-----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, How88vseiQvP3krwJBYKn2fK7d6r2cAwRb1gkqaVod1MLyV716ZlrVZf2rtWgz0p sjjaO/2vqnrwb8wkg2vuww== 0000909334-06-000235.txt : 20060605 0000909334-06-000235.hdr.sgml : 20060605 20060605170117 ACCESSION NUMBER: 0000909334-06-000235 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20060605 DATE AS OF CHANGE: 20060605 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-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-12396 FILM NUMBER: 06886888 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-Q/A 1 bc10qa2nd-60206.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q/A AMENDMENT NO. 2 [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended June 30, 2005 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 1-12396 THE BEARD COMPANY ------------------------------------------------------ (Exact name of registrant as specified in its charter) Oklahoma 73-0970298 - ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Enterprise Plaza, Suite 320 5600 North May Avenue Oklahoma City, Oklahoma 73112 --------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (405) 842-2333 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Indicate the number of shares outstanding of each of the registrant's classes of common stock as of August 12, 2005. Common Stock $.0006665 par value - 5,255,315 EXPLANATORY NOTE The purpose of this Amendment No. 2 to the Form 10-Q of The Beard Company (the "Company") for the quarterly period ended June 30, 2005 is to respond to comments received from the Securities and Exchange Commission. Specifically, the Company has amended its disclosure regarding the effectiveness of its disclosure controls and procedures contained in Item 4 pursuant to Item 307 of Regulation S-K and amended the Section 302 certifications filed as Exhibits 31.1 and 31.2. THE BEARD COMPANY INDEX PART I. FINANCIAL INFORMATION Page ---- Item 1. Financial Statements.......................................... Balance Sheets - June 30, 2005 (Unaudited) and December 31, 2004................................................ Statements of Operations - Three Months and Six Months ended June 30, 2005 and 2004 (Unaudited)......................... Statements of Shareholders' Equity (Deficiency) - Year ended December 31, 2004 and Six Months ended June 30, 2005 (Unaudited)........................................ Statements of Cash Flows - Six Months ended June 30, 2005 and 2004 (Unaudited)............................... Notes to Financial Statements (Unaudited)........................... Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................. Item 3. Quantitative and Qualitative Disclosures About Market Risk.... Item 4. Controls and Procedures....................................... PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds... Item 3. Defaults Upon Senior Securities............................... Item 4. Submission of Matters to a Vote of Security Holders........... Item 5. Other Information............................................. Item 6. Exhibits...................................................... Signatures.............................................................. PART I. FINANCIAL INFORMATION. Item 1. Financial Statements THE BEARD COMPANY AND SUBSIDIARIES Balance Sheets June 30, 2005 (Unaudited) and December 31, 2004
June 30, December 31, Assets 2005 2004 ------ -------------- ---------------- (Restated - see Note 1) (Restated - see Note 1 Current assets: Cash and cash equivalents $ 884,000 $ 127,000 Accounts receivable, less allowance for doubtful receivables of $97,000 in 2005 and 2004 209,000 167,000 Prepaid expenses and other assets 35,000 32,000 Current maturities of notes receivable 6,000 - Assets of discontinued operations held for sale 89,000 40,000 -------------- -------------- Total current assets 1,223,000 366,000 -------------- -------------- Note receivable, less allowance for doubtful receivable of $30,000 in 2005 and 2004 17,000 - Restricted certificate of deposit 50,000 50,000 Investments and other assets, net of impairment of $18,778,000 in 2005 and $17,064,000 in 2004 1,565,000 1,560,000 Property, plant and equipment, at cost 2,632,000 2,090,000 Less accumulated depreciation, depletion and amortization 1,463,000 1,457,000 -------------- -------------- Net property, plant and equipment 1,169,000 633,000 -------------- -------------- Intangible assets, at cost 495,000 292,000 Less accumulated amortization 215,000 189,000 -------------- -------------- Net intangible assets 280,000 103,000 -------------- -------------- $ 4,304,000 $ 2,712,000 ============== ============== Liabilities and Shareholders' Equity (Deficiency) ------------------------------------------------- Current liabilities: Trade accounts payable $ 102,000 $ 177,000 Accrued expenses 349,000 314,000 Short-term debt - related entities - 200,000 Current maturities of long-term debt 175,000 241,000 Current maturities of long-term debt - related entities 1,756,000 333,000 Liabilities of discontinued operations held for sale 54,000 95,000 -------------- -------------- Total current liabilities 2,436,000 1,360,000 -------------- -------------- Long-term debt less current maturities 453,000 428,000 Long-term debt - related entities 5,967,000 4,965,000 Other long-term liabilities 103,000 103,000 Minority interest in consolidated subsidiary 16,000 - Shareholders' equity (deficiency): Convertible preferred stock of $100 stated value; 5,000,000 shares authorized; 27,838 shares issued and outstanding 889,000 889,000 Common stock of $.0006665 par value per share; 15,000,000 shares authorized; 5,255,315 and 4,839,565 shares issued and outstanding in 2005 and 2004, respectively 4,000 3,000 Capital in excess of par value 38,415,000 38,193,000 Accumulated deficit (43,964,000) (43,214,000) Accumulated other comprehensive loss (15,000) (15,000) -------------- -------------- Total shareholders' equity (deficiency) (4,671,000) (4,144,000) -------------- -------------- Commitments and contingencies (note 7) $ 4,304,000 $ 2,712,000 ============== ==============
See accompanying notes to financial statements. THE BEARD COMPANY AND SUBSIDIARIES Statements of Operations (Unaudited)
For Three Months Ended For Six Months Ended ---------------------------- ---------------------------- June 30, June 30, June 30, June 30, 2005 2004 2005 2004 ----------- ----------- ----------- ----------- (Restated) (Restated) (Restated) (Restated) (See Note 1) (See Note 1) (See Note 1) (See Note 1) Revenues: Coal reclamation $ 39,000 $ 18,000 $ 39,000 $ 18,000 Carbon dioxide 283,000 163,000 501,000 326,000 China - - - - e-Commerce 5,000 4,000 30,000 29,000 Other - - - - ----------- ----------- ----------- ----------- 327,000 185,000 570,000 373,000 ----------- ----------- ----------- ----------- Expenses: Coal reclamation 143,000 138,000 319,000 274,000 Carbon dioxide 28,000 45,000 75,000 76,000 China 147,000 143,000 271,000 277,000 e-Commerce 45,000 30,000 82,000 58,000 Other 2,000 2,000 7,000 12,000 Selling, general and administrative 231,000 231,000 438,000 430,000 Depreciation, depletion & amortization 31,000 15,000 58,000 38,000 ----------- ----------- ----------- ----------- 627,000 604,000 1,250,000 1,165,000 ----------- ----------- ----------- ----------- Operating profit (loss): Coal reclamation (106,000) (121,000) (284,000) (256,000) Carbon dioxide 244,000 108,000 405,000 230,000 China (148,000) (144,000) (272,000) (278,000) e-Commerce (42,000) (27,000) (55,000) (32,000) Other, primarily corporate (248,000) (235,000) (474,000) (456,000) ----------- ----------- ----------- ----------- (300,000) (419,000) (680,000) (792,000) ----------- ----------- ----------- ----------- Other income (expense): Interest income 5,000 - 10,000 1,000 Interest expense (247,000) (168,000) (480,000) (319,000) Equity in operations of unconsolidated affiliates 947,000 907,000 1,942,000 1,764,000 Impairment in investment in unconsolidated affiliate (833,000) (807,000) (1,714,000) (1,566,000) Gain on settlement - 117,000 - 2,943,000 Gain on sale of assets - 73,000 21,000 76,000 Minority interest in operations of consolidated subsidiary 4,000 - 34,000 - Other 1,000 2,000 - (5,000) ----------- ----------- ----------- ----------- Earnings (loss) from continuing operations before income tax benefit (expense) (423,000) (295,000) (867,000) 2,102,000 Income tax benefit (expense) (14,000) (12,000) (33,000) (109,000) ----------- ----------- ----------- ----------- Earnings (loss) from continuing operations (437,000) (307,000) (900,000) 1,993,000 Earnings from discontinued operations 62,000 4,000 150,000 7,000 ----------- ----------- ----------- ----------- Net earnings (loss) $ (375,000) $ (303,000) $ (750,000) $2,000,000 =========== =========== =========== =========== Net earnings (loss) per average common share outstanding: Basic: Earnings (loss) from continuing operations $ (0.07) $ (0.06) $ (0.15) $ 0.40 Earnings from discontinued operations 0.01 0.00 0.02 0.00 ----------- ----------- ----------- ----------- Net earnings (loss) $ (0.06) $ (0.06) $ (0.13) $ 0.40 =========== =========== =========== =========== Net earnings (loss) per average common share outstanding: Diluted: Earnings (loss) from continuing operations $ (0.07) $ (0.06) $ (0.15) $ 0.34 Earnings from discontinued operations 0.01 0.00 0.02 0.00 ----------- ----------- ----------- ----------- Net earnings (loss) $ (0.06) $ (0.06) $ (0.13) $ 0.34 =========== =========== =========== =========== Weighted average common shares outstanding: Basic 6,010,000 5,161,000 5,880,000 5,043,000 =========== =========== =========== =========== Diluted 6,010,000 5,161,000 5,880,000 5,941,000 =========== =========== =========== ===========
See accompanying notes to financial statements. THE BEARD COMPANY AND SUBSIDIARIES Statements of Shareholders' Equity (Deficiency)
Total Accumulated Common Preferred Common Capital in Other Shareholders' ---------------- ------------------ Excess of Accumulated Comprehensive Equity Shares Stock Shares Stock Par Value Deficit Loss (Deficiency) ---------------- ------------------ ----------- ------------ ------------- ------------ Balance, December 31, 2003 27,838 $889,000 4,657,690 $ 3,000 $37,941,000 $(44,151,000) $ (15,000) $(5,333,000) Net earnings - - - - - 937,000 - 937,000 Comprehensive income: Foreign currency translation adjustment - - - - - - - - ----------- Comprehensive earnings - - - - - - - 937,000 ----------- Issuance of stock for warrants exercised - - 181,875 - 50,000 - - 50,000 Reservation of shares pursuant to deferred compensation plan - - - - 202,000 - - 202,000 ------ -------- ---------- ------- ----------- ----------- -------- ----------- Balance, December 31, 2004 27,838 889,000 4,839,565 3,000 38,193,000 (43,214,000) (15,000) (4,144,000) Net loss (unaudited) - - - - - (750,000) - (750,000) Comprehensive loss (unaudited): Foreign currency translation adjustment (unaudited) - - - - - - - - ----------- Comprehensive loss (unaudited) - - - - - - - (750,000) ----------- Issuance of stock for warrants exercised (unaudited) - - 415,750 1,000 122,000 - - 123,000 Reservation of shares pursuant to deferred compensation plan (unaudited) - - - - 100,000 - - 100,000 ------ -------- ---------- ------- ----------- ----------- -------- ----------- Balance, June 30, 2005 (unaudited) 27,838 $889,000 5,255,315 $ 4,000 $38,415,000 $(43,964,000) $ (15,000) $(4,671,000) ====== ======== ========= ======= =========== ============ ========= ===========
See accompanying notes to financial statements. THE BEARD COMPANY AND SUBSIDIARIES Statements of Cash Flows (Unaudited)
For the Six Months Ended ------------------------------------ June 30, 2005 June 30, 2004 ------------- ------------- (Restated - See Note 1) (Restated - See Note 1) Operating activities: Cash received from customers $ 461,000 $ 359,000 Gain on settlement - 2,943,000 Cash paid to suppliers and employees (1,058,000) (1,383,000) Interest received 9,000 1,000 Interest paid (333,000) (666,000) Taxes (paid) refunded (119,000) - Operating cash flows of discontinued operations (65,000) 14,000 ------------- ------------- Net cash provided by (used in) operating activities (1,105,000) 1,268,000 ------------- ------------- Investing activities: Acquisition of property, plant and equipment (542,000) (20,000) Acquisition of intangibles (41,000) - Proceeds from sale of assets 30,000 126,000 Proceeds from sale of assets of discontinued operations 110,000 49,000 Other 216,000 (73,000) ------------- ------------- Net cash provided by (used in) investing activities (227,000) 82,000 ------------- ------------- Financing activities: Proceeds from term notes 90,000 650,000 Payments on line of credit and term notes (207,000) (1,393,000) Proceeds from related party debt 2,605,000 715,000 Payments on related party debt (306,000) (1,073,000) Capitalized costs associated with issuance of debt (191,000) (36,000) Proceeds from exercise of warrants 123,000 - Other (25,000) 1,000 ------------- ------------- Net cash provided by (used in) financing activities 2,089,000 (1,136,000) ------------- ------------- Net increase in cash and cash equivalents 757,000 215,000 Cash and cash equivalents at beginning of period 127,000 216,000 ------------- ------------- Cash and cash equivalents at end of period $ 884,000 $ 431,000 ============= =============
Continued THE BEARD COMPANY AND SUBSIDIARIES Statements of Cash Flows (Unaudited) Reconciliation of Net earnings (loss) to Net Cash Provided by (Used in) Operating Activities:
For the Six Months Ended ------------------------------------ June 30, 2005 June 30, 2004 ------------- ------------- (Restated - See Note 1) (Restated - See Note 1) Net earnings (loss) $ (750,000) $ 2,000,000 Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Depreciation, depletion and amortization 58,000 38,000 Gain on sale of assets (21,000) (76,000) Gain on sale of assets of discontinued operations (155,000) (21,000) Equity in operations of unconsolidated affiliates (1,942,000) (1,764,000) Impairment of investment in unconsolidated affiliate 1,714,000 1,566,000 Noncash compensation expense 100,000 104,000 Net cash used by discontinued operations offsetting accrued impairment loss (50,000) (3,000) Minority interest in consolidated subsidiary (34,000) - Other (2,000) 9,000 Increase in accounts receivable, prepaid expenses and other current assets (51,000) (56,000) Increase (decrease) in accounts payable, accrued expenses and other liabilities 28,000 (529,000) ------------- ------------- Net cash provided by (used in) operating activities $ (1,105,000) $ 1,268,000 ============= =============
See accompanying notes to financial statements. THE BEARD COMPANY AND SUBSIDIARIES Notes to Financial Statements June 30, 2005 and 2004 (Unaudited) (1) Summary of Significant Accounting Policies - ----------------------------------------------- Basis of Presentation --------------------- The accompanying financial statements and notes thereto have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain disclosures normally prepared in accordance with accounting principles generally accepted in the United States have been omitted. The accompanying financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in The Beard Company's 2004 annual report on Form 10-K/A. The accompanying financial statements include the accounts of The Beard Company and its wholly and majority-owned subsidiaries in which The Beard Company has a controlling financial interest ("Beard" or the "Company"). Subsidiaries and investees in which Beard does not exercise control are accounted for using the equity method. All significant intercompany transactions have been eliminated in the accompanying financial statements. The financial information included herein is unaudited; however, such information reflects solely normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The results of operations for the three and six-month periods ended June 30, 2005, are not necessarily indicative of the results to be expected for the full year. The Company's current significant operations are within the following segments: (1) the Coal Reclamation ("Coal") Segment, (2) the Carbon Dioxide ("CO2") Segment, (3) the China ("China") Segment, and (4) the e-Commerce ("e-Commerce") Segment. The Coal Segment is in the business of operating coal fines reclamation facilities in the U.S. and provides slurry pond core drilling services, fine coal laboratory analytical services and consulting services. The CO2 Segment consists of the production of CO2 gas. The China Segment is pursuing environmental opportunities in China, focusing on the financing, construction and operation of organic chemical compound fertilizer ("OCCF") plants. The e-Commerce Segment consists of a 71%-owned subsidiary whose activities are aimed at developing business opportunities to leverage starpay.com, l.l.c.'s intellectual property portfolio of Internet payment methods and security technologies. In December, 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure", which amended SFAS No. 123, "Accounting for Stock-Based Compensation". This statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In compliance with SFAS No. 148, the Company elected to continue the intrinsic value method to account for its stock-based employee compensation arrangement as defined by Accounting Principles Board Opinion ("APB") No. 25. Accordingly, no compensation cost has been recognized for stock options in the accompanying consolidated financial statements. The following pro forma information (in thousands, except per share data) is calculated net of tax as if compensation cost for the Company's stock-based compensation awards was determined based upon the fair value at the date of grant consistent with the methodology prescribed under SFAS No. 123.
