UNITED
        STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM
        10-K



x
        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

or

o
        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to
        ________________



Commission file number 1-12396



THE
        BEARD COMPANY

(Exact
        name of registrant as specified in its charter)



Oklahoma

                    

                    73-0970298(State or other jurisdiction of incorporation or
                        organization)

                    

                    (I.R.S. Employer Identification No.)




Enterprise Plaza, Suite 3205600 North May AvenueOklahoma City, Oklahoma

                    73112(Address of principal executive offices)

                    (Zip Code)




Registrant’s telephone number, including area
        code: (405) 842-2333



Securities registered pursuant to Section 12(b) of the Act:



Title of each class

                    (Name of each exchange on which registeredNone

                    NoneSecurities registered pursuant to Section 12(g) of the
                        Act:Common Stock, $.0006665 par value




Indicate by
        check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
        Securities Act.  Yes  o
        No x



Indicate by
        check mark if the registrant is not required to file reports pursuant to Section 13 or
        Section 15(d) of the Act.  Yes  o
        No x



Indicate
        by check mark whether the registrant (1) has filed all reports required to be filed by
        Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
        (or for such shorter period that the registrant was required to file such reports, and (2)
        has been subject to such filing requirement for the past 90
        days.  Yes  o No
        x



Indicate
        by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
        not contained herein, and will not be contained, to the best of registrant’s
        knowledge, in definitive proxy or information statements incorporated by reference in Part
        III of this Form l0-K or any amendment to this Form
        10-K.  o



Indicate
        by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
        non-accelerated filer, or a smaller reporting company. See definitions of “large
        accelerated filer,” “accelerated filer” and “smaller reporting
        company” in Rule 12b-2 of the Exchange Act.





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Large accelerated
                        filer  o

                    Accelerated
                        filer  oNon-accelerated filer
                        x(Do not check if a smaller reporting
                        company)

                    Smaller reporting company
                        x




Indicate
        by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
        Exchange Act).  Yes  o
        No x



The
        aggregate market value of the voting common equity held by non-affiliates computed by
        reference to the last sale price of registrant’s common stock on the OTC Bulletin
        Board as of the close of business on June 30, 2007, was $1,132,000.



The
        number of shares outstanding of the registrant’s common stock as of March 31, 2008
        was

Common
        Stock $.0006665 par value – 6,243,847



DOCUMENTS INCORPORATED BY REFERENCE:



Portions
        of the Registrant’s Proxy Statement for its 2008 Annual Meeting of Stockholders are
        incorporated by reference as to Part III, Items 10, 11, 12, 13 and 14.



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THE
        BEARD COMPANY

FORM
        10-K

For
        the Fiscal Year Ended December 31, 2007



TABLE OF CONTENTSPART IItem 1.

                    BusinessItem 1A.

                    Risk FactorsItem 1B.

                    Unresolved Staff CommentsItem 2.

                    PropertiesItem 3.

                    Legal ProceedingsItem 4.

                    Submission of Matters to a Vote of Security
                        HoldersPART IIItem 5.

                    Market for Registrant’s Common Equity, Related
                        Stockholder Matters and IssuerPurchases of Equity SecuritiesItem 6.

                    Selected Financial DataItem 7.

                    Management’s Discussion and Analysis of Financial
                        Condition and Results of OperationItem 7A.

                    Quantitative and Qualitative Disclosures About Market
                        RiskItem 8.

                    Financial Statements and Supplementary DataItem 9.

                    Changes in and Disagreements with Accountants on Accounting
                        and Financial DisclosureItem 9A(T).

                    Controls and ProceduresItem 9B.

                    Other InformationPART IIIItem 10.

                    Directors, Executive Officers and Corporate
                        GovernanceItem 11.

                    Executive CompensationItem 12.

                    Security Ownership of Certain Beneficial Owners and
                        Management and Related Stockholder MattersItem 13.

                    Certain Relationships and Related Transactions, and Director
                        IndependenceItem 14.

                    Principal Accounting Fees and ServicesPART IVItem 15.

                    Exhibits and Financial Statement SchedulesSIGNATURES






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THE
        BEARD COMPANY



FORM
        10-K



DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS



THIS REPORT INCLUDES “FORWARD-LOOKING STATEMENTS” WITHIN THE
        MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
        SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS OTHER THAN STATEMENTS OF
        HISTORICAL FACTS INCLUDED OR INCORPORATED BY REFERENCE IN THIS REPORT, INCLUDING, WITHOUT
        LIMITATION, STATEMENTS REGARDING OUR FUTURE FINANCIAL POSITION, BUSINESS STRATEGY, BUDGETS,
        PROJECTED COSTS AND PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, ARE
        FORWARD-LOOKING STATEMENTS. IN ADDITION, FORWARD-LOOKING STATEMENTS GENERALLY CAN BE
        IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS “MAY,”
        “WILL,” “EXPECT,” “INTEND,” “PROJECT,”
        “ESTIMATE,” “ANTICIPATE,” “BELIEVE,” OR
        “CONTINUE” OR THE NEGATIVE THEREOF OR VARIATIONS THEREON OR SIMILAR
        TERMINOLOGY. ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING
        STATEMENTS ARE REASONABLE, WE CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO
        HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
        FROM OUR EXPECTATIONS (“CAUTIONARY STATEMENTS”) ARE DISCLOSED UNDER “ITEM
        1. BUSINESS (c) NARRATIVE DESCRIPTION OF OPERATING SEGMENTS,” “ITEM 1A, RISK
        FACTORS,” “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS” AND ELSEWHERE IN THIS REPORT. ALL SUBSEQUENT
        WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US, OR PERSONS ACTING ON OUR
        BEHALF, ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS. WE ASSUME
        NO DUTY TO UPDATE OR REVISE OUR FORWARD-LOOKING STATEMENTS BASED ON CHANGES IN INTERNAL
        ESTIMATES OR EXPECTATIONS OR OTHERWISE.



PART
        I



Item
        1.
        Business.



(a)
        General development of
        business.



General. Prior to October, 1993, The
        Beard Company (“Beard” or the “Company”), then known as Beard Oil
        Company (“BOC”), was primarily an oil and gas exploration company. During the
        late 1960’s we made the decision to diversify. In 1968 we started a hazardous waste
        management company, USPCI, Inc. (“USPCI”), which was partially spun off to
        shareholders in January 1984. Following two public offerings and several acquisitions USPCI
        became so successful that it subsequently listed on the New York Stock Exchange in 1986. It
        was acquired by Union Pacific Corporation in 1987-1988 for $396 million ($111 million to
        BOC stockholders for their residual 28% interest, of which $60 million was distributed to
        shareholders).



In 1989 BOC founded Beard Investment Company (now The Beard Company) for the
        purpose of building new businesses which Beard management believed to have either high
        growth potential or better-than-average profit potential. Our goal has been to nurture each
        investment to the point where it could sustain its growth through internal cash
        flow.



We have been involved in numerous businesses during the last 30 years, many
        of them unsuccessful. Our operating activities are now comprised of four
        segments:



•

                    The coal reclamation (“Coal”) Segment, which is
                        in the business of operating coal fines reclamation facilities in the
                        U.S.;




•

                    The carbon dioxide (“CO2”) Segment,
                        which has profitably produced CO2 gas since the early
                        1980’s;


•

                    The e-Commerce (“e-Commerce”) Segment, whose
                        strategy has been to develop business opportunities to leverage
                        starpay’sTM intellectual property portfolio of Internet payment
                        methods and security technologies; and




•

                    The oil and gas (“Oil & Gas”) Segment, which
                        is in the business of producing oil and gas.




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Net Operating Loss Carryforwards. We
        have approximately $27.6 million of unused net operating losses (“NOL’s”)
        available for carryforward, including $22.8 million which expire in 2008 and $4.8 million
        which expire in 2021 through 2027, plus approximately $3 million in tax depletion
        carryforwards. The loss of the NOL’s would have a negative impact on our future
        value. If we were to experience an “ownership change” as defined in Section 382
        of the Internal Revenue Code, we would be severely limited in our ability to use our
        NOL’s in the future. Our Certificate of Incorporation contains provisions to prevent
        the triggering of such a change by restricting transfers of shares without ourBoard of
        Directors’ consent to any person if that person was, or would thereby become, a
        holder of 5% or more of the fair market value of our outstanding capital stock.



Effect of Recent Operations on
        Liquidity. Sustaining the
        operating activities of our unprofitable Coal, China (now discontinued) and e-Commerce
        Segments, plus our overhead, has resulted in a serious outflow of cash during the past
        several years. We have managed this cash shortfall through a series of financings and the
        sale of various assets, principally those left over from our previously discontinued
        operations.



Efforts to Improve Cash Flow; PrivateDebt
        Placements. During the three
        years ended December 31, 2007, we took several steps to reduce our negative cash flow,
        including salary deferrals by our Chairman and President and deferrals of directors’
        fees into our Deferred Stock Compensation Plans (the “DSC Plans”) and
        continuing suspension of our 100% matching contribution (up to a cap of 5% of gross salary)
        under our 401(k) Plan. Five private placements of long-term debt raised gross proceeds of
        $4,184,000 during such period, including an additional $105,000 in the first quarter of
        2007. In the first half of 2005 the Company borrowed $850,000 from a related party to
        finance most of the cost of a fertilizer plant in China. In 2005 and 2006 we borrowed more
        than $11,350,000 from a pond owner to construct a jointly-owned coal fines recovery plant
        in West Virginia. Investor affiliates of the pond owner provided an additional $2,800,000
        of equity to fund the project. We disposed of our controlling interest in the project in
        October of 2006 and were relieved of a guaranty of the debt when we transferred our
        remaining interest in the project in May of 2007. In addition, we secured a $350,000
        long-term bank credit facility in March of 2006. These financings were supplemented in 2007
        by (i) a $150,000 short-term loan from a shareholder of a former affiliate, (ii) $192,000
        of short-term loans from our Note holders, (iii) $105,000 of additional convertible notes
        discussed above, and (iv) a $1,500,000 long-term bank credit facility in June of 2007.
        $220,000 of the proceeds from the 2007 bank facility were used to retire the remaining
        principal balance under the 2006 bank facility. In addition, the Coalition Managers
        Litigation has now been concluded, and we received approximately $96,000 from the defense
        fund in August of 2007. (See “Item 3. Legal Proceedings---Coalition Managers
        Litigation” for additional details). These measures enabled the Company to continue
        operating until the events described below under Additional Details and Recent Developments
        had occurred or until they do occur.



The financings included private placements of (i) $2,100,000 of 12%
        Convertible Subordinated Notes due February 15, 2010 (the “2010 Notes”)
        completed in October of 2004 and January of 2005; (ii) $2,004,102 of 12% Convertible
        Subordinated Notes due August 31, 2009 (the “2009 Notes”) completed in October
        of 2005 and February of 2006; and (iii) $1,268,000 of 12% Convertible Subordinated Notes
        due in 2008 (the “2008 Notes”) completed in November of 2006. An additional
        2010 Note in the amount of $105,300 was delivered to a 2010 Noteholder in lieu of interest
        due on February 15, 2007. In each case the Notes were offered to accredited investors and
        sold on a best efforts basis by us or by an investment banking firm which acted as a
        selling agent.



All of the 2010 Notes were sold. A total of $1,328,000 of the 2009 Notes
        were sold, including $193,000 which were sold in the first quarter of 2006 and generated
        working capital of approximately $191,000. The exchange in 2005 of $624,000 of 2009 Notes
        for an earlier issue of notes due to mature in 2006 generated $624,000 of working capital
        by converting current maturities of long-term debt to long-term debt. A total of $651,000
        of the 2008 Notes were sold in 2006, including $568,000 of 2008 Notes which were exchanged
        for Production Payments we had sold in conjunction with the 2004
        Notes. This exchange generated working
        capital of $568,000 in 2006 for the same reason.



The 2010, 2009 and 2008 Notes (collectively, the “Notes”) were
        convertible into 2,100,000, 650,000 and 651,000 shares of the Company’s common stock,
        respectively, at year-end 2006. The warrants issued with the 2006 Notes were convertible
        into 480,000 shares; 200,000 of the warrants have already been exercised. Conversion of the
        Notes and our outstanding 630,109 (480,109 at March 31, 2008) warrants will create a
        substantial amount of dilution on our future earnings per share. Sale of the Notes, net of
        the exchange and legal and other costs associated with the offerings, provided
        approximately $2,195,000 of net cash proceeds to us in 2005, $275,000 in 2006 and $105,000
        in 2007. The note exchanges in 2005 and 2006 provided additional working capital of
        $1,192,000 as discussed above. The working capital provided by the sales and exchanges of
        Notes substantially improved our liquidity and provided a significant portion of the
        working capital needed to “bridge the gap” until the coal projects we have
        under development or the sale of additional assets can generate positive cash
        flow.



Bank Credit Facilities. In March of 2006
        we closed on a $350,000 reducing revolving credit facility (the “2006
        Facility”) with a local bank secured by a first lien on our share of the production
        from eight gas wells in Yuma County,



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Colorado.
        The 2006 Facility provided an initial borrowing base of $350,000, with such commitment
        reducing at the rate of $10,000 per month and had a maturity date of September 30, 2007.
        Our borrowings under the 2006 Facility peaked at $290,000 in July of 2006. Borrowings under
        the 2006 Facility had been reduced to $220,000 in June of 2007 when it was retired from the
        proceeds of a new $1,500,000 reducing revolving credit facility (the “2007
        Facility”) with the same bank. The 2007 Facility is secured by a first lien on our
        share of the CO2 production from the McElmo Dome Unit, has a maturity date
        of December 31, 2008, and provides for interest payable monthly at the Wall Street Journal
        Prime Rate plus 150 basis points.



Unless the context otherwise requires, references to us herein include our
        consolidated subsidiaries.



Additional Details



Loans from and Agreements with PinnOak Resources.
        In September of 2004 Beard Technologies, Inc. (“BTI”) and its
        then wholly-owned subsidiary, Beard Pinnacle, LLC (“BPLLC”), agreed to
        construct a coal slurry recovery plant (the “Pinnacle Project”) for PinnOak
        Resources, LLC. (“PinnOak”). The plant was projected to cost $11,800,000.
        PinnOak was anxious to start the Project despite the fact that a guaranty by the United
        States Department of Agriculture (the “USDA Guaranty”) needed to secure a
        contemplated $9,000,000 bank loan for the Project had not yet been obtained. During the
        fourth quarter of 2005, PinnOak loaned $1,100,000 to BPLLC to get construction
        started.



In February of 2006 BTI and BPLLC executed a supplemental agreement (the
        “Agreement”) with PinnOak in connection with the Project. BPLLC had previously
        accepted a proposal from a lending institution to provide a $9,000,000 loan for the Project
        and affiliates of PinnOak had agreed to provide $2,800,000 of equity and own 50% of BPLLC.
        Both commitments were subject to the condition that the USDA Guaranty at least 70% of the
        borrowed amount.



The Agreement also provided that if BPLLC had not obtained the USDA Guaranty
        or a third party loan in an amount sufficient to complete the Project on or before April 1,
        2006, PinnOak was committed to assume control of the Project and be responsible for funding
        or arranging the funding of the Project. If additional funding was needed prior to receipt
        of the USDA Guaranty, PinnOak agreed to provide additional loans to BPLLC and BPLLC and BTI
        agreed to provide certain collateral. In March of 2006 the amount of BPLLC’s note was
        increased from $5,100,000 to $9,000,000 and the “trigger date” for certain
        events was extended from April 1, 2006 to May 1, 2006. By April of 2006 PinnOak had
        advanced a total of $5,910,000 to finance the construction. PinnOak elected not to take
        control at that time, while both PinnOak and BTI unsuccessfully pursued third party
        financing. Meanwhile, BTI unsuccessfully pursued the USDA Guaranty, and PinnOak continued
        to provide additional loans to BPLLC to finance construction of the Project. On September
        30, 2006, PinnOak elected to convert $2,800,000 of its loans to equity in BPLLC, which
        interest was acquired by an investor group of PinnOak affiliates. Effective October 1,
        2006, the PinnOak investor group exercised their option to assume control of BPLLC and
        increased their interest in BPLLC to 75%. BTI’s interest in BPLLC was reduced to 25%
        and BPLLC ceased to be a consolidated subsidiary. As of March 31, 2007, PinnOak had
        advanced more than $14,150,000 to finance the Project, including the $2,800,000 of equity
        provided by its affiliates.



Neither we nor PinnOak were able to secure an alternative source of
        financing, and their loans became the permanent source of financing for the Project. Most
        of the existing agreements governing the Project were terminated in May of 2007 and we gave
        up our remaining 25% interest in the Project while remaining as the contract operator. A
        new contract operating agreement became effective in May of 2007. BTI was relieved of its
        guaranty of all loans made by PinnOak (totaling more than $11,350,000) which was secured by
        BTI’s remaining 25% interest in BPLLC. In the fall of 2007 PinnOak sold BPLLC to a
        large public company which in turn sold BPLLC to a competitor of BTI in February of 2008.
        The competitor elected to replace BTI as contract operator at that time with one of its own
        subsidiaries. Loss of the contract operating agreement was not material to either BTI or us
        because it only generated $20,000 of revenue since its inception.



Recent Developments



Coal Projects.
        On October 11, 2007, the Company signed a purchase agreement and on October
        31, 2007, it made a down payment on the site for a new project (the “Yukon
        Project”). A new subsidiary, Beard Yukon, LLC, was formed to conduct recovery
        operations at this site. The Company had raised $280,000 of the $450,000 necessary to fund
        the Yukon Project when it was determined that the owner of the site would not allow us to
        use the site to test the equipment we were planning to use during the recovery process.
        Alternative equipment would have been too expensive for a stand alone project. 
        Accordingly, the project was abandoned and the $280,000 was refunded to the
        investors.



The Coal Segment is actively pursuing multi-project financing for its future
        coal projects through two separate investment banking sources. Meanwhile, it is continuing
        to develop projects so as to have them ready when the financing becomes available. The
        timing of the projects the Company is actively pursuing is uncertain and their continuing
        development



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is subject
        to obtaining the necessary financing. There is no assurance that the required financing
        will be obtained or that any of the projects under development will materialize.



China Fertilizer Plant.
        To date our China fertilizer manufacturing plant has not marketed sufficient
        product to reach its projected breakeven point. Several new marketing initiatives were
        attempted, but all were unsuccessful. On December 28, 2007, our Board of Directors voted to
        discontinue the China Segment effective as of December 31, 2007. To date the investment
        banking firm we engaged has been unable to sell the plant and its efforts to finalize a
        contract whereby our plant would become a contract operator for a sizeable Chinese public
        fertilizer company have not been concluded. We and our partner loaned an additional
        US$297,000 during 2007, and an additional US$49,000 during the 2008 first quarter to keep
        the plant operating. We have agreed to provide up to an additional US$50,000 to keep the
        plant operating until the final resolution of the proposed contract has been
        determined.



Expansion of McElmo Dome Production
        Capacity. In May of 2006 Kinder Morgan CO2
        Company, L.P. (“KM”), the operator of the McElmo Dome Unit, circulated an
        authorization for expenditure in connection with a planned $99,800,000 expansion of
        production capacity of the Unit. We elected to participate in the expansion for our
        0.538142% working interest share (approximately $537,000). In March of 2007 KM advised us
        that the owner of a 40% working interest had elected not to participate in the expansion.
        Our share of the costs accordingly increased to approximately $967,000. We and a number of
        other small working interest owners who also had elected to participate in the expansion
        subsequently revoked our approval to participate and elected the “opt out”
        provision. However, it was late in the year before KM finally agreed to our opting out.
        During the interim they suspended all of our runs from the Unit, which accounted for 93.2%
        of our revenue and more than 99.3% of our operating profits in 2007. This created
        significant cash flow and liquidity problems for us during the last nine months of the
        year.



Sale of Interest in McElmo Dome
        Unit. On March 26, 2008, we sold
        35% of our ownership in the McElmo Dome Unit for a cash consideration of $3,500,000 (the
        “Sale”). Transfer of production was effective February 1, 2008. The Sale is
        expected to generate a gain of approximately $3,340,000 in the 2008 first quarter and
        enabled us to pay down $2,677,000 of our total debt. We set aside an additional $724,000 to
        pay our 2008 Convertible Subordinated Notes and associated accrued interest in the event
        they have not been converted prior to their maturity. Our remaining interest in the McElmo
        Dome field had an indicated fair market value of $6,500,000 on February 1, 2008 as compared
        with its book value of $257,000 on such date.



