e-Commerce - - - Other 31,000 56,000 4,000 ------------------------------------ Total $ 1,392,000 $24,175,000 $ 154,000 ==================================== Capital additions in the discontinued solid CO2 segment were $934,000 in 1997. Seller-provided financing and other debt obligations provided $86,000 of the funds for such capital investments. Capital additions in the discontinued Other E/S Operations were $143,000, and $515,000 for 1998 and 1997, respectively. Seller-provided financing and other debt obligations provided $20,000 of the funds for such capital investments. Capital additions in the discontinued ITF segment were $59,000 and $3,891,000 in 1999 and 1998, respectively. Seller-provided financing and other debt obligations provided $2,319,000 of the funds for such capital investments in 1998. The Company's 2000 capital expenditure budget has tentatively been set at $5,736,000. Presently anticipated capital expenditures include $5,531,000 for the Coal Segment and $205,000 for the WS Segment. Capital expenditures are targeted for two reclamation facilities on which definitive agreements are being finalized as of March 31, 2000. Such expenditures are expected to be funded by equipment lease financing and other debt obligations. Liquidity. The sale of Carbonic Reserves in October of 1997 provided the Company with significant liquid resources. However, at year-end 1999 such funds had been substantially utilized. Future cash flows and availability of credit are subject to a number of variables, including demand for the Company's coal reclamation services and technology, continuing demand for CO2 gas and for the services provided by the Company's new WS operations, private and governmental demand for environmental remediation services and demand for the sale of coal equipment and for the Company's environmental and technology services in China. During 1999 the Company reduced its working capital by $4,422,000 from $4,994,000 at year-end 1998. $1,135,000 was used by the Coal Segment to purchase the major portion of one of the coal fines recovery plants for which agreements are now being finalized. $508,000 was used to fund the operating loss of the Coal Segment. $552,000 of the decrease resulted from additional capital contributions of $301,000 and net advances of $251,000 to the Company's well testing venture in Mexico. In addition, the Company loaned a net amount of $486,000 to its partner which operates the joint venture to fund a portion of its investment. $213,000 was used to fund the startup of the new natural gas well servicing operations. $326,000 was used to purchase treasury stock in the first eight months of the year. $400,000 was used to fund the discontinued operations of the ITF Segment. $317,000, $279,000 and $129,000, respectively, were used to fund the startup activities of the E/R, China and e-Commerce Segments. Nonetheless, at December 31, 1999, the Company remained in a positive working capital position with working capital of $572,000, including $767,000 of cash and cash equivalents, and a current ratio of 1.46 to 1. Despite the fact that the Company has had losses from continuing operations for the past five years, it has generated total net earnings of $1,040,000 during such period. The last two years have been particularly disappointing as the Company has generated net losses totaling $7,256,000, including losses from continuing operations totaling $2,620,000. Termination of 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. Our entry into the interstate travel business was a major mistake, but those problems are now behind us and the disposition of the remaining assets is expected to generate cash for us going forward. Results of the iodine business have also impacted earnings the last two years---and again---those problems are now behind us and the disposition of its assets is expected to generate cash for us this year. The Company's principal business is coal reclamation, and this is where management's attention is primarily focused. Although there is no absolute assurance that the letters of intent for two major coal projects will be finalized into definitive agreements we strongly believe this will occur. Meanwhile, we have taken steps to bolster the Company's liquidity and working capital until these or other contracts can be formalized. The Company has replaced its $650,000 bank credit line with a $300,000 credit line at a different bank. We have also executed a $1,000,000 line of credit with a related party to provide working capital while the coal contracts are being finalized. We believe this $1.3 million of financing will be sufficient to fund the Company's operations until the new projects are underway. In addition, the Company is attempting to dispose of the assets from the discontinued ITF and BE/IM Segments and can sell certain other assets to generate cash if necessary. At the same time, we are pursuing two avenues of project financing. The first traunch consists of: (i) $2 million of equipment lease financing for the first coal project, backed by a $1 million letter of credit, coupled with (ii) $1 million of senior debt and (iii) warrants to purchase Beard common stock. This traunch, which will enable us to proceed with purchasing the balance of the equipment for the first project just as soon as the final agreements are signed, may also include a takeout provision. However, there is no assurance that the financing will be secured. The second traunch will consist of $5 to $7 million of senior debt or senior participating preferred to finance the second coal project and take out the first financing if desired. We are having discussions with an investment banking firm that has indicated they can have the second financing closed within four months. However, there is no assurance this financing will occur. Selected liquidity highlights for the Company for the past three years are summarized below: 1999 1998 1997 ---- ---- ---- Cash and cash equivalents $767,000 $5,190,000 $13,955,000 Accounts and other receivables, net 480,000 1,386,000 2,654,000 Inventory 103,000 365,000 227,000 Trade accounts payable 262,000 677,000 533,000 Current maturities of long-term debt 17,000 119,000 136,000 Long-term debt (1) 13,000 25,780,000 519,000 Working capital 572,000 4,994,000 9,924,000 Current ratio 1.46 to 1 3.19 to 1 2.42 to 1 Net cash provided by (used in) operations (1,709,000) (854,000) 312,000 __________ (1) On March 19, 1999, the Company terminated certain debt agreements that resulted in the removal of $23,053,000 of debt from the its balance sheet. On November 18, 1999, the Company disposed of most of the assets of its ITF Segment, resulting in the removal of $2,563,000 of debt from the Company's balance sheet. In 1999, the Company had negative cash flow of $4,423,000. Operations of the Coal, E/R, W/S, China and e-Commerce Segments resulted in cash outflows of $1,446,000. (See "Results of operations---Other activities" below). The Company's investing activities used cash of $2,134,000 in 1999. Acquisitions of property, plant and equipment primarily related to the Company's Coal Segment accounted for $1,445,000 of the cash outflow, while (i) investments in and (ii) loans to a partner in the W/S Segment accounted for $1,038,000. Net distributions from the Company's investment in Cibola provided $308,000 in cash. The Company's financing activities utilized cash flows of $580,000 in 1999. The Company utilized $326,000 to repurchase 86,275 shares of its common stock, and $253,000 for payments on lines of credit and term notes. At year-end 1999 the Company had $575,000 of credit available under the parent company's $650,000 bank line of credit. However, the Company is allowing this credit line to expire on April 30, 2000 and has replaced it with a $300,000 line of credit at a new bank. At April 1, 2000, the Company had $225,000 of credit available under the new credit line. At April 3, 2000 the Company also had $1,000,000 of credit from a related party available which bears interest at 10% until maturity at July 2, 2001. The Company believes that available cash and available borrowings under its lines of credit will be adequate to meet the Company's liquidity needs, including anticipated requirements for working capital, until the $7,000,000 of financing currently being pursued has been finalized and is in place. Effect of Recent Developments on Liquidity. The Company had a significant improvement in its debt ratios in 1999. The termination of the MCNIC coal fines debt agreements effective as of January 31, 1999, resulted in the removal of $23,053,000 of debt and a corresponding amount of property, plant and equipment from the Company's balance sheet. Such debt had been reflected as a long-term obligation on the December 31, 1998 balance sheet. The sale of a majority of the assets of the ITF Segment on November 18, 1999 resulted in the removal of $2,563,000 of additional debt from the Company's balance sheet. Primarily as a result of these two events, the Company's debt-to-equity ratio, which stood at 3.09 to l at year-end 1998, had been reduced to 0.01 to 1 at year-end 1999, with a total of only $30,000 of consolidated debt outstanding. (See "Coal Reclamation Activities- - --The MCN Projects" and "Discontinued Operations---ITF" in Part I, Item 1). On the negative side, it is important to note that revenues from the MCN Projects accounted for 63.4% and 92.9% of the Company's revenues from continuing operations in calendar years 1999 and 1998, respectively. The termination of the MCNIC operating agreements had a material detrimental effect upon the Company's profitability during the last 11 months of 1999, and will continue to have a severe negative impact until the new operating contracts currently being finalized have been executed and the two projects involved have started to generate positive cash flow. We currently anticipate that the first of the two projects will start producing coal in August 2000 and start generating positive cash flow in November 2000. The second project is targeted to commence production in December 2000 and achieve positive cash flow in March 2001. It should be noted that, although letters of intent for the two projects have been executed, the definitive agreements have not yet been finalized nor executed. Once such agreements have been executed, the Company must then be able to successfully conclude the $7 million of financing that it is currently pursuing to fund the additional equipment and working capital required to bring the projects to a successful conclusion. The Company believes that the contracts for the projects will be finalized and executed, and that it will be successful in its funding efforts. However, there is no assurance that such events will occur. The Coal Segment is working on several other projects, in addition to the two projects for which contracts are now being finalized, all of which have the potential for good prospective return on investment. The Company's ability to finance such projects will be limited by its success in arranging suitable financing or equipment leasing facilities. 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 1999 has been a time of transition for the Company. Following the Restructure in 1993, the Company shifted its attention to the management of its non- oil and gas investments. During this period the Company divested itself of its real estate construction and development activities in January 1997, sold its dry ice manufacturing and distribution business in October 1997, and restructured its E/RR Segment, shifting the principal focus to coal reclamation and discontinuing most of its environmental services activities. The Company also made a brief and unsuccessful foray into the interstate travel business in 1998, which it discontinued in April 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 December 1999. As a result, the corporate staff is now focusing most of its attention on the management of the Coal, China and WS Segments, together with the Company's new e- Commerce Segment, 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 and WS Segments are experiencing the normal problems and delays encountered when starting new businesses in foreign countries. 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: 1999 1998 1997 ---- ---- ---- Operating profit (loss): Coal reclamation $(508,000) $1,678,000 $(282,000) Carbon dioxide 296,000 466,000 268,000 China (279,000) (277,000) - Environmental remediation (317,000) (224,000) (109,000) Natural gas well servicing (213,000) - - e-Commerce (129,000) - - ---------------------------------- Subtotal (1,150,000) 1,643,000 (123,000) Other - principally corporate (1,324,000) (1,402,000) (1,188,000) ---------------------------------- Total $(2,474,000) $241,000 $(1,311,000) ================================== Following is a discussion of results of operations for the three-year period ended December 31, 1999. Coal reclamation. As a result of the recent change of direction, the Company has focused its primary attention on coal reclamation. In January 1999, BTI 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), BTI is again pursuing coal recovery projects where it will serve as either owner or operator. The MCN Projects generated 84% and 100% of the Coal Segment's 1999 and 1998 revenues, respectively. Operating revenues in this segment were $953,000, $8,585,000 and $1,000 in 1999, 1998 and 1997, respectively, with the sharp increase in 1998 reflecting the impact of the MCN Projects. In 1997 BTI had focused its efforts on marketing its M/C Technology, and its only revenues were derived from consulting services. Operating costs decreased to $1,064,000 in 1999 from $5,110,000 in 1998, which was an increase from $120,000 in 1997. SG&A expenses decreased to $204,000 in 1999 from $985,000 in 1998, which was an increase from $154,000 in 1997. The fluctuations in costs in 1999 and 1998 reflect the effect of the termination of the MCN Projects in 1999 and the buildup of such costs in 1998. The segment produced an operating loss of $508,000 in 1999 versus an operating profit of $1,678,000 in 1998 and an operating loss of $282,000 in 1997, again reflecting the effect of the MCN Projects. 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 $418,000, $616,000 and $503,000 in 1999, 1998 and 1997, respectively, while operating profits totaled $296,000, $466,000 and $268,000, respectively, for the three years. CO2 net sales volumes were 1,536,000, 2,187,000 Mcf and 1,617,000 Mcf in 1999, 1998 and 1997, respectively. The decrease in revenues and operating profits in 1999 compared to 1998 reflect the decreased demand for CO2 as a result of the severe deterioration in oil prices in late 1998 and early 1999 and the resultant decreased demand for CO2 used for tertiary oil recovery. The increase in operating profits in 1998 compared to 1997 was primarily the result of a 570,000 Mcf increase in sales volume for 1998 compared to 1997 resulting from the successful development program commenced in 1996 by the operator of the McElmo Dome field. China. In 1998 the Company activated Beard Sino-American Resources Co., Inc. ("BSAR") to pursue coal reclamation opportunities in China utilizing BTI's patented M/C 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 put on hold and BSAR is now focusing on the sale of coal equipment, environmental technology and other technical services. BSAR had no revenues in 1999 or 1998, and recorded $279,000 and $277,000 of SG&A expenses, respectively, in 1999 and 1998 while pursuing its various marketing efforts. Environmental remediation. This subsidiary was added in 1997 and utilizes a chemical for which it is the sole U.S. licensee of a process for the remediation of PAH contamination. This is essentially still a startup operation, having generated no revenues in 1999, and only $8,000 and $13,000 of revenues in 1998 and 1997, respectively. The segment produced an operating loss of $317,000 in 1999, $224,000 in 1998 and $109,000 in 1997, reflecting the sharp increase in SG&A expenses as the segment stepped up its level of marketing activities each year. Natural gas well servicing. In late 1998 the Company invested in a 50%-owned subsidiary, ITS-Testco, L.L.C., which conducts natural gas well testing operations in Mexico through a wholly- owned subsidiary, Testco Inc. de Mexico, S.A. de C.V.; the operations of these entities are not consolidated since the LLC is managed by our 50% partner. The Company recorded $229,000 and $35,000 in 1999 and 1998, respectively, as its share of the LLC's losses. In late 1999, the Company formed a 100%-owned subsidiary, ITS. Inc., which designed a proprietary sand separator for use in Mexico through its wholly-owned subsidiary, Incorporated Tank Systems de Mexico, S.A. de C.V. This consolidated subsidiary generated $82,000 and $56,000 of revenues and costs, respectively, in 1999. The WS Segment also incurred $223,000 of SG&A expenses in 1999 resulting from the Company's continued pursuit of natural gas well servicing opportunities in Mexico. e-Commerce. In early 1999, the Company began developing its proprietary concept for an Internet payment system. The $129,000 operating loss reflected for 1999 relates solely to the SG&A expenses incurred to date in the initial phases of developing the technology. 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 $1,324,000 in 1999, $1,402,000 in 1998 and $1,188,000 in 1997. The operating loss decreased $78,000 in 1999 compared to 1998 as a portion of the SG&A expenses incurred were allocated to the e- Commerce Segment for the development of the starpay Internet payment system. 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. A higher level of general and administrative expenses impacted the bottom line in 1998 as the Company continued its pursuit of additional business opportunities. In 1997, the parent company also incurred an impairment loss of $171,000 relating to underutilized land remaining from the 1993 Restructure (see note 5 to the financial statements). Selling, general and administrative expenses. Selling, general and administrative expenses ("SG&A") decreased to $1.9 million in 1999 from $2.4 million in 1998 which had increased from $1.3 million in 1997. Most of the sharp fluctuation was attributable to the Coal Segment, which incurred SG&A expense of $204,000, $985,000 and $154,000 in 1999, 1998 and 1997, respectively. The large increase in 1998 was due to the increased staffing and operations required to meet the demands of the MCN Projects. SG&A expense incurred by the China Segment during 1999 increased to $279,000 from $277,000 in 1998 and none in 1997. SG&A expense incurred by the ER Segment during 1999 increased to $87,000 from $42,000 in 1998 and $23,000 in 1997. The WS Segment incurred $223,000 of SG&A expenses as it continued to pursue new opportunities in Mexico. e-Commerce and other corporate SG&A decreased to $1,122,000 in 1999 from $1,096,000 in 1998 which had increased from $1,120,000 in 1997 as the Company's reductions in benefits and other costs incurred were partially offset by expenses to pursue investment opportunities that failed to materialize. Depreciation, depletion and amortization. The Company's depreciation, depletion and amortization expenses decreased 59% in 1999 from 1998, while such expenses increased 1,452% in 1998 over 1997's expense. The fluctuations in DD&A expense for 1999 and 1998 were primarily attributable to the significantly higher depreciable basis of the assets in the Coal Segment during the period that such assets were owned in connection with the MCN Projects. Interest income. Interest income increased from $183,000 in 1997 to $400,000 in 1998 and decreased to $228,000 in 1999. The increase in 1998 compared to 1997 is a result of the increased investment in commercial paper purchased with the cash from the sale, in October 1997, of the assets of the discontinued solid CO2 segment. The decrease in 1999 from the amount realized in 1998 reflects the decreased amount available to invest as cash was used to fund other investments and operations. Interest expense. Interest expense increased from $134,000 in 1997 to $964,000 in 1998 and decreased to $170,000 in 1999. The sharp increase in 1998 reflects the higher 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 1999 reflects the Coal Segment being relieved of such indebtedness as of January 31, 1999. Equity in earnings of unconsolidated affiliates. The Company's share of the operating loss of its 50%-owned natural gas well testing investee was $229,000. The losses resulted from startup and interest costs. Offsetting the Company's share of the losses of ITS-Testco, L. L. C. 