For the Three Months For the Six Months Ended Ended ----------------------------- ----------------------------- June 30, June 30, June 30, June 30, 2005 2004 2005 2004 -------------- -------------- -------------- -------------- Earnings (loss) from continuing operations, as reported $ (437) $ (307) $ (900) $ 1,993 Earnings from discontinued operations, as reported 62 4 150 7 -------------- -------------- -------------- -------------- Net earnings (loss), as reported $ (375) $ (303) $ (750) $ 2,000 ============== ============== ============== ============== Earnings (loss) from continuing operations, as reported $ (437) $ (307) $ (900) $ 1,993 Less: total stock-based employee compensation determined under fair value based method for all awards, net of tax (5) - (5) - -------------- -------------- -------------- -------------- Pro forma net earnings (loss) from continuing operations $ (442) $ (307) $ (905) $ 1,993 Earnings from discontinued operations, as reported 62 4 150 7 -------------- -------------- -------------- -------------- Pro forma net earnings (loss) $ (380) $ (303) $ (755) $ 2,000 ============== ============== ============== ============== Net earnings (loss) per average common share outstanding, as reported: Basic: Earnings (loss) from continuing operations $ (0.07) $ (0.06) $ (0.15) $ 0.40 Earnings from discontinued operations 0.01 0.00 0.02 0.00 -------------- -------------- -------------- -------------- Net earnings (loss), as reported $ (0.06) $ (0.06) $ (0.13) $ 0.40 ============== ============== ============== ============== Net earnings (loss) per average common share outstanding, as reported: Diluted: Earnings (loss) from continuing operations $ (0.07) $ (0.06) $ (0.15) $ 0.34 Earnings from discontinued operations 0.01 0.00 0.02 0.00 -------------- -------------- -------------- -------------- Net earnings (loss), as reported $ (0.06) $ (0.06) $ (0.13) $ 0.34 ============== ============== ============== ============== Net earnings (loss) per average common share outstanding, pro forma: Basic: Earnings (loss) from continuing operations $ (0.07) $ (0.06) $ (0.15) $ 0.40 Earnings from discontinued operations 0.01 0.00 0.02 0.00 -------------- -------------- -------------- -------------- Net earnings (loss)-basic, pro forma $ (0.06) $ (0.06) $ (0.13) $ 0.40 ============== ============== ============== ============== Net earnings (loss) per average common share outstanding, pro forma: Diluted: Earnings (loss) from continuing operations $ (0.07) $ (0.06) $ (0.15) $ 0.34 Earnings from discontinued operations 0.01 0.00 0.02 0.00 -------------- -------------- -------------- -------------- Net earnings (loss) - diluted, pro forma $ (0.06) $ (0.06) $ (0.13) $ 0.34 ============== ============== ============== ============== Weighted average common shares outstanding, As reported: Basic 6,010,000 5,161,000 5,880,000 5,043,000 ============== ============== ============== ============== Diluted 6,010,000 5,161,000 5,880,000 5,941,000 ============== ============== ============== ============== Weighted average common shares outstanding, Pro forma: Basic 6,010,000 5,161,000 5,880,000 5,043,000 ============== ============== ============== ============== Diluted 6,010,000 5,161,000 5,880,000 5,941,000 ============== ============== ============== ==============
All share, per share and exercise price figures referred to have been adjusted to reflect the 2-for-1 stock split effected at the close of business on August 6, 2004. Reclassifications ----------------- Certain 2004 balances have been reclassified to conform to the 2005 presentation. Restatements of Previously Issued Financial Statements ------------------------------------------------------ This Form 10-Q/A is a restatement of the previously issued Form 10Q for the three and six-month periods ended June 30, 2005 and 2004. It is prepared to present the results of the Company's investment in Cibola on a "gross" rather than "net" basis. While the Company owns 80% of the common stock of Cibola Corporation, it does not have financial or operating control of this gas marketing subsidiary. According to the terms of an agreement with the minority common and preferred shareholders of Cibola, the net worth of Cibola would have to reach $50,000,000 before Beard could begin to receive its 80% share of any excess. Beard has issued a $1,439,000 note payable bearing interest at 8.25% for its common stock of Cibola. The interest charges amounted to approximately $30,000 and $59,000 for each of the three and six-month periods ended June 30, 2005 and 2004, respectively. These amounts were previously netted against the distributions from Cibola but are reclassified to interest expense. The note is due on June 30, 2006. The stock is subject to a call option at the sole discretion of the minority common and preferred shareholders of Cibola. The Company had previously recorded as earnings from unconsolidated affiliates the net cash distributions received from Cibola which amounted to $85,000 and $70,000 for the three-month periods ended June 30, 2005 and 2004, respectively, and $169,000 and $138,000 for the six-month periods ending on the same dates, respectively. In recording the Company's share of Cibola earnings according to the Agreement, these amounts were increased to $947,000 and $907,000 for the three-month periods ended June 30, 2005 and 2004, respectively. These earnings amounts were increased to $1,942,000 and $1,764,000 for the six-month periods ended June 30, 2005 and 2004, respectively. Since Beard management felt its was unlikely that the net worth of Cibola would reach the requisite amount, the Company also recorded impairments totaling $833,000 and $807,000 for the three-month periods ended June 30, 2005 and 2004, respectively. The impairments totaled $1,714,000 and $1,566,000 for the six-month periods ended June 30, 2005 and 2004, respectively. These impairments and the interest charges on the note payable to Cibola reduced the net earnings to the Company from its investment in Cibola to the actual cash distributions received and previously presented as earnings from unconsolidated affiliates. The effect of these changes on the Balance Sheets is to increase both investments and other assets and current maturities of long-term debt - related entities by $1,439,000 as of June 30, 2005 and December 31, 2004. There is no change to either net income (loss) or net earnings (loss) per share for any of the periods presented as a result of this restatement. The impact of these changes on the Statements of Cash Flows is to decrease net cash provided by (used in) operating activities and to increase net cash provided by (used in) investing activities by $59,000 for each of the six-month periods ended June 30, 2005 and 2004. (2) Ability to Fund Operations and Continue as a Going Concern - --------------------------------------------------------------- Overview -------- The accompanying financial statements have been prepared based upon the Company's belief that it will continue as a going concern. The Company's revenues from continuing operations are on an uptrend; they increased in 2003 and 2004. Although the Company incurred operating losses and negative cash flows from operations during each of the last six years, it anticipates commencing a project in both its Coal and China Segments in 2005. During the first half of 2005 the Company successfully arranged the financing for its initial fertilizer manufacturing facility in China. Additionally, the Coal Segment is currently pursuing eight different projects, and anticipates commencing at least one of these projects prior to year end. (See "Additional Details" below). The Company received the second installment of the McElmo Dome Settlement (the "Settlement"), totaling $2,826,000, in March of 2004, enabling 2004 to become a profitable year while at the same time enhancing the Company's liquidity. The Settlement has also resulted in better pricing and higher profit margins for the CO2 Segment. During the 18 month period ended June 30, 2005, the Company continued efforts, commenced in the prior two years, to reduce its negative cash flow. The Company's Chairman and President continued to defer a portion of their base salary into the Company's 2003-2 Deferred Stock Compensation Plan (the "DSC Plan") and its outside directors continued to defer their directors' fees into the DSC Plan. The Chairman of Beard Technologies continued to defer a portion of his salary during such period. The Company also continued to suspend its 100% matching contribution (up to a cap of 5% of gross salary) under its 401(k) Plan. The Company also completed three private debt placements, raising gross proceeds of $3,300,000, during such period; of which $1,845,000 was raised during the first quarter of 2005. The Company also borrowed $200,000 from an unconsolidated subsidiary during the fourth quarter of 2004. The negative result of the debt placements has been a substantial amount of dilution to the Company's common equity. During the 18 month period the Company issued 602,240 warrants (as adjusted for the 2-for-1 stock split effected in August of 2004) in connection with the private debt placements, accrued 601,000 Stock Units in the participants' accounts as a result of deferrals of salary into the DSC Plan, and issued 50,000 options to a financial consultant. An aggregate of $2,100,000 of convertible notes were also issued in connection with the private debt placement completed in the 2005 first quarter of 2005 that are convertible into 2,100,000 shares of common stock. Additional dilution also occurred due to an adjustment to the Preferred Stock conversion ratio resulting from the issuance of the warrants, the options, the convertible notes and the salary deferrals. Additional Details ------------------ As a result of the private debt placement completed during the first quarter of 2005 the Company obtained net additional working capital totaling approximately $1,721,000, and working capital increased from $(944,000) at December 31, 2004 to $276,000 at June 30, 2005. Most of the net proceeds were used to fund operations; however, part was used to repay a portion of the Company's debt. In February of 2005 the Company announced that a private investor had agreed to finance the cost of the China Segment's initial fertilizer manufacturing facility in China. The Company and the investor have each contributed US$50,000 to the limited liability company (the "LLC") that has been formed to own and operate the enterprise. The Company and the investor each own 50% of the LLC, and the investor has loaned US$850,000 to the LLC to fund the additional capital costs and pre-operating costs of the facility. A building has been leased, equipment has been ordered, and production is expected to commence in September of 2005. The LLC has organized a wholly foreign-owned enterprise ("WFOE"), Xianghe BH Fertilizer Co., Ltd., to operate the business. The plant is initially targeted to produce about 32,000 metric tons per year of organic chemical compound fertilizer ("OCCF"), with estimated revenues of more than US$5,000,000 annually. The Company's principal business is coal reclamation, and this is where management's operating attention is primarily focused. The Coal Segment has a signed contract to construct and operate a pond fines recovery project in West Virginia (the "Pinnacle Project") which it expects to commence in the last four months of 2005 if it can successfully arrange the financing therefor. The segment is actively pursuing seven other projects and has a number of other projects in the pipeline for follow up once these eight projects have come to a resolution. The timing of the coal projects the Company is actively pursuing is uncertain and their continuing development is subject to obtaining the necessary financing. With the exception of the Pinnacle Project, no definitive contracts have as yet been signed, and there is no assurance that the required financing will be obtained or that any of the projects will materialize. In addition, proceeds to the Company from the sales of assets during the first half of 2005 totaled $203,000. The Company expects to generate cash of approximately $43,000 from the disposition of the remaining assets of two of its discontinued segments, and can sell certain other assets to generate cash if necessary. The Company believes that if the current efforts to finance the coal projects are successful, they will provide sufficient working capital to sustain the Company's activities until the operations of the projects under development in the Coal and China Segments have commenced operations and the Company is generating positive cash flow from operations. If such efforts are not successful or are only partially successful, then the Company will need to pursue additional outside financing, which would likely involve further dilution to shareholders. Subsequent Developments ----------------------- As a result of another private debt placement currently underway, the Company has, to date during the third quarter of 2005, exchanged $624,000 of 10% notes due November 2006 for an equivalent amount of 12% convertible notes due August 2009 (the "12% Notes"), and has also sold $386,000 of the 12% Notes. The note exchange resulted in a $385,000 improvement in working capital by eliminating $250,000 of current maturities of long-term debt to related parties and $135,000 of current maturities of long-term debt. The $386,000 of 12% Notes sold for cash added approximately $363,000 to working capital, net of expenses. The sale and exchange of the convertible notes has created additional dilution to shareholders as the outstanding 12% Notes are convertible into an aggregate of 448,888 shares of common stock. During the third quarter we have also received and accepted a proposal from a lending institution indicating that it will provide us with a $9,000,000 loan for the Pinnacle Project assuming that the USDA guarantees at least 70% of the borrowed amount. The proposal is only a quotation and not a commitment to extend credit. Credit will not be extended until credit has been approved by the lending institution and we can provide no assurance that any financing will be provided from this lending institution. In addition, a group of investors has agreed to provide $2,800,000 of equity for the Pinnacle Project provided the USDA-guaranteed loan is secured. The agreement for this commitment was executed on August 12, 2005. On July 29, 2005, the party who served as the court-appointed fairness expert in the McElmo Dome Litigation rendered his advisory opinion consisting of a decision on the merits relating to several issues that are currently in dispute concerning implementation of the Settlement Agreement. According to the Plaintiffs' attorney, the advisory opinion, which is not binding on the Plaintiffs or defendants, was favorable to the Plaintiffs on most issues. If the advisory opinion fails to resolve the matter the parties will proceed to arbitration. We estimate that, in the event all three of the matters in dispute should be resolved in the Plaintiffs' favor, we could receive as much as $540,000 for our share of the money in dispute. (See Part II - Item 1. Legal Proceedings - McElmo Dome Litigation). Vista Resources has advised that pipeline connections for its six new gas wells drilled during the first half of 2005 in eastern Colorado are now being finalized. The Company has a 22.5% working interest in these wells which are targeted to come on stream by the end of August and generate initial cash flow of approximately $25,000 per month to the Company's interest. (3) Discontinued Operations - ---------------------------- BE/IM Segment ------------- In 1999 the Management Committee of a joint venture 40%-owned by the Company adopted a formal plan to discontinue the business and dispose of its assets. As a result, Beard's share of the venture's operating results has been reported as discontinued for all periods presented in the accompanying statements of operations. The joint venture was dissolved in 2000 and the Company took over the remaining assets and liabilities. The Company recorded no revenues for this segment for either of the three or six-month periods ended June 30, 2005 or 2004. For the three and six-month periods ending June 30, 2005, the Company recorded $35,000 and $48,000 in earnings, respectively, for this segment primarily as a result of the sale of equipment, and charged $13,000 and $38,000 against an accrual for anticipated expenses related to the shutdown of one of its plants for the same periods, respectively. The Company recorded $6,000 and $21,000 in earnings for the three and six-month periods ending June 30, 2004 primarily as a result of the sale of equipment, and charged operating losses of $1,000 and $4,000 against an accrual for anticipated expenses related to the shutdown of one of its plants during the 2004 three and six-month periods, respectively. As of June 30, 2005, the significant assets related to the operations consisted primarily of equipment with no estimated net realizable value. The significant liabilities related to remaining operations consisted primarily of accrued expenses totaling $6,000 related to the shutdown of operations. The Company is actively pursuing opportunities to sell the remaining assets and expects the disposition to be completed by December 31, 2005. WS Segment ---------- In August 2001 the Company made the decision to cease pursuing opportunities in Mexico and the WS Segment was discontinued. In December 2001 all of the sand separators owned by the 100%-owned company in the WS Segment were sold for $100,000. The Company is now pursuing the sale of all remaining equipment owned by the segment. The Company recorded no revenues for this segment for either the first half of 2005 or 2004. Beard's share of operating results from the discontinued segment were earnings of $40,000 and $102,000 for the three and six-month periods ended June 30, 2005, respectively. Included in these results were gains of $43,000 and $107,000 from the sale of equipment for the three and six-month periods, respectively. Beard recorded losses of $1,000 and $13,000 for the three and six-month periods ended June 30, 2004, respectively, for this segment. As of June 30, 2005, the significant assets of the WS Segment consisted of accounts receivable and fixed assets with a recorded value of $89,000. The significant liabilities of the entity consisted of trade accounts payable and accrued expenses totaling $48,000. It is anticipated that all liabilities of the segment will be paid prior to December 31, 2005. (4) Convertible Preferred Stock - -------------------------------- Effective January 1, 2003, the Company's preferred stock became convertible into Beard common stock. Each share of Beard preferred stock was convertible into 10.31114354 shares on August 12, 2005 (total of 287,041 shares). The conversion ratio will be adjusted if additional warrants or convertible notes are issued or if additional shares of stock are credited to the accounts of the Company's Chairman or President in the Company's Deferred Stock Compensation Plan, in each case at an exercise, conversion or grant price below $1.29165 per share. Fractional shares will not be issued, and cash will be paid in redemption thereof. (5) Loss Per Share - ------------------- Basic earnings (loss) per share data is computed by dividing earnings (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the period. Included in the weighted average number of common shares outstanding are the shares issuable according to the terms of the DSC Plan. These shares are considered common stock equivalents because the covered individuals may resign their positions at will which would also terminate their participation in the DSC Plan resulting in the issuance of the shares. Diluted earnings per share reflect the potential dilution that could occur if the Company's outstanding options and warrants were exercised (calculated using the treasury stock method) and if the Company's preferred stock and convertible notes were converted to common stock. Diluted loss per share from continuing operations in the statements of operations for the three and six-month periods ended June 30, 2005 and the three month period ended June 30, 2004 exclude all potential common shares issuable upon conversion of convertible preferred stock, convertible notes or exercise of options and warrants as the effect would be anti-dilutive due to the Company's losses from continuing operations. Weighted average shares of 5,941,000 for the diluted earnings per share calculation for the six months ended June 30, 2004 are composed of basic common shares of 5,042,565; 27,838 shares of preferred stock convertible to 288,149 common shares; and 610,000 warrants assumed exercised and converted to common shares. The table below contains the components of the common share and common equivalent share amounts (adjusted to reflect the 2-for-1 stock split effected on August 6, 2004) used in the calculation of earnings (loss) per share in the Company's statements of operations:
For the Three Months Ended For the Six Months Ended ------------------------------------- -------------------------------------- June 30, June 30, June 30, June 30, 2005 2004 2005 2004 ------------------------------------- -------------------------------------- Basic EPS: Weighted average common shares outstanding 5,255,315 4,657,690 5,137,636 4,657,690 Weighted average shares in deferred stock compensation plan treated as common stock equivalents 755,085 503,242 742,466 384,875 ------------------------------------- -------------------------------------- 6,010,400 5,160,932 5,880,102 5,042,565 ===================================== ====================================== Diluted EPS: Weighted average common shares outstanding 5,255,315 4,657,690 5,137,636 4,657,690 Weighted average shares in deferred stock compensation plan treated as common stock equivalents 755,085 503,242 742,466 384,875 Convertible Preferred Shares considered to be common stock equivalents - - - 288,149 Warrants issued in connection with debt offerings treated as common stock equivalents - - - 610,000 ------------------------------------- -------------------------------------- 6,010,400 5,160,932 5,880,102 5,940,714 ===================================== ======================================
(6) Income Taxes - ----------------- In accordance with the provisions of the Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), the Company's net deferred tax asset is being carried at zero book value, which reflects the uncertainties of the Company's utilization of the future net deductible amounts. The Company recorded provisions of $14,000 and $33,000 for federal alternative minimum taxes for the three and six-month periods ended June 30, 2005, respectively, and $12,000 and $109,000 for federal alternative minimum taxes for the same periods in 2004, respectively. At June 30, 2005, the Company estimates that it had the following income tax carryforwards available for both income tax and financial reporting purposes (in thousands):
Expiration Date Amount ----------- ---------- Federal regular tax operating loss carryforwards 2006-2008 $ 46,000 Tax depletion carryforward Indefinite $ 3,000
(7) Commitments and Contingencies - ---------------------------------- In the normal course of business various actions and claims have been brought or asserted against the Company. Management does not consider them to be material to the Company's financial position, liquidity or results of operations. The Company has an indemnity obligation to its institutional preferred stockholder and one of its assignees for certain losses (i) arising out of the ownership and/or operation of Beard Oil's former oil and gas assets, including environmental liabilities; (ii) arising under any employee benefit or severance plan; or (iii) relating to any misrepresentation or inaccuracy in any representation made by the Company or Beard Oil in connection with a restructure effected in 1993. The Company has no liability under the indemnity obligation unless the accumulated damage or loss incurred by the Buyer or its assignees in connection with such Claims exceeds $250,000 in the aggregate. The maximum amount of future payments that could be required under the indemnity has no limitation. The principal exposure under the obligation would have been for any environmental problems which existed, at the time of the sale, on the oil and gas properties sold. If any Claims were to be made at this point they would presumably need to be made first against any and all of the subsequent owners of the properties involved; if any liability was then determined to exist it would presumably be assigned first to such subsequent owners. In the event the Company should be required to pay an amount under this obligation, it does not believe any of such amount could be recovered from third parties. However, during the more than 10 years since the date of the Restructure there have been no Claims, and the Company has no reason to believe that there will be any. For these reasons, no reserve has ever been established for the liability, because no liability is believed to exist. (8) Business Segment Information - --------------------------------- The Company manages its business by products and services and by geographic location (by country). The Company evaluates its operating segments' performance based on earnings or loss from operations before income taxes. The Company had four reportable segments in the first six months of 2005 and 2004: Coal, Carbon Dioxide, China and e-Commerce. The Coal Segment is in the business of operating coal fines reclamation facilities in the U.S. and provides slurry pond core drilling services, fine coal laboratory analytical services and consulting services. The CO2 Segment consists of the production of CO2 gas. The China Segment is pursuing environmental opportunities in China focusing on the installation, and operation of plants that manufacture environmentally friendly organic chemical compound fertilizer. The e-Commerce Segment consists of a 71%-owned subsidiary whose activities are aimed at developing business opportunities to leverage starpay.com, l.l.c.'s intellectual property portfolio of Internet payment methods and security technologies. The following is certain financial information regarding the Company's reportable segments (presented in thousands of dollars). General corporate assets and expenses are not allocated to any of the Company's operating segments; therefore, they are included as a reconciling item to consolidated total assets and loss from continuing operations before income taxes reported in the Company's accompanying financial statements.