Since the Sale included 35% of the collateral for the 2007 Facility (see
        above), we entered into a Change of Terms Agreement with the bank reducing our line of
        credit under the facility to $1,000,000 and reducing the required monthly reduction of the
        line from $75,000 to $50,000. We then paid the credit line down to zero. As a result of the
        paydown of debt, the re-negotiation of our bank line of credit, and the setting aside of
        funds to retire the 2008 Notes, if not converted, we are in a much stronger position
        near-term and will be working on other measures to further improve our
        liquidity.



CONTINUING OPERATIONS



Coal Reclamation
        Activities. Our coal reclamation
        activities, which are conducted by Beard Technologies, Inc. (“BTI”), comprise
        the Coal Segment. BTI is in the business of operating coal fines reclamation facilities in
        the U.S. and provides slurry pond core drilling services, fine coal laboratory analytical
        services and consulting services.



Carbon Dioxide Operations.
        Our carbon dioxide activities comprise the CO2 Segment, consisting of the
        production of CO2 gas which is conducted through Beard. We own non-operated working and
        overriding royalty interests in two producing CO2 gas units in Colorado and New
        Mexico.



e-Commerce.
        Our e-Commerce activities, which are conducted by starpay.comTM, l.l.c.
        (“starpay”) and its parent, Advanced Internet Technologies, L.L.C.
        (“AIT”), comprise the e-Commerce Segment. starpay’s current focus is on
        developing licensing agreements and other fee based arrangements with companies
        implementing technology in conflict with its intellectual property.



Oil and Gas Operations.
        Our oil and gas activities comprise the Oil & Gas Segment, consisting of
        the production of oil and gas which is conducted through BOC. We own non-operated working
        interests or overriding royalty interests in producing wells in Colorado and Wyoming. We
        also own undeveloped oil and gas leases in such states and in Mississippi.



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(b)
        Financial information about industry
        segments.



Financial information about industry segments is contained in the Statements
        of Operations and Note 15 of Notes to the Company’s Financial Statements. See Part
        II, Item 8---Financial Statements and Supplementary Data.



(c)
        Narrative description of operating
        segments.



We currently have four operating segments: Coal, CO2, e-Commerce and Oil
        & Gas. All of such activities, with the exception of our CO2 gas production activities,
        are conducted through subsidiaries. We, through our corporate staff, perform management,
        financial, consultative, administrative and other services for our subsidiaries.



COAL
        RECLAMATION ACTIVITIES



Background of Beard Technologies,
        Inc. In early 1990 we acquired
        more than 80% of Energy International Corporation (“EI”), a research and
        development firm specializing in coal-related
        technologies. We sold EI in 1994,
        retaining certain assets which we contributed to a wholly-owned subsidiary, BTI.



Impact of Section 29.
        In the late 1990’s significant activity in the coal industry was
        focused upon the development of fine coal waste impoundment recovery projects which
        qualified for Federal tax credits of $20 to $25 per ton under Section 29 of the Internal
        Revenue Code. In order to qualify for the tax credit, the projects had to produce a
        synthetic fuel (i) from a facility placed in service before July 1, 1998; (ii) pursuant to
        a binding contract entered into before January 1, 1997; and (iii) before January 1,
        2008.



The MCN Projects.
        Beginning in April of 1998, BTI operated six pond recovery/Section 29
        briquetting projects for a subsidiary of MCN Energy Group, Inc. (“MCN”). At the
        time this made BTI, to the best of our knowledge, the largest operator of coal recovery
        plants in the world. MCN became concerned that the plants might not qualify for the tax
        credit and took a special charge of $133,782,000 at year-end 1998 tocompletely write off
        the projects. In January of 1999 MCN terminated the contracts with BTI. This had a severe
        negative impact on BTI’s subsequent income and cash flow. The contracts later
        qualified for the tax credits.



Sharp Increase in Natural Gas Prices; Effect on Coal
        Demand. The sharp increase in
        natural gas prices in 2004 and 2005 had a major impact upon the electric power generating
        industry which began to focus on building new generating capacity utilizing coal-fired
        rather than gas-fired plants. It appears that natural gas will be in relatively short
        supply in future years. As a result, the price of coal when compared to the price of gas on
        a Btu basis remains quite attractive. It appears that coal, which accounts for over 50% of
        the nation’s power generating capacity, will remain the principal fuel source for
        electric power production for a number of years.



The rising price of natural gas drove the spot price of coal to record
        levels in 2005---prices that had not been seen in the coal industry since the oil crisis of
        1974 and 1975. Although there has been some pricing relief in subsequent years, many energy
        economists believe that natural gas prices will remain high for many years to come. The
        strong coal market, plus added pressure from regulatory agencies to more quickly reclaim or
        re-mine abandoned slurry impoundments, has sparked renewed interest among pond owners and
        coal operators to move forward with pond recovery projects. Many of these recovery projects
        had been sitting on the back burner for a number of years because of marginal coal prices
        and stagnant demand.



We believe this is an ideal set of circumstances for BTI, which in recent
        years has been totally focused on pond recovery. During the last nine years, BTI has called
        on numerous coal producers and utilities, particularly those having ponds which it believes
        have large reserves of recoverable coal fines. We have a great deal of expertise in the
        complicated business of coal pond recovery. We believe that we are one of the two industry
        leaders and that most coal operators contact us first when they are interested in having a
        pond recovered.



Projects Under
        Development. This convergence of
        high coal prices with added regulatory agency pressure has resulted in BTI having more
        potential projects on the drawing board than at any other time in its existence. We have
        had more coal producers and utilities call us to discuss projects in the last four years
        than we had during the previous 13 years of BTI’s existence. Currently, we are
        actively pursuing a number of projects, mostof which are located in the Central Appalachian
        Coal Basin. We have a number of other projects in the pipeline for follow up once these
        projects have come to a resolution. However, we cannot assure you that any of the pond
        recovery projects currently under development will proceed.



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Pinnacle Project.
        In 2004 we formed Beard Pinnacle, LLC (“BPLLC”), an Oklahoma
        limited liability company, and originally a wholly-owned subsidiary of BTI. BPLLC was
        formed to construct and operate a pond fines recovery facility, known as the Pinnacle
        Project, owned by PinnOak’s wholly-owned subsididary, Pinnacle Mining Company, LLC, a
        coal mining and energy resources company (“PMC”). The facility is located near
        Pineville, West Virginia. BTI and PinnOak executed an agreement regarding the initial
        equity funding of BPLLC and its development and operation of the Pinnacle Project based
        upon the premise that BPLLC or its lender would receive a USDA loan guaranty of up to 70%
        of a $9,000,000 loan.



Based upon this premise, BPLLC commenced construction of the Pinnacle
        Project in September of 2005. PinnOak advanced more than $14,150,000 to finance the
        Pinnacle Project, including $2,800,000 of equity provided by its affiliates. Effective
        September 30, 2006 the affiliates converted $2,800,000 of PinnOak’s advances to
        equity in BPLLC. Effective October 1, 2006, the PinnOak investor group exercised their
        option to assume control of BPLLC and increased their interest in BPLLC to 75%. BPLLC
        ceased to be a consolidated subsidiary, and our 25% interest therein was reflected as
        equity in earnings (loss) of unconsolidated subsidiaries at year-end 2006. 
        In May of 2007 we gave up our remaining 25% interest in the Pinnacle Project and were
        relieved of our guaranty of all loans made by PinnOak.  (See “Item 1. Business.
        General development of business---Additional Details---Loans from and Agreements with
        PinnOak Resources” for additional details).



Improved Drilling and Lab Capabilities.
        In 2000 BTI made substantial investments to improve its slurry pond core drilling equipment
        and its fine coal laboratory analytical services capabilities. In addition to supporting
        its own pond recovery project evaluations, BTI now offers state of the art drilling and
        analytical services to commercial clients who are independently investigating their own
        projects.



Principal Products and
        Services. The principal products
        and services supplied by our Coal Segment are (i) the capability to undertake large
        reclamation projects and the cleanup of slurry pond recovery sites; (ii) core drilling of
        slurry ponds and evaluation of recoverable coal reserves; (iii) consulting reclamation
        technology; (iv) technical services; and (v) proprietary coal reclamation
        technology.



Sources and Availability of Raw
        Materials. There are numerous
        coal impoundments scattered throughout the eastern third of the U.S. which contain sizeable
        reserves of coal fines which we believe can be recovered on an economic basis while at the
        same time solving an environmental problem. As a result of the increase in coal prices
        during the last three years, slurry pond owners are recognizing that recovery can be done
        on a profitable basis, making it a win-win proposition for both the pond owner and the
        company undertaking the project.



Dependence of the Segment on a Single
        Customer. The Coal Segment
        accounted for the following percentages of our consolidated revenues from continuing
        operations for each of the last three years.



Fiscal Year Ended

                    

                    Percent of Consolidated Revenues from Continuing
                        Operations12/31/07

                    

                    1.4%12/31/06

                    

                    1.5%12/31/05

                    

                    3.9%




Since BPLLC is no longer a consolidated subsidiary, the sale of coal from
        the Pinnacle Project after October 1, 2006 is no longer reflected as revenues. Accordingly,
        the loss of PMC as a customer will not have a material adverse effect on the segment nor on
        us. We are unable to predict whether we will become dependent on a single customer in the
        future as additional projects under development by the segment are negotiated and
        finalized.



Facilities.
        BTI leases an office and laboratory facilities from the Applied Research
        Center at the University of Pittsburgh (“UPARC”). BTI’s facilities at
        UPARC give the Coal Segment access to a wide range of coal and mineral testing
        capabilities.



Market Demand and
        Competition. The coal
        reclamation industry is highly competitive, and the Coal Segment must compete against
        larger companies, as well as several small independent concerns. Competition is largely on
        the basis of technological expertise and customer service.



Seasonality.
        The coal reclamation business is somewhat seasonal due to the tendency for
        field activity to be reduced in cold and/or bad weather.



Environmental Matters.
        Compliance with Federal, state and local laws regarding discharge of
        materials into the environment or otherwise relating to protection of the environment are
        of primary concern to the segment, and the cost of



---



addressing
        such concerns are factored into the cost of each project. The cost of compliance varies by
        project and cannot be estimated until all of the contract provisions have been finalized.
        See “Regulation---Environmental and Worker Safety Matters.”



Financial Information.
        Financial information about the Coal Segment is set forth in the Financial
        Statements. See Part II, Item 8---Financial Statements and Supplementary Data.



CARBON
        DIOXIDE OPERATIONS



General. Our
        carbon dioxide (CO2) gas operations are conducted by the parent company which owns working
        and overriding royalty interests in two CO2 gas producing units.



Carbon Dioxide (CO2) Properties



McElmo Dome.The McElmo Dome field in
        Dolores and Montezuma Counties in western Colorado is a 240,000-acre unit which produces
        CO2 gas.



At year-end
        2007 we owned a 0.53814206% working interest (0.4526611% net revenue interest) and an
        overriding royalty interest equivalent to a 0.0920289% net revenue interest in the Unit,
        giving us a total 0.5446900% net revenue interest. Effective August 1, 2007 the Company
        elected to take a portion of its share of CO2 production in kind from the McElmo Dome field
        and sell it through an entity, Trinity CO2, LLC (“Trinity”), designed for this
        purpose. Effective February 1, 2008 we sold 35% of our ownership interests to third
        parties. (See “Item 1. Business. General development of business. Recent
        Developments”).



Deliveries of CO2 gas are transported through a
        502-mile, 30-inch diameter pipeline to
        the Permian Basin in West Texas where such gas is utilized primarily for injection into
        mature oil fields. Kinder Morgan CO2 Company, L.P. (“KM”) serves as operator of
        the unit. There are 54 producing wells, ranging from 7,634 feet to 8,026 feet in depth,
        that produce from the Leadville formation. The wells produced a combined total of 972
        million cubic feet per day in 2006. McElmo Dome is believed to be the largest producing CO2
        field in the world. The Four Corners Geological Society in 1983 estimated that the field
        contained 17 trillion cubic feet (“TCF”) of CO2. The gas is approximately 98%
        CO2. The field is currently undergoing a $100,000,000 expansion known as the Goodman Point
        Expansion. We have opted out of the expansion but will back-in after payout which is
        estimated to occur in four years.



In 2007, we sold 1,570,000 Mcf attributable to our working and overriding
        royalty interests at an average price of $0.97 per Mcf. In 2006 we sold 1,933,000 Mcf
        attributable to our working and overriding royalty interests at an average price of $.0.79
        per Mcf. In 2005 we sold 1,902,000 Mcf (thousand cubic feet) attributable to our working
        and overriding royalty interests at an average price of $.60 per Mcf. We were underproduced
        by 337,000 Mcf on the sale of our share of McElmo Dome gas at year-end 2007 compared to
        8,000 Mcf at December 31, 2006.



As the result of the recent increase in oil prices, CO2 demand for tertiary
        recovery and McElmo Dome production has increased accordingly. CO2 production, which
        averaged 957 million cubic feet per day in 2005, increased to 972 million cubic feet per
        day in 2006 and to 955 million cubic feet per day in 2007. We have been advised by the
        operator that the field is now capable of producing 1.2 billion cubic feet per
        day.



We consider our ownership interest in the McElmo Dome Field to be one of our
        most valuable assets. At year-end 2007 the field had produced 5.752 TCF of CO2, leaving
        more than 8.6 TCF of remaining reserves (47 BCF to our net interest) based
        upon KM’s estimate of reserves. As a result of the settlement of the McElmo Dome
        litigation, the recent improvement in oil



---



prices and
        the increased demand and improved pricing for CO2, we believe that our interest in the
        field had a fair market value of approximately $10.0 million versus a book value of
        $399,000 at year-end 2007. As a result of the sale of 35% of our ownership in March of
        2008, we believe that our remaining interest had a fair market value of $6.5 million versus
        a book value of $258,000 as of January 31, 2008.



At December 31, 2007, our interest in the McElmo Dome Field was subject to
        deed of trust liens in the amount of approximately (i) $1,375,000 in favor of a local bank,
        (ii) $390,000 in favor of a holder of our 2009 Notes and (iii) $3,451,000 in favor of a
        related party. As a result of the sale in March of 2008 of 35% of our interest, the liens
        had been reduced to (i) $1,000,000*, (ii) $390,000 and (iii) $2,250,000, respectively, at
        March 31, 2008.

_______



*Reflects the maximum amount available under the line of credit. Borrowings
        totaled zero on such date.



Anticipated Improvement in Pricing as a Result of the McElmo Dome
        Settlement. In addition to
        establishing a cash settlement fund to settle the litigation, the McElmo Dome Settlement
        Agreement also provided for the monitoring of pipeline tariffs, minimum prices and funding
        for a CO2 Claims Committee to enforce these provisions. (See “Item 3.
        Litigation”). We anticipate additional improvement in pricing from the above.
        Moreover, we are continuing to investigate marketing our share of the CO2 through other
        parties at a higher price.



Bravo Dome.
        Effective October 1, 2007, we sold our 0.05863% working interest in the
        1,000,000-acre Bravo Dome CO2 gas unit in northeastern New Mexico for a net
        $285,000.



Net CO2 Production.
        The following table sets forth our net CO2 production from McElmo Dome for
        each of the last three fiscal years:



Fiscal Year Ended

                    

                    Net CO2 Production (Mcf)12/31/07

                    

                    1,570,000*12/31/06

                    

                    1,933,00012/31/05

                    

                    1,902,000




_______



*Net of 329 Mcf of CO2 production that we transferred to storage which has
        been excluded.



Average Sales Price and Production
        Cost. The following table sets
        forth our average sales price per unit of CO2 produced and the average lifting cost (lease
        operating expenses and production taxes) per unit of production for the last three fiscal
        years:



Fiscal Year Ended

                    

                    Average Sales Price Per Mcf of CO2

                    

                    Average Lifting Cost Per Mcf of CO212/31/07

                    

                    $0.97

                    

                    $0.12*12/31/06

                    

                    $0.79

                    

                    $0.0712/31/05

                    

                    $0.60

                    

                    $0.07




_______




*Increase in average lifting costs due primarily to $68,000 in additional severance
            taxes.




Market Demand and
        Competition. Our principal
        market for CO2 is for injection into mature oil fields in the Permian Basin, where industry
        demand is expected to grow modestly for the next several years. Our primary competitors for
        the sale of CO2 include suppliers that have an ownership interest in McElmo Dome, Bravo
        Dome and Sheep Mountain CO2 reserves, and Petro-Source Carbon Company, which gathers waste
        CO2 from natural gas production in the Val Verde Basin of West Texas. There is no assurance
        that new CO2 sources will not be discovered or developed, which could compete with us or
        that new methodologies for enhanced oil recovery will not replace CO2 flooding.



Dependence of the Segment on a Single
        Customer. The CO2 Segment
        accounted for the following percentages of our consolidated revenues from continuing
        operations for each of the last three years. Our CO2 revenues are received from
        two



---



operators
        who market the CO2 gas to numerous end users on behalf of the interest owners who elect to
        participate in such sales. In 2007, approximately 99% of our revenues from the sale of CO2
        gas was derived from KM and Trinity and approximately 1% was derived from Exxon
        Mobil.



Fiscal Year Ended

                    

                    Percent of Consolidated Revenues from Continuing
                        Operations12/31/07

                    

                    93.2%12/31/06

                    

                    89.7%12/31/05

                    

                    86.8%




Under the existing operating agreements, so long as any CO2
        gas is being produced and sold from the field, we have the right to sell our undivided
        share of the production to either KM or Exxon Mobil and also have the right to sell such
        production to other users. During 2007 KM was offering a slightly higher price than Exxon
        Mobil, so more of the segment’s production was sold to KM. We believe that the loss
        of either KM, Trinity or Exxon Mobil as a customer would have a material adverse effect on
        the segment and on us.



*Productive Wells**.* Our
        principal CO2 properties are held through our ownership of working interests in oil and gas
        leases which produce CO2 gas. As of December 31, 2007, we held a working interest in a
        total of 46 gross (0.248 net) CO2 wells located in the McElmo Dome Unit in Colorado. The
        wells drilled to date in the Goodman Point Expansion, in which we have a back-in after
        payout have been excluded since they are not material at this time.



*Financial Information**.*
        Financial information about our CO2 gas operations is contained in our
        Financial Statements. See Part II, Item 8---Financial Statements and Supplementary
        Data.



e-COMMERCE



Formation of starpay.comTM, inc. (now starpay.com,
        l.l.c.). In 1999 four patent
        applications were filed embodying the features of a new secure payment system for Internet
        transactions and we formed starpay.com, inc. (“starpay”) to pursue the
        development of the payment system. In 2000, starpay filed two additional patent
        applications which considerably broadened the scope and the potential of its patent claims.
        In 2001 starpay became starpay.com, l.l.c.



In May of 2003 we formed Advanced Internet Technologies, L.L.C.
        (“AIT”). The members of starpay.com, l.l.c. contributed their entire membership
        interests in starpay to AIT for equivalent membership interests in AIT. starpay became a
        wholly-owned subsidiary of AIT with Marc Messner, Beard’s VP-Corporate Development
        and the inventor of starpay’s technology, serving as its Sole Manager. Current
        ownership in AIT is as follows: Beard (71%); Messner (15%); patent attorney (7%); Web site
        company (7%).



The starpay Technology. Our secure
        payment methods and technologies address payer and transaction authentication in many
        forms. These include, but are not limited to, performing a payer query for authentication
        and transaction consent verification, as well as, chaining split transactions into an
        integrated verifiable unique transaction authenticating the user and the transaction
        attributes in the process.



Other features of starpay’s technology include a patent-pending system
        that incorporates the innovative use of the ubiquitous compact disc or smart card as a
        security and transaction-enabling device. The enabling device, user’s identifier
        and/or PIN must all be present to enable a payment transaction on the Internet. This
        technology is an additional layer of security that may or may not be applied to
        starpay’s proprietary process flow models.

License Agreement.
        In November of 2001 VIMachine, Inc. (“VIMachine”), the owner of
        U.S. Patent 5,903,878, “Method and Apparatus for Electronic Commerce” (the
        “VIMachine Patent”) granted to starpay the exclusive marketing rights, with
        respect to certain clients (the “Clients”) which starpay has identified to
        VIMachine, for security software and related products and applications. starpay believes
        the VIMachine Patent will provide numerous opportunities to generate related licensing
        agreements in the electronic authentication and payment transaction fields.

In March 2002 starpay’s marketing rights with respect to its Clients
        were broadened to include the right to litigate on behalf of VIMachine all patent claims in
        relation to the VIMachine Patent and related foreign applications or patents. Any
        settlement and/or judgment resulting from starpay’s prosecution of the VIMachine
        Patent claims will be shared 50/50 or 25/75 between starpay and VIMachine (depending upon
        who the infringing party may be)following reimbursement to starpay (from the settlement
        and/or judgment monies) for litigation related expenses incurred, including defense of any
        counterclaims.