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 April of 1996, contributed $308,000, $274,000, and $185,000 of pre-tax net income to the Company for fiscal years 1999, 1998 and 1997, respectively, pursuant to a tax sharing agreement. Gain on sale of assets. The gain on the sale of assets of $56,000 in 1999, $8,000 in 1998 and $55,000 in 1997. Such gains reflected proceeds from the sale of certain assets that are in the process of being liquidated. Impairment of investments and other assets. In 1999, 1998 and 1997 the Company recognized $110,000, $154,000, and $328,000 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 $58.2 million of net operating loss carryforwards, investment tax credits, 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, or of its remaining investment tax credit carryforwards which completely expire in 2000. At December 31, 1999 and 1998, 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 of $48,000, $100,000 and $40,000 for 1999, 1998 and 1997, 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 December 1999 the Management Committee of North American Brine Resources ("NABR") made the decision to discontinue the business which previously comprised the Company's BE/IM Segment. Because the Company owns only 40% of NABR, it is not a consolidated entity, and accordingly its operations had previously been accounted for as an equity investment. Included in the 1999 operating results is a $540,000 loss which represents Beard's share of the $1,350,000 loss NABR estimated it would incur from the discontinuation of operations. $778,000 of NABR's loss represents the difference in the estimated amounts to be received from disposing of its assets and the assets' recorded values as of December 31, 1999. $572,000 of the loss represents anticipated operating losses through April 2000 (the date operations are expected to cease) and costs of ceasing operations. Beard's share of NABR's operating results were $82,000 and $296,000 of losses in 1999 and 1998, respectively, and $105,000 of income in 1997, which are reported as discontinued. See Note 4 to the financial statements. In April 1999 the Company's Board of Directors adopted a formal plan to discontinue its ITF Segment and entered into agreements with ITF and its minority shareholders to transfer control of ITF to the minority shareholders. The discontinuation of ITF was accounted for as of December 31, 1998. In September 1999 the Company entered into revised agreements with the minority shareholders which resulted in the disposition of a majority of the assets owned by the segment for (i) the release of certificates of deposit in the amount of $327,000, (ii) assumption of debt in the amount of $2,149,000 and accounts payable of $126,000, and (iii) the cancellation of $440,000 of debt and accrued interest to the minority shareholders. The sale closed on November 18, 1999. Operating results for the ITF Segment have been reported as discontinued in the accompanying statements of operations (see Note 4 to the financial statements). Included in the 1998 operating results was a $1,603,000 estimated loss from the discontinuation of the ITF Segment, including an estimated $347,000 for the operating losses expected to be incurred by ITF prior to the final disposition of its assets. 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 represents anticipated operating losses of ITF from December 31, 1999 through the anticipated disposal date of the remaining assets; $34,000 of the loss represents a reduction in the estimated realizable values of the remaining assets as of December 31, 1999. In August of 1998 the Company's Board of Directors adopted a plan to restructure the E/RR Segment and to discontinue the Other E/S Operations. Losses from the discontinued Other E/S Operations were $424,000 and $1,140,000 in 1998 and 1997, respectively. Included in the accompanying statements of operations for the year ended December 31, 1998, is a $684,000 estimated loss expected from the discontinuation of the Other E/S Operations. $749,000 of the net loss represents the difference in the estimated amounts to be received from disposing of the Other E/S Operations assets and the assets' recorded values as of June 30, 1998. $689,000 of this loss was recorded in June 1998 and $60,000 of the loss was recorded in December 1998 upon the Company's review of the estimated realizable values of the remaining assets. $300,000 of the loss represents anticipated operating losses until disposal has been completed. Offsetting the expected losses is a $365,000 gain from early extinguishment of an obligation to the former owner of HDT. The gain represents the amount of the discounted obligation as of June 30, 1998. At December 31, 1999, the significant assets related to the Other E/S Operations consist primarily of equipment with a recorded value of $160,000. The significant liabilities related to the Other E/S Operations consist of accrued expenses totaling $20,000. In October of 1997 the Company sold the business and substantially all of the assets of Carbonic Reserves, an 85%- owned subsidiary engaged in the manufacture of solid CO2 ("solid CO2 segment") for cash of $19,375,000 and the assumption of certain liabilities valued at $2,813,000. The gain on the sale was $11,014,000 after deducting income taxes of $522,000. During the third quarter of 1998, the Company determined that it overestimated its state income tax liability thereby reducing the gain recognized in October 1997 from the asset sale by $168,000. As of December 31, 1999, the solid CO2 segment had no significant assets. The significant liabilities of the solid CO2 segment consisted of accrued employee severance compensation of $155,000. Revenues and earnings applicable to the discontinued operations of Carbonic Reserves were $11,071,000 and $428,000 in 1997, respectively. 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 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and whether it qualifies as a hedge. A subsequent pronouncement, SFAS 137, was issued in July, 1999, that delayed the effective date of SFAS 133 until fiscal years beginning after June 15, 2000. The Company plans to adopt the provisions of SFAS 133 in the first quarter of the year ending December 31, 2000, and such adoption is not expected to have a material impact on the Company's financial position or future results of operations. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. At December 31, 1999, the Company had notes receivable of $836,000 and long-term debt of $30,000. The notes receivable and long-term debt have fixed interest rates and therefore, the Company's interest income and expense and operating results would not be affected by an increase in market interest rates. At December 31, 1999, a 10% increase in market interest rates would have reduced the fair value of the Company's notes receivable by $3,000 and reduced the fair value of its long-term debt by less than $1,000. 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 Financial Statements: Balance Sheets, December 31, 1999 and 1998 Statements of Operations, Years ended December 31, 1999, 1998 and 1997 Statements of Shareholders' Equity, Years ended December 31, 1999, 1998 and 1997 Statements of Cash Flows, Years ended December 31, 1999, 1998 and 1997 Notes to Financial Statements, December 31, 1999, 1998 and 1997 Independent Auditors' Report The Board of Directors and Stockholders The Beard Company: We have audited the financial statements of The Beard Company and subsidiaries as listed in the accompanying index. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. KPMG LLP Oklahoma City, Oklahoma April 7, 2000 THE BEARD COMPANY AND SUBSIDIARIES Balance Sheets
December 31, December 31, Assets 1999 1998 ------ ------------ ------------ Current assets: Cash and cash equivalents $ 767,000 $ 5,190,000 Investments (note 6) 280,000 - Accounts receivable, less allowance for doubtful receivables of $13,000 in 1999 and $69,000 in 1998 480,000 1,386,000 Inventory 103,000 365,000 Prepaid expenses and other assets 98,000 277,000 Current portion of notes receivable (note 7) 80,000 57,000 ----------- ----------- Total current assets 1,808,000 7,275,000 ----------- ----------- Notes receivable (note 7) 756,000 300,000 Investments and other assets (note 6) 1,324,000 1,941,000 Property, plant and equipment, at cost (note 8) 6,879,000 32,921,000 Less accumulated depreciation, depletion and amortization 3,987,000 5,139,000 ----------- ----------- Net property, plant and equipment 2,892,000 27,782,000 ----------- ----------- Intangible assets, at cost (note 9) 25,000 167,000 Less accumulated amortization 1,000 128,000 ----------- ----------- Net intangible assets 24,000 39,000 ----------- ----------- $ 6,804,000 $37,337,000 =========== =========== Liabilities and Shareholders' Equity ------------------------------------ Current Liabilities: Trade accounts payable $ 262,000 $ 677,000 Accrued expenses (note 4) 869,000 1,385,000 Income taxes payable (note 12) 88,000 100,000 Current maturities of long-term debt (note 10) 17,000 119,000 ----------- ----------- Total current liabilities 1,236,000 2,281,000 ----------- ----------- Long-term debt less current maturities (note 10) 13,000 25,780,000 Redeemable preferred stock of $100 stated value; 5,000,000 shares authorized; 27,838 shares issued and outstanding in 1999 and 1998 (note 5) 889,000 889,000 Common shareholders' equity: Common stock of $.001 par value per share; 10,000,000 shares authorized; 2,832,129 shares issued and outstanding in 1999 and 1998 3,000 3,000 Capital in excess of par value 37,723,000 37,747,000 Accumulated deficit (31,218,000) (27,819,000) Accumulated other comprehensive income 4,000 - Treasury stock, 393,405 and 310,890 shares, at cost in 1999 and 1998, respectively (1,846,000) (1,544,000) ----------- ----------- Total common shareholders'equity 4,666,000 8,387,000 ----------- ----------- Commitments and contingencies (notes 5, 11, and 15) $ 6,804,000 $37,337,000 =========== ===========
See accompanying notes to financial statements. THE BEARD COMPANY AND SUBSIDIARIES Statement of Operations
Year Ended December 31, ----------------------- 1999 1998 1997 ---- ---- ---- Revenues: Coal reclamation $ 953,000 $ 8,585,000 $ 1,000 Carbon dioxide 418,000 616,000 503,000 China - - - Environmental remediation - 8,000 13,000 Natural gas well servicing 82,000 - - e-Commerce - - - Other 50,000 37,000 58,000 ------------ ----------- ------------ 1,503,000 9,246,000 575,000 ------------ ----------- ------------ Expenses: Coal reclamation 1,064,000 5,110,000 120,000 Carbon dioxide 89,000 119,000 103,000 China 279,000 277,000 - Environmental remediation 184,000 185,000 96,000 Natural gas well servicing 56,000 - - Selling, general and administrative 1,915,000 2,400,000 1,297,000 Depreciation, depletion and amortization 354,000 869,000 56,000 Impairment of long-lived assets (notes 1 and 17) - - 171,000 Other 36,000 45,000 43,000 ------------ ----------- ------------ 3,977,000 9,005,000 1,886,000 ------------ ----------- ------------ Operating profit (loss): Coal reclamation (508,000) 1,678,000 (282,000) Carbon dioxide 296,000 466,000 268,000 China (279,000) (277,000) - Environmental remediation (317,000) (224,000) (109,000) Natural gas well servicing (213,000) - - e-Commerce (129,000) - - Other, principally corporate (1,324,000) (1,402,000) (1,188,000) ------------ ----------- ------------ (2,474,000) 241,000 (1,311,000) Other income (expense): Interest income 228,000 400,000 183,000 Interest expense (170,000) (964,000) (134,000) Equity in earnings of unconsolidated affiliates 80,000 225,000 169,000 Gain on sale of assets 56,000 8,000 55,000 Impairment of investments and other assets (notes 1 and 17) (110,000) (154,000) (328,000) Other 95,000 67,000 13,000 ------------ ----------- ------------ Loss from continuing operations before income taxes (2,295,000) (177,000) (1,353,000) Income taxes (note 12) (48,000) (100,000) (40,000) ------------ ----------- ------------ Loss from continuing operations (2,343,000) (277,000) (1,393,000) Discontinued operations (note 4): Losses from discontinued operations (less applicable income taxes of $33,000 in 1997) (82,000) (1,461,000) (607,000) Loss from discontinuing brine extraction/iodine manufacturing activities (540,000) - - Loss from discontinuing other environmental services activities - (684,000) - Loss from discontinuing interstate travel facilities activities (434,000) (1,603,000) - Gain on sale of dry ice manufacturing and distribution business (less applicable income taxes of $522,000 in 1997) - 168,000 11,014,000 ------------ ----------- ------------ Earnings (loss) from discontinued operations (1,056,000) (3,580,000) 10,407,000 ------------ ----------- ------------ Net earnings (loss) $ (3,399,000) $(3,857,000) $ 9,014,000 ============ =========== ============ Net earnings (loss) attributable to common shareholders(note 5) $ (3,399,000) $(3,857,000) $ 5,225,000 ============ =========== ============ Net earnings (loss) per average common share outstanding: Basic and diluted: Loss from continuing operations $(0.96) $(0.11) $(0.50) Earnings (loss) from discontinued operations (0.43) (1.41) 2.36 ------------ ----------- ------------ Net earnings (loss) $(1.39) $(1.52) $ 1.86 ============ =========== ============ Weighted average common shares outstanding - basic and diluted 2,452,000 2,542,000 2,808,000 ============ =========== ============
See accompanying notes to financial statements. THE BEARD COMPANY AND SUBSIDIARIES Statements of Shareholders' Equity
Accumulated Total Capital in Other Common Common Excess of Accumulated Comprehensive Treasury Shareholders' Stock Par Value Deficit Income Stock Equity ------ ---------- ----------- ------------- -------- ------------- Balance, December 31, 1996 $ 3,000 $41,629,000 $(32,976,000) $ - $ - $ 8,656,000 Net earnings - - 9,014,000 - - 9,014,000 Issuance of 33,055 shares of common stock - 71,000 - - - 71,000 Purchase of 303,890 shares of common stock (note 1) - - - - (1,519,000) (1,519,000) Accretion of preferred stock (note 5) - (3,789,000) - - - (3,789,000) ------- ----------- ------------ ------- ----------- ----------- Balance, December 31, 1997 3,000 37,911,000 (23,962,000) - (1,519,000) 12,433,000 Net loss - - (3,857,000) - - (3,857,000) Sale of 37,500 shares of treasury stock - (112,000) - - 188,000 76,000 Issuance of 11,000 shares of treasury stock for stock option exercises - (52,000) - - 52,000 - Purchase of 55,500 shares of common stock (note 1) - - - - (265,000) (265,000) ------- ----------- ------------ ------- ----------- ----------- Balance, December 31, 1998 3,000 37,747,000 (27,819,000) - (1,544,000) 8,387,000 Net loss - - (3,399,000) - - (3,399,000) Comprehensive income: Foreign currency translation adjustment - - - 4,000 - 4,000 ---------- Comprehensive loss - - - - - (3,395,000) ---------- Issuance of 3,760 shares of treasury stock for stock option exercises - (24,000) - - 24,000 - Purchase of 86,275 shares of common stock (note 1) - - - - (326,000) (326,000) ------- ----------- ------------ ------- ----------- ----------- Balance, December 31, 1999 $ 3,000 $37,723,000 $(31,218,000) $ 4,000 $(1,846,000) $4,666,000 ======= =========== ============ ======= =========== ===========
See accompanying notes to financial statements. THE BEARD COMPANY AND SUBSIDIARIES Statements of Cash Flows
Year Ended December 31, ----------------------- 1999 1998 1997 ---- ---- ---- Operating activities: Cash received from customers $ 8,953,000 $ 15,615,000 $ 17,189,000 Cash paid to suppliers and employees (10,488,000) (15,472,000) (16,520,000) Interest received 232,000 512,000 83,000 Interest paid (346,000) (1,151,000) (386,000) Taxes paid (60,000) (358,000) (54,000) ------------ ------------ ------------ Net cash provided by (used in) operating activities (1,709,000) (854,000) 312,000 ------------ ------------ ------------ Investing activities: Acquisition of property, plant and equipment (1,445,000) (1,792,000) (1,517,000) Proceeds from sale of business - 1,000,000 18,425,000 Proceeds from sale of assets 88,000 275,000 352,000 Purchase of minority interest - (900,000) - Acquisition of travel facilities, net of cash acquired of $49,000 - (886,000) - Advances for notes receivable (960,000) - - Payments on notes receivable 561,000 6,000 - Investment in and advances to fifty percent-owned subsidiary (552,000) (333,000) - Net purchase of certificates of deposit (25,000) (327,000) - Other investments 199,000 76,000 106,000 ------------ ------------ ------------ Net cash provided by (used in) investing activities (2,134,000) (2,881,000) 17,366,000 ------------ ------------ ------------ Financing activities: Proceeds from line of credit and term notes - 328,000 1,764,000 Payments on line of credit and term notes (253,000) (1,165,000) (4,302,000) Purchase of treasury stock (326,000) (265,000) (1,519,000) Preferred stock repurchase - (4,005,000) (95,000) Proceeds from issuance of common stock - 76,000 71,000 Other (1,000) 1,000 (17,000) ------------ ------------ ------------ Net cash used in financing activities (580,000) (5,030,000) (4,098,000) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents (4,423,000) (8,765,000) 13,580,000 Cash and cash equivalents at beginning of year 5,190,000 13,955,000 375,000 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 767,000 $ 5,190,000 $ 13,955,000 ============ ============ ============
See accompanying notes to financial statements. THE BEARD COMPANY AND SUBSIDIARIES Statements of Cash Flows
Reconciliation of Net Earnings (Loss) to Net Cash Provided by (Used In) Operating Activities: Year Ended December 31, ----------------------- 1999 1998 1997 ---- ---- ---- Net earnings (loss) $ (3,399,000) $(3,857,000) $ 9,014,000 Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Depreciation, depletion and amortization 354,000 1,366,000 1,297,000 Gain on sale of assets (56,000) (16,000) (11,549,000) Provision for uncollectible accounts and notes 11,000 19,000 113,000 Impairment of investments and other assets 110,000 154,000 328,000 Impairment of long-lived assets - - 285,000 Net cash used by discontinued operations offsetting accrued losses (347,000) (300,000) - Loss from discontinued operations 974,000 2,119,000 - Equity in net (income) loss of unconsolidated affiliates 3,000 71,000 (274,000) Minority interest in operations of consolidated subsidiaries - (285,000) (49,000) Interest and other costs recognized on real estate project - - 357,000 Other (64,000) 33,000 (9,000) (Increase) decrease in accounts receivable, other receivables, prepaid expenses and other current assets 1,138,000 79,000 (1,022,000) (Increase) decrease in inventories 132,000 (8,000) 1,069,000 Increase (decrease) in trade accounts payable, accrued expenses and other liabilities (565,000) (229,000) 752,000 ------------ ----------- ----------- Net cash provided by (used in) operating activities $ (1,709,000) $ (854,000) $ 312,000 ============ =========== =========== 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 interestate travel facilities' assets $ 2,715,000 $ - $ - ============ =========== =========== Sale of property, plant and equipment for notes receivable $ 80,000 $ 359,000 $ - ============ =========== =========== Purchase of property, plant and equipment and intangible assets through issuance of debt obligations $ - $24,127,000 $ 86,000 ============ =========== =========== Purchase of travel facilities through the sale of a subsidiary's common stock $ - $ 181,000 $ - ============ =========== =========== Purchase of travel facilities through the issuance of a debt obligation and assumption of debt obligations $ - $ 2,319,000 $ - ============ =========== =========== Contribution of equipment for equity investment $ - $ 20,000 $ - ============ =========== =========== Accounts payable, accrued expenses and other debt obligations assumed by the purchaser from the sale of the dry ice manufacturing and distribution business $ - $ - $ 2,813,000 ============ =========== =========== Holdback receivable from the sale of the dry ice manufacturing and distribution business $ - $ - $ 1,000,000 ============ =========== =========== Stock purchase obligation resulting from the sale of the dry ice manufacturing and distribution business $ - $ - $ 900,000 ============ =========== ===========