Carbon Coal Dioxide China e-Commerce Totals ---- ------- ----- ---------- ------ Three months ended June 30, 2005 ------------------- Revenues from external customers $ 39 $ 286 $ - $ 5 $ 330 Segment profit (loss) (106) 244 (148) (42) (52) Three months ended June 30, 2004 ------------------- Revenues from external customers $ 18 $ 163 $ - $ 4 $ 185 Segment profit (loss) (121) 108 (144) (27) (184) Six months ended June 30, 2005 ------------------- Revenues from external customers $ 39 $ 505 $ - $ 30 $ 574 Segment profit (loss) (284) 405 (272) (55) (206) Segment assets 480 488 859 20 1,847 Six months ended June 30, 2004 ------------------- Revenues from external customers $ 18 $ 326 $ - $ 29 $ 373 Segment profit (loss) (256) 230 (278) (32) (336) Segment assets 38 467 49 8 562
Reconciliation of total reportable segment loss to consolidated earnings (loss) from continuing operations before income taxes is as follows for the three and six months ended June 30, 2005 and 2004 (in thousands):
For the Three Months For the Six Months Ended Ended -------------------- -------------------- June 30, June 30, June 30, June 30, 2005 2004 2005 2004 -------- -------- -------- -------- Total loss for reportable segments $ (52) $ (184) $ (206) $ (336) Net corporate income (expenses) not allocated to segments (371) (111) (661) 2,438 ------ ------ ------ ------ Total consolidated earnings (loss) for continuing operations $ (423) $ (295) $ (867) $2,102 ====== ====== ====== ======
THE BEARD COMPANY AND SUBSIDIARIES DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS THIS REPORT INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED OR INCORPORATED BY REFERENCE IN THIS REPORT, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE COMPANY'S FUTURE FINANCIAL POSITION, BUSINESS STRATEGY, BUDGETS, PROJECTED COSTS AND PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, ARE FORWARD-LOOKING STATEMENTS. IN ADDITION, FORWARD-LOOKING STATEMENTS GENERALLY CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "INTEND," "PROJECT," "ESTIMATE," "ANTICIPATE," "BELIEVE," OR "CONTINUE" OR THE NEGATIVE THEREOF OR VARIATIONS THEREON OR SIMILAR TERMINOLOGY. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED UNDER "ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS REPORT. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY, OR PERSONS ACTING ON ITS BEHALF, ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS. THE COMPANY ASSUMES NO DUTY TO UPDATE OR REVISE ITS FORWARD-LOOKING STATEMENTS BASED ON CHANGES IN INTERNAL ESTIMATES OR EXPECTATIONS OR OTHERWISE. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion focuses on material changes in the Company's financial condition since December 31, 2004 and results of operations for the quarter ended June 30, 2005, compared to the prior year second quarter and the six months ended June 30, 2005 compared to the prior year six months. Such discussion should be read in conjunction with the Company's financial statements including the related footnotes. In preparing the discussion and analysis, the Company has presumed readers have read or have access to the discussion and analysis of the prior year's results of operations, liquidity and capital resources as contained in the Company's 2004 Form 10-K/A. Overview - -------- The Coal Segment is in the business of operating coal fines reclamation facilities in the U.S. and provides slurry pond core drilling services, fine coal laboratory analytical services and consulting services. The CO2 Segment consists of the production of CO2 gas. The China Segment is pursuing environmental opportunities in China focusing on the installation, construction and operation of plants that manufacture environmentally friendly organic chemical compound fertilizer. The e-Commerce Segment consists of a 71%-owned subsidiary whose current strategy is to develop business opportunities to leverage the subsidiary's intellectual property portfolio of Internet payment methods and security technologies. Our revenues from continuing operations are on a sharp uptrend. They increased 26% in 2003, 64% in 2004, and 53% for the first six months of 2005 versus the comparable six months of 2004. We anticipate higher revenues in the CO2 Segment due to better pricing resulting from implementation of the McElmo Dome Settlement Agreement (the "Settlement"). Six new gas wells are expected to come on stream in Colorado beginning in August, resulting in our first oil and gas revenues in many years. We expect the first production from our initial fertilizer manufacturing plant in China to occur during the last four months of 2005. Although we incurred operating losses and negative cash flows from operations during each of the last six years, we expect to commence a project in both our Coal and China Segments in 2005, and believe that we will reverse this trend in late 2005 or early 2006. Beginning in 1999 we started discontinuing the operations of those segments that were not meeting their targeted profit objectives and which did not appear to have significant growth potential. This ultimately led to the discontinuance of four of our unprofitable segments. We are now in the final stage of disposing of the segments' remaining assets. Such dispositions resulted in income of $150,000 and $7,000 for the six months ended June 30, 2005 and 2004, respectively, as a result of the sale of equipment. Material changes in financial condition - June 30, 2005 as compared with December 31, 2004. - ------------------------------------------------------------------------ The following table reflects changes in the Company's financial condition during the periods indicated:
June 30, December 31, Increase 2005 2004 (Decrease) ---- ---- ---------- Cash and cash equivalents $ 884,000 $ 127,000 $ 757,000 Working capital $ (1,213,000) $ (994,000) $ (219,000) Current ratio 0.50 to 1 0.27 to 1
During the first six months of 2005, the Company decreased its working capital by $219,000 from $(994,000) as of December 31, 2004 to $(1,213,000) at June 30, 2005. The Company placed an additional $1,845,000 of its 12% Convertible Subordinated Notes due 2010, which infused over $1,676,000 in working capital in the first half of 2005. Related entities purchased $1,755,000 of the 12% Notes. The Company utilized $513,000 to pay down its outstanding debt, including $306,000 to related parties. Purchases of property, plant and equipment totaled $542,000 for the first half of 2005, including $147,000, $150,000, and $227,000 for its Coal and China Segments and its share of the cost for six oil and gas wells, respectively. Proceeds from the sale of assets totaled $140,000 during the first half of 2005. Net revenue from the Company's interest in its CO2 producing properties provided $426,000 of working capital for the first half of 2005. $284,000 of working capital were used to help fund the operations of the Coal Segment. The China Segment utilized over $272,000 of working capital. $55,000 were used to fund the startup activities of the e-Commerce Segment. The Company received distributions of $162,000 from other investments, including Cibola. The remainder of the working capital was utilized to fund other operations. In addition, based upon the maturity date, the note payable to Cibola totaling $1,439,000 was reclassified as a current liability at June 30, 2005. In March of 2004, following receipt of the second installment of the Settlement, our long-term line of credit from an affiliate of the Chairman was paid down to $2,785,000 and ceased to be a revolving credit line. We also terminated our $375,000 short-term line of credit from the same party. The remaining loan from the related party was supplemented by three private placements completed in 2004 and January of 2005 which raised proceeds of $3,300,000, and additional borrowings of $200,000 in November of 2004 from an unconsolidated subsidiary. Such funds were needed to provide additional working capital, improve liquidity and to "bridge the gap" until we receive the funds necessary to proceed with a coal project. In addition, we have been disposing of the remaining assets from our discontinued segments as opportunities have become available and are continuing to pursue the sale of the few remaining assets. Receipt of the Settlement from the McElmo Dome litigation improved our balance sheet and income statement. We received $1,162,000 of the Settlement in 2003, and $2,826,000 and $117,000 in March and May of 2004, respectively. Upon receipt of the second installment of the Settlement, we were able to eliminate $2,635,000 of our total indebtedness. Our principal business is coal reclamation, and this is where management's operating attention is primarily focused. The Coal Segment has a signed contract on the Pinnacle Project on which we are currently pursuing financing, and is actively pursuing seven other projects. We have a number of other projects in the pipeline once these projects have come to a resolution. The timing of the projects we are actively pursuing is uncertain but, subject to obtaining the necessary financing, they are considered to have a high probability of activity. With the exception of the Pinnacle Project, no definitive contracts have as yet been signed, and there is no assurance that the required financing will be obtained or that any of the projects will materialize. (See "Subsequent Developments - Pinnacle Financing" below). In addition to the above, we are continuing to pursue both debt and equity financing through several different sources on our other coal projects. We have retained three different firms who are currently seeking financing: (i) a New York City-based firm which specializes in energy financing that is pursuing both debt and equity financing for the projects; (ii) a Maryland-based firm that has already obtained a terms sheet from a bank for the USDA-guaranteed portion of the financing needed for the Pinnacle Project; and (iii) a third firm that specializes in USDA-guaranteed financing. In February of 2005 we announced that a private investor had agreed to finance the cost of the China Segment's initial fertilizer manufacturing facility in China. We and the investor have each contributed US$50,000 to the limited liability Company (the "LLC") that has been formed to own and operate the enterprise. We and the investor each own 50% of the LLC, and the investor has loaned US$850,000 to the LLC to fund the additional capital costs and pre-operating costs of the facility. A building has been leased, equipment has been ordered, and production is expected to commence in September of 2005. The LLC has organized a wholly foreign-owned enterprise ("WFOE"), Xianghe BH Fertilizer Co., Ltd., to operate the business. The plant is initially targeted to produce about 32,000 metric tons per year of organic chemical compound fertilizer ("OCCF"), with estimated revenues of more than US$5,000,000 annually. We completed a private debt placement of $2,100,000 of convertible notes in January of 2005. $255,000 of the notes were exchanged for notes we had previously issued. The notes are convertible into 2,100,000 shares of our common stock. Net proceeds of approximately $1,700,000 are being used to provide the working capital necessary to fund our operations until the financing for the Pinnacle Project has been completed. We believe that if the current financing efforts are successful, they will provide sufficient working capital to sustain our activities until the operations of the projects under development in the Coal Segment have been established and we are generating positive cash flow from operations. If such efforts are not successful or are only partially successful, then a major restructuring of our operations will become necessary in the near term in order that we can continue as a going concern. Subsequent Developments Private Debt Placement. As a result of another private debt placement currently underway, the Company has, to date during the third quarter of 2005, exchanged $624,000 of 10% notes due November 2006 for an equivalent amount of 12% convertible notes due August 2009 (the "12% Notes"), and has also sold $386,000 of the 12% Notes. The note exchange resulted in a $385,000 improvement in working capital by eliminating $250,000 of current maturities of long-term debt to related parties and $135,000 of current maturities of long-term debt. The $386,000 of 12% Notes sold for cash added approximately $363,000 to working capital, net of expenses. The sale and exchange of the convertible notes has created additional dilution to shareholders as the $985,000 of outstanding 12% Notes is convertible into an aggregated of 448,888 shares of common stock. Pinnacle Financing. During the third quarter we have also received and accepted a proposal from a lending institution indicating that it will provide us with a $9,000,000 loan for the Pinnacle Project assuming that the USDA guarantees at least 70% of the borrowed amount. The proposal is only a quotation and not a commitment to extend credit. Credit will not be extended until credit has been approved by the lending institution and we can provide no assurance that any financing will be provided from this lending institution. In addition, a group of investors has agreed to provide $2,800,000 of equity for the Pinnacle Project provided the USDA-guaranteed loan is secured. The agreement for this commitment was executed on August 12, 2005. McElmo Dome Litigation. On July 29, 2005, the party who served as the court-appointed fairness expert in the McElmo Dome Litigation rendered his advisory opinion consisting of a decision on the merits relating to several issues that are currently in dispute concerning implementation of the Settlement Agreement. According to the Plaintiffs' attorney, the advisory opinion, which is not binding on the Plaintiffs or defendants, was favorable to the Plaintiffs on most issues. If the advisory opinion fails to resolve the matter the parties will proceed to arbitration. We estimate that, in the event all three of the matters in dispute should be resolved in the Plaintiffs' favor, we could receive as much as $540,000 for our share of the money in dispute. (See Part II - Item 1. Legal Proceedings - McElmo Dome Litigation). New Gas Wells. Vista Resources has advised us that pipeline connections for its six new gas wells drilled during the first half of 2005 in eastern Colorado are now being finalized. The Company has a 22.5% working interest in these wells which are targeted to come on stream by the end of August and generate initial cash flow of approximately $25,000 per month to the Company's interest. Material changes in results of operations - Quarter ended June 30, 2005 as compared with the Quarter ended June 30, 2004. - -------------------------------------------------------------------------- The net loss for the second quarter of 2005 was $375,000 compared to $303,000 for the 2004 second quarter. Continuing operations posted a net loss of $437,000 compared to a loss from continuing operations of $307,000 for the same period in 2004. In addition, the Company's discontinued operations had income of $62,000 for the second quarter of 2005 compared to $4,000 for the second quarter of 2004. The Coal Segment's $21,000 increase in revenues to $39,000 accounted for most of the decrease in the segment's operating loss which amounted to $106,000 in the second quarter of 2005 versus $121,000 in the 2004 second quarter. The operating profit in the CO2 Segment more than doubled, increasing to $244,000 compared to $108,000 a year earlier. The China Segment's loss for the second quarter of 2005 totaled $148,000 compared to $144,000 for the same period in 2004. The e-Commerce Segment incurred operating losses of $42,000 for the second quarter of 2005 compared to $27,000 in the second quarter of 2004. The operating loss in Other activities for the second quarter of 2005 increased $13,000 compared to the same period in 2004. As a result, the operating loss for the current quarter decreased $119,000 to $300,000 versus $419,000 in the corresponding quarter of the prior year. Operating results of the Company's primary operating Segments are reflected below: 2005 2004 ---- ---- Operating profit (loss): Coal reclamation $(106,000) $(121,000) Carbon dioxide 244,000 108,000 China (148,000) (144,000) e-Commerce (42,000) (27,000) --------------- -------------- Subtotal (52,000) (184,000) Other (248,000) (235,000) --------------- -------------- Total $(300,000) $(419,000) =============== ============== The "Other" in the above table reflects primarily general and corporate activities, as well as other activities of the Company. Coal reclamation The segment recorded revenues of $39,000 for the second quarter of 2005 compared to $18,000 for the same period in 2004 as a result of performing several consulting and coring jobs in 2005. Operating costs increased $5,000 to $143,000 for the second quarter of 2005 compared to $138,000 for the same period in 2004. The increased costs were incurred in performing the services for the billed work in 2005. Carbon dioxide Second quarter 2005 operations reflected an operating profit of $244,000 compared to $108,000 for the 2004 second quarter. The sole component of revenues for this segment is the sale of CO2 gas from the working and overriding royalty interests of the Company's carbon dioxide producing unit in Colorado. Operating revenues in this segment increased $120,000 