Visa Litigation.
        In May of 2003 starpay along with VIMachine 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). In July of 2003 the Plaintiffs filed, with the express written consent
        of the Defendants, an Amended Complaint. The ongoing suit seeks damages and injunctive
        relief (i) related to Visa’s infringement of the VIMachine Patent; and (ii) 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 court costs related to the
        foregoing claims. If willfulness can be shown, Plaintiffs will seek treble
        damages.

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In January  of 2005, following a Markman hearing held in late October
        of 2004, the Magistrate Judge 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. The Magistrate Judge found that 24 of
        the 28 claims asserted by the Plaintiffs were valid. Both parties pursued modifications of
        the Magistrate’s recommendations in the form of an appeal to the District Court and
        are awaiting the Court’s final ruling on claim construction issues.  In January
        of 2006 the Magistrate Judge filed his final Report and Recommendation confirming his
        earlier recommendations.  In mid-September of 2007 District Judge Lindsey filed his
        final ruling on the Markman hearing.  He adopted nine of the 14 claim constructions
        previously suggested by the Magistrate Judge and modified five other claim
        constructions.  He did not modify the Magistrate's previous finding that 24 of the 28
        claims asserted by the Plaintiffs were valid.  Subsequently both sides filed motions
        for summary judgment.



The parties are currently negotiating a proposed scheduling order.  It
        is anticipated that both sides' summary judgment motions will be fully briefed by mid-2008
        if ongoing settlement discussions do not bear fruit.



See “Item 3. Legal Proceedings---Visa Litigation” for additional
        details.

Issuance of Initial Patent; Exclusive License
        Agreement. On April 9, 2002, the
        U.S. Patent and Trademark Office issued U.S. Patent No. 6,370,514 (the “Voucher
        Patent”) to starpay on its patent application titled “Method for Marketing and
        Redeeming Vouchers for use in Online Purchases.” All claims submitted in this
        application were allowed.

On March 28, 2003, starpay finalized a Patent License Agreement with
        Universal Certificate Group LLC (“UCG”), a private company based in New York
        City. UCG has developed a universal online gift certificate that is accepted as payment at
        hundreds of online stores through its subsidiary, GiveAnything.com, LLC. The Agreement,
        which remains in effect for the term of the patent, grants to UCG the exclusive, worldwide
        license to use, improve, enhance or sublicense the Voucher Patent. Under the Agreement,
        starpay received a license fee payable annually for three years plus a royalty payable
        semi-annually during the patent term. The $25,000 license fee which starpay received in
        2005 was its final license fee under the Agreement. starpay also shares in any license fees
        or royalties paid to UCG for any sublicenses. UCG has the exclusive right to institute any
        suit for infringement under the Agreement. starpay has the right to jointly participate in
        any suit, in which case any damages obtained will be shared according to the fees and
        expenses borne by each party. UCG has the option to terminate the Agreement at any time
        without liability.



starpay’s Strategy and Current
        Opportunities. starpay’s
        plan has been to develop licensing agreements and other fee based arrangements with
        companies implementing technology in conflict with our intellectual property. We have
        identified and investigated many opportunities for our intellectual property portfolio
        which include various e-commerce payment systems, security access applications and secure
        document transmission. Although there are many applications for our technology, our focus
        is on Internet security, authentication and electronic payments. starpay is continuously
        assessing these situations looking toward the possibility of generating additional
        licensing opportunities.



starpay believes that its intellectual property portfolio provides the
        technology and methods for enabling the most secure payment system and authentication
        protocols available for use on the Internet. If starpay is successful in its strategic
        licensing and litigation efforts, the e-Commerce Segment could become a major
        contributor to our future success. However, its licensing efforts have recently been on
        hold until there is a resolution to the Visa litigation.  Accordingly, no assurance
        can be given that starpay will successfully capitalize on its Internet security methods and
        technologies.  (See "Item 3.  Legal Proceedings---Visa Litigation").



Facilities.
        starpay occupies a small portion of the office space occupied by us at our
        corporate headquarters located in Oklahoma City, Oklahoma.



Market Demand and
        Competition. The
        e-commerce industry is rapidly changing and
        highly competitive, and the e-Commerce
        Segment must compete against significantly larger companies, as well as a number of small
        independent concerns. Competition is largely on the basis of technological expertise,
        customer service, capital available for product branding and the ability to react quickly
        to a constantly changing environment.



Dependence of the Segment on a Single
        Customer. The
        e-Commerce Segment accounted for the following
        percentages of the Company’s consolidated revenues from continuing operations for
        each of the last three years.



Fiscal Year Ended

                    

                    Percent of Consolidated Revenues from Continuing
                        Operations12/31/07

                    

                    0.03%12/31/06

                    

                    0.03%12/31/05

                    

                    2.30%




The segment presently has only one customer, a licensee. However, the
        licensee has already generated one sublicense and is pursuing others. We believe that the
        loss of the segment’s present customerwould not have a material adverse effect on the
        segment since the segment would then be in a position to pursue licenses directly with
        other parties. The loss of the present customer would not have a material adverse effect on
        us.



---



Financial Information.
        Financial information about the
        e-Commerce Segment is set forth in the
        Financial Statements. See Part II, Item 8---Financial Statements and Supplementary
        Data.



OIL AND GAS OPERATIONS

The activities of the Oil and Gas Segment are conducted through our
        wholly-owned subsidiary, BOC. BOC is engaged in exploration for, development, production
        and sale of oil and gas. BOC was incorporated in Delaware in 1986 and is the successor to
        the original Beard Oil Company which was incorporated in Delaware in 1969 as the successor
        to the oil and gas business originally founded by a Beard family member in
        1921.



Exploration Practices and Policy.
        BOC’s principal exploratory approach since re-entering the business has been to
        acquire oil and gas leases and then to encourage other operators to drill on or in close
        proximity to our acreage by supporting their exploratory wells with acreage contributions.
        BOC has also entered into arrangements with major and independent operators who make
        certain exploratory commitments relative to our acreage for an interest in one or more of
        our leaseholds while we retain some form of reversionary working interest or overriding
        royalty interest and may also retain the right to participate in the drilling of
        development wells. Since BOC does not have a production staff, it has not operated any
        wells since it has re-entered the oil and gas business.



A significant phase of BOC’s exploration effort involves the
        acquisition of oil and gas leases from the U. S. government and various state governments
        on a “non-competitive” basis. All of the undeveloped acreage we hold is under
        such governmental leases.



From time to time BOC also sells an interest in its undeveloped acreage and
        retains an overriding royalty. Such sale is commonly known as a “sublease”. In
        fiscal years 2007, 2006 and 2005, sublease activities accounted for revenues of $0, $7,000
        and $0, respectively.



Sandy Lake Field.
        In January of 2005 we announced that we were back in the oil and gas
        business. One of the leases which we acquired was a 640-acre tract covering all of Section
        36, Township 3 North, Range 48 West, in Yuma County, Colorado.



In January of 2004 BOC entered into a farmout agreement with Vista Resources
        (“Vista”) of Pittsburgh, Pennsylvania. Vista drilled eight wells in the
        Niobrara Formation on the farmout lands. Under the farmout arrangement, BOC was carried for
        a 22.5% working interest in the initial well in which it owns a 3.6% overriding royalty
        interest until payout and a 22.5% working interest (19.6875% net revenue interest)
        thereafter. We paid our 22.5% share of the cost of the seven additional wells. All eight of
        the wells were completed as gas producers in the Niobrara Formation at a depth of
        approximately 2,800 feet. The wells were placed on production in the fourth quarter of
        2005, and are currently producing at an average rate of approximately 40-45 MCF per day
        from each well. Our share of the production from these wells totaled $66,000, $121,000 and
        $86,000 in 2007, 2006 and 2005, respectively.



Big Porcupine Field.
        BOC also has a 4.5% overriding royalty interest in 12 wells which produce
        coal bed methane gas from the Mesaverde Formation from a 317-acre tract in Section 1,
        Township 41 North, Range 71 West, Campbell County, Wyoming. The wells were drilled by
        Peabody Natural Gas, LLC on a lease BOC sold to them in 2000 on which BOC retained an
        overriding royalty interest. Our share of production from these wells totaled $8,000,
        $20,000 and $8,000 in 2007, 2006 and 2005, respectively.



Due to the limited pipeline capacity in the Rocky Mountain area, the price
        we have received for the gas we have sold to date has been lower than normally received in
        other areas of the U.S.



In addition to the producing tracts in Colorado and Wyoming, BOC owns
        undeveloped leases covering 41 acres in Colorado, 12,028 acres in Mississippi and 6,867
        acres in Wyoming, a total of 18,936 acres.



Principal Products and
        Services. The principal products
        produced by our Oil & Gas Segment are oil and gas which accounted for the following
        percentage of total consolidated revenues from continuing operations for each of the last
        three fiscal years:





---





Fiscal Year Ended

                    

                    Percent of Consolidated Revenues from Continuing
                        Operations12/31/07

                    

                    5.0%12/31/06

                    

                    8.6%12/31/05

                    

                    7.0%




Sources and Availability of Raw
        Materials. BOC is involved in an
        extractive enterprise which does not require the consumption of raw materials other than
        fuel, water and drilling mud and chemicals which are utilized by the drilling rigs employed
        to drill the wells in which it has an interest. Such materials are normally available to
        the drilling contractors employed by the operator, although the cost thereof may vary
        considerably between wells.



Seasonality.
        Because BOC’s acreage is located primarily in the Rocky Mountains, the
        Oil & Gas Segment’s operations are considered to be seasonal since any drilling
        activities conducted in the winter may be hindered or impaired by adverse weather
        conditions.



Working Capital Items.
        The Oil & Gas Segment does not carry significant amounts of inventory
        nor does it provide extended payment terms to its customers. The segment’s working
        capital is considered adequate to conduct its present and contemplated operations since its
        modus operandi is to let third parties pay for all of the costs of the wells in which it
        participates unless proven locations are involved and borrowings can be arranged to finance
        such drilling operations.



Dependence of the Segment on a Single
        Customer. The Oil & Gas
        Segment does not have any customers which accounted for 10% or more of Registrant’s
        consolidated revenues during the last three years. Accordingly, the loss of a single
        customer would not have a material adverse effect on us and our subsidiaries taken as a
        whole.



Markets, Competition and
        Regulation. Oil and gas
        production generally is sold at the wellhead to various pipeline companies. Market demand
        (and the resulting prices received for crude oil and natural gas) can be affected by
        weather conditions, economic conditions, import quotas, the availability and cost of
        alternative fuels, the proximity to, and capacity of, natural gas pipelines and other
        systems of transportation, by the effect of state regulation of production, and federal
        regulation of oil and/or gas sold in interstate and intrastate commerce, all of which
        factors are beyond our control.



At the present time the Oil & Gas Segment has no oil production. Our
        natural gas production is being sold on a “spot” basis to the only pipeline
        markets available in the two fields in which our properties are located. And, since both of
        our properties are non-operated, we have no control over the price we are receiving. The
        price we received in Colorado ranged from $2.61 to $7.41 per Mcf in 2007 and from $2.60 to
        $7.48 per Mcf in 2006; in 2005 it ranged from $4.96 per Mcf to $9.58 per Mcf; in Wyoming
        the price we received ranged from $1.72 to $4.19 per Mcf in 2007 and from $2.63 per Mcf to
        $5.81 per Mcf in 2006 and from $5.26 per Mcf to $8.76 per Mcf in 2005, the first year of
        production for the wells in these fields.



We encounter competition from other independent operators and from major oil
        and gas companies in acquiring properties suitable for exploration. Virtually all of these
        competitors have financial resources and staffs substantially larger then ours. Our ability
        to discover reserves in the future depends in part on our ability to select suitable
        prospects for future exploration.



Golden Bear Drilling & Services, LLC
        (“GBDS”). Partly as
        a result of (i) the connections we have developed over the last several years stemming from
        our activities in China, (ii) our renewed involvement in the oil and gas business, and
        (iii) our efforts in connection with the organization, promotion and development of the
        entity, we have a 14% interest (11% fully diluted) in GBDS, a Denver-based drilling and
        services company. We also provide certain management and accounting services to GBDS for a
        monthly fee.



GBDS was organized in May of 2005 with the concept of acquiring and
        transporting to the U. S. high quality drilling assets manufactured in the PRC. Since its
        organization, GBDS has acquired two new drilling rigs produced by a large Chinese
        manufacturing company. In each case a large privately-held exploration and production
        company based in Denver, Colorado, provided the funds to acquire the rigs, transport them
        to the U. S. and pay for all mobilization costs. The exploration company will own the first
        rig until it has recouped all of its initial purchase, transportation and mobilization
        costs plus interest at ten percent per year; after payout it will own 10% and GBDS will own
        90% of this rig. GBDS receives a daily fee for operating this rig or a smaller fee if it is
        on stand-by. The exploration company provides the locations to be drilled. The exploration
        company owns the second rig, on which GBDS pays a rental fee of $6,000 per day.



---



In addition, GBDS has been able to finance the acquisition of a top drive
        which has been leased to the exploration company for $1,500 per day.



The Chinese-manufactured rigs, which are of very high quality, cost less
        than a comparable rig manufactured in the U. S. GBDS hopes to arrange the financing for
        several additional rigs and several additional top drives during the next three
        years.



REGULATION



General. We
        are subject to extensive regulation by federal, state, local, and foreign governmental
        authorities. Our operations in the United States and China are subject to political
        developments that we cannot accurately predict. Adverse political developments and changes
        in current laws and regulations affecting us could dramatically impact the profitability of
        our current and intended operations. More stringent regulations affecting our coal
        reclamation activities could adversely impact the profitability of our future coal
        reclamation operations and the availability of those projects.



Environmental and Worker Safety
        Matters. Federal, state, and
        local laws concerning the protection of the environment, human health, worker safety,
        natural resources, and wildlife affect virtually all of our operations, especially our coal
        reclamation and environmental remediation activities. These laws affect our profitability
        and increase the Company’s exposure to third party claims.



It is not possible to reliably estimate the amount or timing of our future
        expenditures relating to environmental matters because of continually changing laws and
        regulations, and the nature of our businesses. We cannot accurately predict the scope of
        environmental or worker safety legislation or regulations that will be enacted. Our cost to
        comply with newly enacted legislation or regulations affecting our business operations may
        require us to make material expenditures to comply with these laws. We do not presently
        include environmental exposures in our insurance coverage. Should we become involved with
        projects having environmental exposure, we believe we will have no difficulty in obtaining
        environmental coverage adequate to satisfy our probable environmental liabilities. As of
        this date, we are not aware of any environmental liability or claim that could reasonably
        be expected to have a material adverse effect upon our present financial
        condition.



OTHER CORPORATE ACTIVITIES



Other Assets.
        During the last seven years we have disposed of most of the assets related
        to the operations which we discontinued in 1999 and 2001. However, we still have a few
        remaining assets and investments which we are in the process of liquidating as
        opportunities materialize. At year-end 2007 such assets consisted primarily of the residue
        of an iodine extraction plant and related equipment, drilling rig components and related
        equipment, wastewater storage tanks and a real estate limited partnership in which we are a
        limited partner. All of such assets are reflected on our books for less than their
        anticipated realizable value, which we estimate in total would not exceed $40,000. As
        excess funds become available from such liquidations they will be utilized for working
        capital, reinvested in our ongoing business activities or redeployed into newly targeted
        opportunities.



Office and Other Leases.
        We lease office space in Oklahoma City, Oklahoma, aggregating 5,817 square
        feet under a lease expiring September 30, 2008, at a current annual rental of $87,000. In
        addition, our subsidiaries lease space at other locations as required to serve their
        respective needs.



Employees.
        As of December 31, 2007, we employed 13 full time employees
        and two part time employees in our continuing operations, including
        seven full time employees and two part time employees on
        the corporate staff.



Item
        1A. Risk
        Factors.



Lack of Profitable Operations in Recent
        Periods. Although we were
        profitable in 2004 as a result of the McElmo Dome Settlement (see “Item 3. Legal
        Proceedings---McElmo Dome Litigation” for complete details), we have suffered net
        operating losses during each of the last nine years. Until we can demonstrate the ability
        to generate positive cash flow from operations, this shortcoming will impede our ability to
        borrow funds and may impact our ability to achieve profitability in the future.



There is no certainty that we will be able to achieve or sustain
        profitability or positive cash flows from operating activities in the future.



Our Financial Position.
        Our net worth became negative as of December 31, 2001, and the deficiency
        increased to ($5,333,000) at year-end 2003. Receipt of the second installment of the
        Settlement reduced the deficiency to ($4,144,000) at year-end 2004. As such deficiency
        increased to ($9,185,000) at year-end 2007 and, although it will decrease in the 2008 first
        quarter as a result of the McElmo Dome sale, it is likely that it will continue to increase
        until we are



---



able to
        achieve profitability in our Coal Segment. Our business will continue to require
        substantial expenditures. Our inability to generate positive cash flow from operations has
        limited our ability to borrow funds and impacted our ability to achieve profitability. We
        must achieve a turnaround in our Coal Segment this year. If a turnaround is not successful
        or is only partially successful, we may need to pursue additional outside financing which
        would likely involve further dilution to our shareholders. We cannot assure that we will be
        able to obtain additional financing on terms that we deem acceptable or obtain additional
        financing at all. (See “Item 1. Business. General development of business ---Recent
        Developments” for additional details).



We have substantial indebtedness and may not have enough revenues to
        pay our debts. As of December
        31, 2007, we had $10,651,000 of total debt outstanding, including $668,000 of accrued
        interest to an affiliate of the Chairman, and $3,508,000 of the debt is due in 2008. We, or
        our subsidiaries may become further indebted. This much debt could pose substantial risks
        to our business. The indebtedness may require us to use available funds for payment of
        principal and interest instead of funding our operations. The debt could also inhibit our
        ability to raise additional capital. It is possible that we will not have enough cash flow
        from our operations to pay the principal and interest on our debt. This would have a
        material adverse effect on us.



Limited Liquidity.
        Our common stock trades on the Over-The-Counter Bulletin Board. Although we
        currently have nine firms making a market in our stock, the volume of trading has been
        relatively low and fairly sporadic. At year-end 2007, 57.0% of our 5,657,715 outstanding
        shares was held by management and another 8.3% was held by a long-term institutional
        holder. In addition, there is substantial potential dilution, with preferred shares
        convertible into 296,000 shares, presently exercisable warrants and options totaling
        640,000 shares, notes convertible into 3,506,000 shares at year-end 2007 and a total of
        775,000 shares at year-end 2007 in two DSC Plans scheduled for distribution in 2008 and
        future years.



History of Delays in Finalizing New Coal
        Projects. We have experienced
        delays in the past in finalizing our new coal projects. We may experience additional delays
        in the future. No definitive contracts have been signed in connection with the projects
        currently under development in the Coal Segment, nor has any financing been arranged to
        date for these projects. Continued delays in finalizing our new coal projects may have a
        material adverse effect on us.

starpay Intellectual Property Rights; Copying by
        Competitors. We have identified
        at least three competitors that offer services that potentially conflict with
        starpay’s intellectual property rights. If we are unable to protect our intellectual
        property rights from infringement, we may not be able to realize the anticipated profit
        potential from the e-Commerce Segment.

Failure to Achieve a Settlement or Win a Judgment in the Lawsuit
        Against Visa. In connection with
        the lawsuit against Visa, we have agreed to bear one-half of the out-of-pocket expenses
        (excluding legal fees) borne by the law firm handling the case. At this point it is
        difficult to estimate the maximum exposure for such expenses, or the length of time before
        the matter might be resolved. However, if our operating results do not improve going
        forward and we are unable to pay our share of the expenses, then we would be faced with
        reducing our potential recovery from any settlement or judgment.



Item
        1B. Unresolved Staff
        Comments.



Not applicable.



Item
        2.
        Properties.



See Item 1(c) for a description of properties.



Item
        3. Legal
        Proceedings.



Neither we nor any of our subsidiaries are engaged in any litigation or
        governmental proceedings which we believe will have a material adverse effect upon the
        results of operations or financial condition of any of such companies. To of the three
        lawsuits where our share of the amount at stake, exclusive of interest and costs, exceeded
        10% of consolidated current assets at year-end 2007, have now been settled. See the details
        below.



McElmo Dome Litigation.
        In 1996 we joined with other Plaintiffs in filing in U.S. District Court for
        the District of Colorado a suit against Shell Oil Company, Shell Western E & P, Inc.,
        Mobil Producing Texas and New Mexico, Inc. and Cortez Pipeline Company, a partnership
        (collectively, the “Defendants”). Plaintiffs’ complaint alleged damages
        caused by Defendants’ wrongful determination of the value of CO2 produced
        from the McElmo Dome Field (the “Field”---see “Carbon Dioxide
        Operations” at pages 10-12 of our Form 10-K) and the corresponding wrongful
        underpayment to Plaintiffs. A Settlement Agreement was signed in 2001 (the
        “Settlement”) which became final in 2003.