See accompanying notes to financial statements. THE BEARD COMPANY AND SUBSIDIARIES Notes to Financial Statements December 31, 1999, 1998 and 1997 (1) Summary of Significant Accounting Policies - ----------------------------------------------- The Beard Company's ("Beard" or the "Company") accounting policies reflect industry practices and conform to generally accepted accounting principles. 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, (4) the Environmental Remediation ("ER") Segment, (5) the Natural Gas Well Servicing ("WS") Segment, and (6) the e- Commerce ("e-Commerce") Segment. The Coal Segment is in the business of operating coal fines reclamation and/or briquetting facilities in the U.S. and is pursuing the development of advanced fine coal preparation processes. The China Segment is pursuing (i) the sale of coal equipment, (ii) environmental opportunities, (iii) the sale of technical services, and (iv) the operation of coal fines reclamation facilities in China. The CO2 Segment consists of the production of CO2 gas. The ER Segment consists of services to remediate creosote and polycyclic aromatic hydrocarbon contamination. The WS Segment is conducted by two companies operating in northeastern Mexico and consists of (i) a 50%-owned company (accounted for as an equity investment) involved in natural gas well testing operations, and (ii) a wholly-owned company that has designed a sand separator for use on natural gas wells and has had five of them custom fabricated for use on a trial basis. The e-Commerce Segment consists of a wholly-owned subsidiary in the process of developing and executing an Internet payment system. 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 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 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. Also, as discussed in note 4, in August 1998 the Company's Board of Directors adopted a formal plan to discontinue its other environmental services operations (the "Other E/S Operations"), conducted principally by Whitetail Services, Inc. ("Whitetail"), Horizontal Drilling Technologies, Inc. ("HDT") and Incorporated Tank Systems. In prior years, the Company operated in the dry ice (solid CO2) manufacturing and distribution business, included in the CO2 Segment which was discontinued through sale in October 1997. 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 generally accepted accounting principles. Actual results could differ from those estimates. Cash and Cash Equivalents ------------------------- Cash equivalents approximated $525,000 and $3,954,000 at December 31, 1999 and 1998, respectively, and consist of investments in short-term commercial paper and certificates of deposit whose remaining terms at the date of purchase are less than 90 days. 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, 1999, inventory consisted primarily of gasoline and grocery items located at the Company's two remaining interstate travel facilities, at cost of $103,000. At December 31, 1998, inventory consisted primarily of gasoline and grocery items located at the Company's interstate travel facilities, at cost of $156,000; and one speculative home, at cost of $227,000, remaining from the real estate construction and development business. Costs associated with the acquisition, development and construction of the real estate project were capitalized in accordance with Statement of Financial Accounting Standards ("SFAS") No. 67, "Accounting for Costs and Initial Rental Operations of Real Estate Projects." Accordingly, inventory at December 31, 1998 included $24,000 of capitalized general and administrative costs that related directly to the project. The Company discontinued its real estate construction and development segment in January 1997 and therefore has not incurred any costs related to the real estate construction and development project subsequent to that date. Property, Plant and Equipment ----------------------------- Property, plant and equipment are depreciated by use of the straight-line method using estimated asset lives of 3 to 40 years. Depreciation, depletion and amortization of properties producing CO2 are computed by the units-of-production method using estimates of unrecovered proved developed CO2 reserves. 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 and licensing fees, 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. The Company recorded an impairment loss of $171,000 in the fourth quarter of 1997 related to underutilized land owned by the Company. The impairment loss is a result of the difference between the carrying value and the estimated fair value (based on appraised value) of the assets. As a result of the 1993 Restructure (see note 5), the Company retained certain land which was once utilized as oil and gas drilling and servicing supply yards. The supply yards have been inactive since the Company's 1993 Restructure. 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, 1999 and 1998, 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. 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 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 200,000 shares of its outstanding common stock. In 1999, the Company repurchased approximately 86,000 shares for $326,000 and in 1998 repurchased approximately 55,500 shares for $265,000. Also, in November 1997, the Company repurchased approximately 304,000 shares of its common stock for approximately $1,519,000. The Company holds repurchased stock as treasury stock. 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 1999 or 1998. 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. Net earnings for 1997 were reduced by one-third of "consolidated net income" which accreted directly to the mandatorily redeemable preferred shareholders. For purposes of net earnings per share, such accretion reduced earnings from discontinued operations which resulted from the gain on sale of the business and substantially all of the assets of Carbonic Reserves. 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 1999, the Company's only item 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. The Company had no items of comprehensive income as defined by SFAS No. 130 not included in the accompanying statements of operations in 1998 and 1997. Reclassifications ----------------- Certain 1998 and 1997 balances have been reclassified to conform to the 1999 presentation. (2) Ability to Fund Operations - ------------------------------- In January 1999, the Company's primary source of revenues and cash flows was eliminated by the termination of the Operating Agreements with MCNC (see note 3). As a result of the termination of the plant operating agreements, the requirement to fund operating losses, and the decision to pursue other investment opportunities, including the repurchase of Company common stock, the Company's working capital and cash and cash equivalents decreased significantly at December 31, 1999 compared to December 31, 1998. To mitigate potential liquidity problems, the Company obtained stand-by financing of $1.3 million in April 2000, $1 million of which was from an affiliate of the Company's chairman (see note 10). The Company also expects to generate cash from the disposition of assets of discontinued operations. The Company is focusing on replacing its Coal Segment's revenues and is currently negotiating with two parties to which the Company, through a subsidiary, will provide clean recovered coal as feedstock for two briquetting plants for a fixed price per ton. Installation and initial startup operations of the plants are dependent on the Company's ability to obtain financing, which the Company is currently pursuing. The Company expects that available borrowings and cash to be generated from the sale of assets, and ultimately from the operations of the new coal wash plants will be sufficient to continue operations through 2000. (3) Acquisitions - ----------------- ITF Segment ----------- On February 9, 1998, the Company, through a newly formed subsidiary, Interstate Travel Facilities, Inc. ("ITF"), purchased two travel facilities located along Interstate Highway I-40 in eastern Oklahoma for a cash consideration of $490,000. Both travel facilities included a service station, convenience store and a restaurant ("C-store"). The fair value of identifiable tangible and intangible net assets acquired approximated $628,000 on the acquisition date. The excess of the fair value of the travel facilities' assets acquired over the purchase price was reallocated among the long-lived assets acquired. On February 27, 1998, ITF acquired two travel facilities and an undeveloped parcel of land located along Interstate Highway I- 35 in central Oklahoma. The purchase price consisted of cash of $322,000; a fifteen-year, unsecured, 5.93% $544,000 promissory note, valued at $407,000 (discounted using a 10% interest rate); the assumption by ITF of three mortgage notes payable approximating $1,336,000 (see note 10), owed by the former owner of the facilities; and 20% of the Company's ownership in ITF, valued at $181,000. Approximately $1,051,000 of costs in excess of fair value of the net assets acquired was recorded as goodwill and was being amortized over 15 years. On May 20, 1998, ITF acquired the assets of a truck wash located along Interstate Highway I-44 in Tulsa, Oklahoma for $699,000. The Company financed $576,000 of the asset acquisition with a promissory note (see note 10). The fair value of the identifiable tangible assets approximated $870,000 on the acquisition date. The excess of the fair value of the assets acquired over the purchase price was reallocated among the long- lived assets acquired. As discussed in note 4, on April 9, 1999, the Company's Board of Directors approved a plan to discontinue its ITF Segment. Coal Segment ------------ On June 30, 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 (see note 9). 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 is 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. On December 16, 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. On March 19, 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 - ---------------------------- 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 has a 40% ownership in NABR, which is accounted for under the equity method. As a result of NABR's planned discontinuation, Beard's share of NABR's operating results have been reported as discontinued for all periods presented in the accompanying statements of operations. Beard's share of NABR's operating results were $82,000 and $296,000 of losses in 1999 and 1998 respectively, and $105,000 of income in 1997. As of December 31, 1999, Beard's investment in NABR was $225,000. 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. $778,000 of NABR's loss represents the difference in the estimated amounts expected to be received from the assets' disposition and the assets' recorded values as of December 31, 1999. $572,000 of NABR's loss represents anticipated operating losses through April 2000 (the date operations are expected to cease) and costs of ceasing operations. The Management Committee of NABR is actively pursuing opportunities to sell its assets and expects the disposition to be completed by December 31, 2000. ITF Segment ----------- On April 9, 1999, Beard's Board of Directors adopted a formal plan to discontinue its ITF Segment. On April 13, 1999, Beard entered into an agreement with ITF and its minority shareholders (the "April 1999 Agreement") which would have resulted in (i) the cancellation of a $544,000 note to the minority shareholders (balance of $440,000 at March 31, 1999); (ii) Beard's giving up operating and voting control of ITF to the minority shareholders; (iii) a restructuring of ITF's indebtedness to Beard whereby ITF agreed to obtain a release of and assign to Beard $327,000 of certificates of deposit (the "C/D's") which was securing certain ITF debt obligations, and to deliver two promissory notes to Beard totaling $2,053,000. The April 1999 Agreement failed to close and in September 1999 Beard, ITF and the minority shareholders entered into new agreements (the "Revised Agreements"), which were completed on November 18, 1999. The Revised Agreements provided for the following: (i) ITF formed a newly organized Company, known as ToeJoe, L.L.C. ("ToeJoe"), an Oklahoma limited liability company, of which it was the sole initial member; (ii) ITF contributed its ownership of four tracts of real property, together with all improvements, equipment and inventory related thereto, into ToeJoe which assumed the outstanding debt of $2,149,000 on the properties and equipment and the accounts payable of $126,000; (iii) ITF was relieved of all liabilities and obligations to the lending bank and any outstanding notes and mortgages on the properties; (iv) the minority shareholders exchanged all of their shares (6,250) of ITF common stock with ITF for all of ITF's membership interest in ToeJoe; (v) the C/D's were assigned to Beard; and (vi) the $440,000 note to the minority shareholders was cancelled. As a result of this transaction Beard has 100% ownership of ITF which now owns two C-stores, including their equipment and inventory, and has no outstanding indebtedness. Revenues and losses from the discontinued ITF Segment were $4,437,000 and $741,000, respectively in 1998. Beard recorded a $1,603,000 estimated loss from discontinuing the ITF Segment in 1998. $1,256,000 of the loss represented the difference in the estimated fair value of the promissory notes from the April 1999 Agreement and Beard's investment in and notes and accounts receivable from ITF at December 31, 1998. Beard recorded the loss as a reduction in goodwill resulting from the purchase of the ITF facilities, with the remaining $205,000 recorded as a reduction in ITF's property, plant and equipment. Beard recorded a provision of $347,000 in 1998 for the estimated operating 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. $347,000 of the losses 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 also recorded an additional $214,000 loss in the fourth quarter of 1999; $180,000 of the loss representing anticipated operating losses of ITF from December 31, 1999 through the disposal date of the remaining assets; and $34,000 of the loss representing a further reduction in the estimated realizable value of the remaining C-stores as of December 31, 1999. As of December 31, 1999, the significant assets related to the ITF Segment consist of cash, inventory and the two remaining C- stores with a total recorded value of $874,000. The significant liabilities of the segment consist of trade accounts payable and accrued expenses totaling $247,000. Beard is actively seeking opportunities to sell the remaining C-stores and expects the C- stores to be sold by September 2000. Other E/S Operations -------------------- In August 1998, the Company's Board of Directors adopted a formal plan to restructure the E/RR Segment and to discontinue the Other E/S Operations. Accordingly, the results of the Other E/S Operations have been reported as discontinued for all periods presented in the accompanying statements of operations. Revenues applicable to the discontinued segment were $1,536,000 and $5,233,000 for 1998 and 1997, respectively. Losses from the discontinued operations were $424,000 and $1,140,000 in 1998 and 1997, respectively. Losses from discontinued operations approximated $300,000 from the date operations were discontinued to December 31, 1998, and reduced the accrued liability established in the second quarter for such losses by a corresponding amount. No such losses were realized in 1999. As of December 31, 1999, the significant assets related to the Other E/S Operations consist primarily of equipment with a recorded value of $160,000. The significant liabilities related to the Other E/S Operations consist of accrued expenses totaling $20,000. In 1998, the Company recorded a $684,000 loss expected from the discontinuation of the Other E/S Operations. $749,000 of the loss represented the difference in the estimated amounts to be received from disposing of the Other E/S Operations' assets and the assets' recorded values as of June 30, 1998. $689,000 of the loss was recorded in June 1998 and $60,000 of the loss was recorded in December 1998 upon the Company's review of the estimated realizable values of the remaining assets. $300,000 of the loss represented anticipated operating losses until disposal of such assets have been completed. Offsetting the expected losses was a $365,000 gain from early extinguishment of an obligation to the former owner of HDT. The obligation was originally incurred by the Company as a result of its acquisition of 80% of HDT's outstanding common stock and was payable only from 80% of the cash flows (prescribed under the obligation agreement) of HDT and another company included in Other E/S Operations. The gain represented the discounted obligation balance as of June 30, 1998. The Company has sold a significant portion of the Other E/S Operations equipment for a total price of $710,000, since its date of discontinuance. $439,000 of the equipment sales were for various notes receivable with terms ranging from three to seven years. The Company is actively seeking opportunities to sell the remaining Other E/S Operations equipment. Solid CO2 Segment ----------------- In October 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") for cash of $19,375,000 and the assumption of certain liabilities valued at $2,813,000 (the "Asset Sale"). The gain on the Asset Sale was $11,014,000 (after applicable income taxes of $522,000). Results of operations of the solid CO2 segment have been reported as discontinued operations for the year ended December 31, 1997 in the accompanying statements of operations. Revenues and earnings applicable to the discontinued solid CO2 segment were $11,071,000 and $428,000 in 1997, respectively. During the third quarter of 1998, the Company determined it overestimated its state income tax liability thereby reducing the gain recognized in October 1997 from the Asset Sale by $168,000. The Company reduced its estimated state income tax liability and recognized an additional $168,000 gain on the Asset Sale in the third quarter of 1998. The gain is presented in discontinued operations in the accompanying 1998 statement of operations. As of December 31, 1999, the solid CO2 segment had no significant assets and its significant liabilities consisted of accrued employee severance compensation of $155,000. (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" 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 5.129425 shares of Beard common stock after December 31, 2002. Fractional shares will not be issued, and cash will be paid in redemption thereof. In January 1997, three of the four Institutions sold their common and preferred shares to five individuals. These individuals (the "Sellers") thereafter sold such shares to the Company (the "Repurchase"). Repurchase of the common (303,890 shares) was effected by the Company in November 1997 and repurchase of the preferred (47,729 shares) was effected in January 1998. $1,641,000 of the purchase price was used to repurchase 16,411 preferred shares from Sellers at stated value ($100 per share). This portion of the purchase price was in lieu of the Sellers' share of a redemption from one-third of 1997 net income (as defined) (the "Redemption"). The 1997 Redemption amount was agreed upon by all of the preferred shareholders at an established value of $3,100,000. The Sellers' remaining 31,318 preferred shares were purchased for $1,000,000 or $31.93 per share. The Company paid the Sellers $95,000 for the Repurchase of the preferred shares in November 1997 and redeemed 14,589 of the remaining preferred shares for $1,459,000 in March 1998. The Company recorded the effect of the Repurchase and Redemption in 1997. At December 31, 1999 and 1998, 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. During 1997, the Company recorded $3,789,000 in accretion of the preferred stock as a result of the increase in value of the preferred stock as evidenced by the Repurchase and Redemption. (6) Investments and Other Assets - --------------------------------- Investments and other assets consisted of the following: December 31, ------------ 1999 1998 ---- ---- Certificates of deposit $355,000 $330,000 Investment in and advances to ITS- Testco, L.L.C. 645,000 318,000 Investment in North American Brine Resources (see note 4) 225,000 847,000 Investment in Cibola Corporation 109,000 96,000 Investment in real estate limited partnerships 201,000 200,000 Other assets 69,000 150,000 ---------- ---------- 1,604,000 1,941,000 Current investments (280,000) - ---------- ---------- $1,324,000 $1,941,000 ========== ========== Certificates of Deposit ----------------------- Included in current assets at December 31, 1999, are $280,000 of certificates of deposit, which mature from May through October of 2000. Included in investments and other assets at December 31, 1999 and 1998 are certificates of deposit of $75,000, and $330,000, respectively. The certificate of deposit held at December 31, 1999 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 October 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. The Company's carrying value of its investment in ITS-Testco at December 31, 1999 and 1998 approximated $394,000 and $318,000, respectively, which exceeds its 50% ownership in the underlying equity of ITS- Testco by $15,000 and $6,000 as of December 31, 1999 and 1998, respectively. The difference is a result of the Company's capital contributions exceeding the other partner's capital contributions. Such difference will be realized by the Company through future distributions from ITS-Testco to the owners. The Company also has a $251,000 receivable due from ITS-Testco at December 31, 1999 related to advances to fund operations. The receivable is due on demand and accrues interest at an annual rate of 8.25% through December 31, 1999 and has been increased to 8.75% effective January 1, 2000. The company does not expect the receivable to be repaid in 2000. The summarized unaudited financial information of ITS-Testco as of December 31, 1999 and 1998 and for the year ended December 31, 1999 and the two months ended December 31, 1998 is as follows: 1999 1998 ---- ---- Current assets $ 989,000 $ 61,000 Current liabilities (318,000) - ---------- ---------- Working capital $ 671,000 $ 61,000 Equipment, net 1,451,000 563,000 Advances from members (627,000) - Long-term debt (738,000) - ---------- ---------- Members equity $ 757,000 $ 624,000 ========== ========== Revenue $2,378,000 $ - ========== ========== Net loss (457,000) (70,000) Foreign currency translation adjustment 8,000 - ---------- ---------- Comprehensive loss $ (449,000) $ (70,000) ========== ========== 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 $308,000, $274,000, and $185,000 in 1999, 1998 and 1997, respectively. Investment in Real Estate Limited Partnerships ---------------------------------------------- The Company owns limited partnership interests in two real estate limited partnerships. The limited partnerships significant assets consist of undeveloped land near Houston, Texas. The Company recorded $1,000 and $5,000 of income in 1999 and 1997, respectively, and $4,000 of loss in 1998 resulting from its share of the limited partnerships' operations for those years. Other assets ------------ The Company recorded a provision totaling $152,000 in 1997 for economic impairment of an unsecured note with a face value of $362,000 held by the Company in a research and development entity. The Company also recorded provisions of $110,000, $154,000 and $176,000 in 1999, 1998 and 1997, respectively, for economic impairment of other investments. (7) Notes Receivable - --------------------- As of December 31, 1999 and 1998, the Company had various notes receivable resulting from the sale of Other E/S Operations equipment. The notes bear interest at rates ranging from 5.85% to 8% (discounted using a 10% interest rate) at December 31, 1999 and 1998. The notes mature from May 2000 to February 2005, and are secured by the sold equipment. At December 31, 1999 and 1998, $80,000 and $57,000, respectively, were due within one year. At December 31, 1999, the Company had a $486,000 note receivable due from Testco, Inc., the other fifty-percent owner of ITS-Testco, L.L.C. The note accrues interest at 8.75%, matures in June 2000 and is secured by a personal guaranty of the owner of Testco, Inc. The Company expects to renegotiate the note prior to maturity, extending the maturity of the note and establishing a monthly payment schedule; therefore, the note is presented as non-current. (8) Property, Plant and Equipment - ---------------------------------- Property, plant and equipment consisted of the following: December 31, ------------ 1999 1998 ---- ---- Land $ 270,000 $ 776,000 Proved and unproved carbon dioxide properties 3,008,000 2,998,000 Buildings 82,000 1,096,000 Buildings and land improvements 264,000 1,029,000 Machinery and equipment 1,727,000 2,816,000 Other 404,000 206,000 Coal fines extraction and beneficiation equipment 1,124,000 24,000,000 ----------- ----------- $ 6,879,000 $32,921,000 =========== =========== (9) Intangible Assets - ---------------------- Intangible assets are summarized as follows: December 31, ------------ 1999 1998 ---- ---- License fees $ - $ 50,000 Patent costs 25,000 57,000 Other - 60,000 ---------- ---------- $ 25,000 $ 167,000 ========== ========== (10) Long-term Debt - -------------------- Long-term debt is summarized as follows: December 31, 1999 1998 ---- ---- Coal (a) $ 30,000 $23,247,000 Interstate Travel Facilities Segment (b) - 2,652,000 ---------- ----------- 30,000 25,899,000 Less current maturities 17,000 119,000 ---------- ----------- Long-term debt $ 13,000 $25,780,000 ========== =========== (a) At December 31, 1999 and 1998, the Company had $30,000 and $47,000 of various notes payable. The notes bear interest at rates ranging from 14% to 18%, require monthly payments of interest and principal and mature from April 2000 through September 2001. The notes are secured by equipment with an approximate book value of $39,000 at December 31, 1999. At December 31, 1998, the Company had a $23.2 million promissory note payable to MCNIC resulting from the June 1998 acquisition of the Equipment discussed in note 3. The annual interest rate on the note was 8% and required monthly principal and interest payments of $290,000 through July 1, 1999, at which time the remaining principal balance was due. As discussed in note 3, BTI and MCNIC entered into an Exchange Agreement on March 19, 1999, whereby the Company was relieved of its obligation under the note and related loan documents in exchange for its ownership in the Equipment securing the note. The note was presented as long-term debt at December 31, 1998. (b) At December 31, 1998, the Company had four notes payable to a bank totaling $2,182,000. The notes required monthly interest and principal payments totaling $22,000, and accrued interest at the prime interest rate (8.5% at December 31, 1998). The Company also had $56,000 of various notes payable outstanding at December 31, 1998, bearing interest at rates ranging from 6% to 9%. As discussed in note 4, in November 30, 1999, the Company sold certain of its ITF assets, whereby the purchaser assumed all of the related debt securing the assets and the Company was relieved of all its obligations under the agreements by the debt holders. Also at December 31, 1998, the Company had a $544,000, 5.93% promissory note payable, valued at $414,000 (discounted using a 10% interest rate) to the former owner of certain interstate travel facilities acquired by Beard in February 1998 (see note 3). As a result of Beard selling the majority of its ITF assets in November 1999, the holder of the promissory note (also a party to the purchase of the ITF assets) relieved Beard of the obligation (see note 4). The annual maturities of long-term debt subsequent to December 31, 1999 are $17,000 for 2000 and $13,000 for 2001. At December 31, 1999, the Company had $575,000 of credit available under a $650,000 bank line of credit. The line of credit was extended until April 30, 2000, at which time it will be allowed to expire and is being replaced with a $300,000 line of credit at a new bank. In addition, at April 3, 2000, the Company had a $1,000,000 revolving line of credit available from a related party which bears interest at 10% until maturity at July 2, 2001. (11) Operating Leases - ---------------------- Noncancelable operating leases relate principally to office space, vehicles and operating equipment. Future minimum payments under such leases as of December 31, 1999 are summarized as follows: 2000 $110,000 2001 16,000 2002 6,000 -------- $132,000 ======== Rent expense under operating leases aggregated $153,000, $185,000, and $889,000 in 1999, 1998 and 1997, respectively. (12) Income Taxes - ------------------ Total income tax expense (benefit) was allocated as follows: Year ended December 31, 1999 1998 1997 ---- ---- ---- Continuing operations $ 48,000 $ 100,000 $ 40,000 Discontinued operations - (168,000) 555,000 -------- --------- -------- $ 48,000 $ (68,000) $595,000 ======== ========= ======== Current income tax expense from continuing operations consisted of: Year ended December 31, ----------------------- 1999 1998 1997 ---- ---- ---- U. S. federal $ 34,000 $ 41,000 $ 40,000 Various states 2,000 59,000 - Republic of Mexico 12,000 - - -------- -------- -------- $ 48,000 $100,000 $ 40,000 ======== ======== ======== Total income tax expense 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, ----------------------- 1999 1998 1997 ---- ---- ---- Computed U. S. federal statutory benefit $(780,000) $(161,000) $(424,000) Federal alternative minimum taxes 34,000 41,000 40,000 Increase in the valuation allowance for deferred tax assets 780,000 161,000 424,000 State income taxes 2,000 59,000 - Republic of Mexico taxes 12,000 - - --------- --------- --------- $ 48,000 $ 100,000 $ 40,000 ========= ========= ========= The components of deferred tax assets and liabilities are as follows: December 31, ------------ 1999 1998 ---- ---- Deferred tax assets - tax effect of: Net operating loss carryforwards $19,988,000 $19,760,000 Statutory depletion and investment tax credit carryforwards 2,129,000 2,280,000 Other, principally investments and property, plant and equipment 651,000 239,000 ----------- ----------- Total gross deferred tax assets 22,768,000 22,279,000 Less valuation allowance (22,768,000) (22,244,000) Deferred tax liabilities - (35,000) ----------- ----------- 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, 1999, the Company had federal regular tax operating loss carryforwards of approximately $52.6 million that expire from 2004 to 2009, investment tax credit carryforwards of approximately $102,000 that expire in 2000, 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 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. 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, 1999, there were 117,500 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 1998 or 1999. 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 $9,000 in 1999 and 1998 and net income in 1997 would have decreased $8,000. 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, 1996 148,000 $2.06 Granted 5,000 4.38 Exercised (28,000) 2.00 Forfeited - - Expired - - ------------------------------- Balance at December 31, 1997 125,000 $2.17 Granted - - Exercised (55,000) 2.00 Forfeited - - Expired - - ------------------------------- Balance at December 31, 1998 70,000 $2.29 Granted - - Exercised (8,000) 2.00 Forfeited - - Expired - - ------------------------------- Balance at December 31, 1999 62,000 $2.32 =============================== At December 31, 1999, the range of exercise prices and weighted- average remaining contractual life of outstanding options was $2.00 - $4.38 and five years, respectively. At December 31, 1999 and 1998, the number of options exercisable was 56,000 and 60,000, respectively, and the weighted-average exercise price of those options was $2.22 and $2.12, respectively. (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 1999, 1998 and 1997, the Company made matching contributions of $73,000, $54,000, and $150,000, 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. At December 31, 1999, the Company is a guarantor of a 9.5%, $600,000 promissory note to a bank. The note is an obligation of ITS-Testco, the Company's 50%-owned equity investment engaged in well testing operations in northeastern Mexico. The note becomes due in June 2000 and is separately guaranteed in full by the other 50% corporate owner of the joint venture and the owners of that company, as individuals. 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 five reportable segments in 1999 and 1998: Coal Reclamation, China, Carbon Dioxide, Environmental Remediation and Natural Gas Well Servicing. The Company had three reportable segments in 1997: Coal, Carbon Dioxide and Environmental Remediation. China and Natural Gas Well Servicing operations began in 1998 and therefore were not reportable segments in 1998. The Coal Segment is in the business of operating coal fines reclamation and/or briquetting facilities in the U.S. and is pursuing the development of advanced fine coal preparation processes. The China Segment is pursuing (i) the sale of coal equipment, (ii) environmental opportunities, (ii) the sale of technical services, and (iv) the operation of coal fines reclamation facilities in China. The Carbon Dioxide Segment consists of the production of CO2 gas. The Environmental Remediation Segment consists of services to remediate creosote and polycyclic aromatic hydrocarbon contamination. The Natural Gas Well Servicing Segment is conducted by two companies operating in northeastern Mexico and consists of (i) a 50%-owned company (accounted for as an equity investment) involved in natural gas well testing operations, and (ii) a wholly owned company that has designed a sand separator for use on natural gas wells and has had five custom fabricated for use on a trial basis. The 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). The information contained in "other" relates to the Company's e-Commerce Segment and consists of start-up costs. General corporate assets and expenses are not allocated to any of the Company's operating segments; therefore, they are included as a reconciling item to consolidated total assets and loss from continuing operations before income taxes reported in the Company's accompanying financial statements.
Natural Carbon Environmental Gas Well Coal China Dioxide Remediation Servicing Other Totals ---- ----- ------- ------------ --------- ----- ------ 1999 - ---- Revenues from external customers $ 953 $ - $ 418 $ - $ 2,460 $ - $ 3,831 Interest income 24 - - - - - 24 Interest expense 160 - - - 91 - 251 Depreciation, depletion and amortization 194 - 33 46 257 - 530 Segment profit (loss) (614) (279) 360 (317) (642) (129) (1,621) Segment assets 1,407 - 463 8 2,786 13 4,677 Expenditures for segment assets 1,135 - 10 - 1,335 - 2,480 1998 - ---- Revenues from external customers 8,585 - 616 8 - - 9,209 Interest income 2 - - - - - 2 Interest expense 949 - - - - - 949 Depreciation, depletion and amortization 815 - 31 4 - - 850 Segment profit (loss) 672 (277) 466 (238) (70) - 553 Segment assets 25,148 - 603 55 607 - 26,413 Expenditures for segment assets 24,072 - 41 6 548 - 24,667 1997 - ---- Revenues from external customers 1 - 503 13 - - 517 Interest income - - 13 - - - 13 Interest expense - - - 3 - - 3 Depreciation, depletion and amortization 8 - 25 3 - - 36 Segment profit (loss) (282) - 281 (113) - - (114) Other significant non cash items: Impairment of long-lived assets - - 107 - - - 107 Segment assets 34 - 481 50 - - 565 Expenditures for segment assets - - 147 3 - - 150
Reconciliation of reportable segment revenues to consolidated revenues is as follows (in thousands): 1999 1998 1997 ---- ---- ---- Total revenues for reportable segments $ 3,831 $ 9,209 $ 517 Revenues from Natural Gas Well Servicing operations accounted for as an equity investment (2,378) - - Revenues from corporate activities not allocated to segments 50 37 58 ------- ------- ------- Total consolidated revenues $ 1,503 $ 9,246 $ 575 ======= ======= ======= Reconciliation of reportable segment interest expense to consolidated interest expense is as follows (in thousands): 1999 1998 1997 ---- ---- ---- Total interest expense for reportable segments $ 251 $ 949 $ 3 Natural Gas Well Servicing operations accounted for as an equity investment (91) - - Interest expense from corporate activities not allocated to segments 10 15 131 ------- ------- ------- Total consolidated interest expense $ 170 $ 964 $ 134 ======= ======= ======= Reconciliation of reportable segment depreciation, depletion and amortization to consolidated depreciation, depletion and amortization is as follows (in thousands): 1999 1998 1997 ---- ---- ---- Total depreciation, depletion and amortization for reportable segments $ 530 $ 850 $ 36 Depreciation and amortization of Natural Gas Well Servicing operations accounted for as equity investment (222) - - Corporate depreciation and amortization not allocated to segments 46 19 20 ------- ------- ------- Total consolidated depreciation, depletion and amortization $ 354 $ 869 $ 56 ======= ======= ======= Reconciliation of total reportable segment profit (loss) to consolidated loss from continuing operations is as follows (in thousands): 1999 1998 1997 ---- ---- ---- Total profit (loss) for reportable segments $(1,621) $ 553 $ (114) Eliminate loss from Natural Gas Well Servicing operations accounted for as an equity investment 433 70 - Equity in loss from Natural Gas Well Servicing operations accounted for as an equity investment (217) (35) - Net corporate costs not allocated to segments (902) (865) (1,279) ------- ------- ------- Total consolidated loss from continuing operations $(2,307) $ (277) $(1,393) ======= ======= ======= Reconciliation of reportable segment assets to consolidated assets is as follows (in thousands): 1999 1998 1997 ---- ---- ---- Total assets for reportable segments $ 4,677 $26,413 $ 565 Assets of discontinued operations 1,380 6,287 5,791 Assets from Natural Gas Well Servicing operations accounted for as an equity investment (2,440) (607) - Investment in equity investee (Natural Gas Well Servicing operations) 394 318 - Corporate assets not allocated to segments 2,793 4,926 14,596 ------- ------- ------- Total consolidated assets $ 6,804 $37,337 $20,952 ======= ======= ======= Reconciliation of expenditures for segment assets to total expenditures for assets is as follows (in thousands): 1999 1998 1997 ---- ---- ---- Total expenditures for assets for reportable segments $ 2,480 $24,667 $ 150 Capital expenditures of discontinued operations - 4,034 1,449 Expenditures for Natural Gas Well Servicing assets accounted for as an equity equity investment (1,119) (547) - Corporate expenditures not allocated to segments 31 55 4 ------- ------- ------- Total expenditures for assets $ 1,392 $28,209 $ 1,603 ======= ======= ======= Sixty-four percent of 1999's segment revenues were derived from customers in Mexico. The remaining 1999, and all of 1998 and 1997 segment revenues were derived from customers in the United States. Certain long-lived assets with recorded values approximating $1,385,000 and $547,000 at December 31, 1999 and 1998, respectively, are located in Mexico. All remaining segment assets are located in the United States. During 1999, one customer accounted for 53% of the Company's and 84% of the Coal Segment's revenues. The customer accounted for 93% of the Company's and all of the Coal Segment's 1998 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 1999, 1998 and 1997, sales by these two operators accounted for 28%, 7%, and 87%, respectively, of the Company's revenues and all of the Carbon Dioxide Segment's revenues. All of the Natural Gas Well Servicing Segment's 1999 revenues were derived from one customer. (17) Fourth Quarter Adjustments - -------------------------------- The Company recorded adjustments in the fourth quarter of 1999 and 1998 resulting from the discontinuance of NABR (accounted for under the equity method of accounting) and the interstate travel facilities operations (see note 4). In the fourth quarter of 1997, the Company recorded economic impairment losses on long- lived assets and unsecured notes and other investments totaling $285,000 ($114,000 of which was related to the Company's Other E/S Operations and is included in discontinued operations) and $238,000, respectively. 