to $283,000 for the second quarter of 2005 compared to $163,000 for the same period in 2004. The increase in revenue for the current quarter was due to both increased pricing and volumes, with the Company receiving an average of $0.60 per mcf sold in the 2005 quarter versus $0.50 per mcf in the year earlier quarter while production increased 118MMCF to the Company's interest reflecting increased demand for CO2 gas. China The China Segment incurred an operating loss of $148,000 for the second quarter of 2005 compared to $144,000 for the same period in 2004. The segment had $4,000 more in SG&A expenses in 2005 compared to 2004 as it geared up for the installation and construction of its initial fertilizer manufacturing plant. e-Commerce The e-Commerce Segment incurred an operating loss of $42,000 for the second quarter of 2005 versus an operating loss of $27,000 in the prior year quarter. The segment received $5,000 in revenue for the second quarter of 2005 compared to $4,000 for the same period in 2004. This was more than offset by a $15,000 increase in operating expenses due primarily to increased legal expenses related to the VISA litigation. Other corporate activities Other corporate activities include general and corporate activities, as well as assets unrelated to the Company's operating segments or held for investment. These activities generated operating losses of $248,000 for the second quarter of 2005 as compared to $235,000 for the same period of 2004. This increase in operating losses was due primarily to a $14,000 increase in amortization expense associated with the costs of issuing the 10% and 12% debt capitalized in the latter portion of 2004 and the first half of 2005. Selling, general and administrative expenses The Company's selling, general and administrative expenses ("SG&A") in the current quarter remained static at $231,000 for the second quarter of 2005 and 2004. Depreciation, depletion and amortization expenses DD&A expense increased $16,000 from $15,000 in the second quarter of 2004 to $31,000 in the same period of 2005. The increase reflected the increased amortization expense associated with the capitalized costs of issuing the 10% participating and 12% subordinated debt in 2004 and 2005. Other income and expenses The other income and expenses for the second quarter of 2005 netted to a loss of $123,000 compared to income of $124,000 for the second quarter of 2004. Interest income was up $5,000 for the second quarter of 2005 versus the same period in 2004. Interest expense was $80,000 higher as a result of the increase in debt, primarily to related parties and the issuance of the subordinated and participating debt. The Company received a $117,000 gain on settlement in the second quarter of 2004 with no such receipt in the same period of 2005. The Company's equity in operations of unconsolidated affiliates reflected income of $115,000 for the second quarter of 2005 compared to $100,000 for the same period in 2004. The Company recorded $947,000 as its share of earnings from its investment in Cibola Corporation compared to $907,000 for the prior year quarter. While the Company owns 80% of the common stock of Cibola, it does not have financial or operating control of this gas marketing subsidiary. According to the terms of an agreement with the minority common and preferred shareholders of Cibola, the net worth of Cibola would have to reach $50,000,000 before Beard could begin to receive its 80% share of any excess. Since Beard management felt this was unlikely, the Company also recorded impairments of $833,000 and $807,000 for the three months ended June 30, 2005 and 2004, respectively. The interest expense totals include $29,000 to Cibola for each of the three months ended June 30, 2005 and 2004, respectively. These impairments and the interest charges reduce the net earnings to the Company from its investment in Cibola to the actual cash distributions received of $85,000 and $70,000 for the second quarter of 2005 and 2004, respectively. Improved operating results for Cibola Corporation accounted for the increase. In addition, the second quarter of 2005 reflected a minority interest in the operations of the Company's consolidated subsidiary in China in the amount of $4,000 with no such amount in the second quarter of 2004. Income taxes The Company recorded a provision for federal alternative minimum taxes of $14,000 in the second quarter of 2004 compared to $12,000 for the same period in 2004. The Company has not recorded any financial benefit attributable to its various tax carryforwards due to uncertainty regarding their utilization and realization. Discontinued operations As mentioned in the Overview above, our financial results for the three months ended in 2005 and 2004 benefited from earnings of $62,000 and $4,000, respectively, as a result of activities in two of our four discontinued segments. The second quarter of 2005 benefited from the disposition of assets which generated gains of $77,000 compared to $6,000 for the same period in 2004, offset by expenses of $15,000 and $2,000 respectively. As of June 30, 2005, assets of discontinued operations held for resale totaled $89,000 and liabilities of discontinued operations totaled $54,000. We believe that all of the assets of the discontinued segments have been written down to their realizable value. We are actively pursuing opportunities to sell the remaining assets and expect the dispositions to be completed by December 31, 2005. Material changes in results of operations - Six months ended June 30, 2005 as compared with the Six months ended June 30, 2004. - ----------------------------------------------------------------------------- The Company recorded a loss of $750,000 for the first half of 2005 compared to $2,000,000 in net income for the first six months of 2004. Continuing operations reflected losses of $900,000 compared to earnings of $1,993,000 for the same period in 2004. In addition, the Company had income of $150,000 and $7,000 from discontinued operations for the first half of 2005 and 2004, respectively. Operating results of the Company's primary operating segments are reflected below: 2005 2004 ---------------- ---------------- Operating profit (loss): Coal reclamation $ (284,000) $ (256,000) Carbon dioxide 405,000 230,000 China (272,000) (278,000) e-Commerce (55,000) (32,000) ---------------- ---------------- Subtotal (206,000) (336,000) Other (474,000) (456,000) ---------------- ---------------- Total $ (680,000) $ (792,000) ================ ================ The "Other" in the above table reflects primarily general and corporate activities, as well as other activities and investments of the Company. Coal reclamation As was the case in 2004, all of the Coal Segment's revenues for the six-month periods ended on June 30th were recorded in the second quarter of the year. Revenues increased $21,000 to $39,000 for the first six months of 2005 compared to $18,000 for the same period in 2004 as the result of several consulting and coring jobs in the year 2005. Operating costs increased $45,000 to $319,000 for the first six months of 2005 compared to $274,000 for the same period in 2004 as a result of increased labor, expendable supplies, advertising, travel and other costs. As a result, the operating loss for the first six months of 2005 increased $28,000 to $284,000 compared to $256,000 in the first six months of 2004. Carbon dioxide Operations for the first six months of 2005 resulted in an operating profit of $405,000 compared to a $230,000 operating profit for the 2004 first half. 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 carbon dioxide producing unit in Colorado. Segment operating revenues increased $175,000 or 54% to $501,000 for the first six months of 2005 compared to $326,000 for the same period in 2004. The Company recorded $1,000 less in operating costs associated with the properties in the first half of 2005 compared to the same period in 2004. Production volumes for the McElmo Dome field increased for the first six months of 2005 compared to the same period in 2004. The increase in revenue for the current six months was due to higher volumes to the Company's interest accompanied by an increase in pricing, with the Company receiving an average of $0.52 per mcf sold in the first six months of 2005 versus $0.39 per mcf in the year earlier period. Paid volumes were up 127,000 mcf in the current six months versus a year ago. China The China Segment incurred an operating loss of $272,000 for the first half months of 2005 compared to $278,000 for the same period in 2004. The higher losses in 2004 were attributable to higher SG&A expenses as the Company looked for projects to demonstrate its composting technology. See "Other income and expense" detail below. e-Commerce The e-Commerce Segment incurred an operating loss of $55,000 for the first half of 2005 versus an operating loss of $32,000 in the prior year period. A $22,000 increase in legal fees accounted for the majority of the change as the segment continued its suit against VISA. 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 $474,000 for the first half of 2005 as compared to $456,000 in the same period of 2004. The Company charged $14,000 more in DD&A costs for the six-month period in 2005 compared to the same period in 2004 because of the amortization of capitalized costs associated with the issuance of the participating and subordinated debt in 2004 and 2005. The Company also incurred several smaller increases in numerous other expense accounts. Selling, general and administrative expenses The Company's selling, general and administrative expenses ("SG&A") in the first half of 2005 increased $8,000 to $438,000 from $430,000 for the 2004 six months. Minor increases in numerous SG&A expense accounts accounted the increase. Depreciation, depletion and amortization expenses DD&A expense increased $20,000 from $38,000 for the six months ended June 30, 2004 to $58,000 for the same period in 2005. The increase was due primarily to increased amortization expense associated with the capitalized costs of the 10% participating and 12% subordinated debt issued in late 2004 and early 2005. Other income and expense The other income and expenses for the first six months of 2005 netted to a loss of $187,000 compared to income of $2,894,000 for the same period in 2004. The Company received $2,826,000 of the McElmo Dome Settlement in March of 2004 and another $117,000 in May of 2004 with no comparable receipts in the first six months of 2005. The Company used $2,620,000 of these funds to pay down its debt and associated interest in 2004. In the first six months of 2005, the Company has incurred a net increase in debt of $2,074,000 and total debt at June 30, 2005 is approximately $2,639,000 greater than at June 30, 2004. As a result, interest expense for the first six months of 2005 is $421,000 compared to $259,000 for the same period in 2004. The Company invested a portion of these additional funds in short-term instruments and, as a result, interest income is $9,000 greater for the first six months of 2005 than it was in 2004. The Company realized gains on sale of assets for the first six months of 2005 totaling $21,000 compared to $76,000 in the prior year period. We realized a $34,000 reduction in expenses attributable to our operations in China as a result of the 50% minority interest held by our investor in the start-up LLC included as a consolidated subsidiary in these financial statements. The Company's equity in the operations of unconsolidated affiliates netted to income of $229,000 for the first six months of 2005 compared to $198,000 for the same period in 2004. These amounts reflect the improved operating results of Cibola Corporation. The Company recorded $1,942,000 as its share of earnings from its investment in Cibola Corporation compared to $1,764,000 for the prior year six months. While the Company owns 80% of the common stock of Cibola, it does not have financial or operating control of this gas marketing subsidiary. According to the terms of an agreement with the minority common and preferred shareholders of Cibola, the net worth of Cibola would have to reach $50,000,000 before Beard could begin to receive its 80% share of any excess. Since Beard management felt this was unlikely, the Company also recorded impairments of $1,714,000 and $1,566,000 for the six-month periods ended June 30, 2005 and 2004, respectively. The interest expense totals include approximately $59,000 to Cibola for each of the six-month periods ended June 30, 2005 and 2004, respectively. These impairments and the interest charges reduce the net earnings to the Company from its investment in Cibola to the actual cash distributions received of $169,000 and $138,000 for the six-month periods ended June 30, 2005 and 2004, respectively. Income taxes The Company recorded provisions of $33,000 and $109,000 for federal alternative minimum taxes for the six-month periods ended June 30, 2005 and 2004, respectively. Discontinued operations As mentioned in the Overview above, our financial results for the six months ended in 2005 and 2004 benefited from earnings of $150,000 and $7,000, respectively, as a result of activities in two of our four discontinued segments. The second quarter of 2005 benefited from the disposition of assets which generated gains of $77,000 compared to $6,000 for the same period in 2004, offset by expenses of $6,000 and $3,000 respectively. As of June 30, 2005, assets of discontinued operations held for resale totaled $89,000 and liabilities of discontinued operations totaled $54,000. We believe that all of the assets of the discontinued segments have been written down to their realizable value. We are actively pursuing opportunities to sell the remaining assets and expect the dispositions to be completed by December 31, 2005. Item 3. Quantitative and Qualitative Disclosures About Market Risk. At June 30, 2005, the Company had long-term debt of $8,351,000, including accrued interest to related entities of $93,000. Debt in the amount of $7,198,000 has fixed interest rates; therefore, the Company's interest expense and operating results would not be affected by an increase in market interest rates for this amount. The Company's $804,000 of 10% Participating Notes bear interest at an annual rate equal to the Wall Street Journal Prime Rate plus 4% with a floor of 10%. The Notes required payment of interest only until November 30, 2004 and the Company then began amortizing the notes with equal payments of principal and interest over the remaining eight quarters. A 10% increase in market interest rates would have increased the Company's interest expense by approximately $5,000. At June 30, 2005, a 10% increase in market interest rates would have reduced the fair value of the Company's long-term debt by $89,000. The Company has no other market risk sensitive instruments. Item 4. Controls and Procedures. RESTATEMENT As discussed in Note 1 to the consolidated financial statements in this restatement, we have amended our Quarterly Report on Form 10-Q for the three and six-month periods ended June 30, 2005 and 2004, to present the results of operations of our investment in Cibola Corporation ("Cibola") on a "gross" rather than a "net" basis. While we own 80% of the common stock of Cibola Corporation, we do not have financial or operating control of this gas marketing subsidiary. According to the terms of an agreement (the "Agreement") with the minority common and preferred shareholders of Cibola, the net worth of Cibola would have to reach $50,000,000 before we could begin to receive our 80% share. We have issued a $1,439,000 note payable bearing interest at 8.25% for its common stock of Cibola. The interest charges amounted to approximately $30,000 and $59,000 for each of the three and six-month periods ending June 30, respectively. These amounts were previously netted against the distributions from Cibola but are reclassified to interest expense. The note is due on June 30, 2006. The stock is subject to a call option at the sole discretion of the minority common and preferred shareholders of Cibola. We had previously recorded as earnings from unconsolidated affiliates the net cash distributions received from Cibola which amounted to $85,000 and $70,000 for the three-month periods ended June 30, 2005 and 2004, respectively, and $169,000 and $138,000 for the six-month periods ending on the same dates, respectively. In recording our share of Cibola earnings according to the Agreement, these amounts are increased to $947,000 and $907,000 for the three-month periods ended June 30, 2005 and 2004, respectively. These earnings amounts are increased to $1,942,000 and $1,764,000 for the six-month periods ended June 30, 2005 and 2004, respectively. Since we felt it was unlikely that the net worth of Cibola would reach the requisite amount, we also recorded impairments totaling $833,000 and $807,000 for the three-month periods ended June 30, 2005 and 2004, respectively, and $1,714,000 and $1,566,000 for the six-month periods ended June 30, 2005 and 2004, respectively. These impairments and the interest charges on the note payable to Cibola reduce the net earnings to us from our investment in Cibola to the actual cash distributions received and previously presented as earnings from unconsolidated affiliates. The effect of these changes on the Balance Sheets is to increase