---



Subsequent to the Settlement several issues arose concerning implementation
        of the Settlement Agreement. A mediation in March of 2005 was unsuccessful. In July of
        2005, an advisory opinion rendered by an expert on the merits of several issues in dispute
        concerning the Settlement Agreement failed to resolve the matter. In October of 2005 the
        parties agreed to proceed to binding arbitration. In August of 2006 we were advised that
        the Plaintiffs had lost the arbitration.
        The Plaintiffs filed an appeal in November of 2006 which was lost in 2007.
        Accordingly, this matter is now closed.



Coalition Managers
        Litigation. In April of 2002 a
        suit was filed in the U.S. District Court of Colorado (Harry
        Ptasynski v. John M. Cogswell, et al---Case No. 02-WM-0830 (OES)
        against the attorneys and managers (including our Chairman) of the CO2 Claims
        Coalition, LLC (the “Coalition”). We are not a defendant in the suit. However,
        the Coalition held back $1 million of the Settlement proceeds to defend the costs of the
        Ptasynski suit (and any other suits that might develop) until such time as its outcome has
        been determined. A five-day trial was concluded in Denver on April 20, 2007 and on May 3,
        2007 the Judge rendered a judgment against the Plaintiff on all claims. The case is now
        closed, and on August 30, 2007 we received $96,000 as our share of the funds which had been
        held back to defend the suit.



Visa Litigation.
        In May of 2003 our 71%-owned subsidiary, starpay.com, l.l.c., along with
        VIMachine, Inc. filed a suit in the U. S. District Court for the Northern District of
        Texas, Dallas Division against Visa International Service Association and Visa USA, Inc.,
        both d/b/a Visa (Case No. CIV:3-03-CV0976-L). VIMachine is the holder of U.S. Patent No.
        5,903,878 (the “VIMachine Patent”) that covers, among other things, an improved
        method of authenticating the cardholder involved in an Internet payment transaction. In
        July of 2003, the Plaintiffs filed an Amended Complaint. The suit seeks damages and
        injunctive relief (i) related to Visa’s infringement of the VIMachine Patent; (ii)
        related to Visa’s breach of certain confidentiality agreements express or implied;
        (iii) for alleged fraud on the Patent Office based on Visa’s pending patent
        application; and (iv) under California’s common law and statutory doctrines of unfair
        trade practices, misappropriation and/or theft of starpay’s intellectual property
        and/or trade secrets. In addition, Plaintiffs are seeking attorney fees and costs related
        to the foregoing claims. If willfulness can be shown, Plaintiffs will seek treble
        damages.



In August of 2003 the Defendants filed a motion to dismiss the second, third
        and fourth claims. Despite objections to such motion by the Plaintiffs, the Judge in
        February of 2004 granted Defendants’ motion to dismiss the second and third causes of
        action, and denied the motion insofar as it sought to dismiss the fourth cause of action.
        Accordingly, Plaintiffs’ fourth claim (misappropriation and/or theft of intellectual
        property and/or trade secrets) will continue to move forward.



In February of 2004 Defendants filed an Answer to Plaintiffs’ Amended
        Complaint. In such filing Visa denied each allegation relevant to claim four. Visa asked
        that the VIMachine Patent be declared invalid, and, even if it is found valid, Visa asked
        that theybe found not to infringe the VIMachine Patent. Visa asked for other related relief
        based onthese two allegations.



In April and May 2004, Plaintiffs filed their Patent Infringement
        Contentions and a supplement thereto detailing Visa’s alleged infringement of the
        majority of the patent claims depicted in the VIMachine Patent. Subsequently, in May 2004,
        Defendants filed Preliminary Invalidity Contentions requesting the VIMachine Patent be
        found invalid.



From May through October 2004, the Plaintiffs and Defendants submitted
        numerous filings related to interpretation of the terms and phrases set out in the
        VIMachine Patent claims. A hearing regarding patent claim construction (a “Markman
        hearing”) was held in October of 2004, allowing both parties to present oral
        arguments before the Court regarding the claim construction issues. On January 4, 2005,
        Magistrate Judge Sanderson filed a Report and Recommendation of the United States
        Magistrate Judge addressing his findings and recommendations with respect to the claim
        constructions to be applied to the VIMachine Patent. Judge Sanderson found that 24 of the
        28 claims asserted by the Plaintiffs were valid. Both parties have pursued modifications of
        the Magistrate’s recommendations in the form of an appeal to District Judge Lindsey
        and are awaiting the Court’s final ruling on claim construction issues.



In July of 2005 the Federal Circuit Court of Appeals issued an
        en banc decision
        in the patent case of Phillips v. AWH
        Corp. (the “Phillips Case”). Subsequent to the
        Federal Circuit’s decision in July, Defendants requested and the Court ordered
        supplemental briefs to the Court addressing Magistrate Judge Sanderson’s Report and
        Recommendation respective to the Markman hearing in light of the Federal
        Circuit’s en banc decision in the
        Phillips Case. Both parties filed their supplemental briefs in August 2005. Oral arguments
        regarding these issues were held in November of 2005. On January 19, 2006, Magistrate Judge
        Sanderson filed his final Report and Recommendation on the Markman issues to District Judge
        Lindsey. In his report Judge Sanderson found no reason to change any portions of his
        recommendations filed on January 4, 2005, in light of the Federal Circuit’s decision
        in the Phillips Case. In mid-September District Judge Lindsey issued his final ruling on
        the Markman hearing. He adopted nine of the 14 claim constructions previously suggested by
        Magistrate Sanderson and modified five other claim constructions. Judge Lindsey did not
        modify Magistrate Sanderson’s previous finding that 24 of the 28 claims asserted by
        the Plaintiffs were valid.



---



This ruling allows the patent infringement action to proceed immediately as
        no appeal is allowed from this intermediate ruling. Noteworthy among the changes is the
        definition of a “unique transaction identifier” or UTID. Visa had asked that
        the UTID be defined as a globally unique data string, and Judge Lindsey refused to adopt
        that construction, construing the UTID more broadly in a manner more favorable to
        Plaintiffs’ patent infringement claims. Based on the ruling, Plaintiffs anticipate
        filing a motion for summary judgment asking the Court to rule in their favor as a matter of
        law, and Plaintiffs anticipate that Visa will also file a summary judgment
        motion.



During the first quarter of 2000 starpay’s trade secrets were relayed
        to Visa verbally in face-to-face conferences and telephone calls, as well as in
        correspondence by post and electronic mail. After receiving starpay’s technology and
        ideas, Visa filed a series of provisional patent applications beginning in April of 2000
        using starpay’s trade secrets. At the same time, Visa wrongfully incorporated
        starpay’s trade secrets in to its Visa Payer Authentication Service, also known as
        Verified by Visa (“VPAS”). VPAS infringes the VIMachine Patent. From early 2000
        until recently, starpay tried on several occasions to enter into meaningful negotiations
        with Visa to resolve their intellectual property concerns. Visa has continually denied
        their infringement of the VIMachine Patent and starpay’s assertion that Visa has
        appropriated starpay’s trade secrets.



In November of 2000 Visa publicly announced that it was testing VPAS. In
        September of 2001 Visa stated that, once rolled out globally, it expected VPAS to reduce
        Internet payment disputes by at least 50%. In an October 2004, news release, Visa depicted
        Verified by Visa as “the leading security standard for authentication of Internet
        transactions.” In this release Visa announced that Verified by Visa had
        “recorded an increase of close to 200% in the number of transactions for the quarter
        ending in September 2004,” and that “total Verified by Visa card volume for the
        first nine months of 2004 was $5.4 billion.” In April of 2005 Visa announced that
        “transaction volume during the first quarter of 2005 had increased more than 230%
        over last year.” Towards the end of 2005 Visa announced that Verified by Visa had
        “$7 billion in volume during the first half of the year......a 194% year-over-year
        increase.” Since late 2005, Plaintiffs have not seen or received public information
        bearing on the transaction volume within the Verified by Visa system. However, Visa’s
        current Verified by Visa Fact Sheet touts that “more than 110,000 merchants have
        adopted Verified by Visa and 10,000 banks have made the service available to over 395
        million consumers globally” through implementation in more than 65 countries
        representing 99% of global e-commerce volume. Other Visa documents state that “since
        Verified by Visa was implemented in 2003, there has been a 75% reduction in chargebacks on
        Verified by Visa compared with non-Verified by Visa transactions.”



The parties are currently negotiating a proposed scheduling order. It is
        anticipated that both sides’ summary judgement motions will be fully briefed by
        mid-2008 if ongoing settlement discussions do not bear fruit. Thereafter, Plaintiffs will
        push for trial as quickly as possible.



Item
        4. Submission of Matters
        to a Vote of Security Holders.



No matters were submitted during the fourth quarter of the fiscal year
        covered by this report to a vote of security holders, through the solicitation of proxies
        or otherwise.



PART
        II



Item
        5. Market for the
        Registrant’s Common Equity and Related Stockholder
        Matters.



Market Price of and Dividends on the Registrant’s Common Equity and
        Related Stockholder Matters.



(a)

                    Market
                        information.




Our common stock trades on the OTC Bulletin Board (“OTCBB”)
        under the ticker symbol BRCO. The following table sets forth the range of reported high and
        low bid quotations A for such shares on the OTCBB for each full quarterly period
        within the two most recent fiscal years:





---





2007A

                    High

                    LowFourth quarter

                    $1.00

                    $1.26Third quarter

                    1.01

                    0.30Second quarter

                    0.85

                    0.25First quarter

                    1.01

                    0.602006A

                    High

                    LowFourth quarter

                    $1.02

                    $0.76Third quarter

                    1.40

                    0.70Second quarter

                    1.53

                    0.60First quarter

                    2.00

                    1.01




_____



AThe reported quotations were obtained from the OTCBB Web Site.
        Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or
        commission and may not necessarily represent actual transactions. The quotations reflect
        the high best bid and low best bid for each quarter. One market maker has frequently quoted
        a bid of $0.01 per share, and at other times a bid of $.0001 per share, and such bids are
        not considered to reflect a realistic bid for the shares.



(b)

                    Holders.




As of March 31, 2008, the Company had 421 record holders of common
        stock.



(c)

                    Dividends.




To date, we have not paid any cash dividends. The payment of cash dividends
        in the future will depend upon our financial condition, capital requirements and earnings.
        We intend to employ our earnings, if any, primarily in our coal reclamation activities and
        in paying down our debt, and do not expect to pay cash dividends for the foreseeable
        future. The Certificate of Designations of our Preferred Stock does not preclude the
        payment of cash dividends. The Certificate provides that, in the event we pay a dividend or
        other distribution of any kind, holders of the Preferred Stock will be entitled to receive
        the same dividend or distribution based upon the shares into which their Preferred Stock
        would be convertible on the record date for such dividend or distribution.



(d)

                    Securities authorized for issuance under equity
                        compensation plansA.




Plan category

                    Number of securities to be issued upon exercise of
                        outstanding options, warrants and rights

                        (a)

                    

                    Weighted-average exercise price of outstanding options,
                        warrants and rights

                        (b)

                    

                    Number of securities remaining available for future
                        issuance under equity compensation plans (excluding securities reflected in
                        column (a))

                        (c)Equity compensation plans approved by security
                        holders

                    2003-2 DSC
                        PlanB  -  415,408

                    

                    $1.01

                    

                    None2005 DSC
                        PlanC  -     360,041

                    

                    $1.01D

                    

                    39,9592006 SO Plan
                        E    -       30,000

                    

                    $1.53

                    

                    70,000Equity compensation plans not approved by security
                        holders

                    Individual)

                        Compensation)   -      72,240
                        F

                        Arrangements)          
                        12,869G

                    

                    $1.00F

                        0.80G

                    

                    None

                        NoneTotal

                    All
                        Plans       -       890,558

                    

                    $1.01

                    

                    109,959




_______



AThe numbers shown in the above table are as of December 31,
        2007.



BThe 2003-2 Deferred Stock Compensation Plan, as amended, which
        authorized 800,000 shares to be issued, was approved by the stockholders at the 2004 Annual
        Stockholders’ Meeting. At the time the Plan was terminated on November 17,

---



2005, a total of 797,812 Stock Units had been credited to the
        Participants’ Stock Unit Accounts based upon the Participants’

deferral of
        $425,100 of Fees or Compensation. At year-end 2007, a total of
        382,400 shares had been distributed to the Participants, 4 fractional shares had been
        cashed out, and 415,408 additional shares remained to be distributed to Participants who
        had elected the equal annual installments distribution method.



CThe 2005 Deferred Stock Compensation Plan, which authorized
        100,000 shares to be issued, was adopted by the Board of Directors on November 17, 2005. On
        April 27, 2006, the Plan was amended to increase the authorized shares up to 200,000 and on
        April 26, 2007 the Plan was amended to increase the authorized shares up to 400,000. The
        Plan, as amended, was approved by the stockholders at the 2006 and 2007 Annual
        Stockholders’ Meetings. At year-end 2007, a total of 360,041 shares had been credited
        to the Participants’ Accounts, based upon the Participants’ deferral of
        $323,995 of Fees or Compensation. When the Plan was terminated on February 29, 2008, a
        total of 399,997 shares had been credited to the Participants’ Accounts, based
        upon the Participants’ deferral of $347,695 of Fees or Compensation.



DSince the exercise price of the Stock Units in the DSC Plans is
        determined by the Fair Market Value of the shares on their date of distribution from the
        respective Plans, we have used the year-end 2007 price of $0.55 per share as the
        weighted-average exercise price of the outstanding Stock Units since the value on the
        distribution dates is not determinable.



EThe 2006 Stock Option Plan (the “2006 SO Plan”),
        which superseded and replaced the 2005 Stock Option Plan (the “2005 SO Plan”),
        authorized the issuance of 100,000 shares of common stock to be issued. The 2006 SO Plan
        was adopted by the Board of Directors on May 1, 2006 and approved by the stockholders on
        July 11, 2006 at the 2006 Annual Stockholders’ Meeting. 15,000 ISO Options were
        granted to each of three officers on the date the 2006 SO Plan was adopted by the Board,
        replacing the ISO Options previously granted under the 2005 Plan. One of these new 2006
        grants was cancelled on July 31, 2006 when the officer resigned.



Due to delays caused by the necessity to file an amended 2004 Form 10-K and
        amended Forms 10-Q for the three quarters of 2005, we had to file our 2005 Form 10-K 15
        days late. This delayed the filing of our Proxy Statement and caused us to delay our 2006
        Annual Meeting until July 11, 2006, more than 13 months after the Board approved the 2005
        SO Plan. This meant that any stock issued under the 2005 SO Plan could not be registered
        with the SEC since we had exceeded the required 12 month period for stockholder approval.
        Accordingly, upon advise of counsel, the Board effective May 1, 2006: (i) cancelled the
        2005 SO Plan and the options granted thereunder; (ii) adopted the 2006 SO Plan; and (iii)
        replaced the three previously granted ISO Options with new ISO Options at current market
        price.



FReflects 5-year warrants, expiring in January of 2010, to
        purchase 72,240 shares of common stock issued to the Selling Agents as part of their
        commission in connection with the private placement by them of $1,806,000 of our 2010
        Notes.



GReflects 2-year warrants, expiring in August and September of
        2009, to purchase 12,869 shares of common stock issued to parties who purchased $128,691 of
        short-term notes maturing in February and March of 2008.  All of the notes have now
        been repaid.



(e)

                    Performance graph.




The following performance graph compares our cumulative total stockholder
        return on our common stock against the cumulative total return of the NASDAQ Market
        Indexand the SIC Code Index of the Bituminous Coal, Surface Mining Industry compiled by
        Morningstar, Inc. for the period from December 31, 2002 through December 31, 2007. The
        performance graph assumes that the value of the investment in our stock and each index was
        $100 on December 31, 2002, and that any dividends were reinvested. We have never paid
        dividends on our common stock.



COMPARE 5-YEAR CUMULATIVE TOTAL RETURN AMONG THE BEARD
        COMPANY,

NASDAQ
        MARKET INDEX AND SIC CODE INDEX



December2002

                    December2003

                    December2004

                    December2005

                    December2006

                    December2007The Beard Company

                    100.00

                    108.70

                    521.74

                    1086.96

                    878.26

                    478.26Bituminous Coal, Surface Mining Industry Index

                    100.00

                    170.15

                    261.21

                    396.37

                    371.72

                    638.85NASDAQ Market Index

                    100.00

                    150.36

                    163.00

                    166.58

                    183.68

                    201.91






The Industry Index chosen consists of the following companies: Alliance
        Holdings GP LP, Alliance Resource Partners, Arch Coal, Inc., Consol Energy, Inc.,
        Foundation Coal Holdings, International Coal Group Inc., James River Coal Company, National
        Coal Corp., Peabody Energy Corp., Penn Virginia GP Holdings, Westmoreland Coal Co. and
        Yanzhou Coal Mining Co.





---



Item
        6. Selected Financial
        Data.



The
        following financial data are an integral part of, and should be read in conjunction with,
        the financial statements and notes thereto. Information concerning significant trends in
        the financial condition and results of operations is contained in Management's Discussion
        and Analysis of Financial Condition and Results of Operations on pages
        32 through 45 of this report.



2007

                    

                    2006

                    

                    2005

                    

                    2004

                    

                    2003(in thousands, except per share data)Statement of operationsRevenues from continuing operations

                    $1,467

                    

                    $1,717

                    

                    $1,350

                    

                    $972

                    

                    $593Interest income

                    8

                    

                    25

                    

                    18

                    

                    3

                    

                    1Interest expense

                    (892)

                    

                    (959)

                    

                    (975)

                    

                    (694)

                    

                    (637)Earnings (loss) from continuing operations

                    (953)

                    

                    (607)

                    

                    (1,523)

                    

                    1,486

                    

                    (766)Loss from discontinued operations

                    (1,073)

                    

                    (947)

                    

                    (637)

                    

                    (549)

                    

                    (845)Net earnings (loss)

                    (2,026)

                    

                    (1,554)

                    

                    (2,160)

                    

                    937

                    

                    (1,611)Net earnings (loss) attributable to common
                        shareholders

                    (2,026)

                    

                    (1,554)

                    

                    (2,160)

                    

                    937

                    

                    (1,611)Net earnings (loss) per share (a)(b):Basic:Earnings (loss) from continuing Operations

                    (0.16)

                    

                    (0.10)

                    

                    (0.26)

                    

                    0.28

                    

                    (0.17)Loss from discontinued operations (b)

                    (0.18)

                    

                    (0.16)

                    

                    (0.11)

                    

                    (0.10)

                    

                    (0.18)Net earnings (loss)

                    (0.34)

                    

                    (0.27)

                    

                    (0.37)

                    

                    0.18

                    

                    (0.35)Diluted:Earnings (loss) from continuing Operations (b)

                    (0.16)

                    

                    (0.10)

                    

                    (0.26)

                    

                    0.23

                    

                    (0.17)Loss from discontinued operations

                    (0.18)

                    

                    (0.17)

                    

                    (0.11)

                    

                    (0.09)

                    

                    (0.18)Net earnings (loss)

                    (0.34)

                    

                    (0.27)

                    

                    (0.37)

                    

                    0.14

                    

                    (0.35)Balance Sheet Data:Working capital

                    (3,159)

                    

                    (1,146)

                    

                    (2,884)

                    

                    (946)

                    

                    (854)Total assets

                    2,334

                    

                    2,422

                    

                    4,464

                    

                    2,712

                    

                    2,380Long-term debt (excluding current maturities)

                    10,651

                    

                    8,526

                    

                    7,038

                    

                    5,393

                    

                    6,322Convertible preferred stock

                    889

                    

                    889

                    

                    889

                    

                    889

                    

                    889Redeemable preferred stock

                    -

                    

                    -

                    

                    -

                    

                    -

                    

                    -Total common shareholders’ equity
                        (deficiency)

                    (9,185)

                    

                    (7,348)

                    

                    (5,983)

                    

                    (4,144)

                    

                    (5,333)


___________



(a)  All per share numbers have been adjusted to reflect the
        2-for-1 stock split effected by us as of August 6, 2004.

(b)  In December 2007, we decided to discontinue operations in the
        China Segment. All periods have been restated to reflect the China Segment as
        discontinued.



Item
        7. Management's
        Discussion and Analysis of Financial Condition and Results of
        Operations.