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 71 Herb Mee, Jr. President, Chief Financial Officer and Director (a) November 1973 71 Allan R. Hallock Director December 1986 70 Harlon E. Martin, Jr. Director October 1997 52 Ford C. Price Director March 1988 62 Michael E. Carr Director February 1994 64 Philip R. Jamison President - Beard Technologies, Inc. (b)(d) February 1997 61 Marc A. Messner President & CEO - starpay.com, inc.(c)(d) September 1999 37 Jack A. Martine Controller and Chief Accounting Officer October 1996 50 Rebecca G. Witcher Secretary-Treasurer (a) October 1993 40 _______________ (a) Trustee of certain assets of the Company's 401(k) Trust. (b) Devotes all of his time to Beard Technologies, Inc. (c) Devotes all of his time to starpay.com, inc. (d) Indicated entities are subsidiaries 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 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 also served as Chairman and CFO of starpay.com, inc. ("starpay") since September 1999. He has served as Beard Oil's President 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 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. 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. Michael E. Carr was elected in February 1994 by the preferred stockholders to fill the directorship vacancy which they are entitled to fill. Mr. Carr served as Senior Vice President of Beard Oil from December 1986 until October 1993. He served as President and Chief Executive Officer of Sensor Oil & Gas, Inc. ("Sensor") from October 1993 until August 1996. He presently serves as President of Mica Energy Corp. Philip R. Jamison has served as President of BTI 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 Chief Executive Officer of all its coal producing subsidiaries. From 1979 to 1988 he served as Chief Executive Officer of four small companies which were engaged in the production and sales of coal. From 1993 to 1995 he served as a consultant to EI in connection with its development of the Mulled Coal process, and supervised the installation and operation of the process in connection with the DOE contract. Marc A. Messner has served as President and Chief Executive Officer of starpay since April 1999. He is the inventor of starpay's proprietary payment system technology. He has also served as Vice President - Corporate Development of Beard since August 1998. From 1993 to 1998 he served as President of Horizontal Drilling Technologies, Inc. where he became recognized as a world leader in short-turn horizontal well installations and environmental drilling. 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 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 2000 Ford C. Price 2000 Harlon E. Martin, Jr. 2001 Herb Mee, Jr. 2001 Michael E. Carr (a) __________ (a) Will serve until his successor has been duly elected and qualified. 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 and the American Stock Exchange 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. The William M. Beard and Lu Beard 1988 Charitable Unitrust, of which Mr. Beard and his wife are Trustees, had one late Form 3 filing during the past fiscal year. The Form 3 that was filed late was not for a transaction that had been missed, but was for failure to report that the Unitrust had become a holder of 10% of the common stock of the Company. Except for the above, 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, 1999, 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 $100,000, for any of the fiscal years ended December 31, 1999, 1998 or 1997: SUMMARY COMPENSATION TABLE Long Term Compensation ------------------------------ Annual Compensation Awards Payouts ------------------- ------ ------- Securities Underlying All Other Name and Options/ LTIP Compen- Principal Salary(a) Bonus SAR's Payouts sation(c) Position Year ($) ($) (#) ($) ($) - --------- ---- --- --- --- --- --- W. M. Beard 1999 122,375(d) 2,300(b) -0- 9,625(d) 6,234 Chairman & CEO 1998 99,000(d) -0-(d) -0- 35,250 5,503(d) 1997 99,000(d) 18,750(d)(e) -0- 41,450(d)(e) 5,501(d) Herb Mee, Jr.1999 132,000 1,300(b) -0- -0- 6,665 President & CFO 1998 132,000 1,250(b) -0- -0- 7,288 1997 132,000 26,200(b)(e) -0- -0- 7,285 ________ (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. (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 1999 Mr. Beard deferred one-fourth ($9,625) of his salary for 3-1/2 months; in 1998 Mr. Beard deferred one-fourth ($33,000) of his salary and all ($2,250) of his length of service bonus for the year; in 1997 Mr. Beard deferred one-fourth ($33,000) of his salary and all ($2,200) of his length of service bonus for the year pursuant to the Company's Deferred Stock Compensation Plan. (e) In 1997 Messrs. Beard and Mee each received a special bonus of $25,000, of which $12,500 was paid in 1997 and $12,500 in 1998. Mr. Beard deferred one-fourth of such bonus in both 1997 ($3,125) and 1998 ($3,125). AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table provides information, with respect to the named executive officers, concerning the exercise of options during the Company's last fiscal year and unexercised options held as of the end of the last fiscal year: Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at FY-End (#) FY-End ($) Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized ($) Unexercisable Unexercisable - ---- --------------- ------------ ------------- ------------- W. M. Beard -0- $ -0- 12,500/-0- $-0-/-0- Herb Mee, Jr. 8,055 $ 14,096 24,495/-0- $-0-/-0- Compensation of Directors - ------------------------- Mr. Carr received compensation of $9,280 for services rendered during 1999 as a director of Beard. Messrs. Hallock, Martin and Price received $14,069, $9,147 and $12,405, 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 $550, $100, $550 and $250, respectively, in 1999. All of the directors except Mr. Carr deferred such bonuses pursuant to the Plan. Beard also provides 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. None of the directors received additional compensation in 1999 for their committee participation. The two eligible non-management directors (Messrs. Hallock and Price) were each granted 5,000 phantom stock units (the "Units") under the Company's 1994 Phantom Stock Units Plan on November 1, 1994. Mr. Carr was awarded 5,000 Units when he became eligible on February 22, 1995. All of these awards were based on an award price of $2.00* per share and vest over a five year period at the rate of 20% per year. Messrs. Hallock, Martin, Price and Carr were each granted 5,000 Units on October 23, 1997 at an award price of $5.00 per share, the market value of the stock on such date. The 1997 awards vest over a four year period at the rate of 25% 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 1,000 Units which vested on February 22, 2000, $1,987 in 1999 for 1,000 Units which vested on February 22, 1999, $3,046 in 1998 for 1,000 Units which vested on February 22, 1998 and $3,808 in 1997 for 2,000 Units which vested on February 22, 1997. Messrs. Hallock and Price received $8,630 each in 2000 for 5,000 Units which vested on November 1, 1999. _______ * The market value on November 1, 1994 was $1.875 per share; on February 22, 1995 it was $1.75 per share. 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. Mr. Carr served as Senior Vice President of Beard Oil from December 1986 until October 1993. 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 29, 2000. 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 Per- Name and Address Ownership of Class Ownership of Class(8) centage(8) ---------------- --------- -------- ---------- ----------- ---------- John Hancock Financial Services, Inc. ("Hancock") 27,838 100.00% 312,040(1)(2) 12.80%(2) 17.62% 57th Floor 200 Clarendon Street Boston, Massachusetts 02117 Dimensional Fund Advisors, Inc. None 0.00% 152,265(3) 6.24% 5.90% 1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401 The Beard Group 401(k) Trust None 0.00% 240,042(4) 9.84% 9.30% c/o Bank One, Oklahoma, N.A., Trustee 100 N. Broadway Avenue Oklahoma City, OK 73102 W. M. Beard None 0.00% 860,381(5) 35.10% 33.17% Enterprise Plaza, Suite 320 5600 North May Avenue Oklahoma City, OK 73112 Lu Beard None 0.00% 307,186(6) 12.60% 11.90% Enterprise Plaza, Suite 320 5600 North May Avenue Oklahoma City, OK 73112 Herb Mee, Jr. None 0.00% 390,802(7) 15.87% 15.00% 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 5.53% 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 152,265 shares, all of which shares are held in portfolios of investment companies and commingled group trusts which Dimensional serves as 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 December 31, 1999 (latest information available). 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 104,875.63 and 120,036.09 shares held for the accounts of Messrs. Beard and Mee, respectively. (5) Includes 206,166 shares owned directly by Mr. Beard as to which he has sole voting and investment power; 305,507 shares (or 12.53%) 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; 49,286 shares held by the William M. Beard Irrevocable Trust "A," 68,432 shares held by the William M. Beard Irrevocable Trust "B," and 83,549 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; 6,738 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; 3,256 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; 104,875.63 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 13,333 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 12,500 shares subject to presently exercisable options. Excludes 1,679 shares owned by his wife as to which Mr. Beard disclaims beneficial ownership. (6) Represents 305,507 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 1,679 shares owned directly by Mrs. Beard as to which she has sole voting and investment power. (7) Includes 25,005 shares owned directly by Mr. Mee as to which he has sole voting and investment power; 6,666 shares held by Mee Investments, Inc., as to which Mr. Mee has sole voting and investment power; 13,333 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 120,036.09 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 201,267 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 24,495 shares subject to presently exercisable options. Excludes 45 shares owned by his wife, Marlene W. Mee, as to which Mr. Mee disclaims beneficial ownership. (8) All percentages reflected above exclude 393,405 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 and nominee, 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 29, 2000. Amount and Nature of Beneficial Percent Name and Address Ownership of Class (6) - ---------------- ---------- ------------ W. M. Beard 860,381(1) 35.10% Herb Mee, Jr. 390,802(2) 15.87% Michael E. Carr 28,643 1.17% Ford C. Price 18,665(3) ---(5) Allan R. Hallock 2,500 ---(5) Harlon E. Martin, Jr. 1,000 ---(5) All directors and executive officers as a group (8 in number) 1,101,396(4) 44.28% _________ (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 10,399 shares owned directly by Mr. Price and 3,266 shares held by an IRA for the benefit of Mr. Price, as to all of which he has sole voting and investment power, and 5,000 shares held by the FCP Trust as to which he has shared voting and investment power. (4) Includes 573,033 shares as to which directors and executive officers have sole voting and investment power and 528,363 shares as to which they share voting and investment power with others. (5) Reflects ownership of less than one (1) percent. (6) See footnote (8) to table "Security Ownership of Certain Beneficial Owners." Item 13. Certain Relationships and Related Transactions. None. 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: Exhibit No. Description - ------- ----------- 2 Plan of acquisition, reorganization, arrangement, liquidation or succession: 2(a) Agreement and Plan of Reorganization by and among Registrant, Beard Oil Company ("Beard Oil") and New Beard, Inc., dated as of July 12, 1993 (see Addendum A to Part I, which is incorporated herein by reference; schedules to the Agreement have been omitted). (This Exhibit has been previously filed as Exhibit 3(b), filed on July 27, 1993 to Registrant's Registration Statement on Form S-4, File No. 33-66598, and same is incorporated by reference). 2(b) Agreement and Plan of Merger by and between The Beard Company and The New Beard Company, dated as of September 16, 1997. (This Exhibit has been previously filed as Exhibit B to Registrant's Proxy Statement filed on September 12, 1997, and same is incorporated by reference). 2(c) Certificate of Merger merging The Beard Company into The New Beard Company as filed with theSecretary of State of Oklahoma on November 26, 1997. (This Exhibit has been previously filed as Exhibit 2.1 to Registrant's Form 8- K, filed on December 8, 1997, and same is incorporated by reference). 2(d) Asset Purchase Agreement by and among Registrant, Toby B. Tindell, Cristie R. Tindell and Interstate Travel Facilities, Inc. ("ITF"), dated as of February 27, 1998. (This Exhibit has been previously filed as Exhibit 2 to Registrant's Form 8-K, filed on March 16, 1998, and same is incorporated by reference). 3(i) Certificate of Incorporation of The New Beard Company as filed with the Secretary of State of Oklahoma on September 11, 1997. (This Exhibit has been previously filed as Exhibit C to Registrant's Proxy Statement filed on September 12, 1997, and same is incorporated by reference). 3(ii) Registrant's By-Laws as currently in effect. (This Exhibit has been previously filed as Exhibit 3(ii) to Registrant's Form 10-K for the period ended December 31, 1997, filed on March 31, 1998, and same is incorporated herein by reference). 4 Instruments defining the rights of security holders: 4(a) Certificate of Designations, Powers, Preferences and Relative, Participating, Option and Other Special Rights, and the Qualifications, Limitations or Restrictions Thereof of the Series A Convertible Voting Preferred Stock of the Registrant. (This Exhibit has been previously filed as Exhibit 3(c) to Amendment No. 2, filed on September 17, 1993 to Registrant's Registration Statement on Form S-4, File No. 33-66598, and same is incorporated by reference). 4(b) Settlement Agreement, with Certificate of Amendment attached thereto, by and among Registrant, Beard Oil, New York Life Insurance Company, New York Life Insurance and Annuity Company, John Hancock Mutual Life Insurance Company, Memorial Drive Trust and Sensor, dated as of April 13, 1995. (This Exhibit has been previously filed as Exhibit 4(g) to Registrant's Form 10-K for the period ended December 31, 1994 and same is incorporated by reference). 10 Material contracts: 10(a) Amendment No. One to The Beard Company 1993 Stock Option Plan dated August 27, 1993, as amended June 4, 1998 (The Amended Plan supersedes the original Plan adopted on August 27, 1993. This Exhibit has previously been filed as Exhibit A, filed on April 30, 1998 to Registrant's Proxy Statement dated April 30, 1998, and same is incorporated by reference).* 10(b) The Beard Company 1994 Phantom Stock Units Plan as amended effective October 23, 1997 (The Amended Plan supersedes the original Plan adopted on November 1, 1994).* 10(c) Amendment No. One to The Beard Company Deferred Stock Compensation Plan dated November 1, 1995, as amended July 21, 1999 (The Amended Plan supersedes the original Plan adopted on June 3, 1996. This Exhibit has previously been filed as Exhibit A, filed on May 11, 1999 to Registrant's Proxy Statement dated May 11, 1999, and same is incorporated by reference).* 10(d) Form of Change in Control Compensation Agreement dated as of January 24, 1997, by and between Carbonics and three employees. (This Exhibit has been previously filed as Exhibit 10(l) to Registrant's Form 10-Q for the period ended March 31, 1997, filed on May 14, 1997, and same is incorporated by reference).* 10(e) Amended and Restated Nonqualified Stock Option Agreement by and between Richard D. Neely and ISITOP, Inc. ("ISITOP"), dated November 12, 1998. (This Exhibit has been previously filed as Exhibit 10(g) to Registrant's Form 10-K for the period ended December 31, 1998, filed on April 15, 1999, and same is incorporated herein by reference).* 10(f) Amended and Restated Nonqualified Stock Option Agreement by and between Jerry S. Neely and ISITOP, dated November 12, 1998. (This Exhibit has been previously filed as Exhibit 10(h) to Registrant's Form 10-K for the period ended December 31, 1998, filed on April 15, 1999, and same is incorporated herein by reference).* 10(g) Nonqualified Stock Option Agreement by and between Robert A. McDonald and ISITOP, dated November 12, 1998. (This Exhibit has been previously filed as Exhibit 10(i) to Registrant's Form 10-K for the period ended December 31, 1998, filed on April 15, 1999, and same is incorporated herein by reference).* 10(h) Nonqualified Stock Option Agreement by and between Toby Tindell and ITF, dated February 27, 1998. (This Exhibit has been previously filed as Exhibit 10(n) 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).* 10(i) 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(j) Subscription Agreement by and between Cibola Corporation ("Cibola") and Registrant, dated April 10, 1996. (This Exhibit has been previously filed as Exhibit 10.1 to Registrant's Form 10-Q for the period ended June 30, 1996, filed on August 14, 1996, and same is incorporated by reference). 10(k) Nonrecourse Secured Promissory Note from Registrant to Cibola, dated April 10, 1996. (This Exhibit has been previously filed as Exhibit 10.2 to Registrant's Form 10- Q for the period ended June 30, 1996, filed on August 14, 1996, and same is incorporated by reference). 10(l) Security Agreement by and among Registrant, Cibola and the Cibola shareholders, dated April 10, 1996. (This Exhibit has been previously filed as Exhibit 10.3 to Registrant's Form 10-Q for the period ended June 30, 1996, filed on August 14, 1996, and same is incorporated by reference). 10(m) Tax Sharing Agreement by and among Registrant, Cibola and the Cibola shareholders, dated April 10, 1996. (This Exhibit has been previously filed as Exhibit 10.4 to Registrant's Form 10-Q for the period ended June 30, 1996, filed on August 14, 1996, and same is incorporated by reference). 