both our investment and notes payable-related entities by the $1,439,000 amount. There is no change to either net income (loss) or net earnings (loss) per share for any of the periods presented as a result of this restatement. The impact of these changes on the Statements of Cash Flows is to decrease net cash provided by (used in) operating activities and to increase net cash provided by (used in) investing activities by $59,000 for each of the six-month periods ended June 30, 2005 and 2004. EVALUATION OF INTERNAL CONTROLS AND PROCEDURES AND THE RESTATEMENT As a result of the restatement discussed above, we, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, have re-evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that re-evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2005 to ensure that information required to be disclosed by us in reports that we file or submit under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission (the "Commission") rules and forms. We researched the proper accounting treatment and presentation of these transactions at the time we initially entered into the agreement with the minority common and preferred shareholders of Cibola. Our accounting treatment and presentation was reviewed by legal counsel (presentation only) and an independent international public accounting firm and found to be proper at that time. That treatment was subsequently reviewed by another independent public accounting firm and its conclusion was the same. The Commission disagreed with the accounting treatment and required that we restate our financials. Nonetheless, we believe that we had performed sufficient due diligence in reaching our conclusions regarding the accounting treatment of this transaction. In coming to the conclusion that our disclosure controls and procedures and internal control over financial reporting were effective as of June 30, 2005, our management took into consideration that the restatement adjustments did not have a material impact on the financial statements, inasmuch as there were no changes to the net earnings (loss) or net earnings (loss) per share amounts, as originally reported and that the restatement, when regarded in its entirety, did not constitute a material weakness. As a result of the internal control deficiency resulting in the restatement discussed above, we intend to implement more standardized procedures affecting the compilation, review and reporting process in order to prevent such occurrences in the future. We believe that these corrective steps will remedy the control deficiency cited above. We will, however, continue to review this process and will make any other changes and take action that we determine to be appropriate. PART II. OTHER INFORMATION. Item 1. Legal Proceedings. McElmo Dome Litigation - ---------------------- The McElmo Dome Settlement became final in July of 2003. We received our $1,151,000 share of the first installment of the Settlement in July of 2003, a second installment totaling $2,826,000 in March of 2004 and a third installment of $117,000 in May of 2004. We have expensed our entire share, totaling $450,000, of the costs of the litigation. The Settlement proceeds resulted in net income of $3,976,000, after alternative minimum taxes of $118,000. Subsequent to the Settlement several issues have arisen concerning implementation of the Settlement Agreement that are currently in dispute which may result in additional money being owed to the Plaintiffs in the McElmo Dome litigation. A mediation held in Denver on March 31, 2005, was unsuccessful. However, the Plaintiffs and the defendants agreed to submit letter briefs to the party who served as the court-appointed fairness expert during the proceedings concerning the Settlement Agreement who agreed to render an advisory opinion consisting of a decision on the merits relating to the current disputes. The fairness expert rendered his advisory opinion, which is not binding on the Plaintiffs or defendants, on July 29, 2005. According to the Plaintiffs' attorney, the advisory opinion was favorable to the Plaintiffs on most issues. The parties have agreed that if his decision fails to resolve the matter they will proceed to arbitration. To date we have had no reaction from the defendants as to whether they might be willing to settle the dispute or wish to proceed to arbitration. We estimate that, in the event all three of the matters in dispute should be resolved in the Plaintiffs' favor, we could receive as much as $540,000 for our share of the money in dispute. Coalition Managers' Litigation - ------------------------------ In a separate suit, in which we are not a defendant, two parties who objected to the Settlement have sued the managers of the Coalition alleging various claims which defendants have denied. The Coalition has held back approximately $800,000 as a litigation reserve until this matter is resolved to pay for defense of the case and winding up costs of the Coalition. One of the parties has subsequently withdrawn from the suit. We expect that this matter will be resolved in favor of the defendants, and that we will ultimately receive an additional $100,000 to $125,000 from the holdback in addition to the three installments described above. Visa Litigation - --------------- In May of 2003 the Company's 71%-owned subsidiary, starpay.com, l.l.c., along with VIMachine, Inc. filed a suit in the U. S. District Court for the Northern District of Texas, Dallas Division against Visa International Service Association and Visa USA, Inc., both d/b/a Visa (Case No. CIV:3-03-CV0976-L). VIMachine is the holder of U.S. Patent No. 5,903,878 (the "VIMachine Patent") that covers, among other things, an improved method of authenticating the cardholder involved in an Internet payment transaction. On July 25, 2003, the Plaintiffs filed an Amended Complaint. The suit seeks damages and injunctive relief (i) related to Visa's infringement of the VIMachine Patent; (ii) related to Visa's breach of certain confidentiality agreements express or implied; (iii) for alleged fraud on the Patent Office based on Visa's pending patent application; and (iv) under California's common law and statutory doctrines of unfair trade practices, misappropriation and/or theft of starpay's intellectual property and/or trade secrets. In addition, Plaintiffs are seeking attorney fees and costs related to the foregoing claims. If willfulness can be shown, Plaintiffs will seek treble damages. In August of 2003 the Defendants filed a motion to dismiss the second, third and fourth claims. Despite objections to such motion by the Plaintiffs, the Judge on February 11, 2004, granted Defendants' motion to dismiss the second and third causes of action, and denied the motion insofar as it sought to dismiss the fourth cause of action. Accordingly, Plaintiffs' fourth claim (misappropriation and/or theft of intellectual property and/or trade secrets) will continue to move forward. On February 23, 2004, Defendants filed an Answer to Plaintiffs' Amended Complaint. In such filing Visa denied each allegation relevant to claim four. Visa asked that the VIMachine Patent be declared invalid, and, even if it is found valid, Visa asked that they be found not to infringe the VIMachine Patent. Visa asked for other related relief based on these two allegations. In April and May 2004, Plaintiffs filed their Patent Infringement Contentions and a supplement thereto detailing Visa's alleged infringement of the majority of the patent claims depicted in the VIMachine Patent. Subsequently, in May 2004, Defendants filed Preliminary Invalidity Contentions requesting the VIMachine Patent be found invalid. From May through October 2004, the Plaintiffs and Defendants submitted numerous filings related to interpretation of the terms and phrases set out in the VIMachine Patent claims. A hearing regarding patent claim construction (a "Markman hearing") was held on October 21 and 29, 2004, allowing both parties to present oral arguments before the Court regarding the claim construction issues. On January 4, 2005, Magistrate Judge Sanderson filed a Report and Recommendation of the United States Magistrate Judge addressing his findings and recommendations with respect to the claim constructions to be applied to the VIMachine Patent. Judge Sanderson found that 24 of the 28 claims asserted by the Plaintiffs were valid. Both parties have pursued modifications of the Magistrate's recommendations in the form of an appeal to District Judge Lindsey and are awaiting the Court's final ruling on claim construction issues. It is anticipated the Court will rule on these issues during the third quarter of 2005. Both sides anticipate filing dispositve motions in the fall of 2005. Trial is slated to begin in February 2006. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Not applicable. Item 3. Default Upon Senior Securities. Not applicable. Item 4. Submission of Matters to a Vote of Security Holders. Commencing on April 29, 2005, proxies were solicited on behalf of the Board of Directors of the Company in connection with the Annual Meeting of Stockholders. (a) The annual meeting was held on June 9, 2005. (b) The business of the meeting included the election of W. M. Beard to serve as director for a three-year term or until his successor has been elected and qualified. In addition, the following persons continue to serve as directors for terms expiring on the dates indicated or until their successors have been elected and qualified: Allan R. Hallock (2006) Ford C. Price (2006) Harlon E. Martin, Jr. (2007) Herb Mee, Jr. (2007) To date the preferred stockholder has not elected to fill the vacancy created by the resignation of Michael E. Carr who resigned effective February 1, 2002. The table below sets forth the voting for election of director:
Votes Votes Votes Broker Name of Nominee For Against Withheld Abstentions Non-Votes --------------- --- ------- -------- ----------- --------- W. M. Beard 4,927,833 -0- 13,340 -0- 601,183
(c) At the meeting the stockholders also voted to ratify the appointment of Cole & Reed, P.C. as our independent auditors for fiscal year 2005. The table below sets forth the voting for such proposal: Votes Votes Broker For Against Abstentions Non-Votes --- ------- ----------- --------- 4,938,849 2,078 246 601,183 Item 5. Other Information. Not applicable. Item 6. Exhibits. (a) The following exhibits are filed with this Form 10-Q and are identified by the numbers indicated: 3.1 Certificate of Incorporation of The New Beard Company as filed with the Secretary of State of Oklahoma on September 20, 2000. (This Exhibit has been previously filed as Exhibit 3(ii) to Registrant's Form 10-Q for the period ended September 30, 2000, filed on November 20, 2000, and same is incorporated herein by reference). 3.2 Registrant's By-Laws as currently in effect. (This Exhibit has been previously filed as Exhibit 3(ii) to Registrant's Form 10-K for the period ended December 31, 1997, filed on March 31, 1998, and same is incorporated herein by reference). 4 Instruments defining the rights of security holders: 4.1 Certificate of Designations, Powers, Preferences and Relative, Participating, Option and Other Special Rights, and the Qualifications, Limitations or Restrictions Thereof of the Series A Convertible Voting Preferred Stock of the Registrant. (This Exhibit has been previously filed as Exhibit 3(c) to Amendment No. 2, filed on September 17, 1993 to Registrant's Registration Statement on Form S-4, File No. 33-66598, and same is incorporated herein by reference). 4.2 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 Oil & Gas, Inc., dated as of April 13, 1995. (This Exhibit has been previously filed as Exhibit 4(g) to Registrant's Form 10-K for the period ended December 31, 1994 and same is incorporated herein by reference). 10 Material Contracts 10.1 Restated and Amended Letter Loan Agreement by and between Registrant and The William M. Beard and Lu Beard 1988 Charitable Unitrust (the "Unitrust") dated April 1, 2005. 10.2 Replacement Renewal and Extension Promissory Note from Registrant to the Trustees of the Unitrust dated as of February 14, 2005. 10.3 The Beard Company 2005 Stock Option Plan adopted on June 9, 2005* 10.4 Cibola Corporation financial statements for the three years ended December 31, 2004. (This Exhibit has been previously filed as Exhibit 10.9 to Registrant's Form 10-K/A for the period ended December 31, 2004, filed April 17, 2006, and same is incorporated herein by reference.) 31 Rule 13a-14(a)/15d-14(a) Certifications: 31.1 Chief Executive Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a). 31.2 Chief Financial Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a). 32 Section 1350 Certifications: 32.1 Chief Executive Officer Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code 32.2 Chief Financial Officer Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code. * Compensatory plans or arrangements. 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. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) THE BEARD COMPANY /s/Herb Mee, Jr. (Date) June 2, 2006 ___________________________________ Herb Mee, Jr., President and Chief Financial Officer /s/Jack A. Martine (Date) June 2, 2006 ___________________________________ Jack A. Martine, Controller and Chief Accounting Officer INDEX TO EXHIBITS Exhibit No. Description Method of Filing --- ----------- ---------------- 3.1 Certificate of Incorporation of The New Incorporated herein by reference Beard Company as filed with the Secretary of State of Oklahoma on September 20, 2000. 3.2 Registrant's By-Laws as currently in Incorporated herein by reference effect. 4.1 Certificate of Designations, Powers, Incorporated herein by reference Preferences and Relative, Participating, Option and Other Special Rights, and the Qualifications, Limitations or Restrictions Thereof of the Series A Convertible Voting Preferred Stock of the Registrant. 4.2 Settlement Agreement, with Certificate Incorporated herein by reference of Amendment attached thereto, by and among Registrant, Beard Oil, New York Life Insurance Company, New York Life Insurance and Annuity Company, John Hancock Mutual Life Insurance Company, Memorial Drive Trust and Sensor Oil & Gas, Inc., dated as of April 13, 1995. 10.1 Restated and Amended Letter Loan Filed herewith electronically Agreement by and between Registrant and The William M. Beard and Lu Beard 1988 Charitable Unitrust (the "Unitrust") dated April 1, 2005. 10.2 Replacement Renewal and Extension Filed herewith electronically Promissory Note from Registrant to the Trustees of the Unitrust dated as of February 14, 2005. 10.3 The Beard Company 2005 Stock Option Filed herewith electronically Plan adopted on June 9, 2005 10.4 Cibola Corporation financial statements Incorporated herein by reference for the three years ended December 31, 2004. 31.1 Chief Executive Officer Certification Filed herewith electronically required by Rule 13a-14(a) or Rule 15d-14(a). 31.2 Chief Financial Officer Certification Filed herewith electronically required by Rule 13a-14(a) or Rule 15d-14(a). 32.1 Chief Executive Officer Certification Filed herewith electronically required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code 32.2 Chief Financial Officer Certification Filed herewith electronically required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code. EX-10.1 2 bc10qex101-81505.txt April 1, 2005 RESTATED AND AMENDED LETTER LOAN AGREEMENT The Beard Company 5600 N. May Avenue, Suite 320 Oklahoma City, Oklahoma 73112 Gentlemen: This Restated and Amended Letter Loan Agreement supersedes and replaces the previous Restated and Amended Letter Loan Agreement between the parties hereto dated March 26, 2004, as amended by the parties on June 25, 2004. This Restated and Amended Letter Loan Agreement sets forth the terms and conditions under which we have agreed to continue $2,782,900.59 of the loan previously made to you in the principal amount of $3,000,000.00 (the "Loan"), which is no longer a revolving loan. Accordingly, as payments are made on the Loan, additional advances will no longer be permitted. 1. LENDER: The William M. Beard and Lu Beard 1988 Charitable Unitrust (the "Unitrust"). 2. BORROWER: The Beard Company. 3. AMOUNT: $2,782,900.59. The Loan shall be evidenced by a promissory note in the amount of $2,782,900.59 dated February 14, 2005* (the "Note"). The Borrower shall be permitted to make prepayments without penalty up to the amount of the Note. _______________ *The Note has been dated February 14, 2005 because it was on that date that all accrued interest on the former note was paid and a principal repayment was made which reduced the principal balance under the Loan Agreement from $2,785,000.00 down to $2,782,900.59. 4. INTEREST RATE: A fixed rate of 10.00%. 5. REPAYMENT: The outstanding principal balance (the "Indebtedness") plus unpaid accrued interest shall be due and payable on April 1. 2007. 6. COLLATERAL: The Lender, together with certain Note Holders, has previously filed a Deed of Trust, Assignment of Production, and Financing Statement of record (a "Lien") on Borrower's working and overriding royalty interests in the McElmo Dome Unit in Montezuma and Dolores Counties of Colorado (the "Interests"). Although the other Note Holders have been repaid in full as of this date, the Lien has not been re- leased even though such Note Holders no longer have an interest therein. Moreover, on May 21, 2004, Boatright Family LLC ("Boatright") made a loan to the Lender, and a new Deed of Trust, Assignment of Production, and Financing Statement has been placed of record which has placed a Lien on both Lender's and Borrower's Interests in the McElmo Dome Unit and will determine the relative rights as to proceeds under the Deed of Trust as between Lender and Boatright. 