The following discussion addresses the significant factors affecting our
        results of operations, financial condition, liquidity and capital resources. Such
        discussion should be read in conjunction with our financial statements including the
        related notes and our selected financial information.







---



Overview



General. In 2007 we operated within the
        following operating segments: (1) the coal reclamation (“Coal”) Segment, (2)
        the carbon dioxide (“CO2”) Segment, (3) the e-Commerce Segment, and
        (4) the oil and gas (“Oil & Gas”) Segment.



The Coal Segment is in the business of operating coal fines reclamation
        facilities in the U.S. and provides slurry pond core drilling services, fine coal
        laboratory analytical services and consulting services. The CO2 Segment consists of the
        production of CO2 gas. The e-Commerce Segment is engaged in a strategy to develop business
        opportunities to leverage starpay’s intellectual property portfolio of Internet
        payment methods and security technologies. The Oil & Gas Segment consists of the
        production of oil and gas.



In 2007 our continuing operations reflected a loss of $953,000 compared to
        losses of $607,000 and $1,523,000 in 2006 and 2005, respectively.



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 five of our
        unprofitable segments. Such discontinued operations reflected losses of $1,073,000 in 2007,
        $947,000 in 2006 and $637,000 in 2005. See “Discontinued Operations”
        below.



We are focusing our primary attention on the Coal and Carbon Dioxide
        Segments, which we believe have significant potential for growth and
        profitability.



We have other assets and investments that we have been liquidating as
        opportunities have materialized.



Operating results for 2007, 2006 and 2005 continue to be impacted by the
        lack of a coal contract generating operating profits since January of 1999. Termination of
        our last previous significant contract (see “Coal Reclamation Activities---The MCN
        Projects”) resulted in a severe decline in the segment’s revenues---from
        $8,585,000 in 1998 down to $20,000 in 2007---with a correspondingly dramatic impact on
        profitability. The segment, which had an operating profit of $1,678,000 in 1998, recorded
        operating losses of $783,000 in 2005, $780,000 in 2006 and $505,000 in 2007.



Operating profit for the CO2 Segment in 2007 decreased $261,000, or 20%,
        from 2006, primarily as the result of increased administrative costs associated with our
        interests in the McElmo Dome field and our decision to place part of our production from
        the field in long-term storage. The operating loss of the e-Commerce Segment increased
        $30,000 to $125,000 for 2007 compared to $95,000 for 2006 as the result of higher salary
        and related expenses. The Oil & Gas Segment recorded an operating profit of $7,000 for
        2007 compared to $80,000 for 2006 as the result of lower production and pricing. Our Coal
        Segment’s operating loss decreased by $275,000---from $780,000 in 2006 to $505,000 in
        2007---as a result of the discontinuation in the fourth quarter of 2006 of the Pinnacle
        Project in West Virginia. The operating loss from corporate activities at the parent
        company decreased $120,000, or $13%, in 2007 primarily as the result of the practice, begun
        in late 2006, of allocating certain related overhead expenses to the now discontinued China
        Segment. Such charges amounted to $180,000 in 2007. Our overall loss from continuing
        operations was, again, disappointing and reflected a deterioration of $354,000 to $953,000
        for 2007, compared to $607,000 for 2006. Gain on the sale of assets was $216,000 for 2007
        and we received a $96,000 distribution from the partnership involved in the administration
        of the settlement proceeds from a lawsuit against the previous operator of the McElmo Dome
        field. (See “Item 3. Legal Proceedings---McElmo Dome Litigation”).



Operating profit of the CO2 Segment in 2006 increased $375,000, or 40%, from
        the prior year, as a result of both increased production and higher pricing. The Coal
        Segment’s loss for 2006 remained virtually static at $780,000 compared to $783,000
        for 2005. The operating loss of the e-Commerce Segment decreased to $95,000 from $139,000
        in 2005 due to lower salary expenses. The Oil & Gas Segment’s operating profit
        increased $68,000 to $80,000 for 2006 compared to $12,000 for 2005 as the segment’s
        wells were all on production for the entire year for the first time. The operating loss
        from corporate activities at the parent company level decreased $31,000, or 3%, primarily
        as a result of a $37,000 decrease in amortization expense. Our overall results for 2006
        from continuing operations were an improvement over the prior year but were still
        disappointing – a loss of $607,000 compared to $1,523,000 in 2005. Revenues increased
        $367,000 and expenses decreased $154,000 compared to 2005. We recorded a decrease in equity
        in earnings of unconsolidated affiliates of $287,000 for 2006 compared to 2005. Gains on
        the disposition of assets and a gain on the disposition of a controlling interest in an LLC
        were $606,000 more in 2006 than in 2005. We recorded a tax benefit of $17,000 in 2006
        compared to tax expense of $35,000 for 2005, an improvement of $52,000.





---



While the recurring net losses and overall declines in financial condition
        and liquidity raise substantial doubts about our ability to continue as a going concern, as
        expressed in the independent auditors’ opinion on page 47, such concern has been
        mitigated to a significant degree due to the improvement in our balance sheet during the
        2008 first quarter as a result of the McElmo Dome sale.



Liquidity and capital resources



Capital resources.
        Our capital investment programs have required more cash than has been
        generated from operations during the past three years. Cash flows used in operations during
        2007, 2006 and 2005 were $(1,515,000), $(2,404,000) and $(1,917,000), respectively, while
        capital additions from continuing operations (excluding the Pinnacle Project) were
        $108,000, $124,000, and $334,000, respectively, as indicated in the table below:



2007

                    2006

                    2005Coal*

                    $ 12,000

                    $ 25,000

                    $ 20,000Carbon dioxide

                    86,000

                    92,000

                    26,000e-Commerce

                    -

                    3,000

                    -Other

                    10,000

                    4,000

                    288,000Total

                    $ 108,000

                    $ 124,000

                    $ 334,000


_________



*Capital additions to the Pinnacle Plant have been excluded since BPLLC is
        no longer a consolidated subsidiary, and certain amounts for 2005 and 2006 have been
        restated.



Our 2008 capital expenditure budget has tentatively been set at $25,000 to
        cover the estimated cost of expenditures in the McElmo Dome field Our share of such costs
        is targeted to come from our cash flow from the present production; the budget does not
        include the capital cost of any coal recovery plants that may be constructed by the Coal
        Segment since the timing and dollar amount of such projects are uncertain and the projects
        are subject to the availability of financing. No major capital expenditures are
        contemplated in 2008 by the CO2,
        e-Commerce or Oil & Gas
        Segments.



Liquidity. Sustaining the operating
        activities of our two unprofitable segments, plus our overhead, has resulted in a serious
        outflow of cash during the past three years. We have managed to survive this cash shortfall
        to date through a series of financings and the sale of various assets, principally those
        left over from our discontinued operations. A $2,783,000 long-term line of credit from an
        affiliate of the Chairman, secured by our working and overriding royalty interests in the
        McElmo Dome Field, has been periodically extended and currently matures in April of 2009.
        In March of 2008 this credit line was paid down to $2,250,000 and its maturity was extended
        to 2010.



Five private debt placements raised gross proceeds of $4,184,000 during the
        three years ended December 31, 2007, including $105,000 of notes sold in the first quarter
        of 2007. (See “PART I. Item 1. Business. General development of business. Efforts to
        Improve Cash Flow/Private Debt Placements” for additional details.) In early 2005 a
        50%-owned subsidiary borrowed $850,000 from a related party to finance most of the cost of
        a fertilizer plant in China. Since that time more than $1,026,000 has been borrowed by the
        subsidiary from our 50%-owned subsidiary, BEE/7HBF. In 2005 and 2006 we borrowed more than
        $11,350,000 from the pond owner to construct a jointly-owned coal fines recovery plant, the
        Pinnacle Plant, in West Virginia. We disposed of our controlling interest in this project
        in October of 2006 and were relieved of a guaranty of the debt when we transferred our
        remaining interest in the project in May of 2007. (See “PART I. Item 1. Business.
        General development of business---Additional Details---Loans from and Agreements with
        PinnOak Resources”).



In addition, we secured a $350,000 long-term bank credit facility in March
        of 2006, and borrowed $200,000 from a third party in May of 2006, These financings were
        supplemented in 2007 by (i) a $150,000 short-term loan from a shareholder of a former
        affiliate, (ii) $192,000 of short-term loans from our Note holders, (iii) $105,000 of
        additional convertible notes discussed above, and (iv) a $1,500,000 long-term bank credit
        facility in June of 2007. $220,000 of the proceeds from the 2007 bank facility were used to
        retire the remaining principal balance under the 2006 bank facility. (See “PART I.
        Item 1. Business. General development of business. Bank Credit Facilities” for
        additional details). In addition, the Coalition Managers Litigation has now been concluded,
        and we received approximately $96,000 from the defense fund in August of 2007. (See
        “Item 3. Legal Proceedings---Coalition Managers Litigation” for additional
        details). These measures





---



enabled the
        Company to continue operating until the events described under Recent Developments had
        occurred or until they do occur. (See “PART I. Item 1. Business. General development
        of business---Recent Developments”).



Our activities in 2005, 2006 and 2007 were primarily funded from the
        proceeds of the private debt placements described above. Future cash flows and availability
        of credit are subject to a number of variables, including demand for our coal reclamation
        services and technology, continuing demand for CO2 gas, demand for our oil and gas
        production, and the e-Commerce Segment’s success (i) in developing licensing
        agreements and other fee based arrangements with companies implementing technology in
        conflict with its intellectual property or (ii) resulting from its ongoing Visa
        litigation.



During 2007, we increased the deficit in our working capital position by
        $2,013,000 to $(3,159,000) at year-end 2007 from $(1,146,000) at year-end 2006 and the
        current ratio decreased from 0.51 to 1 to 0.28 to 1. Most of the deterioration in our
        working capital position resulted from the decision in late December 2007 to discontinue
        the China Segment which resulted in certain long-term assets and liabilities of the segment
        being treated as current. This resulted in a $513,000 decrease in our working capital
        position. Additionally, other debt totaling $1,666,000 previously treated as long-term
        became current liabilities during the period. The Coal Segment used $12,000 to purchase
        equipment and $505,000 to fund operating losses. Another $125,000 was used to fund the
        activities of the e-Commerce Segment. We repaid $971,000 in debt and $533,000 in accrued
        interest expense. Other corporate activities utilized approximately $818,000 of working
        capital. The bulk of these expenditures were funded by a net additional $1,978,000 in debt,
        the $181,000 in advances by our 50% partner in China, $1,367,000 from the sale of carbon
        dioxide and $285,000 from the sale of assets.



Our principal business is coal reclamation, and this is where
        management’s operating attention remains primarily focused. Although the outcome of
        the Pinnacle and Yukon Projects was disappointing, the outlook for the Coal Segment remains
        bright. The segment is actively pursuing multi-project financing for its future projects
        through two separate investment banking sources. However, there is no assurance that their
        efforts will be successful or that any meaningful cash flow will be available from this
        source prior to 2009.



On the positive side, the sale of 35% or our interest in McElmo Dome on
        March 26, 2008, generated net cash of approximately $3,475,000 and enabled us to pay down
        more than $2,500,000 of debt while providing sufficient working capital to satisfy our
        liquidity needs until the disposition of the assets and liabilities of the China Segment
        have been concluded and new production sales contracts at McElmo Dome have been finalized.
        (See “PART I. Item 1. Business. General development of business---Recent
        Developments---Sale of Interest in McElmo Dome Unit” for additional
        details).



We incurred losses from continuing operations totaling $3,033,000 during the
        past three years. We realized net losses from discontinued operations totaling $2,707,000
        during such period as the bulk of the assets of the assets of four of the discontinued
        segments have been sold. We have sold the majority of the assets and settled the majority
        of the liabilities of all of the discontinued segments except the newly-discontinued China
        Segment. The Company expects to dispose of the assets and be relieved of the liabilities in
        the China Segment prior to December 31, 2008. The bulk of the problems from the
        discontinued segments are now behind us and management expects to dispose of the assets
        remaining from such operations in 2008. We will pursue the sale of such assets as
        opportunities become available.



We expect to generate cash of at least $40,000 from the disposition of the
        remaining assets from two of our discontinued segments, and can sell certain other assets
        to generate cash if necessary.



In the near-term, it does not appear that the cash flow from our CO2 and Oil
        & Gas Segments will be sufficient to sustain our operations, and that we must generate
        funds from the sale of assets until the projects under development in the Coal Segment can
        generate positive cash flow or the anticipated increase in cash flow from McElmo Dome can
        cover the shortfall. Meanwhile, to the extent necessary, we must pursue additional outside
        financing, which would likely involve further dilution to our stockholders.



Our selected liquidity highlights for the past three years are summarized
        below:







---





2007

                    2006

                    2005Cash and cash equivalents

                    $ 61,000

                    $ 188,000

                    $ 326,000Accounts and other receivables, net

                    665,000

                    225,000

                    228,000Asset sales

                    306,000

                    290,000

                    246,000Assets of discontinued operations held for resale

                    487,000

                    789,000

                    633,000Liabilities of discontinued operations held for
                        resale

                    1,651,000

                    1,464,000

                    980,000Trade accounts payable

                    53,000

                    113,000

                    701,000Current maturities of long-term and short-term
                        debt

                    2,235,000

                    471,000

                    980,000Long-term debt

                    6,989,000

                    7,279,000

                    6,188,000Working capital

                    (3,159,000)

                    (1,146,000)

                    (2,884,000)Current ratio

                    0.28 to 1

                    0.51 to 1

                    0.30 to 1Net cash provided by (used in) operations

                    (1,515,000)

                    (2,007,000)

                    (1,917,000)




In 2007, we had negative cash flow of $127,000. Operations of the Coal and
        e-Commerce Segments and the discontinued operations resulted in cash outflows of
        $1,704,000. (See “Results of operations---Other corporate activities”
        below).



Our investing activities provided cash of $181,000 in 2007. Proceeds from
        the sale of assets provided cash of $306,000. Acquisitions of property, plant and equipment
        and intangible assets used $117,000 of the cash outflow.



Our financing activities provided cash flows of $1,207,000 in 2007. We
        received net cash of $1,978,000 from our borrowings and additional $181,000 from our 50%
        partner in China and utilized $971,000 for payments on lines of credit and term
        notes.



At December 31, 2007 we had $125,000 available on our reducing revolving
        credit line at the bank. In March of 2008 we sold 35% of our interest in the McElmo Dome
        CO2 field, generating net cash of approximately $3,475,000. We used $1,307,000
        to payoff our reducing line of credit with our local bank, another $1,332,000 to pay down
        debt and accrued interest owed to an affiliate of the chairman and another $53,000 to
        payoff short-term debt and accrued interest to a related party. This leaves approximately
        $783,000 of the sales proceeds to meet our working capital needs for the immediate
        future.



Material Trends and
        Uncertainties. We recorded a net
        loss of $2,026,000 in 2007 compared to net losses of $1,554,000 in 2006 and $2,160,000 in
        2005. We have generated operating losses for nine consecutive years. The recent trend has
        been positive. There has been a significant improvement in our operating margins in our
        continuing operations in each of the last three years, with the operating loss declining to
        $378,000 in 2007 from $409,000 in 2006 and $930,000 in 2005. Despite the amount of debt
        that we have incurred in recent years, we believe that we have the ability to finance our
        Coal projects on a project financing basis, as demonstrated by the financing of the
        Pinnacle Project in West Virginia. At the corporate level, future borrowings will likely be
        dependent upon our ability to generate positive cash flows from operations. It is unlikely
        that additional borrowings will be made available to us from a related party. As discussed
        above, to the extent that the cash flow from our CO2 and Oil & Gas Segments, the McElmo
        Dome and Visa litigation fail to support our operations, we must generate funds from the
        sale of assets to cover the shortfall. If the sale of assets is not sufficient, we may be
        forced to raise additional capital, which would likely further dilute our shareholder
        holdings. We cannot assure you that we would be able to raise additional capital on
        acceptable terms, or at all.



Our 2007, 2006 and 2005 financial results were burdened by losses from
        discontinued operations totaling $1,073,000, $947,000 and $637,000, respectively. At
        year-end 2007 our total assets, net of current assets of $1,220,000, had been written down
        to $1,114,000. $399,000 of this amount consisted of our McElmo Dome properties which
        generated revenues of $1,367,000 and operating profits of $1,063,000 in 2007. We believe it
        is highly unlikely that there will be any significant impairments going forward. Nor do we
        anticipate having any significant additional losses from the operations of the discontinued
        segments going forward. On the other hand, 2007 financial results benefited from the fourth
        McElmo Dome settlement payment in the gross amount of $96,000. The Settlement is a
        non-recurring item, so we will not have this benefit in the future except to the extent
        that McElmo Dome operating results may benefit from improved pricing or reduced pipeline
        charges as a result of the Settlement.



In addition, the Company recorded an impairment of investments and other
        assets of $4,465,000 related to its investment in Cibola Corporation for the year 2005.
        While the Company owned 80% of the common stock of Cibola through November 30, 2005, it did
        not have financial or operating control of this gas marketing subsidiary. After considering
        the





---



impairment
        mentioned, the Company recorded net earnings of $51,000 and $338,000 for 2006 and 2005,
        respectively, from its investment in Cibola which represented actual distributions to the
        Company under terms of an agreement with Cibola which was terminated on December 1,
        2005.



One uncertainty we are facing is the amount of litigation expense the
        e-Commerce Segment will incur in 2008 related to the litigation against Visa. The amount of
        expense will depend upon the outcome of ongoing settlement discussions between the parties.
        It is difficult to estimate how much the segment’s one-half of the out-of-pocket
        expenses (excluding legal fees) associated with such litigation may total.



Results of operations



General. We discontinued four of our
        segments, all of which were unprofitable, during the period from 1998 to 2001. Management
        has since been focusing its attention on making the remaining operations profitable.
        Although we succeeded in bringing our initial fertilizer project in China on-line, its
        operating results to date have been disappointing and, in 2007, we have elected to
        discontinue the China Segment. The Pinnacle Project began operations in the fourth quarter
        of 2006 and made its first coal shipment in November of 2006. However, for the reasons
        discussed above, we no longer expect it to contribute to our operating results. (See
        “PART I. Item 1. Business. General development of business---Recent
        Developments---Loans from and Agreements with PinnOak Resources” for additional
        details). Subject to obtaining the necessary financing, it appears that we will be bringing
        one of the other projects under development in the Coal Segment to reality later this year,
        but we do not anticipate any cash flow benefit from the project until 2009. Meanwhile, as
        mentioned above, we will need to pursue the sale of some of our assets and may also need to
        pursue additional outside financing, which would likely involve further dilution to our
        shareholders.



Operating profit (loss) for the last three years for our remaining segments
        is set forth below:



2007

                    2006

                    2005Operating profit (loss):Coal

                    $ (505,000)

                    $ (780,000)

                    $ (783,000)Carbon dioxide

                    1,063,000

                    1,324,000

                    949,000e-Commerce

                    (125,000)

                    (95,000)

                    (139,000)Oil & gas

                    7,000

                    80,000

                    12,000Subtotal

                    440,000

                    529,000

                    39,000Other - principally corporate

                    (818,000)

                    (938,000)

                    (969,000)Total

                    $ (378,000)

                    $ (409,000)

                    $ (930,000)




Following is a discussion of results of operations for the three-year period
        ended December 31, 2007.



Coal reclamation. We have focused most
        of our attention in recent years on coal reclamation. The following table depicts segment
        operating results for the last three years:



2007

                    2006

                    2005Revenues

                    $ 21,000

                    $ 25,000

                    $ 52,000Operating costs

                    (335,000)

                    (430,000)

                    (520,000)SG&A

                    (181,000)

                    (335,000)

                    (305,000)Other expenses

                    (10,000)

                    (40,000)

                    (10,000)Operating profit (loss)

                    $ (505,000)

                    $ (780,000)

                    $ (783,000)




The Coal Segment’s operating loss for 2007 was $275,000 less than that
        of 2006 due reductions or $95,000 in operating costs and $154,000 in SG&A expenses. The
        segment’s involvement in the Pinnacle plant was terminated in the fourth quarter of
        2006. This termination was also responsible for the $30,000 reduction in other expenses,
        primarily depreciation. Revenues for the segment were $4,000 less in 2007 than in 2006 as
        the segment performed fewer smaller drilling jobs in the current period than in prior
        years. The Coal Segment’s operating loss for 2006 was $3,000 less than that of 2005
        primarily due to a $90,000 reduction in operating costs. This was offset by a $27,000
        decrease in revenues as we concentrated on the startup activities of the Pinnacle plant in
        West Virginia. Additionally, SG&A costs were $30,000 higher in 2006





---



compared to
        2005 as the segment expensed a $20,000 fee paid to a consultant hired to assist in securing
        a USDA guaranty in connection with a proposed loan for the Pinnacle Project. Depreciation
        and amortization was $30,000 greater in 2006 compared to the prior year because of
        additional equipment purchased for the Pinnacle Plant which commenced production in October
        of 2006. The 2005 operating loss for the segment was $101,000 greater than that of 2004
        largely due to commencement of the Pinnacle Project in the fourth quarter and the resulting
        increase in SG&A type expenses. Limited lab analysis activity in 2005 also contributed
        to the higher loss. Except for the aforementioned contract, no new projects were undertaken
        during the three year period.