10(n) Coal Fines Extraction and Beneficiation Agreement among CRC NO. 1 LLC, CRC NO. 2 LLC, CRC NO. 3 LLC, CRC NO. 4 LLC, CRC NO. 5 LLC, CRC NO. 6 LLC, (the "Six LLC's") and BTI, dated as of June 24, 1998. (This Exhibit has been previously filed as Exhibit 10.1 to Registrant's Form 8- K, filed on July 15, 1998, and same is incorporated herein by reference). 10(o) Operation and Maintenance Agreement among the Six LLC's and BTI, dated as of June 24, 1998. (This Exhibit has been previously filed as Exhibit 10.2 to Registrant's Form 8-K, filed on July 15, 1998, and same is incorporated herein by reference). 10(p) Guaranty Agreement among Registrant and the Six LLC's, dated as of June 24, 1998. (This Exhibit has been previously filed as Exhibit 10.3 to Registrant's Form 8- K, filed on July 15, 1998, and same is incorporated herein by reference). 10(q) Guaranty Agreement between MCNIC Pipeline & Processing Company ("MCNIC") and BTI, dated as of June 24, 1998. (This Exhibit has been previously filed as Exhibit 10.4 to Registrant's Form 8-K, filed on July 15, 1998, and same is incorporated herein by reference). 10(r) Loan Agreement between MCNIC and Beard Mining, L.L.C. ("BMLLC"), dated as of June 24, 1998. (This Exhibit has been previously filed as Exhibit 10.5 to Registrant's Form 8-K, filed on July 15, 1998, and same is incorporated herein by reference). 10(s) Promissory Note from BMLLC to MCNIC, dated as of June 24, 1998. (This Exhibit has been previously filed as Exhibit 10.6 to Registrant's Form 8-K, filed on July 15, 1998, and same is incorporated herein by reference). 10(t) Amendment to Coal Fines Extraction and Beneficiation Agreement among the Six LLC's and BMLLC, dated October 30, 1998. (This Exhibit has been previously filed as Exhibit 10(z) to Registrant's Form 10-Q for the period ended September 30, 1998, filed on November 23, 1998, and same is incorporated herein by reference). 10(u) Amendment to Operation and Maintenance Agreement among the Six LLC's and BMLLC, dated October 30, 1998. (This Exhibit has been previously filed as Exhibit 10(aa) to Registrant's Form 10-Q for the period ended September 30, 1998, filed on November 23, 1998, and same is incorporated herein by reference). 10(v) Notice by the Six LLC's of Termination of Operation and Maintenance Agreement with BTI, dated December 16, 1998. (This Exhibit has been previously filed as Exhibit 10(z) 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(w) Notice by the Six LLC's of Termination of Coal Fines Extraction and Beneficiation Agreement with BTI, dated December 16, 1998. (This Exhibit has been previously filed as Exhibit 10(aa) 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(x) Agreement among MCNIC, the Six LLC's, BMLLC, Registrant and BTI, dated March 19, 1999. (This Exhibit has been previously filed as Exhibit 10(bb) 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(y) Letter Agreement by and among Registrant, ITF, Toby B. Tindell and Cristie R. Tindell (the "Tindells"), dated April 13, 1999. (This Exhibit has been previously filed as Exhibit 10(cc) 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(z) 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(aa) Letter Agreement by and among Registrant, ITF, and the Tindells, dated September 18, 1999. (This Exhibit has been previously filed as Exhibit 10(cc) to Registrant's Form 10-Q for the period ended September 30, 1999, filed on November 22, 1999, and same is incorporated herein by reference). 10(bb) Letter Agreement by and among Registrant, ITF, and the Tindells, dated September 18, 1999. (This Exhibit has been previously filed as Exhibit 10(dd) to Registrant's Form 10-Q for the period ended September 30, 1999, filed on November 22, 1999, and same is incorporated herein by reference). 10(cc) Letter Loan Agreement by and between Registrant and The William M. Beard and Lu Beard 1988 Charitable Unitrust (the "Unitrust") dated April 3, 2000. 10(dd) Promissory Note from Registrant to the Trustees of the Unitrust dated April 3, 2000. 21 Subsidiaries of the Registrant. 23 Consent of KPMG LLP 27 Financial Data Schedule *Compensatory plan or arrangement. The Company will furnish to any shareholder a copy of any of the above exhibits upon the payment of $.25 per page. Any request should be sent to The Beard Company, Enterprise Plaza, Suite 320, 5600 North May Avenue, Oklahoma City, Oklahoma 73112 (b) No reports on Form 8-K were filed during the period during the fourth quarter of 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) DATE: April 11, 2000 By HERB MEE, JR. Herb Mee, Jr., President Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated below. Signature Title Date --------- ----- ---- By W.M. BEARD Chief Executive Officer April 11, 2000 W.M. Beard By HERB MEE, JR. President and Chief April 11, 2000 Herb Mee, Jr. Financial Officer By JACK A MARTINE Controller and April 14, 2000 Jack A. Martine Chief Accounting Officer By W.M. BEARD Chairman of the Board April 11, 2000 W.M. Beard By HERB MEE, JR. Director April 11, 2000 Herb Mee, Jr. By ALLAN R. HALLOCK Director April 12, 2000 Allan R. Hallock By HARLON E. MARTIN, JR. Director April 11, 2000 Harlon E. Martin, Jr. By FORD C. PRICE Director April 11, 2000 Ford C. Price By MICHAEL E. CARR Director April 11, 2000 Michael E. Carr 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) 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 2(d) Asset Purchase Agreement by and Incorporated herein by reference among Airgas Carbonic Reserves, Inc. ("Airgas"), and Registrant, Carbonic Reserves ("Carbonics"), and Clifford H. Collen, Jr. ("Collen") 2(e) Asset Purchase Agreement by and Incorporated herein by reference among Registrant, Toby B. Tindell, Cristie R. Tindell and Interstate Travel Facilities, Inc. ("ITF"), dated as of February 27, 1998 3(i) Certificate of Incorporation of Incorporated herein by reference The New Beard Company as filed with the Secretary of State of Oklahoma on September 11, 1997 3(ii) Registrant's By-Laws as currently Incorporated herein by reference in effect 4(a) Certificate of Designations, Incorporated herein by reference Powers, Preferences and Relative, Participating, Option and Other Special Rights, and the Qualifi- cations, Limitations or Restric- tions Thereof of the Series A Convertible Voting Preferred Stock of the Registrant 4(b) Settlement Agreement, with Incorporated herein by reference Certificate of Amendment attached thereto, by and among Registrant, Beard Oil, New York Life Insurance Company, New York Life Insurance and Annuity Company, John Hancock Mutual Life Insurance Company, Memorial Drive Trust and Sensor, dated as of April 13, 1995 10(a) Amendment No. One to The Beard Incorporated herein by reference Company 1993 Stock Option Plan dated August 27, 1993, as amended June 4, 1998 10(b) The Beard Company 1994 Phantom Filed herewith electronically Stock Units Plan adopted November 1, 1994, as amended effective October 23, 1997 10(c) Amendment No. One to The Beard Incorporated herein by reference Company Deferred Stock Compensa- tion Plan dated November 1, 1995, as amended July 21, 1999 10(d) Form of Change in Control Com- Incorporated herein by reference pensation Agreement dated as of January 24, 1997, by and between Carbonics and three employees 10(e) Amended and Restated Nonquali- Incorporated herein by reference fied Stock Option Agreement by and between Richard D. Neely and ISITOP, Inc. ("ISITOP"), dated November 12, 1998 10(f) Amended and Restated Nonquali- Incorporated herein by reference fied Stock Option Agreement by and between Jerry S. Neely and ISITOP, dated November 12, 1998 10(g) Nonqualified Stock Option Agree- Incorporated herein by reference ment by and between Robert A. McDonald and ISITOP, dated November 12, 1998 10(h) Nonqualified Stock Option Agree- Incorporated herein by reference ment by and between Toby Tindell and ITF, dated February 27, 1998 10(i) Incentive Stock Option Agreement Incorporated herein by reference by and between Philip R. Jamison and ISITOP, Inc. ("ISITOP"), dated November 12, 1998 10(j) Subscription Agreement by and Incorporated herein by reference between Cibola Corporation ("Cibola") and Registrant, dated April 10, 1996 10(k) Nonrecourse Secured Promissory Incorporated herein by reference Note from Registrant to Cibola, dated April 10, 1966 10(l) Security Agreement by and among Incorporated herein by reference Registrant, Cibola and the Cibola shareholders, dated April 10, 1996 10(m) Tax Sharing Agreement by and Incorporated herein by reference among Registrant, Cibola and the Cibola shareholders, dated April 10, 1996 10(n) Coal Fines Extraction and Incorporated herein by reference Beneficiation Agreement among CRC NO. 1 LLC, CRC NO. 2 LLC, CRC NO. 3 LLC, CRC NO. 4 LLC, CRC NO. 5 LLC, CRC NO. 6 LLC (the "Six LLC's") and BTI, dated as of June 24, 1998 10(o) Operation and Maintenance Incorporated herein by reference Agreement among the Six LLC's and BTI, dated as of June 24, 1998 10(p) Guaranty Agreement among the Incorporated herein by reference Six LLC's and BTI, dated as of June 24, 1998 10(q) Guaranty Agreement among Incorporated herein by reference MCNIC Pipeline & Processing Company ("MCNIC") and BTI, dated as of June 24, 1998 10(r) Loan Agreement between MCNIC Incorporated herein by reference and Beard Mining. L.L.C. ("BMLLC"), dated as of June 24, 1998 10(s) Promissory Note from BMLLC to Incorporated herein by reference MCNIC, dated as of June 24, 1998 10(t) Amendment to Coal Fines Incorporated herein by reference Extraction and Beneficiation Agreement among the Six LLC's and BMLLC, dated October 30, 1998 10(u) Amendment to Operation and Incorporated herein by reference Maintenance Agreement among the Six LLC's and BMLLC, dated October 30, 1998 10(v) Notice by the Six LLC's of Incorporated herein by reference Termination of Operation and Maintenance Agreement with BTI, dated December 16, 1998 10(w) Notice by the Six LLC's of Incorporated herein by reference Termination of Coal Fines Extraction and Beneficiation Agreement with BTI, dated December 16, 1998 10(x) Agreement by and among MCNIC, Incorporated herein by reference the Six LLC's, BMLLC, Registrant and BTI, dated March 19, 1999 10(y) Letter Agreement by and among Incorporated herein by reference Registrant, ITF, Toby B. Tindell and Cristie R. Tindell (the "Tindells"), dated April 13, 1999 10(z) Guaranty Agreement between Registrant Incorporated herein by reference and Oklahoma Bank and Trust Company, dated as of June 7, 1999 10(aa) Letter Agreement by and among Incorporated herein by reference Registrant, ITF, and the Tindells, dated September 18, 1999 10(bb) Letter Agreement by and among Incorporated herein by reference Registrant, ITF, and the Tindells, dated September 18, 1999 10(cc) Letter Loan Agreement by and Filed herewith electronically between Registrant and The William M. Beard and Lu Beard 1988 Charitable Unitrust (the "Unitrust") dated April 3, 2000 10(dd) Promissory Note from Registrant to Filed herewith electronically the Trustees of the Unitrust dated April 3, 2000 21 Subsidiaries of the Registrant Filed herewith electronically 23 Consent of KPMG LLP Filed herewith electronically 27 Financial Data Schedule Filed herewith electronically EX-10 2 Exhibit 10(b) THE BEARD COMPANY 1994 PHANTOM STOCK UNITS PLAN (As Amended Effective October 23, 1997) THE BEARD COMPANY 1994 PHANTOM STOCK UNITS PLAN (As Amended Effective October 23, 1997) Table of Contents Page ARTICLE I Name and Purpose of Plan. . . . . . . . . . 1 1.1 Name of Plan. . . . . . . . . . . . . 1 1.2 Purpose. . . . . . . . . . . . . . . 1 1.3 Type of Plan. . . . . . . . . . . . . 1 ARTICLE II Definitions and Construction. . . . . . . . 1 2.1 Definitions. . . . . . . . . . . . . 1 2.2 Construction. . . . . . . . . . . . . 4 ARTICLE III Participation. . . . . . . . . . . . . . . 4 3.1 Selection for Participation. . . . . 4 3.2 Participation in Consideration For Future Services. . . . . . . . . 4 3.3 Award Agreements. . . . . . . . . . . 4 ARTICLE IV Phantom Stock Units Subject to the Plan. . 4 4.1 Number of Phantom Stock Units. . . . 4 4.2 Grant of Phantom Stock Units. . . . . 4 ARTICLE V The Awards. . . . . . . . . . . . . . . . . 5 5.1 Amount of Awards, Number of Units. . 5 5.2 Special Rules for Phantom Stock Units 5 5.3 Forfeiture of Award. . . . . . . . . 6 ARTICLE VI Payment of Award. . . . . . . . . . . . . . 7 6.1 Payment of Award. . . . . . . . . . . 7 6.2 Form of Payment. . . . . . . . . . . 7 6.3 Beneficiary Designation. . . . . . . 8 ARTICLE VII General Benefit Provisions. . . . . . . . . 9 7.1 Restriction on Alienation of Benefits 9 7.2 No Trust. . . . . . . . . . . . . . . 9 7.3 Withholding for Income and Employment Taxes. . . . . . . . . . . . . . . . 9 7.4 No Interest on Awards. . . . . . . . 9 7.5 Payments by the Company or Subsidiary 9 7.6 Adjustment on Recapitalization. . . . 10 ARTICLE VIII Provisions Relating to Participants. . . . 10 8.1 Information Required of Participants. 10 8.2 Benefits Payable to Incompetents. . . 10 8.3 Conditions of Employment Not Affected by Plan. . . . . . . . . . . . . . . 10 ARTICLE IX Acceleration of Awards on Change of Control 10 9.1 Change of Control. . . . . . . . . . 10 ARTICLE X Administration and Committee. . . . . . . . 12 10.1 Allocation of Responsibility for Plan Administration. . . . . . . . . 12 10.2 Claims Procedure. . . . . . . . . . . 13 10.3 Review Procedure. . . . . . . . . . . 13 10.4 Records and Reports. . . . . . . . . 14 10.5 Other Committee Powers and Duties. . 14 10.6 Rules and Decisions. . . . . . . . . 14 ARTICLE XI Amendment and Termination. . . . . . . . . 14 11.1 Right to Amend or Alter Plan. . . . . 14 11.2 Right to Terminate Plan. . . . . . . 15 ARTICLE XII Miscellaneous Provisions. . . . . . . . . . 15 12.1 Articles and Section Titles and Headings. . . . . . . . . . . . . . . 15 12.2 Laws of Oklahoma to Govern. . . . . . 15 12.3 Effective Date of Plan. . . . . . . . 15 THE BEARD COMPANY 1994 PHANTOM STOCK UNITS PLAN (As Amended Effective October 23, 1997) THE BEARD COMPANY, an Oklahoma corporation, hereby adopts The Beard Company 1994 Phantom Stock Units Plan upon the following terms and conditions: ARTICLE I Name and Purpose of Plan 1.1 Name of Plan. This Plan shall be hereafter known as THE BEARD COMPANY 1994 PHANTOM STOCK UNITS PLAN. 1.2 Purpose. The purpose of the Plan is to provide the Key Employees who are selected to be Participants under the Plan an incentive to motivate and financially reward such individuals who contribute to the long term growth and profitability of the Company with such reward to be based on the financial performance of the Company, including its Subsidiaries, during the Award Period. Key Employees will have the opportunity to earn their Awards with payment to be made solely in cash. 1.3 Type of Plan. This Plan shall be considered as a "bonus plan" which is to be sponsored by the Company solely for the purpose of providing a supplemental income for certain Key Employees who contribute materially to the continued growth, development and future business success of the Company. It is the intention of the Company that this Plan and any Agreements entered into pursuant to the Plan be administered as a bonus plan established and maintained for a select group of Key Employees. ARTICLE II Definitions and Construction 2.1 Definitions. Where the following capitalized words and phrases appear in this instrument, they shall have the respective meanings set forth below unless a different context is clearly expressed herein. (a) Agreement: The word "Agreement" shall mean that certain agreement which will be entered into by and between the Company and the Participant which represents the Participant's Award for a particular Award Period as provided in Section 3.3 hereof. (b) Award: The word "Award" shall mean, with respect to any Participant, the number of Phantom Stock Units granted to the Participant at the beginning of each Award Period. (c) Award Period: The words "Award Period" shall mean a fixed period of time determined by the Committee over which Awards may be earned by the Participant but in no event may the Award Period exceed five years. (d) Award Price: The words "Award Price" shall mean the Market Value of the Common Stock on the date of the Award. (e) Beneficiary: The words "Beneficiary" shall mean that person designated by the Participant pursuant to Section 6.3 hereof who may be entitled to receive such Participant's Award in the event of the death of the Participant. (f) Board: The word "Board" shall mean the Board of Directors of the Company. (g) Change of Control: The words "Change of Control" shall mean the change in the control of the Company as described in Section 9.1 hereof. (h) Code: The word "Code" shall mean the Internal Revenue Code of 1986, as amended. (i) Committee: The word "Committee" shall mean the committee appointed by the Board in accordance with Article X herein to administer the Plan. Effective as of the date of this amendment the Committee shall consist of at least two non- employee directors as such term is defined in Rule 16b-3 of the Securities Act of 1934. (j) Common Stock: The words "Common Stock" shall mean the shares of common stock of the Company, par value $.001 per share. (k) Company: The word "Company" shall mean The Beard Company, or its successor. (l) Disability: The word "Disability" shall mean a physical or mental condition arising during employment with the Employer whereby a Participant has become totally and permanently disabled as defined under The Beard Company Long- Term Disability Plan. (m) Effective Date: The words "Effective Date" shall mean the 1st day of November, 1994, which is the date that this Plan shall be effective for all purposes. (n) Eligible Spouse: The words "Eligible Spouse" shall mean the spouse to whom the Participant is married on his date of death. (o) Employer: The word "Employer" shall mean either the Company or any Subsidiary. (p) Key Employee: The words "Key Employee" shall mean any full time employee of the Company or a Subsidiary who holds the position of Chairman, Chief Executive Officer, President, Executive Vice President, Senior Vice President, Vice President or any other key employee or director of the Company or a Subsidiary who is selected for participation in the Plan. (q) Market Value: The words "Market Value" shall mean the closing price of the Common Stock of the Company as reported on the American Stock Exchange or such other securities exchange on which the Common Stock may be listed on the trading day immediately preceding the date of the Award, the Vesting Date or other relevant date. Provided, if the price of such Common Stock is not reported or listed as aforesaid, the "Market Value" of such Common Stock shall be determined by the Committee as of the relevant date, and the Committee shall utilize any reasonable and prudent method in determining such Market Value, including, without limitation, the obtaining of opinions of completely independent and well qualified experts. (r) Participant: The word "Participant" shall mean a Key Employee who has been selected by the Committee. (s) Phantom Stock Units: The words "Phantom Stock Units" shall mean those monetary units which represent shares of Common Stock which a Participant may earn as provided in Article V hereof. (t) Plan: The word "Plan" shall mean the "The Beard Company 1994 Phantom Stock Units Plan," as set forth in this instrument, and as hereafter amended from time to time. (u) Retirement: The word "Retirement" shall mean a Participant's termination of employment with the Company or a Subsidiary after attaining the age of 65 years or later or, at the discretion of the Committee, after attaining the age of 55 years or later. (v) Service Vesting Schedule. The words "Service Vesting Schedule" shall mean the period of employment service with the Employer established by the Committee which must be met in order for a Participant to become vested in his Award under the Service Vesting Schedule. Except as otherwise specifically provided in the Plan or the Agreement, the Service Vesting Schedule shall be no greater than 25% for each 12 month period under the Award Period. (w) Subsidiary: The word "Subsidiary" shall mean any corporation with 80% or more of its voting common stock being owned, directly or indirectly, by the Company. (x) Vestina Date: The words "Vesting Date" shall mean the date on which a Participant becomes vested under the Service Vesting Schedule in his Award after satisfying the requirements. 