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 transactions, 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, LENDER: THE WILLIAM M. BEARD AND LU BEARD 1988 CHARITABLE UNITRUST /s/ William M. Beard /s/ Lu Beard ____________________________ _________________________ William M. Beard, Trustee Lu Beard, Trustee Accepted effective this 1st day of April, 2005. BORROWER: THE BEARD COMPANY /s/ Herb Mee, Jr. ___________________________ Herb Mee, Jr., President EX-10.2 3 bc10qex102-81505.txt REPLACEMENT RENEWAL AND EXTENSION PROMISSORY NOTE $2,782,900.59 Oklahoma City, Oklahoma February 14, 2005 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 Unitrust (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 Two Million Seven Hundred Eighty-Two Thousand Nine Hundred and 59/100ths Dollars ($2,782,900.59) plus 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 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. The outstanding principal balance plus unpaid accrued interest are due and payable on April 1, 2007. Except as otherwise defined herein, all terms defined in the Restated and Amended Letter Loan Agreement dated April 1, 2005, between the Maker and the Holder (the "Loan Agreement") will have the same meanings as therein, and the Holder recognizes that it is subject to all of the provisions set forth in the Amendment to Restated and Amended Letter Loan Agreement dated June 25, 2004 (the "Amended Loan Agreement). 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. 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 (5.0%) 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. ---------------------- Page 1 of 3 Pages 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. 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 and the Amended Loan Agreement (collectively, the "Loan Agreements"). On the breach of any provision of this Note, or any provision of the Loan Agreements 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. ------------------------ Page 2 of 3 Pages 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 /s/ Rebecca V. Voth /s/ Herb Mee, Jr. - --------------------------- ----------------------------------- Rebecca G. Voth, Secretary Herb Mee, Jr., President ------------------------- Page 3 of 3 Pages EX-10.3 4 bc10qex103-081505.txt Exhibit 10.3 THE BEARD COMPANY 2005 STOCK OPTION PLAN Adopted: June 9, 2005 THE BEARD COMPANY 2005 STOCK OPTION PLAN Table of Contents Page ARTICLE I General Provisions.................................................1 1.1 Purpose.........................................................1 1.2 General.........................................................1 1.3 Administration of the Plan......................................1 1.4 Shares Subject to the Plan......................................1 1.5 Participation in the Plan.......................................2 1.6 Determination of Fair Market Value..............................2 1.7 Grants of Options Under Stock Option Agreement..................2 1.8 Amendment and Termination of the Plan...........................2 1.9 Effective Date..................................................2 1.10 Securities Law Requirements.....................................2 1.11 Separate Certificates...........................................3 1.12 Payment for Stock...............................................3 1.13 Stock Options and ISO Options Granted Separately................3 1.14 Use of Proceeds.................................................3 1.15 Non-Transferability of Options..................................3 1.16 Additional Documents on Death of Participant....................4 1.17 Changes in Employment...........................................4 1.18 Shareholder Rights..............................................4 1.19 Adjustments Upon Changes in Capitalization......................4 1.20 Payment of Withholding Taxes....................................4 1.21 Assumption of Outstanding Options...............................5 1.22 Retirement and Disability.......................................5 ARTICLE II Stock Options.....................................................5 2.1 General Terms...................................................5 2.2 Grant and Terms for Stock Options...............................5 (a) Option Price.....................................................5 (b) Acceleration of Otherwise Unexercisable Stock Options on Retirement, Death, Disability or Other Special Circumstances..6 (c) Number of Stock Options Granted...............................6 (d) Notice to Exercise Stock Option...............................6 ARTICLE III ISO Options......................................................6 3.1 General Terms...................................................6 3.2 Grant and Terms of ISO Options..................................6 (a) ISO Option Price..............................................7 (b) Annual ISO Option Limitation..................................7 (c) Terms of ISO Options..........................................7 (d) Acceleration of Otherwise Unexercisable ISO Options on Retirement, Death, Disability or Other Special Circumstances..7 (e) Number of ISO Options Granted.................................8 (f) Notice to Exercise ISO Option.................................8 ARTICLE IV Acceleration of Options on Change of Control......................8 4.1 Acceleration of Options on Change of Control....................8 ARTICLE V Options Not Qualifying as Incentive Stock Options..................9 THE BEARD COMPANY 2005 STOCK OPTION PLAN ARTICLE I General Provisions 1.1 Purpose. The purpose of THE BEARD COMPANY 2005 STOCK OPTION PLAN (the "Plan") shall be to attract, retain and motivate key management, directors or key professional employees (the "Participants") of The Beard Company (the "Company") and subsidiaries by way of granting (i) nonqualified stock options ("Stock Options") and (ii) incentive stock options ("ISO Options"). For purposes of this Plan, Stock Options and ISO Options are sometimes collectively herein called "Options." The ISO Options to be granted under the Plan are intended to be qualified pursuant to Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"); and, the Stock Options to be granted are intended to be "nonqualified stock options" as described in Sections 83 and 421 of the Code. Further, under the Plan, the terms "parent" and "subsidiary" shall have the same meaning as set forth in Subsections (e), (f) and (g) of Section 424 of the Code unless the context herein clearly indicates to the contrary. 1.2 General. The terms and provisions of this Article I shall be applicable to Stock Options and ISO Options unless the context herein clearly indicates to the contrary. 1.3 Administration of the Plan. The Plan shall be administered by the Compensation and Stock Option Committee ("Committee") appointed by the Board of Directors ("Board") of the Company and consisting of not less than two members from the Board who are not officers or employees of the Company or any subsidiary. The members of the Committee shall serve at the pleasure of the Board and such members shall be ineligible to participate under the Plan during their service as members of the Committee. Committee membership shall be limited to only those members of the Board who have not, during the year preceding their appointment, been granted or awarded any "equity securities" (as such term is defined in Rule 16a-l(d) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (or any successor rule) pursuant to the Plan or any other plan of the Company or any of its affiliates. 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 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 "stock option agreements" ("Stock Option 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. 1.4 Shares Subject to the Plan. Shares of stock ("Stock") covered by Stock Options and ISO Options shall consist of One Hundred Thousand (100,000) shares of the voting common stock, par value $.0006665, of the Company. Either authorized and unissued shares or treasury shares may be delivered pursuant to the Plan. If any Option for shares of Stock granted to a Participant lapses, or is otherwise terminated, the Committee may grant Stock Options or ISO Options for such shares of Stock to other Participants. 1.5 Participation in the Plan. The Committee shall determine from time to time those Participants who are to be granted Stock Options and ISO Options and the number of shares of Stock covered thereby. Provided, however, those directors who are not key management employees of the Company, its parent or subsidiaries of the Company shall only be eligible to be granted Stock Options under this Plan. 1.6 Determination of Fair Market Value. As used in the Plan, "fair market value" shall mean the last sale price of the common stock of the Company as reported by the OTC Bulletin Board (i) on the date of the grant or (ii) if there have been no sales of such securities on the granting date, the most recent sale reported as of the granting date, exercise date, or other relevant date. 1.7 Grants of Options Under Stock Option Agreement. Each Stock Option or ISO Option granted under this Plan shall be evidenced by the minutes of a meeting of the Committee or by the written consent of the Committee and by a written Stock Option Agreement effective on the date of grant and executed by the Company and the Participant. Each Option granted hereunder shall contain such terms, restrictions and conditions as the Committee may determine, which terms, restrictions and conditions mayor may not be the same in each case. 1.8 Amendment and Termination of the Plan. The Plan shall terminate at midnight, February 2, 2015, but prior thereto may be altered, changed, modified, amended or terminated by written amendment approved by the Board. Provided, that no action of the Board may, without the approval of the holders of a majority of the securities of the Company entitled to vote thereon, increase the aggregate number of shares of Stock which may be purchased under ISO Options granted under the Plan; amend or alter the ISO Price; materially increase the benefit accruing to Participants under the Plan, materially modify the requirements as to eligibility for participation in the Plan; or amend the Plan in any manner which would impair the applicability of Rule 16b-3 as promulgated under the Exchange Act (or any successor rule) to the Plan. Except as provided in this Article I, no amendment, modification or termination of the Plan shall in any manner adversely affect any Stock Option or ISO Option theretofore granted under the Plan without the consent of the affected Participant. 1.9 Effective Date. The Plan has been unanimously approved by the board of directors of the Company on February 3, 2005, and is therefore effective as of such date. 1.10 Securities Law Requirements. The Company shall have no obligation to issue any Stock hereunder unless such shares are listed on the applicable stock exchange(s), if any, on which the Company's shares of Stock are listed at the time and the issuance of such shares would comply with any applicable federal or state securities laws or any other applicable law or regulations thereunder. 1.11 Separate Certificates. Separate certificates representing the common stock of the Company to be delivered to a Participant upon the exercise of any Stock Options or ISO Options will be issued to such Participant. 1.12 Payment for Stock. Payment for shares of Stock purchased under this Plan shall be made in full and in cash or by check, Stock of the Company or a combination thereof, at the time of exercise of the Options as a condition thereof, and no loan or advance shall be made by the Company for the purpose of financing, in whole or in part, the purchase of Stock. In the event that common stock of the Company is utilized as consideration for the purchase of Stock upon the exercise of a Stock Option or an ISO Option, then, such common stock shall be valued at the "fair market value" as defined in Section 1.6 of the Plan. In addition to the foregoing procedure which may be available for the exercise of any Stock Option or ISO Option, the Participant may deliver to the Company a notice of exercise including an irrevocable instruction to the Company to deliver the stock certificate issued in the name of the Participant representing the shares subject to an Option to a broker authorized to trade in the common stock of the Company. Upon receipt of such notice, the Company will acknowledge receipt of the executed notice of exercise and forward this notice to the broker. Upon receipt of the copy of the notice which has been acknowledged by the Company, and without waiting for issuance of the actual stock certificate with respect to the exercise of the Option, the broker may sell the Stock or any portion thereof. Upon receipt of the notice to exercise from the Company, the broker will deliver directly to the Company that portion of the sales proceeds to cover the Option Price and any withholding taxes, if any. Further, the broker may also facilitate a loan to the Participant upon receipt of the notice of exercise in advance of the issuance of the actual stock certificate as an alternative means of financing and facilitating the exercise of any Option. For all purposes of effecting the exercise of an Option, the date on which the Participant gives the notice of exercise to the Company will be the date he becomes bound contractually to take and pay for the shares of Stock underlying the Option. The Committee may also adopt such other procedures which it desires for the payment of the purchase price upon the exercise of a Stock Option or ISO Option which are not inconsistent with the applicable provisions of the Code which relate to Stock Options and ISO Options. 1.13 Stock Options and ISO Options Granted Separately. Since the Committee is authorized to grant Stock Options and ISO Options to Participants, the grants thereof and Stock Option Agreements relating thereto will be made separately and totally independent of each other. Except as it relates to the total number of shares of Stock which may be issued under the Plan, the grant or exercise of a Stock Option shall in no manner affect the grant and exercise of any ISO Options. Similarly, the grant and exercise of an ISO Option shall in no manner affect the grant and exercise of any Stock Options. 1.14 Use of Proceeds. The proceeds received by the Company from the sale of Stock pursuant to the exercise of Options granted under the Plan shall be added to the Company's general funds and used for general corporate purposes. 1.15 Non-Transferability of Options. Except as otherwise herein provided, any Option granted shall not be transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised, during the lifetime of the Participant, only by him. More particularly (but without limiting the generality of the foregoing), the Option shall not be assigned, transferred (except as provided above), pledged or hypothecated in any way whatsoever, shall not be assignable by operation of law and shall not be subject to execution, attachment, or similar process. Any attempted assignment, transfer, pledge, hypothecation, or other disposition of the Option contrary to the provisions hereof shall be null and void and without effect. 1.16 Additional Documents on Death of Participant. No transfer of an Option by the Participant by will or the laws of descent and distribution shall be effective to bind the Company unless the Company shall have been furnished with written notice and an authenticated copy of the will and/or such other evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the successor to the Option of the terms and conditions of such Option. 1.17 Changes in Employment. So long as the Participant shall continue to be an employee of the Company or its parent or one of its subsidiaries, any Option granted to him shall not be affected by any change of duties or position. Nothing in the Plan or in any Stock Option Agreement which relates to the Plan shall confer upon any Participant any right to continue in the employ of the Company or its parent or any of its subsidiaries, or interfere in any way with the right of the Company or its parent or any of its subsidiaries to terminate his employment at any time. 1.18 Shareholder Rights. No Participant shall have a right as a shareholder with respect to any shares of Stock subject to an Option prior to the purchase of such shares of Stock by exercise of the Option. 