It had been contemplated that the Pinnacle Project would begin making a
        material contribution to the segment’s operating profit in late 2006 or early 2007.
        This will no longer be the case due to the deconsolidation of BPLLC, which will have a
        material unfavorable impact in terms of the revenues and cash flow from continuing
        operations that had been projected from the project.



Despite the loss of the contemplated contribution from the Pinnacle Project,
        the industry climate has improved during the last three years due to the increase in coal
        and natural gas prices, and the outlook for the segment has correspondingly improved, with
        a number of other projects currently under development.



Carbon dioxide. The primary component of
        revenues for this segment is the sale of CO2 gas from the working and overriding royalty
        interests of our two carbon dioxide producing units in Colorado and New Mexico. These units
        also provide very minor amounts of revenue from the sale of oil, natural gas and sulphur.
        The following table depicts operating results for the last three years:



2007

                    2006

                    2005Revenues

                    $ 1,367,000

                    $ 1,540,000

                    $ 1,172,000Operating expenses

                    (254,000)

                    (170,000)

                    (181,000)DD&A

                    (50,000)

                    (46,000)

                    (42,000)Operating profit

                    $ 1,063,000

                    $ 1,324,000

                    $ 949,000




The following table shows the trend in production volume, sales prices and
        lifting cost for the three years:



2007

                    2006

                    2005Net production (Mcf)

                    1,570,000

                    1,933,000

                    1,902,000Average sales price per Mcf

                    $0.97

                    $0.79

                    $0.60Average lifting cost per Mcf

                    $0.12

                    $0.07

                    $0.07




As evidenced by the above, revenues, production and sales prices per Mcf are
        all trending up relatively significantly, while lifting costs per Mcf had remained
        relatively static until 2007 when the costs associated with an arrangement with a new
        purchaser increased significantly. More importantly, the operating margin has trended
        sharply upward until 2007. As a result of additional development drilling currently
        underway in the field, the increase in oil prices which has increased the demand for CO2,
        and anticipated continuing improvement in CO2 pricing as a result of the McElmo Dome
        settlement, we look for continuing improvement in the outlook for the CO2 Segment in 2008.
        In May of 2007 we committed the approximately 30% of our McElmo Dome production that had
        been selling at the lowest prices to a new purchaser which began taking such production
        August 1. The price we receive under this contract tracks the price of crude oil.
        Negotiations are currently underway for new contracts covering the balance of our
        production, again geared to the price of crude oil. The net revenues received according to
        the terms of the contracts dedicated to this entity were greater than they would have been
        under the terms of the contracts with the prior operator. Additionally, a total of 337,000
        Mcf of production has been placed in long-term storage compared to 8,000 Mcf at year-end
        2006 and this is the primary reason for the decline in operating profit for the
        segment.



e-Commerce.
        In early 1999, we began developing our proprietary concept for an Internet
        payment system through starpay. starpay recorded revenues of $31,000, $5,000 and $5,000 in
        2005, 2006 and 2007, respectively. The decrease in revenue to $5,000 in 2006 was because
        the segment’s patent license agreement provided for an annual license fee of $25,000
        during only its first three years, and the final fee was paid in the first quarter of 2005.
        The segment recorded $168,000, $100,000, and $117,000 of SG&A expenses in 2005, 2006
        and 2007, respectively. Operating results for these years were burdened with additional
        expenses associated with the segment’s ongoing litigation against VISA and, as a
        result, operating losses increased from $124,000 in 2004 to $139,000 in 2005. Because,
        however, of the snail’s pace at which the VISA lawsuit





---



had been
        progressing, in 2006 the Company granted the request of starpay’s managing member to
        spend a portion of his time assisting his spouse in a newly purchased business.
        Accordingly, he received only half his normal salary from February through September of
        that year. This was the primary reason the operating loss of starpay decreased $44,000 to
        $95,000 in 2006 compared to 2005. Legal costs decreased $14,000 from 2006 to 2007 but this
        was more than offset by a $30,000 increase in salary expenses for the same period as the
        managing member returned to full time status. Additionally, the segment expensed $13,000 of
        previously unamortized costs associated with an unsuccessful attempt to gain another patent
        on its Internet techonology. As a result, the operating loss for the segment increased from
        $95,000 in 2006 to $125,000 in 2007.



Oil & Gas.In recent years we have
        acquired federal and state oil and gas leases in several states. Through a farmout
        arrangement with another entity, eight gas wells were drilled on one of these leases in
        Colorado and placed in production in the fourth quarter of 2005. We have a 22.5% working
        interest in seven of these wells and a 3.6% override until payout and a 22.5% working
        interest after payout in the other well. We also have overriding royalty interests in four
        wells located in Wyoming which began production in 2005. The segment recorded $147,000 in
        revenues for 2006 compared to $95,000 for 2005. Both production to the Company’s
        interest and the prices received for the production decreased in 2007 compared to 2006,
        falling 45% and $16%, respectively, resulting in a $73,000 decrease in revenue to $74,000.
        Operating costs totaled $52,000, $51,000 and $72,000 for 2007, 2006 and 2005, respectively.
        The segment’s depreciation, depletion and amortization of its equipment and oil &
        gas leases totaled $15,000, $16,000 and $11,000 for 2007, 2006 and 2005, respectively. As a
        result, the segment contributed operating profits of $7,000, $80,000 and $12,000 for 2007,
        2006 and 2005, respectively.



Other corporate activities. Other
        corporate activities include general and corporate operations, as well as assets unrelated
        to our operating segments or held for investment. These activities generated operating
        losses of $818,000 in 2007, $938,000 in 2006 and $969,000 in 2005. The $120,000 decrease in
        operating loss for 2007 compared to 2006 was due primarily to the Company’s practice,
        begun in the latter part of 2006, of charging related entities for certain overhead items
        pertaining to their operations and incurred by the Company. Such charges amounted to
        $228,000 in 2007. This was offset by increases in salary expenses and related costs, data
        processing fees, net accounting and other professional fees, DD&A and insurance costs
        of $32,000, $4,000, $7,000, $12,000 and $17,000, respectively. The $31,000 reduction in the
        operating loss for 2006 compared to 2005 was primarily the result of a $37,000 reduction in
        amortization of intangibles.



Selling, general and administrative
        expenses. Selling, general and
        administrative expenses (“SG&A”) decreased to $732,000 in 2007 after
        increasing slightly to $863,000 in 2006 from $861,000 in 2005. There were numerous minor
        increases and decreases in SG&A accounts resulting in the net $131,000 decrease when
        comparing 2007 to 2006. The primary reason for the decrease is the practice, which we began
        in late 2006, of charging related entities for accounting and other overhead type items
        that the parent provides. See “Other corporate activities” above.
        The $2,000 increase for 2006 compared to 2005 was the net result of
        increases and decreases in numerous types of expenses with the largest increase being a
        $40,000 charge for accounting fees in connection with the audit of Cibola in 2006. This was
        offset by a net decrease in numerous other SG&A expenses.



Depreciation, depletion and
        amortization. Depreciation,
        depletion and amortization expenses decreased to $174,000 in 2007 after increasing to
        $178,000 in 2006 from $173,000 in 2005. The increases in 2006 were due to increased
        amortization expense associated with the issuance of debt in 2005 and 2006.



Interest income. Interest income
        decreased to $8,000 in 2007 after increasing to $25,000 in 2006 from $18,000 in 2005. The
        decrease in 2007 reflects the tight cash position of the Company and the lack of funds
        available for short-term investments during the period. The increase in 2006 is from
        short-term investments associated with increased levels of cash on hand as a result of our
        debt offerings during that period.



Interest expense. Interest expense
        decreased to $892,000 in 2007 from $959,000 in 2006 and from $975,000 in 2005 reflecting
        the increased level of debt in each year as we borrowed to meet our working capital and
        operating needs and to fund the activities of the Coal Segment. The years 2005 and 2006
        included $220,000 and $202,000, respectively, of amortization of discount associated with
        our 10% Debt retired or exchanged in November, 2006. Interest expense for 2005 also
        included $109,000 paid to Cibola Corporation for Beard’s investment in Cibola. There
        were no such amounts paid in 2006.



Equity in earnings of unconsolidated affiliates.
        Our equity in earnings of unconsolidated affiliates reflected a loss of
        $4,000 for 2007 and net earnings of $49,000 and $336,000 for 2006 and 2005, respectively,
        after the impairments discussed below.







---



For 2005, the principal component of our earnings in unconsolidated
        affiliates was our share of the earnings of Cibola Corporation (“Cibola”).
        Although we owned 80% of the common stock of Cibola, we did not have operating or financial
        control of this gas marketing subsidiary which was formed in 1996. We recorded $4,803,000
        representing our 80% share of the earnings of Cibola for 2005. Due to the terms of an
        agreement with the minority and preferred shareholders of Cibola, however, that provided
        that the net worth of Cibola would have to reach $50,000,000 before we could begin to
        receive our 80% share of any excess over $50,000,000, we also recorded an impairment of
        $4,451,000 for the year 2005. Beard also wrote off $13,000 of its remaining investment in
        Cibola in the third quarter of 2005. Cibola, then, contributed a net $230,000 of our
        financial net income for fiscal year 2005 after netting the interest charges above and this
        impairment against our 80% share of earnings, pursuant to this agreement. The agreement was
        terminated, according to its terms, by the minority common and preferred shareholders
        effective December 1, 2005. Cibola did not reach the aforementioned net worth position and
        accordingly we received from Cibola only the net amounts recorded above and already
        distributed. In 2006, we recorded $51,000 of earnings from Cibola according to terms of a
        negotiated settlement with the minority common and preferred shareholders of Cibola
        regarding the termination of the agreement above. In addition, we recorded $2,000 of losses
        for each of the years 2005, 2006 and 2007 from our investment in JMG-15, a real estate
        partnership in Texas that sold a parcel of land during the year. In 2007, we also recorded
        a loss of $1,000 from our interest in a drilling partnership also operating in Texas and a
        $1,000 impairment of an investment in an unsuccessful start-up fertilizer operation in the
        United States.



Gain on sale of controlling interest in subsidiary.
        When, in 2006, the investor group in BPLLC exercised their option to assume
        control of the operations and a 75% ownership interest in the Project, our interest in the
        LLC was reduced to 25%. We recorded a $383,000 gain in 2006 as a result of being relieved
        of the debt obligations which had funded the previously recorded losses of $423,000 offset
        by $40,000 of intangible assets previously capitalized but now written off. There were no
        other such transactions in either 2007 or 2005.



Gain on sale of assets.
        Gains from the sale of assets totaled $216,000, $287,000 and $64,000 in
        2007, 2006 and 2005, respectively. In October of 2007, the Company sold its interests in
        the Bravo Dome CO2 field for $300,000 and, after paying a commission of $15,000, recorded a
        net gain on the sale of $215,000. The large increase in 2006 is attributable to the Coal
        Segment recording a $280,000 gain resulting from the sale of certain assets to the
        25%-owned LLC now operating the coal fines recovery project in West Virginia. The remaining
        gains for 2007, 2006 and 2005 reflected proceeds from the sale of certain other assets sold
        in such years.



Gain on settlement.
        The Company recorded a $96,000 gain as a result of the receipt in 2007 of
        the fourth installment from the McElmo Dome litigation. (See “Item 3. Legal
        Proceedings---McElmo Dome Litigation”).



Impairment of investments and other
        assets. The Company recorded
        impairments of $0, $0, and $4,465,000, for the years 2007, 2006 and 2005, respectively,
        which reduced the recorded earnings attributable to the Company’s investment in
        Cibola to the actual distributions received under the terms of an agreement which was
        terminated by the minority and preferred shareholders on December 1, 2005.



Income taxes. We have approximately
        $27.6 million of net operating loss carryforwards and $3 million of depletion carryforwards
        to reduce future income taxes. Based on our historical results of operations, it is not
        likely that we will be able to fully realize the benefit of our net operating loss
        carryforwards which began expiring in 2006 and, of the above amount, $22.8 million will
        expire in 2008. At December 31, 2007 and 2006, we have not reflected as a deferred tax
        asset any future benefit we may realize as a result of our tax credits and loss
        carryforwards. Our future regular taxable income for the next three years will be
        effectively sheltered from federal income tax as a result of our substantial tax credits
        and loss carryforwards. Continuing operations reflect foreign and state income and federal
        alternative minimum tax expense (benefit) of $(1,000), $(17,000) and $35,000 for 2007, 2006
        and 2005, respectively. It is anticipated that we may continue to incur minor alternative
        minimum tax in the future, despite our carryforwards and credits.



Discontinued operations. In December of
        2007, our Board elected to discontinue our unprofitable operations in the China Segment.
        For the years 2007, 2006 and 2005, the losses incurred by the China Segment of $1,068,000,
        $915,000 and $779,000, respectively, resulted in discontinued operations recording net
        losses of $1,073,000, $947,000 and $637,000, respectively. The other four discontinued
        segments recorded losses of $5,000 and $32,000 in 2007 and 2006, respectively. Bolstered by
        gains totaling $155,000 from the sales of equipment, the other discontinued operations
        recorded net earnings of $142,000 for the year 2005. As of December 31, 2007, the assets
        and liabilities of discontinued operations held for resale totaled $487,000 and $1,651,000,
        respectively. We believe that all of the assets of the discontinued segments have been
        written down to their realizable value. See Note 4 to the financial statements.







---



Forward looking statements. The previous
        discussions include statements that are not purely historical and are
        “forward-looking statements” within the meaning of Section 27A of the
        Securities Act and Section 21E of the Exchange Act, including statements regarding our
        expectations, hopes, beliefs, intentions and strategies regarding the future. Our actual
        results could differ materially from its expectations discussed herein, and particular
        attention is called to the discussion under “Liquidity and Capital Resources---Effect
        of Recent Developments on Liquidity” and “Material Trends and
        Uncertainties” contained in this Item 7.



Impact of Recently Adopted Accounting Standards


In December 2007, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standards No. 141 (revised 2007), “Business
        Combinations” (“FAS 141R”), which replaces FAS 141.  FAS 141R
        establishes principles and requirements for how an acquirer in a business combination
        recognizes and measures in its financial statements the identifiable assets acquired, the
        liabilities assumed, and any controlling interest; recognizes and measures the goodwill
        acquired in the business combination or a gain from a bargain purchase; and determines what
        information to disclose to enable users of the financial statements to evaluate the nature
        and financial effects of the business combination.  FAS 141R is to be applied
        prospectively to business combinations for which the acquisition date is on or after an
        entity’s fiscal year that begins after December 15, 2008 (the Company’s
        fiscal year ending December 31, 2009).  We have not completed its evaluation of the
        potential impact, if any, of the adoption of FAS 141R on our consolidated financial
        position, results of operations and cash flows.



In December 2007, the FASB issued Statement of Financial Accounting
        Standards No. 160 “Noncontrolling Interests in Consolidated Financial Statements
        – an amendment of ARB No. 51” (“FAS 160”). FAS 160 establishes
        accounting and reporting standards that require the ownership interest in subsidiaries held
        by parties other than the parent be clearly identified and presented in the consolidated
        balance sheets within equity, but separate from the parent’s equity; the amount of
        consolidated net income attributable to the parent and the noncontrolling interest be
        clearly identified and presented on the face of the consolidated statement of earnings; and
        changes in a parent’s ownership interest while the parent retains its controlling
        financial interest in its subsidiary be accounted for consistently. This statement is
        effective for fiscal years beginning on or after December 15, 2008, (the
        Company’s fiscal year ending December 31, 2009). We have not completed its evaluation
        of the potential impact, if any, of the adoption of FAS 160 on our consolidated financial
        position, results of operations and cash flows.



In September 2006, the FASB issued Statement No. 157,
        “Fair Value Measurements”
        (“SFAS No. 157”). SFAS No. 157 addresses how companies should measure fair
        value when they are required to use a fair value measure for recognition or disclosure
        purposes under generally accepted accounting principles. SFAS No. 157 defines fair value,
        establishes a framework for measuring fair value and expands disclosures about fair value
        measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007,
        with earlier adoption permitted. We are assessing the impact of the adoption of this
        Statement.



In February 2007, the FASB issued Statement No. 159,
        “The Fair Value Option for Financial Assets and Financial
        Liabilities – Includingan
        amendment of FASB Statement No. 115” (“SFAS No.
        158”). SFAS No. 158 permits entities to choose to measure many financial instruments
        and certain other items at fair value. It requires companies to provide information helping
        financial statement users to understand the effect of a company’s choice to use the
        fair value on its earnings, as well as to display the fair value of the assets and
        liabilities a company has chosen to use fair value for on the face of the balance sheet.
        Additionally, SFAS No. 158 establishes presentation and disclosure requirements designed to
        simplify comparisons between companies that choose different measurement attributes for
        similar types of assets and liabilities. The Statement is effective as of the beginning of
        an entity’s first fiscal year beginning after November 15, 2007. We are assessing the
        impact of this statement.



Critical Accounting Policies



The preparation of financial statements and related disclosures in
        conformity with accounting principles generally accepted in the United States of America
        requires management to make estimates and assumptions that affect the reported amounts of
        assets and liabilities and disclosures of contingent assets and liabilities at the date of
        the financial statements and the reported amounts of revenues and expenses during the
        reporting period. Actual results could differ from those estimates. For example, unexpected
        changes in market conditions or a downturn in the economy could adversely affect actual
        results. Estimates are used in accounting for, among other things, the allowance for
        doubtful accounts, valuation of long-lived assets, legal liability, depreciation, taxes,
        and contingencies. Estimates and assumptions are reviewed periodically and the effects of
        revisions are reflected in the consolidated financial statements in the period they are
        determined to be necessary.







---



Management believes the following critical accounting policies, among
        others, affect its more significant judgments and estimates used in the preparation of its
        consolidated financial statements.



Receivables and Credit Policies

Accounts receivable include amounts due from the sale of CO2 from properties in which we
        own an interest, accrued interest receivable and uncollateralized customer obligations due
        under normal trade terms requiring payment within 30 days from the invoice date. Notes
        receivable are stated at principal amount plus accrued interest and are normally not
        collateralized. Payments of accounts receivable are allocated to the specific invoices
        identified on the customers remittance advice or, if unspecified, are applied to the
        earliest unpaid invoices. Payments of notes receivable are allocated first to accrued but
        unpaid interest with the remainder to the outstanding principal balance. Trade accounts and
        notes receivable are stated at the amount management expects to collect from outstanding
        balances. The carrying amounts of accounts receivable are reduced by a valuation allowance
        that reflects management’s best estimate of the amounts that will not be collected.
        Management individually reviews all notes receivable and accounts receivable balances that
        exceed 90 days from invoice date and based on an assessment of current creditworthiness,
        estimates the portion, if any, of the balance that will not be collected. Management
        provides for probable uncollectible accounts through a charge to earnings and a credit to a
        valuation allowance based on its assessment of the current status of individual accounts.
        Balances that are still outstanding after management has used reasonable collection efforts
        are written off through a charge to the valuation account and a credit to trade accounts
        receivable. Changes to the valuation allowance have not been material to the financial
        statements.



Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
        Of

Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever
        events or changes in circumstances indicate that the carrying amount of an asset may not be
        recoverable. Recoverability of assets to be held and used is measured by a comparison of
        the carrying amount of an asset to future net cash flows expected to be generated by the
        asset. If such assets are considered to be impaired, the impairment to be recognized is
        measured by the amount by which the carrying amount of the assets exceeds the fair value of
        the assets. Assets to be disposed of are reported at the lower of the carrying amount or
        fair value less costs to sell.



Revenue Recognition

We recognize revenue when it is realized or receivable and earned. Revenue from the CO2
        Segment is recognized in the period of production. Revenue from Coal Segment projects is
        recognized in the period the projects are performed.
        License fees from the e-Commerce segment are recognized over the term of the
        agreement.



Off-Balance Sheet Arrangements



We do not have any material off-balance sheet arrangements.