2.2 Construction: The masculine gender, wherever appearing in the Plan, shall be deemed to include the feminine gender, unless the context clearly indicates to the contrary. Any word appearing herein in the plural shall include the singular, where appropriate, and likewise the singular shall include the plural, unless the context clearly indicates to the contrary. ARTICLE III Participation 3.1 Selection for Participation. In order to be eligible for participation in the Plan, a Key Employee of the Company must be selected by the Committee. Selection for participation in the Plan shall be in the sole and absolute discretion of the Committee. 3.2 Participation In Consideration for Future Services. Selection of a Key Employee by the Committee for participation in the Plan and the granting of any Award will be deemed to be for all purposes in consideration of future services to be rendered by the Key Employee to the Company or its Subsidiaries. 3.3 Award Agreements. Any Key Employee selected by the Committee as a Participant, shall, as a condition of participation, execute and return to the Committee an Agreement evidencing the Key Employee's participation in the Plan, the amount of his Award and his agreement to the terms and conditions of the Plan and the Agreement. A separate Agreement will be entered into by the Company and the Participant for each Award Period. ARTICLE IV Phantom Stock Units Subject to the Plan 4.1 Number of Shares of Phantom Stock Units. The number of Phantom Stock Units subject to Award under this Plan in the form of Phantom Stock Units shall not exceed in the aggregate Two Hundred Thousand (200,000). If any Phantom Stock Units issued to a Participant are forfeited as provided in this Plan or the Agreement, the Committee may reissue such Phantom Stock Units to Participants. 4.2 Grant of Phantom Stock Units. The number of Phantom Stock Units which may be awarded under the Plan is subject to the sole discretion of the Committee but in no event may the total number of Phantom Stock Units exceed Two Hundred Thousand (200,000). For all purposes under the Plan, the value of the Phantom Stock Units will be based upon the Market Value of the Common Stock at the time of the Award, the Vesting Date or any other relevant date. Provided, however, that the Committee shall not award any Phantom Stock Units to any of its own members while such member is serving as a member of the Committee. Phantom Stock Units may be awarded to members of the Committee as determined by the Board without any members of the Committee participating in any discussion or vote regarding the award of any such Phantom Stock Units to such member of the Committee. In the event the Board is to award Phantom Stock Units as provided herein to any member of the Committee, then, in such event, the term "Board" shall mean the "Committee" as that term is used herein and for the limited purpose of awarding Phantom Stock Units to members of the Committee, the Board shall have all rights, powers and duties which are otherwise vested in the Committee. ARTICLE V The Awards 5.1 Amount of Awards, Number of Units. The Award granted to each Participant for each Award Period, expressed as a number of Phantom Stock Units is determined solely in the discretion of the Committee. Payment of Awards of Phantom Stock Units will be in cash. Each Award of Phantom Stock Units shall contain such terms, restrictions and conditions as the Committee may determlne, which terms, restrictions and conditions may or may not be the same in each case. 5.2 Special Rules for Phantom Stock Units. Phantom Stock Units are granted in the form of units equivalent to shares of Common Stock. No certificates shall be issued with respect to such units, but the Company shall maintain a bookkeeping account in the name of the Participant to which such units shall relate and such units shall otherwise be treated in a comparable manner as if the Participant had been awarded shares of Common Stock (except that no voting rights or other stock ownership rights shall apply to such units). Each such unit shall represent the right to receive a cash payment of equivalent value at one time, in the manner and subject to the restrictions set forth in this Plan. If, during the Award Period, cash dividends or other cash distributions are paid with respect to shares of Common Stock, the Company may elect to pay to the Participant in cash an amount equal to the cash dividends or cash distributions that he would have received if the Phantom Stock Units had been granted in the form of shares of Common Stock rather than units equivalent thereto. If, during the Award Period, shares of Common Stock or other securities or property are distributed with respect to the Common Stock, additional units equivalent to such shares, securities or property shall be added to the Participant's bookkeeping account as additional units and shall be subject to forfeiture and all other limitations and restrictions imposed upon the related units. Upon the expiration of the Award Period or the occurrence of any other event which may give rise to forfeiture under the Plan, the Company may defer payment of dividend equivalents on Phantom Stock Units until a determination is made as to the number of such units, if any, to be forfeited, and no further dividend equivalents shall be paid with respect to forfeited units after the date of the forfeiture (regardless of whether the record date of the dividend is before or after the date of the forfeiture). In the event of the death of a Participant, the Beneficiary shall have the same right to receive cash payments equivalent to cash dividends and other cash distributions with respect to the Phantom Stock Units which are not forfeited as the Participant would have had if he had survived until payment of the Phantom Stock Units is made to the Beneficiary pursuant to Section 6.3 hereof. 5.3 Forfeiture of Award. In the event that the Participant terminates employment or ceases to be a director at any time during the Award Period, then, to the extent that the Participant does not otherwise become vested in his Award, the Participant shall then forfeit any remaining portion of his Award in which he is not otherwise vested and nonforfeitable as of the date of such termination of employment. It is the intent of the Company in authorizing the adoption of this Plan that the Participant must be in the employ of the Employer on the Vesting Date as specified in the Agreement to be vested in that portion of the Award. The only exception to the rule which provides that the Participant must be in the employ of the Employer on the Vesting Date in order to become vested in that incremental portion of his Award will occur in the event the Participant's termination from employment is due to death, Disability, Retirement, or Change of Control. In this regard, in the event that a Participant does terminate employment due to death or Disability, then, the Participant shall then become 100% vested and nonforfeitable with respect to that portion of his Award which would otherwise become vested had the Participant continued in the employ of the Employer until the applicable Vesting Date in the year in which the Participant terminates employment. In the event that a Participant terminates employment due to Retirement or a Change of Control as provided in Article IX hereof, then, in such event, such Participant shall be deemed to be 100% vested and nonforfeitable in his entire Award regardless of the fact that the Participant has not continued in the employ of the Employer to the end of the Award Period. Provided, in the event that the Participant has been (i) discharged from employment service with the Employer for acts of dishonesty, fraud, theft, embezzlement, (ii) upon the conviction of a court of competent jurisdiction of a crime that is deemed to be a felony under the laws of the State of Oklahoma (or any other state or laws of the United States), or (iii) in the event the Participant commits any act or acts which are injurious and adversely impacts the Employer in any manner whatsoever, then, in such event, the Committee, in its sole discretion, may determine that any Award which has not otherwise been paid to the Participant or his Beneficiary shall be forfeited in its entirety and it shall thereafter be deemed as if the Participant was never selected for participation in the Plan. ARTICLE VI Payment of Award 6.1 Payment of Award. (a) General. With respect to each applicable Award Period, after satisfaction of any Service Vesting Schedule prescribed by the Committee, payment of Awards shall be made as soon as practicable following the Vesting Date which relates to the Award. (b) Specia1 Rules for Payment. (i) In the event a Participant terminates employment or ceases being a director of the Employer due to death, Disability, or if the Participant incurs a "hardship," then, the Committee may, in its sole discretion, accelerate vesting and payment of any Award or take such other actions as the Committee deems appropriate. For the purpose of the Plan, the term "hardship" shall mean an extreme and continuing financial hardship on the Participant, the continuation of which will cause the Participant and/or the Company to suffer extreme financial embarrassment. The Committee shall establish additional criteria which it deems appropriate to determine whether or not "hardship" has occurred. The decision of the Committee as to whether the Participant has incurred a "hardship" shall be final and conclusive. No member of the Committee shall participate in the decision making process of the Committee if such member is requesting a hardship payment. (ii) In the event of Retirement or a Change of Control as provided in Section 9.1 hereof, then, the Participant's Award shall become automatically vested and 100% nonforfeitable notwithstanding that the completion of the Award Period has not occurred. 6.2 Form of Payment. (a) General. At the time that the Participant has been selected by the Committee to become a Participant in the Plan, the Participant shall elect the time at which the payment of his Award shall occur. Once made, this election shall be irrevocable. All payments shall be made in a single lump sum payment at the applicable point in time. In this regard, the time of payment shall be as elected by the Participant under his Agreement as provided under either Option A, Option B or Option C below: OPTION A: The Participant will receive his vested Award at a reasonable time following each Vesting Date (or other date specified herein) during the Award Period. Provided, if on such Vesting Date the amount of payment for each Phantom Stock Unit as calculated pursuant to Subsection 6.2(b) below is less than $1.00, the Participant shall not receive his vested Award until the earlier of (i) a subsequent Vesting Date on which the amount to be paid under such Phantom Stock Unit is equal to or greater than $1.00, (ii) the applicable date in the event of a Participant's death, Disability, Retirement, hardship or a Change of Control as provided in Section 6.1 herein, or (iii) the last Vesting Date in the Award Period. OPTION B: The Participant will receive his vested Award at a reasonable time following the earlier of (i) the last Vesting Date in his Award Period or (ii) the applicable date in the event of a Participant's death, Disability, Retirement, hardship or a Change of Control as provided in Section 6.1; and, to the extent the Participant elects not to defer any portion of his Award to such last Vesting Date, then, payment shall be made as provided under Option A. OPTION C: The Participant will receive 50% of each vested Phantom Stock Unit pursuant to Option A and the other 50% of each vested Phantom Stock Unit pursuant to Option B. (b) Calculation of the Amount of Payment OPTION A: If a Participant has elected Option A as provided in Section 6.2(a) above, then on the applicable Vesting Date during the Award Period, the Participant shall be paid an amount equal to (1) the greater of (i) the average of the Market Value of the Common Stock for the sixty day period prior to the applicable Vesting Date or (ii) the average of the Market Value of the Common Stock for the 12 month period prior to the applicable Vesting Date less (2) the Award Price with such resulting amount then multiplied by the number of Phantom Stock Units in the Award which are vested. OPTION B: If a Participant has elected Option B as provided in Section 6.2(a) above, then, the amount to be paid to the Participant shall be equal to (1) the greater of (i) the average of the Market Value of the Common Stock for the sixty day period prior to the first to occur of (A) the last Vesting Date during the Award Period or (B) the applicable date in the event of a Participant's death, Disability, Retirement, hardship or a Change of Control as provided in Section 6.1, or (ii) the average of the Market Value of the Common Stock for the 12 month period prior to the earlier of (A) the last Vesting Date during the Award Period or (B) the applicable date in the event of a Participant's death, Disability, Retirement, hardship or a Change of Control as provided in Section 6.1 less (2) the Award Price with such resulting amount then multiplied by the number of Phantom Stock Units in the Award which the Participant elected to be calculated under Option B and which are currently vested. 6.3 Beneficiary Designation. In the event of the death of a Participant during a Award Period, then, the Participant's Award, if any, shall be paid to the then surviving Beneficiary designated by the Participant on a form provided by the Committee, and, if there is no Beneficiary then surviving, such benefits will automatically be paid to the surviving Eligible Spouse of such Participant, otherwise to the estate of such Participant. ARTICLE VII General Benefit Provisions 7.1 Restrictions on Alienation of Benefits. No right or benefit under this Plan or the Agreement shall be subject in any manner to garnishment, attachment, anticipation, alienation, sale, transfer, assignment, gift, pledge, encumbrance, disposition, hypothecation, levy, execution or the claims of creditors, either voluntarily or involuntarily, and any attempt to so garnish, attach, anticipate, alienate, sell, transfer, assign, gift, pledge, encumber, dispose, hypothecate, levy or execute on the same shall be null and void, and neither shall such benefits or beneficial interests be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person to whom such benefits or funds are payable. 7.2 No Trust. Other than as specifically provided in this Plan, no action under this Plan by the Company, its parent or any subsidiary, its Board or the Committee shall be construed as creating a trust, escrow or other secured or segregated fund in favor of the Participant, his Beneficiary, or any other persons otherwise entitled to his Award. The status of the Participant and his Beneficiary with respect to any liabilities assumed by the Company hereunder shall be solely those of unsecured creditors of the Company who employs such Participant. Any asset acquired or held by the Company in connection with liabilities assumed by it hereunder, shall not be deemed to be held under any trust, escrow or other secured or segregated fund for the benefit of the Participant or his Beneficiaries or to be security for the performance of the obligations of the Company or any Subsidiary, but shall be, and remain a general, unpledged, unrestricted asset of the Company at all times subject to the claims of general creditors of the Company, its parent or any subsidiary. 7.3 Withholding For Income and Employment Taxes. Since all amounts to be paid under the Plan and the related Agreement to a Participant are to be considered as supplemental compensation paid for services rendered by the Participant, the Company shall comply with all federal and state laws and regulations respecting the withholding, deposit and payment of any income, employment or other taxes relating to any payments made under this Plan, and accordingly, all amounts of Awards shall be subject to and reduced by the amount of such taxes. 7.4 No Interest on Awards. All Awards to be paid hereunder will be paid without interest or investment earnings of any kind whatsoever except as otherwise specifically provided in the Plan. 7.5 Payments by the Company or Subsidiary. The payments required to meet the cost of the Awards provided by the Plan shall be made solely by the Company or any Subsidiary whose Key Employees are participating in the Plan. 7.6 Adjustment on Recapitalization. In case of a recapitalization, stock split, merger, stock dividend, reorganization, combination, liquidation, or other change in the Common Stock of the Company, the Committee shall make such adjustment, if any, as it deems appropriate to the number of Phantom Stock Units which represent shares of Common Stock. ARTICLE VIII Provisions Relating to Participants 8.1 Information Required of Participants. Payment of Awards shall be made as provided in this Plan and no formal claim shall be required therefor; provided, in the interests of orderly administration of the Plan, the Committee may make reasonable requests of Participants and Beneficiaries to furnish information which is reasonably necessary and appropriate to the orderly administration of the Plan, and, to that limited extent, payments under the Plan are conditioned upon the Participants and Beneficiaries promptly furnishing true, full and complete information as the Committee may reasonably request. 8.2 Benefits Payable to Incompetents. Any benefits payable hereunder to a minor or other person under legal disability may be made, at the discretion of the Committee, (i) directly to the said person, or (ii) to a parent, spouse, relative by blood or marriage, or the legal representative of the said person. The Committee shall not be required to see to the application of any such payment, and the payee's receipt shall be a full and final discharge of the Committee's responsibility hereunder. 