1.19 Adjustments Upon Changes in Capitalization. The aggregate number of shares of Stock under Stock Options and ISO Options granted under the Plan, the Option Price and the ISO Price and the total number of shares of Stock which may be purchased by a Participant on exercise of a Stock Option and an ISO Option shall be appropriately adjusted or modified by the Committee to reflect any recapitalization, stock split, merger, consolidation, reorganization, combination, liquidation, stock dividend or similar transaction involving the Company. Provided, any such adjustment shall be made in such a manner as to not constitute a modification as defined in Section 424(h) of the Code. 1.20 Payment of Withholding Taxes. Except as provided in Section 1.12 herein, no exercise of any Option shall be permitted, nor shall any Stock be issued to any Participant until the Company receives full payment for the Stock purchased which shall include any required state and federal withholding taxes. Further, upon the exercise of any Stock Option, the Participant may direct the Company to retain from the shares of Stock to be issued upon exercise of the Stock Option that number of initial shares of Stock (based on fair market value) that would be necessary to satisfy the requirements for withholding any amounts of taxes due upon the exercise of such Stock Option. In the event that the Participant disposes of any Stock acquired by the exercise of an ISO Option within the two-year period following grant, or within the one-year period following exercise, of the ISO Option, the Company shall have the right to require the Participant to remit to the Company an amount sufficient to satisfy all federal, state and local withholding tax requirements. 1.21 Assumption of Outstanding Options. To the extent permitted by the then applicable provisions of the Code, any successor to the Company succeeding to, or assigned the business of, the Company as the result of or in connection with a corporate merger, consolidation, combination, reorganization, liquidation or other corporate transaction shall assume Options outstanding under the Plan or issue new Options in place of outstanding Options under the Plan with such assumption to be made on a fair and equivalent basis in accordance with the applicable provisions of Section 424(a) of the Code; provided, in no event will such assumption result in a modification of any Option as defined in Section 424(h) of the Code. 1.22 Retirement and Disability. For the purpose of this Plan, "Retirement" shall mean the voluntary termination of employment of a Participant with the Company, its parent or any of its subsidiaries after attaining at least 55 years of age; and, "Disability" shall mean termination of employment of a Participant after incurring a "disability" as defined in Section 22(e)(3) of the Code. ARTICLE II Stock Options 2.1 General Terms. With respect to Stock Options granted on or after the effective date of the Plan, the following provisions of this Article II shall apply. The Stock Options granted under this Article II are intended to be "nonqualified stock options" as described in Sections 83 and 421 of the Code. 2.2 Grant and Terms for Stock Options. Stock Options shall be granted on the following terms and conditions. Stock Options shall only be granted to key management employees, directors or key professional employees of the Company, its parent or any subsidiary of the Company. No Stock Option shall be exercisable more than ten (10) years from the date of grant. Subject to such limitations, the Committee shall have the discretion to fix the period ("Option Period") during which Stock Options may be exercised. At all times during the period commencing with the date a Stock Option is granted to a Participant and ending on the earlier of the expiration of the Option Period applicable to such Stock Option or the date which is three (3) months prior to the date the Stock Option is exercised by such Participant, such Participant must be an employee or a director of either (i) the Company, (ii) a parent or a subsidiary corporation of the Company, or (iii) a corporation or parent or a subsidiary corporation of such corporation issuing or assuming a Stock Option in a transaction to which Section 424(a) of the Code applies. Provided, in the case of a Participant who has incurred a Disability, the aforesaid three (3) month period shall mean a one (1) year period. Provided further, in the event a Participant's employment or director's position is terminated by reason of his death, his personal representative may exercise any unexercised Stock Option granted to the Participant under the Plan at any time within one (1) year after the Participant's death but in any event not after the expiration of the Option Period applicable to such Stock Option. (a) Option Price. The option price ("Option Price") for shares of Stock subject to any Stock Option shall be determined by the Committee, but in no event shall such Option Price be less than 75% of the "fair market value" of the Stock on the date of grant. Provided further, in no event shall the Option Price be less than the par value of the Stock. (b) Acceleration of Otherwise Unexercisable Stock Options on Retirement, Death, Disability or Other Special Circumstances. The Committee, in its sole discretion, may permit (i) a Participant who terminates employment due to Retirement, (ii) a Participant who terminates employment due to a Disability, (iii) the personal representative of a deceased Participant, or (iv) any other Participant who terminates employment or his director's position upon the occurrence of special circumstances (as determined by the Committee) to purchase (within three (3) months of such date of termination of employment or one (1) year in the case of a deceased Participant or a Participant suffering a Disability) all or any part of the shares subject to any Stock Option on the date of the Participant's Retirement, Disability, death, or as the Committee otherwise so determines, notwithstanding that all installments, if any, with respect to such Stock Option, had not yet accrued on such date. (c) Number of Stock Options Granted. Participants may be granted more than one Stock Option. In making any such determination, the Committee shall obtain the advice and recommendation of the officers of the Company, its parent, or a subsidiary of the Company which have supervisory authority over such Participants. The granting of a Stock Option under the Plan shall not affect any outstanding Stock Option previously granted to a Participant under the Plan (or any other plans of the Company). (d) Notice to Exercise Stock Option. Upon exercise of a Stock Option, a Participant shall give written notice to the Secretary or Personnel Manager of the Company, or other officer designated by the Committee, at the Company's principal office. No Stock shall be issued to any Participant until the Company receives full payment for the Stock purchased under the Stock Option, including any required state and federal withholding taxes; provided, however, nothing herein shall be construed as requiring payment of withholding taxes at the time of exercise if payment of taxes is deferred pursuant to any provision of the Code, and actions are taken which are designed to reasonably insure payment of withholding taxes when due. ARTICLE III ISO Options 3.1 General Terms. With respect to ISO Options granted on or after the effective date of the Plan the following provisions in this Article III shall apply to the exclusion of any inconsistent provision in any other Article in this Plan since the ISO Options to be granted under the Plan are intended to qualify as "incentive stock options" as defined in Section 422 of the Code. 3.2 Grant and Terms of ISO Options. ISO Options may be granted only to key management or key professional employees of the Company, its parent or any subsidiary of the Company. No ISO Options shall be granted to any person who is not eligible to receive "incentive stock options" as provided in Section 422 of the Code. No ISO Options shall be granted to any key management or key professional employee if, immediately before the grant of an ISO Option, such employee owns more than 10% of the total combined voting power of all classes of stock of the Company, its parent or its subsidiaries (as determined in accordance with the stock attribution rules contained in Section 422 and Section 424( d) of the Code). Provided, the preceding sentence shall not apply if, at the time the ISO Option is granted, the ISO Price (as defined below) is at least 110% of the "fair market value" of the Stock subject to the ISO Option, and such ISO Option by its terms is exercisable no more than five (5) years from the date such ISO Option is granted. (a) ISO Option Price. The option price for shares of Stock subject to an ISO Option ("ISO Price") shall be determined by the Committee, but in no event shall such ISO Price be less than the greater of (a) the "fair market value" of the Stock on the date of grant or (b) the par value of the Stock. (b) Annual ISO Option Limitation. With respect to ISO Options granted, in no event during any calendar year will the aggregate "fair market value" (determined as of the time the ISO Option is granted) of the Stock for which the Participant may first have the right to exercise under an ISO Option granted under all "incentive stock option" plans qualified under Section 422 of the Code which are sponsored by the Company, its parent and its subsidiary corporations exceed $100,000. For purposes of this Section 3.2(b), "incentive stock options," as defined under Section 422 (and its predecessor Section 422A) of the Code, granted prior to January 1, 1987, shall be disregarded when calculating the foregoing $100,000 limitation. (c) Terms of ISO Options. ISO Options shall be granted on the following terms and conditions: No ISO Option shall be exercisable more than ten (10) years from the date of grant. Subject to such limitations, the Committee shall have the discretion to fix the period (the "ISO Period") during which any ISO Option may be exercised. ISO Options granted shall not be transferable except by wi1l or by laws of descent and distribution. At all times during the period commencing with the date an ISO Option is granted to a Participant and ending on the earlier of the expiration of the ISO Period applicable to such ISO Options or the date which is three (3) months prior to the date the ISO Option is exercised by such Participant, such Participant must be an employee of either (i) the Company, (ii) a parent or a subsidiary corporation of the Company, or (iii) a corporation or a parent or a subsidiary corporation of such corporation issuing or assuming an ISO Option in a transaction to which Section 424(a) of the Code applies. Provided, in the case of a Participant who incurs a Disability, the aforesaid three (3) month period shall mean a one (1) year period. Provided further, in the event a Participant's employment is terminated by reason of his death, his personal representative may exercise any unexercised ISO Option granted to the Participant under the Plan at any time within one (1) year after the Participant's death but in any event not after the expiration of the ISO Period applicable to such ISO Option. (d) Acceleration of Otherwise Unexercisable ISO Options on Retirement, Death, Disability or Other Special Circumstances. The Committee, in its sole discretion, may permit (i) a Participant who terminates employment due to Retirement, (ii) a Participant who terminates employment due to a Disability, (iii) the personal representative of a deceased Participant, or (iv) any other Participant who terminates employment upon the occurrence of special circumstances (as determined by the Committee) to purchase (within three (3) months of such date of termination of employment or one (1) year in the case of a deceased Participant or a Participant suffering a Disability) all or any part of the shares subject to any ISO Option on the date of the Participant's Retirement, Disability, death, or as the Committee otherwise so determines, notwithstanding that all installments, if any, had not accrued on such date. (e) Number of ISO Options Granted. Subject to the applicable limitations contained in the Plan with respect to ISO Options, Participants may be granted more than one ISO Option. In making any such determination, the Committee shall obtain the advice and recommendation of the officers of the Company, its parent or a subsidiary of the Company which have supervisory authority over such Participants. Further, the granting of an ISO Option under the Plan shall not affect any outstanding ISO Option previously granted to a Participant under the Plan. (f) Notice to Exercise ISO Option. Upon exercise of an ISO Option, a Participant shall give written notice to the Secretary of the Company, or other officer designated .by the Committee, at the Company's main office in Oklahoma City, Oklahoma. No Stock shall be issued to any Participant until the Company receives full payment for Stock purchased under the ISO Option. ARTICLE IV Acceleration of Options on Change of Control 4.1 Acceleration of Options on Change of Control. In the event that a Change of Control (as defined herein) has occurred with respect to the Company, any and all ISO Options and Stock Options become automatically fully vested and immediately exercisable with such acceleration to occur without the requirement of any further act by either the Company or the Participant. For the purposes of this Section 4.1, the term "Change of Control" shall mean: (i) The acquisition in a transaction or a series of transactions by any person, entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act"), of beneficial ownership, of 30% or more of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities; provided, however, that any acquisition of beneficial ownership of common stock or voting securities of the Company which is less than 30% of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities shall be deemed to be a "change of control" for the purposes of this Agreement if a majority of the Incumbent Board determines that such acquisition has caused a change of control to occur; (ii) Individuals who, as of the date hereof, constitute the Board of Directors of the Company (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person 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 comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iii) Approval by the stockholders of the Company of (A) a reorganization, merger or consolidation, in each case with respect to which the stockholders of the Company will not, immediately after consummation thereof, own more than 50% of the combined voting power of the then outstanding voting securities of either (a) the consolidated company or the surviving company in the reorganization or merger, or (b) any company which prior to the consolidation, reorganization or merger owned 50% or more of the combined voting power of its then outstanding voting securities; provided, however, no Change of Control shall be deemed to have occurred if members of the Incumbent Board will, immediately thereafter, constitute at least a majority of the board of directors of the consolidated or surviving company, or any company which owns, directly or indirectly, at least a majority of the voting power of the consolidated or surviving company's outstanding voting securities, and the Incumbent Board has determined, prior to such shareholder approval, that a Change of Control shall not be deemed to result from such transaction; or (B) a liquidation or dissolution of the Company or the sale of all or substantially all of the assets of the Company. ARTICLE V Options Not Qualifying as Incentive Stock Options With respect to all or any portion of any Option granted under the Plan not qualifying as an "incentive stock option" under Section 422 of the Code, such Option shall be considered as a Stock Option granted under this Plan for all purposes. Further, this Plan and any ISO Options granted hereunder shall be deemed to have incorporated by reference all the provisions and requirements of Section 422 of the Code (and the Treasury Regulations issued thereunder) which are required to provide that all ISO Options granted hereunder shall be "incentive stock options" described in Section 422 of the Code. EX-31.1 5 bc10qa2ndex311-60206.txt Exhibit 31.1 CERTIFICATIONS I, William M. Beard, certify that: 1. I have reviewed this report on Form 10-Q/A of The Beard Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 2, 2006 The Beard Company /s/ William M. Beard Signature: William M. Beard Title: Chairman of the Board and Chief Executive Officer EX-31.2 6 bc10qa2ndex312-60206.txt Exhibit 31.2 CERTIFICATIONS I, Herb Mee, Jr., certify that: 1. I have reviewed this report on Form 10-Q/A of The Beard Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 2, 2006 The Beard Company /s/ Herb Mee, Jr. Signature: Herb Mee, Jr. Title: President and Chief Financial Officer EX-32.1 7 bc10qa2ndex321-60206.txt Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with The Beard Company's (the "Company") Report on Form 10-Q/A for the period ended June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William M. Beard, Chairman of the Board and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: June 2, 2006 By: /s/ William M. Beard William M. Beard Chairman of the Board and Chief Executive Officer EX-32.2 8 bc10qa2ndex322-60206.txt Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with The Beard Company's (the "Company") Report on Form 10-Q/A for the period ended June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Herb Mee, Jr., President and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: June 2, 2006 By: /s/ Herb Mee, Jr. Herb Mee, Jr., President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----