Contractual Obligations



The table below sets forth our contractual cash obligations (including those
        in our discontinued segments) as of December 31, 2007:



Payments Due By PeriodContractualObligations

                    

                    Total

                    

                    2008

                    

                    2009-2010

                    

                    2011-2012

                    

                    2013 and BeyondLong-term debt

                        Obligations (a)

                    

                    $13,027,000

                    

                    $3,508,000

                    

                    $8,669,000

                    

                    $850,000

                    

                    $ -Capital lease

                        obligations

                    

                    10,000

                    

                    6,000

                    

                    4,000

                    

                    -

                    

                    -Operating lease

                        obligations

                    

                    331,000

                    

                    192,000

                    

                    139,000

                    

                    -

                    

                    -Purchase obligations

                    

                    -

                    

                    -

                    

                    -

                    

                    -

                    

                    -Other long-term

                        liabilities

                    

                    -

                    

                    -

                    

                    -

                    

                    -

                    

                    -Total

                    

                    $13,368,000

                    

                    $3,706,000

                    

                    $8,812,000

                    

                    $850,000

                    

                    $ -




(a) Amounts
        include interest due to be paid on long-term debt obligations.







---



Item
        7A. Quantitative and
        Qualitative Disclosures About Market Risk.



At December 31, 2007, we had total debt of $10,651,000, including accrued
        interest to related parties of $668,000. Debt in the amount of $8,404,000 has fixed
        interest rates; therefore, our interest expense and operating results would not be affected
        by an increase in market interest rates for this amount. Another $1,375,000 note is
        accruing interest at Wall Street Journal Prime plus 1.5%, or 8.75%, at year-end. A 10%
        increase in market interest rates above the year-end rates would have increased our
        interest expense by less than $9,000. At December 31, 2007, a 10% increase in market rates
        above the 10% floor would have reduced the fair value of our long-term debt by
        $98,000.



We have no other market risk sensitive
                        instruments.










---



Item
        8. Financial Statements
        and Supplementary Data.





The
        Beard Company and Subsidiaries

Index
        to Financial Statements

Forming a Part of Form 10-K Annual Report

to the
        Securities and Exchange Commission



Page Number




Management’s Annual Report on Internal Control Over
                        Financial Reporting

                    45




Report of Independent Registered Public Accounting
                        Firm

                    46




Financial
        Statements:



Balance Sheets, December 31, 2007 and 2006

                    47




Statements of Operations, Years ended December 31, 2007,
                        2006 and 2005

                    48




Statements of Shareholders' Equity (Deficiency), Years ended
                        December 31, 2007, 2006 and 2005

                    49




Statements of Cash Flows, Years ended December 31, 2007,
                        2006 and 2005

                    50




Notes to Financial Statements, December 31, 2007, 2006 and
                        2005

                    52




---



MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL
        REPORTING



Our
        management is responsible for establishing and maintaining adequate internal control over
        financial reporting as defined in Rules 13(a) - 15(f) and 15d - 15(f) of the
        Securities Exchange Act of 1934, as amended. In order to evaluate the effectiveness of
        internal control over financial reporting, as required by Section 404 of the
        Sarbanes-Oxley Act, our management has conducted an assessment, including testing, using
        the criteria in Internal Control—Integrated
        Framework, issued by the Committee of Sponsoring Organizations of
        the Treadway Commission (“COSO”). Our system of internal control over financial
        reporting is designed 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. Our internal control over
        financial reporting includes those policies and procedures that:



•

                    Pertain to the maintenance of records that, in reasonable
                        detail, accurately and fairly reflect the transactions and dispositions of
                        our assets;




•

                    Provide reasonable assurance that transactions are recorded
                        as necessary to permit preparation of financial statements in accordance
                        with generally accepted accounting principles, and that our receipts and
                        expenditures are being made only in accordance with authorizations of our
                        management and directors; and




•

                    Provide reasonable assurance regarding prevention or timely
                        detection of unauthorized acquisition, use, or disposition of our assets
                        that could have a material effect on the financial statements.




Because of
        its inherent limitations, internal control over financial reporting may not prevent or
        detect misstatements. Also, projections of any evaluation of effectiveness to future
        periods are subject to the risk that controls may become inadequate because of changes in
        conditions, or that the degree of compliance with the policies or procedures may
        deteriorate.



Due to the
        material weakness described below, Our Chief Executive Officer and Chief Financial Officer
        have concluded that our internal controls over financial reporting were not effective as of
        December 31, 2007, based on criteria in Internal
        Control—Integrated Framework issued by COSO. We believe our
        consolidated financial statements included in the Annual Report on Form 10-K fairly present
        in all material respects our financial position, results of operations and cash flows for
        the periods presented in accordance with United States generally accepted accounting
        principles.



Our
        internal control over financial reporting as of December 31, 2007, was not subject to
        attestation by our registered public accounting firm pursuant to temporary rules of the
        Securities and Exchange Commission that permit us to provide only management’s report
        in our annual report.



Material
        weakness in internal control – We have not made an
        assessment of internal controls over financial reporting at our China segment, therefore,
        the design and operating effectiveness of those controls has not been determined. We
        believe operating results from the China segment, for the year ended December 31, 2007, to
        be material to the consolidated financial statements taken as a whole. Currently, there are
        no plans to remediate this material weakness as we intend to reduce our ownership interest
        in the China segment to a level immaterial to the ongoing operations of the
        Company.



/s/ The
        Beard Company



---





REPORT
        OF INDEPENDENT REGISTERED

PUBLIC
        ACCOUNTING FIRM





The Board
        of Directors and Stockholders of

The Beard
        Company

Oklahoma
        City, Oklahoma



We have
        audited the accompanying consolidating balance sheets of The Beard Company and subsidiaries
        as of December 31, 2007 and 2006, and the related consolidated statements of operations,
        shareholders’ equity (deficiency) and cash flows for each of the years in the
        three-year period ended December 31, 2007. These financial statements are the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on these financial statements based on our audits.

We
        conducted our audits in accordance with the standards of the Public Company Accounting
        Oversight Board (United States).  Those standards require that we plan and perform the
        audit to obtain reasonable assurance about whether the financial statements are free of
        material misstatement.  The Company is not required to have, nor were we engaged to
        perform, an audit of its internal control over financial reporting. Our audits included
        consideration of internal control over financial reporting as a basis for designing audit
        procedures that are appropriate in the circumstances, but not for the purpose of expressing
        an opinion on the effectiveness of the Company’s internal control over financial
        reporting. Accordingly, we express no such opinion. An audit
        also includes examining, on a test basis,evidence supporting the amounts and disclosures in
        the financial statements, assessing the accounting principles used and significant
        estimates made by management, as well as evaluating the overall financial statement
        presentation.  We believe that our audits provide a reasonable basis for our
        opinion.

In our
        opinion, the financial statements referred to above present fairly, in all material
        respects, the financial position of The Beard Company and subsidiaries as of December 31,
        2007 and 2006, and the results of their operations and their cash flows for each of the
        years in the three-year period ended December 31, 2007, in conformity with accounting
        principles generally accepted in the United States of America.



The
        accompanying consolidated financial statements have been prepared assuming that The Beard
        Company and subsidiaries will continue as a going concern. As discussed in Note 2 to the
        financial statements, The Beard Company and subsidiaries’ recurring losses and
        negative cash flows from operations raise substantial doubt about its ability to continue
        as a going concern. Management’s plans as to these matters are also described in Note
        2. The consolidated financial statements do not include any adjustments that may result
        from the outcome of this uncertainty.



Cole & Reed, P.C.






Oklahoma
        City, Oklahoma

April 14,
        2008



---





THE BEARD COMPANY AND SUBSIDIARIESBalance SheetsDecember 31,

                    

                    December 31,Assets

                    2007

                    

                    2006Current assets:Cash and cash equivalents

                    $61,000

                    

                    $188,000Accounts receivable, less allowance for doubtfulreceivables of $31,000 in 2007 and $80,000 in
                        2006

                    630,000

                    

                    208,000Prepaid expenses and other assets

                    7,000

                    

                    10,000Current maturities of notes receivable (note 6)

                    35,000

                    

                    17,000Assets of discontinued operations held for resale (note
                        3)

                    487,000

                    

                    789,000Total current assets

                    1,220,000

                    

                    1,212,000Note receivable (note 6)

                    -

                    

                    7,000Restricted certificate of deposit

                    50,000

                    

                    50,000Investments and other assets

                    66,000

                    

                    58,000Property, plant and equipment, at cost (note 7)

                    2,306,000

                    

                    2,449,000Less accumulated depreciation, depletion and
                        amortization

                    1,445,000

                    

                    1,524,000Net property, plant and equipment

                    861,000

                    

                    925,000Intangible assets, at cost (note 8)

                    518,000

                    

                    476,000Less accumulated amortization

                    381,000

                    

                    306,000Net intangible assets

                    137,000

                    

                    170,000$2,334,000

                    

                    $2,422,000Liabilities and Shareholders' Equity
                        (Deficiency)Current liabilities:Trade accounts payable

                    $53,000

                    

                    $113,000Accrued expenses

                    440,000

                    

                    310,000Short-term debt (note 9)

                    45,000

                    

                    -Short-term debt - related entities (note 9)

                    158,000

                    

                    200,000Current maturities of long-term debt (note 9)

                    1,672,000

                    

                    271,000Current maturities of long-term debt - related entities
                        (note 9)

                    360,000

                    

                    -Liabilities of discontinued operations held for resale (note
                        3)

                    1,651,000

                    

                    1,464,000Total current liabilities

                    4,379,000

                    

                    2,358,000Long-term debt less current maturities (note 9)

                    977,000

                    

                    1,680,000Long-term debt - related entities (note 9)

                    6,012,000

                    

                    5,599,000Other long-term liabilities

                    151,000

                    

                    133,000






---





Shareholders' equity (deficiency):Convertible preferred stock of $100 stated value;5,000,000 shares authorized; 27,838 shares issuedand outstanding

                    889,000

                    

                    889,000Common stock of $.0006665 par value per share;15,000,000 authorized; 5,657,715 and 5,591,580
                        sharesissued and outstanding in 2007 and 2006,
                        respectively

                    4,000

                    

                    4,000Capital in excess of par value

                    38,823,000

                    

                    38,665,000Accumulated deficit

                    (48,954,000)

                    

                    (46,928,000)Accumulated other comprehensive loss

                    53,000

                    

                    22,000Total shareholders' equity (deficiency)

                    (9,185,000)

                    

                    (7,348,000)Commitments and contingencies (notes 4, 10, and
                        14)$2,334,000

                    

                    $2,422,000See accompanying notes to financial statements.






---





THE BEARD COMPANY AND SUBSIDIARIESStatements of OperationsYear EndedDecember 31,2007

                    

                    2006

                    

                    2005Revenues:Coal reclamation

                    $21,000

                    

                    $25,000

                    

                    $52,000Carbon dioxide

                    1,367,000

                    

                    1,540,000

                    

                    1,172,000e-Commerce

                    5,000

                    

                    5,000

                    

                    31,000Oil & gas

                    74,000

                    

                    147,000

                    

                    95,0001,467,000

                    

                    1,717,000

                    

                    1,350,000Expenses:Coal reclamation

                    516,000

                    

                    764,000

                    

                    825,000Carbon dioxide

                    254,000

                    

                    170,000

                    

                    181,000e-Commerce

                    117,000

                    

                    100,000

                    

                    168,000Oil & gas

                    52,000

                    

                    51,000

                    

                    72,000Selling, general and administrative

                    732,000

                    

                    863,000

                    

                    861,000Depreciation, depletion and amortization

                    174,000

                    

                    178,000

                    

                    173,0001,845,000

                    

                    2,126,000

                    

                    2,280,000Operating profit (loss):Coal reclamation

                    (505,000)

                    

                    (780,000)

                    

                    (783,000)Carbon dioxide

                    1,063,000

                    

                    1,324,000

                    

                    949,000e-Commerce

                    (125,000)

                    

                    (95,000)

                    

                    (139,000)Oil & gas

                    7,000

                    

                    80,000

                    

                    12,000Other, principally corporate

                    (818,000)

                    

                    (938,000)

                    

                    (969,000)(378,000)

                    

                    (409,000)

                    

                    (930,000)Other income (expense):Interest income

                    8,000

                    

                    25,000

                    

                    18,000Interest expense

                    (892,000)

                    

                    (959,000)

                    

                    (975,000)Equity in net earnings (loss) of unconsolidated
                        affiliates

                    (4,000)

                    

                    49,000

                    

                    4,801,000Impairment of investments and other assets (notes 1, 5, 7, 8
                        and 16)

                    -

                    

                    -

                    

                    (4,465,000)Gain on settlement

                    96,000

                    

                    -

                    

                    -Gain on disposition of controlling interest in
                        subsidiary

                    -

                    

                    383,000

                    

                    -Gain on sale of assets

                    216,000

                    

                    287,000

                    

                    64,000Other

                    -

                    

                    -

                    

                    (1,000)Loss from continuing operations before income
                        taxes

                    (954,000)

                    

                    (624,000)

                    

                    (1,488,000)Income tax (expense) benefit (note 11)

                    1,000

                    

                    17,000

                    

                    (35,000)Loss from continuing operations

                    (953,000)

                    

                    (607,000)

                    

                    (1,523,000)Discontinued operations (note 3):Earnings (loss) from discontinued brine extraction/iodine
                        manufacturingactivities

                    (3,000)

                    

                    (3,000)

                    

                    44,000Loss from discontinued fertilizer manufacturing
                        activities

                    (1,068,000)

                    

                    (915,000)

                    

                    (779,000)Earnings (loss) from discontinued natural gas well servicing
                        activities

                    (2,000)

                    

                    (29,000)

                    

                    98,000Loss from discontinued operations

                    (1,073,000)

                    

                    (947,000)

                    

                    (637,000)Net loss

                    $(2,026,000)

                    

                    $(1,554,000)

                    

                    $(2,160,000)Net loss attributable to common shareholders (note
                        4)

                    $(2,026,000)

                    

                    $(1,554,000)

                    

                    $(2,160,000)Net loss per average common share
                        outstanding:Basic (notes 1 and 12):Loss from continuing operations

                    $(0.16)

                    

                    $(0.10)

                    

                    $(0.26)






---





Loss from discontinued operations

                    (0.18)

                    

                    (0.17)

                    

                    (0.11)Net loss

                    $(0.34)

                    

                    $(0.27)

                    

                    $(0.37)Net loss per average common share
                        outstanding:Diluted (notes 1 and 12):Loss from continuing operations

                    $(0.16)

                    

                    $(0.10)

                    

                    $(0.26)Loss from discontinued operations

                    (0.18)

                    

                    (0.17)

                    

                    (0.11)Net loss

                    $(0.34)

                    

                    $(0.27)

                    

                    $(0.37)Weighted average common shares
                        outstanding:Basic

                    5,896,000

                    

                    5,655,000

                    

                    5,888,000Diluted

                    5,896,000

                    

                    5,655,000

                    

                    5,888,000See accompanying notes to financial statements.






---





THE BEARD COMPANY AND SUBSIDIARIESStatements of Shareholders' Equity
                        (Deficiency)Preferred

                        Shares
                        Stock

                    Common

                        Shares
                        Stock

                    Capital in Excess of Par
                        Value

                    Accumulated
                        Deficit

                    Accum-ulated Other Compre-hensive Income
                        (loss)

                    Total Common Share-holders' Equity
                        (Deficiency)Balance, December 31, 2004

                    27,838

                    $889,000

                    4,839,565

                    $3,000

                    38,193,000

                    $(43,214,000)

                    $(15,000)

                    $(4,144,000)Net loss

                    -

                    -

                    -

                    -

                    -

                    (2,160,000)

                    -

                    (2,160,000)Comprehensive income (loss):Foreign currency translation adjustment

                    -

                    -

                    -

                    -

                    -

                    -

                    4,000

                    4,000Total comprehensive loss

                    -

                    -

                    -

                    -

                    -

                    -

                    -

                    (2,156,000)Issuance of stock warrants

                    -

                    -

                    415,750

                    1,000

                    122,000

                    -

                    -

                    123,000Reservation of shares pursuant to deferred compensation plan
                        (note 12)

                    -

                    -

                    

                    -

                    194,000

                    -

                    -

                    194,000Issuance of shares pursuant to deferred stock compensation
                        plan (note 12)

                    -

                    -

                    217,653

                    -

                    -

                    -

                    -

                    -Balance, December 31, 2005

                    27,838

                    889,000

                    5,472,968

                    4,000

                    38,509,000

                    (45,374,000)

                    (11,000)

                    (5,983,000)Net loss

                    -

                    -

                    -

                    -

                    -

                    (1,554,000)

                    -

                    (1,554,000)Comprehensive income (loss):Foreign currency translation

                    -

                    -

                    -

                    -

                    -

                    -

                    33,000

                    33,000Total comprehensive loss

                    -

                    -

                    -

                    -

                    -

                    -

                    -

                    (1,521,000)Issuance of stock warrants

                    -

                    -

                    10,000

                    -

                    4,000

                    -

                    -

                    4,000Issuance of stock with debt

                    -

                    -

                    10,000

                    -

                    6,000

                    -

                    -

                    6,000Share-based compensation related to employee stock
                        compensation

                    -

                    -

                    -

                    -

                    1,000

                    -

                    -

                    1,000Reservation of shares pursuant to deferred compensation plan
                        (note 12)

                    -

                    -

                    -

                    -

                    145,000

                    -

                    -

                    145,000Issuance of shares pursuant to deferred stock compensation
                        plan (note 12)

                    -

                    -

                    98,612

                    -

                    -

                    -

                    -

                    -Balance, December 31, 2006

                    27,838

                    889,000

                    5,591,580

                    4,000

                    38,665,000

                    (46,928,000)

                    22,000

                    (7,348,000)Net loss

                    -

                    -

                    -

                    -

                    -

                    (2,026,000)

                    -

                    (2,026,000)Comprehensive income (loss):






---





Foreign currency translation adjustment

                    -

                    -

                    -

                    -

                    -

                    -

                    31,000

                    31,000Total comprehensive loss

                    -

                    -

                    -

                    -

                    -

                    -

                    -

                    (1,995,000)Issuance of stock warrants

                    -

                    -

                    -

                    -

                    -

                    -

                    -

                    -Issuance of stock with debt

                    -

                    -

                    -

                    -

                    -

                    -

                    -

                    -Share-based compensation related to employee stock
                        compensation

                    -

                    -

                    -

                    -

                    5,000

                    -

                    -

                    5,000Reservation of shares pursuant to deferred compensation plan
                        (note 12)

                    -

                    -

                    -

                    -

                    153,000

                    -

                    -

                    153,000Issuance of shares pursuant to deferred stock compensation
                        plan (note 12)

                    -

                    -

                    66,135

                    -

                    -

                    -

                    -

                    -Balance, December 31, 2007

                    27,838

                    $889,000

                    5,657,715

                    $4,000

                    $38,823,000

                    $(48,954,000)

                    $53,000

                    $(9,185,000)






---





THE BEARD COMPANY AND SUBSIDIARIESStatements of Cash FlowsYear Ended December 31,2007

                    

                    2006

                    

                    2005Operating activities:Cash received from customers

                    

                    $1,319,000

                    

                    $1,652,000

                    

                    $1,061,000Cash paid to suppliers and employees

                    

                    (1,512,000)

                    

                    (2,632,000)

                    

                    (1,659,000)Interest received

                    

                    8,000

                    

                    26,000

                    

                    18,000Interest paid

                    

                    (399,000)

                    

                    (469,000)

                    

                    (600,000)Taxes (paid) refunded

                    

                    1,000

                    

                    (11,000)

                    

                    (119,000)Operating cash flows of discontinued operations

                    

                    (932,000)

                    

                    (970,000)

                    

                    (618,000)Net cash used in operating activities

                    

                    (1,515,000)

                    

                    (2,404,000)

                    

                    (1,917,000)Investing activities:Acquisition of property, plant and equipment

                    

                    (108,000)

                    

                    (10,637,000)

                    

                    (1,683,000)Acquisition of property, plant and equipmentof discontinued operations

                    

                    -

                    

                    (30,000)

                    

                    (414,000)Acquisition of intangibles

                    

                    (9,000)

                    

                    (22,000)

                    

                    (44,000)Proceeds from sale of assets

                    

                    306,000

                    

                    287,000

                    

                    139,000Proceeds from sale of assets of discontinued
                        operations

                    

                    -

                    

                    3,000

                    

                    107,000Other investments

                    

                    (8,000)

                    

                    156,000

                    

                    396,000Net cash provided by (used in) investing
                        activities

                    

                    181,000

                    

                    (10,243,000)

                    

                    (1,499,000)Financing activities:Proceeds from line of credit and term notes

                    

                    1,750,000

                    

                    12,012,000

                    

                    2,017,000Proceeds from related party debt

                    

                    278,000

                    

                    403,000

                    

                    2,321,000Payments on line of credit and term notes

                    

                    (641,000)

                    

                    (92,000)

                    

                    (219,000)Payments on related party debt

                    

                    (330,000)

                    

                    (217,000)

                    

                    (415,000)Proceeds from exercise of warrants

                    

                    -

                    

                    4,000

                    

                    123,000Member contribution to a consolidated partnership

                    

                    181,000

                    

                    397,000

                    

                    25,000Capitalized costs associated with issuance ofsubordinated debt

                    

                    (50,000)

                    

                    (16,000)

                    

                    (203,000)Other

                    

                    19,000

                    

                    18,000

                    

                    (26,000)Net cash provided by financing activities

                    

                    1,207,000

                    

                    12,509,000

                    

                    3,623,000Net increase (decrease) in cash and cash
                        equivalents

                    

                    (127,000)

                    

                    (138,000)

                    

                    207,000Cash and cash equivalents at beginning of
                        year

                    

                    188,000

                    

                    326,000

                    

                    119,000Cash and cash equivalents at end of year

                    

                    $61,000

                    

                    $188,000

                    

                    $326,000See accompanying notes to financial statements.