8.3 Conditions of Employment Not Affected by Plan. The establishment and maintenance of the Plan shall not be construed as conferring any legal rights upon any Participant to the continuation of employment with the Employer, nor shall the Plan interfere with the rights of the Employer to discharge any Participant with or without cause. ARTICLE IX Acceleration of Awards on Change of Control 9.1 Change of Control. In the event that there has been a Change of Control (as defined hereafter), any unvested portion of an Award shall vest and become 100% nonforfeitable and payable as of the date of the Change in Control. For the purpose of this Plan, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii), and (iii) of subsection (c) of this Section 9; or (v) any acquisition of the Outstanding Company Common Stock or the Outstanding Company Voting Securities beneficially owned by W.M. Beard (1) pursuant to the laws of descent and distribution, (2) by a donee receiving the shares pursuant to an inter vivos gift, (3) by a corporation, partnership or other entity which W.M. Beard controls or (4) by operation of law, including by example and not by limitation, pursuant to a divorce decree, pursuant to a bankruptcy decree or pursuant to any foreclosure proceedings; (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 70% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or, (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 70% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) less than 20% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by any Person (excluding any employee benefit plan (or related trust) of the Company or such corporation), except to the extent that such Person owned 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities prior to the sale or disposition, and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such sale or other disposition of assets of the Company or were elected, appointed or nominated by the Board. ARTICLE X Administration and Committee 10.1 Allocation of Responsibility for Plan Admini- stration. The members of the Committee shall serve at the pleasure of the Board and shall be the same as the Compensation Committee appointed by the Board. Any member may serve concurrently as a member of any other administrative committee of any other plan of the Company or any of its affiliates entitling participants therein to acquire stock, stock options or deferred compensation rights (including stock appreciation rights). The Committee shall have the power where consistent with the general purpose and intent of the Plan to (i) modify the requirements of the Plan to conform with the law or to meet in special circumstances not anticipated or covered in the Plan, (ii) suspend or discontinue the Plan, (iii) establish policies and (iv) adopt rules and regulations and prescribe forms for carrying out the purposes and provisions of the Plan including the form of any Agreements. Unless otherwise provided in the Plan, the Committee shall have the authority to interpret and construe the Plan, and determine all questions arising under the Plan and any Agreement made pursuant to the Plan. Any interpretation, decision or determination made by the Committee shall be final, binding and conclusive. A majority of the Committee shall constitute a quorum, and an act of the majority of the members present at any meeting at which a quorum is present shall be the act of the Committee. 10.2 Claims Procedure. The Committee shall make all determinations as to the right of any Participant or his Beneficiary to an Award. If any request for a payment is wholly or partially denied, the Committee shall notify the person requesting the payments, in writing, of such denial, including in such notification the following information: (a) the specific reason or reasons for such denial; (b) the specific references to the pertinent Plan provisions upon which the denial is based; (c) a description of any additional material and information which may be needed to clarify the request, including an explanation of why such information is required; and (d) an examination of this Plan's review procedure with respect to denial of benefits. Provided, that any such notice to be delivered to any Participant or Beneficiary shall be mailed by certified or registered mail and shall be written to the best of the Committee's ability in a manner that may be understood without legal counsel. 10.3 Review Procedure. Any Participant or Beneficiary whose claim has been denied in accordance with Section 10.2 herein may appeal to the Committee for review of such denial by making a written request therefor within 60 days of receipt of the notification of such denial, and such Participant or Beneficiary may examine documents pertinent to the review and may submit to the Committee written issues and comments. Within 60 days after receipt of the request for review, the Committee shall communicate to the claimant, in writing, its decision, and the communication shall set forth the reason or reasons for the decision and specific reference to those Plan provisions upon which the decision is based. 10.4 Records and Reports. The Committee shall exercise such authority and responsibility as it deems appropriate in order to comply with governmental laws and regulations. 10.5 Other Committee Powers and Duties. The Committee shall have such duties and powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following: (a) to construe and interpret the Plan, decide all questions of eligibility and determine the amount, manner and time of payment of any Awards hereunder; (b) to establish the Service Vesting Schedule as such relates to the Awards; (c) to prepare and distribute, in such manner as the Committee determines to be appropriate, information explaining the Plan; (d) to receive from the Company and from Participants and Beneficiaries such information as shall be necessary for the proper administration of the Plan; (e) to furnish the Company upon request, such reports with respect to the administration of the Plan as are reasonable and appropriate; and (f) to appoint and employ individuals and any other agents it deems advisable, including legal counsel, to assist in the administration of the Plan and to render advice with respect to any responsibility of the Committee, or any of its individual members, under the Plan. 10.6 Rules and Decisions. The Committee may adopt such rules as it deems necessary, desirable, or appropriate. When making a determination or calculation, the Committee shall be entitled to rely upon information furnished by a Participant or Beneficiary, the Employer, the accountants of the Company or the legal counsel of the Company. ARTICLE XI Amendment and Termination 11.1 Right to Amend or Alter Plan. The Plan may be amended by the Company from time to time in any respect whatever by resolution of the Board adopting such amendment. Any amendments may be made, which in the judgment of the Committee are necessary or advisable, provided that such amendments do not deprive a Participant, without his consent, of a right to receive his Award hereunder which has been previously granted to the Participant at the applicable point in time. Provided further, the amendment of the Plan shall not cause a termination of any previously granted Award and such amendment shall not accelerate the vesting of any Award which is not vested as of such date. 11.2 Right to Terminate Plan. This Plan shall continue until terminated as provided in this Section 11.2. The Company expressly reserves the right to terminate this Plan in whole or in part at any time. Unless sooner terminated, this Plan shall terminate on October 31, 2004 (the "Termination Date"). Provided, if the Company elects to terminate the Plan prior to the Termination Date, the Company shall determine a proposed date of termination, and the Committee shall notify the Participants. Provided, further, the termination of the Plan shall not cause a termination of any previously granted Award and such termination shall not accelerate the vesting of any Award which is not vested as of such date. ARTICLE XII Miscellaneous Provisions 12.1 Articles and Section Titles and Headings. The titles and headings at the beginning of each Article and Section shall not be considered in construing the meaning of any provisions in this Plan. 12.2 Laws of Oklahoma to Govern. The provisions of this Plan shall be construed, administered and enforced according to the laws of the State of Oklahoma. 12.3 Effective Date of Plan. This Plan shall be effective as of the Effective Date. THE BEARD COMPANY, an Oklahoma corporation ATTEST: REBECCA G. WITCHER By: HERB MEE, JR. Rebecca G. Witcher, Secretary Herb Mee, Jr., President [Seal] EX-10 3 Exhibit 10(cc) April 3, 2000 LETTER LOAN AGREEMENT The Beard Company 5600 N. May Avenue, Suite 320 Oklahoma City, Oklahoma 73112 Gentlemen: This Letter Loan Agreement sets forth the terms and conditions under which we have agreed to extend a revolving loan to you in the principal amount of $1,000,000.00 (the "Loan"). 1. LENDER: The William M. Beard and Lu Beard 1988 Charitable Unitrust (the "Unitrust"). 2. BORROWER: The Beard Company. 3. AMOUNT: Such amounts as the Borrower may request from time to time up to $1,000,000.00. The Loan shall be evidenced by a promissory note in the amount of $1,000,000.00 dated as of today (the "Note"). The Borrower shall be permitted to obtain advances, make prepayments, and obtain additional advances, up to the amount of the Note. 4. INTEREST RATE: A fixed rate of 10.00%. 5. REPAYMENT: The entire principal amount of the Note and all accrued interest thereon (the "Indebtedness") will be due and payable on July 2, 2001. 6. COLLATERAL: A. Until the Indebtedness has been paid in full, the Borrower agrees that it will not create, grant, assume or suffer to exist any lien, mortgage or encumbrance (a "Lien") on its working and overriding royalty interests in the McElmo Dome Unit in Montezuma and Dolores Counties of Colorado ("Royalty Interests"). The Borrower will not sell, transfer, convey or otherwise dispose of any of the Royalty Interests, whether pursuant to a single transaction or a series of transactions. B. At any time while there is Indebtedness outstanding under the Note, the Trustees of the Unitrust may request, and the Borrower agrees to grant to the Unitrust, a Lien on its Royalty Interests, and in such event the Borrower will immediately furnish such Assignments, Transfer Orders, Security Agreements or other documents as the Trustees may require in order to secure the Indebtedness. 7. COVENANT: Until the Indebtedness has been paid in full, the Borrower will not sell, transfer, convey or otherwise dispose of, all or a substantial portion of its assets now owned or hereafter acquired, whether pursuant to a single transaction or a series of trans- actions, and the Borrower will not merge or consolidate with any person or entity or permit any such merger or consolidation with the Borrower. This paragraph specifically excludes asset sales incurred in the normal course of business. 8. EVENTS OF DEFAULT: If any of the following conditions or events ("Events of Default") shall occur and be continuing: A. Failure of the Borrower to pay when due any amounts, including principal or interest on the Note (whether at the stated maturity, upon acceleration or otherwise). B. Any Event of Default as specified in the Note C. Any default or breach in the performance of any covenant, obligation, representation, warranty or provision contained in this Letter Loan Agreement or in the Note or in any other note or obligation of Borrower to the Unitrust. D. The Borrower shall: (i) apply for or consent to the appointment of a custodian, receiver, trustee or liquidator of the Borrower or any of its properties, (ii) admit in writing the inability to pay, or generally fail to pay, its debts when they come due, (iii) make a general assignment for the benefit of creditors, (iv) commence any proceeding relating to the bankruptcy, reorganization, liquidation, receivership, conservatorship, insolvency, readjustment of debt, dissolution or liquidation of the Borrower, or if corporate action should be taken by the Borrower for the purpose of effecting any of the foregoing, (v) suffer any such appointment or commencement of a proceeding as described in clause (i) or (iv) of this paragraph, which appointment or proceeding is not terminated or discharged within 60 days, or (vi) become insolvent. THEN upon the occurrence of any Event of Default described in the foregoing paragraphs the unpaid principal amount of and accrued interest on the Loan shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by Borrower. If the foregoing terms and conditions are acceptable to you, please acknowledge your agreement by signing below and returning one copy of this Letter Loan Agreement to us. Sincerely, THE WILLIAM M. BEARD AND LU BEARD 1988 CHARITABLE UNITRUST WILLIAM M. BEARD LU BEARD William M. Beard, Trustee Lu Beard, Trustee Accepted effective this 3rd day of April, 2000. BORROWER: THE BEARD COMPANY HERB MEE, JR. Herb Mee, Jr., President EX-10 4 Exhibit 10(dd) PROMISSORY NOTE $1,000,000.00 Oklahoma City, Oklahoma April 3, 2000 For value received, the undersigned, The Beard Company, an Oklahoma corporation (the "Maker"), agrees to all of the terms of this Promissory Note (this "Note") and promises to pay to the order of William M. Beard and Lu Beard as Trustees of the William M. Beard and Lu Beard 1988 Charitable Unittrust (individually and collectively called the "Holder"), at Enterprise Plaza, Suite 320, 5600 N. May, Oklahoma City, Oklahoma 73112, or at such other place as may be designated in writing by the Holder of this Note, the principal sum of One Million Dollars ($1,000,000.00) or, if less than such amount, the aggregate unpaid principal amount of all advances or loans made by the Holder to the Maker, and all interest accruing thereon. This Note will be payable as follows: Prior to Default the unpaid principal balance of this Note will bear interest at the per annum interest rate of ten percent (10%) (the "Applicable Rate"). Interest will commence to accrue on the unpaid principal balance of this Note on the date hereof and thereafter until this Note is paid in full. Interest will be computed for the actual number of days elapsed at a per diem charge based on a year consisting of three hundred sixty (360) days. All payments will be applied first to any accrued interest on this Note and the remainder to the principal balance of the Note. All obligations evidenced by and owing pursuant to the terms of this Note, including principal and interest, are due and payable July 2, 2001. Except as otherwise defined herein, all terms defined in the Letter Loan Agreement of even date herewith between the Maker and the Holder (the "Loan Agreement") will have the same meanings as therein. Both principal and interest owing pursuant to the terms of this Note are payable in the lawful currency of the United States of America and in immediately available funds. The Holder may disburse the principal of this Note to the Maker in one or more advances or loans as determined by the Holder in his sole discretion. Advances and payments hereunder shall be recorded on Schedule 1 to this Note and initialed by Maker. All payments made on this Note will be applied to this Note when received by the Holder hereof in collected funds. Any sum not paid when due will bear interest at the rate equal to the Applicable Rate plus five percent (5%) and will be paid at the time of, and as a condition precedent to, the curing of any Event of Default. During the existence of any Event of Default, the Holder of this Note may apply payments received on any amount due hereunder or under the terms of any instrument hereafter evidencing or securing said indebtedness as the Holder may determine. The Maker agrees that if, and as often as, this Note is placed in the hands of an attorney for collection or to defend or enforce any of the Holder's rights hereunder, the Maker will pay to the Holder all reasonable attorney's fees and all expenses incurred by the Holder in connection therewith. ________________________________ Page 1 of 2 Pages THIS NOTE IS GIVEN BY THE MAKER AND ACCEPTED BY THE HOLDER PURSUANT TO A LENDING TRANSACTION CONTRACTED, CONSUMMATED, AND TO BE PERFORMED IN OKLAHOMA CITY, OKLAHOMA COUNTY, OKLAHOMA, AND THIS NOTE SHALL BE CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF OKLAHOMA. In the event of any Event of Default, the Holder may request, and the Maker agrees to furnish to the Holder, agreeable collateral and such security agreements as the Maker may reasonably require to secure the indebtedness. This Note is issued subject to the terms of the Loan Agreement. On the breach of any provision of this Note, or any provision of the Loan Agreement at the option of the Holder, the entire unpaid indebtedness evidenced by this Note will become due, payable and collectible then or thereafter as the Holder may elect, regardless of the date of maturity of this Note. Notice of the exercise of such option is hereby expressly waived. Failure by the Holder to exercise such option will not constitute a waiver of the right to exercise the same in the event of any subsequent default. The failure of the Holder to exercise any of the remedies or options set forth in this Note, or in any instrument securing payment hereof, upon the occurrence of one or more Events of Default, shall not constitute a waiver of the right to exercise the same or any other remedy at any subsequent time in respect to the same or any other Event of Default. The acceptance by the Holder of any payment which is less than the total of all amounts due and payable at the time of such payment shall not constitute a waiver of the right to exercise any of the foregoing remedies or options at that time or any subsequent time, or nullify any prior exercise of such remedy or option, without the express consent of the Holder. Time is of the essence of each obligation of the Maker hereunder. The makers, endorsers, sureties, guarantors and all other persons who may become liable for all or any part of this obligation severally waive presentment for payment, protest, demand and notice of nonpayment. Said parties consent to any extension of time (whether one or more) of payment hereof, the modification (whether one or more) of payment hereof, release or substitution of all or part of the security for the payment hereof or release of any party liable for payment of this obligation. Any such extension or release may be made without notice to any such party and without discharging such party's liability hereunder. The Maker has the right to prepay this Note in whole or in part at any time and from time to time without premium or penalty, but with accrued interest to the date of the prepayment on the amount prepaid. The Maker waives presentment for payment, protest and notice of nonpayment. IN WITNESS WHEREOF, the Maker has executed this instrument effective on the date first above written. ATTEST: THE BEARD COMPANY REBECCA G. WITCHER HERB MEE, JR. Rebecca G. Witcher, Secretary Herb Mee, Jr., President ____________________________________ Page 2 of 2 Pages EX-21 5 Exhibit 21 SUBSIDIARIES The following is a list of the Company's consolidated subsidiaries as of December 31, 1999: Percent of State or Voting Country of Securities Subsidiary Organization Owned - ---------- ------------ ---------- The Beard Company (1) Oklahoma Registrant Beard Leasing Company Delaware 80% Beard Oil Company Delaware 100% Beard Oilfield Service and Supply Co. (2) Oklahoma 100% Beard Sino-American Resources Co., Inc. Oklahoma 100% Beard Technologies, Inc. Oklahoma 100% Carbonic Reserves (2) Nevada 100% Incorporated Tank Systems (5) Delaware 49% Incorporated Tank Systems de Mexico, S.A. de C.V. Mexico 100% Interstate Travel Facilities, Inc. Oklahoma 100% ISITOP, Inc. Oklahoma 80% ITS, Inc. Oklahoma 100% Reid Supply Company (2) Nevada 100% starpay.com, inc. Oklahoma 100% _______ (1) The consolidated financial statements of the Company include accounts of Registrant and the subsidiaries controlled by the Registrant. (2) Inactive subsidiary. (3) Excludes 80%-owned Cibola Corporation. Registrant does not have financial control of this subsidiary. (4) Also excludes 50%-owned ITS-TESTCO, L.L.C. and TESTCO INC. de MEXICO, S.A. de C.V. Registrant does not have operating and financial control of these subsidiaries. (5) Owns 100% of ITS, Inc. which in turn owns 100% of Incorporated Tank Systems de Mexico, S.A. de C.V. EX-23 6 Exhibit 23 Independent Auditors' Consent The Board of Directors and Stockholders The Beard Company: We consent to incorporation by reference in the Registration Statements (No. 33-87110, 33-98482, and 333-06757) on Form S- 8 of The Beard Company of our report dated April 7, 2000, relating to the balance sheets of The Beard Company and subsidiaries as of December 31, 1999 and 1998, and the related statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1999, which report appears in the December 31, 1999 annual report on Form 10-K of The Beard Company. KPMG LLP Oklahoma City, Oklahoma April 10, 2000 EX-27 7
5 1,000 12-MOS DEC-31-1999 DEC-31-1999 767 0 493 (13) 103 1,808 6,879 (3,987) 6,804 1,236 0 889 0 3 4,663 6,804 0 1,503 0 3,977 (459) 110 170 (2,295) 48 (2,343) (1,056) 0 0 (3,399) (1.39) (1.39)
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