---





THE BEARD COMPANY AND SUBSIDIARIESStatements of Cash FlowsReconciliation of Net loss to Net Cash Used In Operating
                        Activities:Year Ended December 31,2007

                    

                    2006

                    

                    2005Net loss

                    

                    $(2,026,000)

                    

                    $(1,554,000)

                    

                    $(2,160,000)Adjustments to reconcile net loss to net
                        cashused in operating activities:Depreciation, depletion and amortization

                    

                    162,000

                    

                    180,000

                    

                    174,000Depreciation, depletion and amortizationof discontinued operations

                    

                    37,000

                    

                    35,000

                    

                    13,000Provision for abandonment costs

                    

                    -

                    

                    -

                    

                    30,000Gain on sale of assets

                    

                    (216,000)

                    

                    (287,000)

                    

                    (64,000)Gain on sale of assets of discontinued operations

                    

                    -

                    

                    (3,000)

                    

                    (154,000)Non cash interest expense

                    

                    -

                    

                    208,000

                    

                    -Gain on disposition of controlling interest in
                        subsidiary

                    

                    -

                    

                    (383,000)

                    

                    -Equity in net (earnings) loss of unconsolidatedaffiliates

                    

                    4,000

                    

                    (49,000)

                    

                    (4,801,000)Impairment of investments and other assets

                    

                    13,000

                    

                    

                    

                    4,465,000Non cash compensation expense and stock warrants

                    

                    154,000

                    

                    145,000

                    

                    194,000Minority interest in consolidated partnership

                    

                    -

                    

                    (8,000)

                    

                    (42,000)Other

                    

                    (1,000)

                    

                    1,000

                    

                    (21,000)Net change in assets and liabilities of
                        discontinuedoperations

                    

                    -

                    

                    (2,000)

                    

                    (33,000)Increase in accounts receivable, otherreceivables, prepaid expenses and other current
                        assets

                    

                    (282,000)

                    

                    (135,000)

                    

                    (115,000)(Increase) decrease in inventories

                    

                    116,000

                    

                    (56,000)

                    

                    (149,000)Increase (decrease) in trade accounts payable,accrued expenses and other liabilities

                    

                    524,000

                    

                    (496,000)

                    

                    746,000Net cash used in operating activities

                    

                    $(1,515,000)

                    

                    $(2,404,000)

                    

                    $(1,917,000)See accompanying notes to financial statements.






---



THE
        BEARD COMPANY AND SUBSIDIARIES

Notes to
        Financial Statements

December
        31, 2007, 2006, and 2005



(1) Summary of Significant Accounting Policies

The Beard
        Company's (“Beard” or the "Company") accounting policies reflect industry
        practices and conform to accounting principles generally accepted in the United States of
        America. The more significant of such policies are briefly described below.



Nature of Business

The
        Company’s current significant operations are within the following segments: (1) the
        Coal Reclamation (“Coal”) Segment, (2) the Carbon Dioxide (“CO2”)
        Segment, (3) the e-Commerce
        (“e-Commerce”) Segment, and
        (4) the Oil and Gas (“Oil & Gas”) Segment.



The Coal
        Segment is in the business of operating coal fines reclamation facilities in the United
        States of America 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 e-Commerce Segment consists of a 71%-owned subsidiary
        whose current strategy is to develop business opportunities to leverage
        starpay’sTM intellectual property portfolio of Internet payment methods and
        security technologies. The Oil & Gas Segment is in the business of producing oil and
        gas.



Principles of Consolidation and Basis of
        Presentation

The
        accompanying financial statements include the accounts of the Company and its wholly and
        majority owned subsidiariesinwhich the Company has a controlling financial interest.
        Subsidiaries and investees in which the Company does not exercise control are accounted for
        using the equity method. All significant intercompany transactions have been eliminated in
        the accompanying financial statements.



Use
        of estimates

Management
        of the Company has made a number of estimates and assumptions relating to the reporting of
        assets and liabilities and the disclosure of contingent assets and liabilities to prepare
        these financial statements in conformity with accounting principles generally accepted in
        the United States of America. Actual results could differ from those estimates.



Cash
        and Cash Equivalents

There were
        no cash equivalents at December 31, 2007 or 2006. For purposes of the statements of cash
        flows, the Company considers all highly liquid debt instruments with original maturities of
        three months or less at the date of purchase to be cash equivalents.



Receivables and Credit Policies

Accounts
        receivable include amounts due from (i)CO2 and natural gas from properties in which the
        Company owns an interest, and (ii) accrued interest receivable and uncollateralized
        customer obligations due under normal trade terms requiring payment within 30 days from the
        invoice date. Notes receivable are stated at principal amount plus accrued interest and are
        normally not collateralized. Payments of accounts receivable are allocated to the specific
        invoices identified on the customers remittance advice or, if unspecified, are applied to
        the earliest unpaid invoices. Payments of notes receivable are allocated first to accrued
        but unpaid interest with the remainder to the outstanding principal balance. Trade accounts
        and notes receivable are stated at the amount management expects to collect from
        outstanding balances. The carrying amounts of accounts receivable are reduced by a
        valuation allowance that reflects management’s best estimate of the amounts that will
        not be collected. Management individually reviews all notes receivable and accounts
        receivable balances that exceed 90 days from invoice date and based on an assessment of
        current creditworthiness, estimates the portion, if any, of the balance that will not be
        collected. Management provides for probable uncollectible accounts through a charge to
        earnings and a credit to a valuation allowance based on its assessment of the current
        status of individual accounts. Balances that are still outstanding after management has
        used reasonable collection efforts are written off through a charge to the valuation
        account and a credit to trade accounts receivable. Changes to the valuation allowance have
        not been material to the financial statements.



Property, Plant and Equipment

Property,
        plant and equipment are stated at cost, net of accumulated depreciation, and are
        depreciated by use of the straight-line method using estimated asset lives ranging from
        three to 40 years.



---



The Company
        charges maintenance and repairs directly to expense as incurred while betterments and
        renewals are generally capitalized. When property is retired or otherwise disposed of, the
        cost and applicable accumulated depreciation, depletion and amortization are removed from
        the respective accounts and the resulting gain or loss is reflected in
        operations.



Intangible Assets

Identifiable intangible assets are stated at cost, net of accumulated
        amortization, and are amortized on a straight-line basis over their respective estimated
        useful lives, ranging from five to 17 years.



Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
        Of

Long-lived
        assets and certain identifiable intangibles are reviewed for impairment whenever events or
        changes in circumstances indicate that the carrying amount of an asset may not be
        recoverable. Recoverability of assets to be held and used is measured by a comparison of
        the carrying amount of an asset to future net cash flows expected to be generated by the
        asset. If such assets are considered to be impaired, the impairment to be recognized is
        measured by the amount by which the carrying amount of the assets exceeds the fair value of
        the assets. Assets to be disposed of are reported at the lower of the carrying amount or
        fair value less costs to sell.



The Company
        recorded an impairment to its investments and other assets of $4,465,000 related to its
        investment in Cibola Corporation (“Cibola”) for the year 2005. There were no
        such impairments in 2006 or 2007.



Other
        Long-Term Liabilities

Other
        long-term liabilities consist of various items which are not payable within the next
        calendar year.



Fair
        Value of Financial Instruments

The
        carrying amounts of the Company’s cash and cash equivalents, accounts receivable,
        other current assets, trade accounts payables, and accrued expenses approximate fair value
        because of the short maturity of those instruments. At December 31, 2007 and 2006, the fair
        values of the long-term debt and notes receivable were not significantly different than
        their carrying values due to interest rates relating to the instruments approximating
        market rates on those dates.



Revenue Recognition

The Company
        recognizes revenue when it is realized or receivable and earned. Revenue from the CO2 and
        Oil & Gas Segments are recognized in the period of production. Revenue from Coal
        Segment projects is recognized in the period the projects are performed. License fees from
        the e-Commerce segment are recognized
        over the term of the agreement.



Income Taxes

Income
        taxes are accounted for under the asset and liability method. Deferred tax assets and
        liabilities are recognized for the future tax consequences attributable to differences
        between the financial statement carrying amounts of existing assets and liabilities and
        their respective tax bases and operating loss and tax credit carryforwards. Deferred tax
        assets and liabilities are measured using enacted tax rates expected to apply to taxable
        income in the years in which those temporary differences are expected to be recovered or
        settled. The Company provides a valuation allowance for deferred tax assets for which it
        does not consider realization of such assets to be more likely than not. The effect on
        deferred tax assets and liabilities of a change in tax rates is recognized in income in the
        period that includes the enactment date.



Share-Based Compensation Expense


On January
        1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised
        2004), “Share-Based Payment,” (“SFAS 123R”) which requires the
        measurement and recognition of compensation expense based on estimated fair values for all
        share-based payment awards made to employees and directors, including employee stock
        options. SFAS 123R supersedes the Company’s previous accounting under Accounting
        Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”
        (“APB 25”) for periods beginning in 2006. In March 2005, the Securities and
        Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”)
        relating to SFAS 123R. The Company has utilized the guidance of SAB 107 in its adoption of
        SFAS 123R.



SFAS 123R
        requires all share-based payments to employees, including grants of employee stock options,
        to be recognized in the results of operations at their grant-date fair values. The Company
        adopted SFAS 123R using the modified prospective transition method, which requires the
        application of the accounting standard as of January 1, 2006, the first day of the
        Company’s 2006 fiscal year. Under this transition method, compensation cost
        recognized in the first quarter of 2006 includes: (a) compensation cost for all share-based
        payments granted prior to but not yet vested as of December 31, 2005, based on the
        grant-date fair value estimated in accordance with the provisions of SFAS 123, and (b)
        compensation cost for all share-based payments granted subsequent to December 31, 2005,
        based on the grant date value estimated in accordance with the provisions



---



of SFAS
        123R. In accordance with the modified prospective method of adoption, the Company’s
        results of operations and financial position for prior periods have not been
        restated.



The Company
        reserved 175,000 shares of its common stock for issuance to key management, professional
        employees and directors under The Beard Company 1993 Stock Option Plan (the "1993 Plan")
        adopted in August 1993. In April 1998 the Board of Directors voted to increase the number
        of shares authorized under the 1993 Plan to 275,000, and the shareholders approved the
        increase in June 1998. As a result of the 3-for-4 reverse stock split effected in September
        2000 and the 2-for-1 stock split effected in August 2004, the number of shares authorized
        under the 1993 Plan was increased to 412,500. The 1993 Plan terminated on August 26, 2003.
        The remaining 26,250 options outstanding under the 1993 Plan lapsed without exercise in
        2006. At December 31, 2007 there were no options outstanding under the 1993
        Plan.



The Company
        reserved 100,000 shares of its common stock for issuance to key management, professional
        employees and directors under The Beard Company 2005 Stock Option Plan (the "2005 Plan")
        adopted in February 2005. There were 45,000 options granted under the 2005 Plan in the
        first quarter of 2005. However, on May 1, 2006, the Company cancelled the 2005 Plan and all
        the options under the 2005 Plan and replaced the 2005 Plan with the 2006 Stock Option Plan
        (the “2006 Plan”). The Company granted 45,000 options under the 2006 Plan in
        replacement of the options that were cancelled under the 2005 Plan; 15,000 of these options
        were cancelled effective July 31, 2006 following the resignation of the holder
        thereof.



Grant-Date Fair Value

The Company
        uses the Black-Scholes option pricing model to calculate the grant-date fair value of an
        award. The fair value of the options granted in 2006 was calculated using the following
        estimated weighted average assumptions:





Expected volatility

                    

                    283.9%Expected risk term (in years)

                    

                    5.5Risk-free interest rate

                    

                    4.84%Expected dividend yield

                    

                    0%




The
        expected volatility is based on historical volatility over the two-year period prior to the
        date of granting of the unvested options. Beginning in 2006, the Company has adopted the
        simplified method outlined in SAB 107 to estimate expected lives for options granted during
        the period. The risk-free interest rate is based on the yield on zero coupon U. S. Treasury
        securities for a period that is commensurate with the expected term assumption. The Company
        has not historically issued any dividends and does not expect to in the future.



Share-Based Compensation Expense

The Company
        uses the straight-line attribution method to recognize expense for unvested options. The
        amount of share-based compensation recognized during a period is based on the value of the
        awards that are ultimately expected to vest. SFAS 123R requires forfeitures to be estimated
        at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures
        differ from those estimates. The Company will re-evaluate the forfeiture rate annually and
        adjust as necessary. Share-based compensation expense recognized under SFAS 123R for the
        year ended December 31, 2007 was $5,000 and was charged to “Other Activities”.
        Prior to January 1, 2006, the Company accounted for its share-based compensation under the
        recognition and measurement principles of APB No. 25 and related interpretations, the
        disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based
        Compensation” and the disclosures required by SFAS No. 148, “Accounting for
        Stock-Based Compensation-Transition and Disclosure.” In accordance with APB No. 25,
        no share-based compensation was reflected in the Company’s net income for grants of
        stock options to employees because the Company granted stock options with an exercise price
        equal to the fair market value of the stock on the date of grant.



Had the
        Company used the fair value based accounting method for share-based compensation expense
        prescribed by SFAS Nos. 123 and 148 for the period ended December 31, 2005, the
        Company’s consolidated net loss and net loss per share would have been as illustrated
        in the pro forma amounts shown below:



---





For the Year EndedDecember 31, 2005(in thousands, except per share data)Earnings (loss) from continuing operations,

                        as reported

                    

                    

                    $ (2,302)Earnings from discontinued operations,

                        as reported

                    

                    

                    142Net earnings (loss), as reported

                    

                    

                    $ (2,160)Earnings (loss) from continuing operations,

                        as reported

                    

                    

                    $ (2,302)Less: total stock-based employee

                        compensation determined under fair

                        value based method for all awards,

                        net of tax

                    

                    

                    (5)Pro forma net earnings (loss) from

                        Continuing operations

                    

                    

                    $ (2,307)Earnings from discontinued operations,

                        as reported

                    

                    

                    142Pro forma net earnings (loss)

                    

                    

                    $ (2,165)Net earnings (loss) per average common

                        share outstanding, as reported:

                        Basic:

                        Earnings (loss) from continuingoperations

                        Earnings from discontinued operations

                    

                    

                    $ (0.39)

                        0.02Net earnings (loss), as reported

                    

                    

                    $ (0.37)Net earnings (loss) per average common share

                        share outstanding, as reported:

                        Diluted:

                        Earnings (loss) from continuingoperations

                        Earnings from discontinued operations

                    

                    

                    $ (0.39)

                        0.02Net earnings (loss), as reported

                    

                    

                    $ (0.37)Net earnings (loss) per average common share

                        outstanding, pro forma:

                        Basic:

                        Earnings (loss) from continuing operations

                        Earnings from discontinued operations

                    

                    

                    $ (0.39)

                        0.02Net earnings (loss)-basic, pro forma

                    

                    

                    $ (0.37)






---





Net earnings (loss) per average common share

                        outstanding, pro forma:

                        Diluted:

                        Earnings (loss) from continuing operations

                        Earnings from discontinued operations

                    

                    

                    $ (0.39)

                        0.02Net earnings (loss) - diluted, pro forma

                    

                    

                    $ (0.37)Weighted average common shares outstanding,

                        As reported:Basic

                    

                    5,888,000Diluted

                    

                    5,888,000Weighted average common shares outstanding,

                        Pro forma:Basic

                    

                    5,888,000Diluted

                    

                    5,888,000




As of
        December 31, 2007, there was $30,000 of
        total unrecognized compensation cost, net of estimated forfeitures, related to unvested
        share based awards, which is expected to be recognized over a weighted average period
        of 8.33 years.



Option Activity

A
        summary of the activity under the Company’s stock option plans for the periods
        indicated is as follows:



WeightedAverageShares

                    Exercise PriceOptions outstanding at December 31, 2004

                    26,250

                    $2.08Granted

                    45,000

                    2.70Exercised

                    -

                    -Cancelled

                    -

                    -Expired

                    -

                    -Options outstanding at December 31, 2005

                    71,250

                    $2.47Granted

                    45,000

                    1.53Exercised

                    -Cancelled A

                    45,000

                    2.70Forfeited

                    15,000

                    1.53Expired

                    26,250

                    2.08Options outstanding at December 31, 2006:

                    30,000

                    $1.53Granted

                    -

                    -Exercised

                    -

                    -Cancelled

                    -

                    -Forfeited

                    -

                    -Expired

                    -

                    -Options outstanding at December 31, 2007

                    30,000

                    $1.53Options exercisable at December 31, 2007

                    10,000

                    $1.53Options vested and options expected to

                        vest at December 31,
                        2007A

                    30,000

                    $1.53




_______



---



A The Company’s 2005 Stock Option Plan was cancelled on May
        1, 2006 and replaced by the 2006 Stock Option Plan. All options under the 2005 Plan were
        cancelled and replaced by options under the new plan on such date.



Convertible Preferred Stock

The
        Company's convertible preferred stock is accounted for at estimated fair value. Prior to
        January 1, 2003, the preferred stock had been redeemable and was carried at its estimated
        fair value. The excess of the estimated redeemable value over the fair value at the date of
        issuance was accreted over the redemption term. Effective January 1, 2003, the preferred
        stock ceased to be mandatorily redeemable and thereafter became convertible at the
        holder’s option into common stock. Accordingly, it is no longer subject to
        accretion.



Earnings (Loss) Per Share

Basic
        earnings (loss) per share data is computed by dividing earnings (loss) attributable to
        common shareholders by the weighted average number of common shares outstanding for the
        period. Diluted earnings per share reflect the potential dilution that could occur if the
        Company’s outstanding stock options
        (calculated using the treasury stock method)
        and warrants were exercised and if the Company’s preferred stock, convertible notes
        and deferred stock compensation units were converted to common
        stock.



Diluted
        earnings (loss) per share from continuing operations in the statements of operations
        exclude potential common shares issuable upon conversion of preferred stock, convertible
        notes, termination of the deferred stock compensation
        plan, or exercise of stock
        options and warrants as a result of losses from continuing operations in 2006 and 2007,
        because such potential common shares are antidilutive.



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 Year EndedDecember 31,

                        2007

                    December 31,

                        2006

                    December 31,

                        2005Basic EPS:Weighted average common

                        shares outstanding

                    

                    5,623,619

                    5,564,504

                    5,219,553Weighted average shares in deferred

                        stock compensation plan treated

                        as common stock equivalents

                    

                    271,919

                    90,522

                    668,1985,895,538

                    5,655,026

                    5,887,751Diluted EPS:Weighted average common

                        shares outstanding

                    

                    5,623,619

                    5,564,504

                    5,219,553Weighted average shares in deferred

                        stock compensation plan treated as common stock
                        equivalents

                    

                    271,919

                    90,522

                    668,1985,895,538

                    5,655,026

                    5,887,751




Concentrations of Credit Risk

Financial
        instruments that potentially subject the Company to concentrations of credit risk consist
        primarily of accounts and notes receivable. Accounts receivable from three parties
        comprised approximately 85% of the December 31, 2007 balances of accounts receivable.
        Generally, the Company does not require collateral to support accounts and notes
        receivable.



The Company
        maintains its cash in bank deposit accounts which, at times, may exceed federally insured
        limits. The Company has not experienced any losses in such accounts. The Company believes
        it is not exposed to any significant credit risk on cash and cash equivalents.



Comprehensive Income



---



SFAS No.
        130 establishes standards for reporting and display of “comprehensive income”
        and its components in a set of financial statements. It requires that all items that are
        required to be recognized under accounting standards as components of comprehensive income
        be reported in a financial statement that is displayed with the same prominence as other
        financial statements. During 2005, 2006 and 2007, the Company’s only significant
        items of comprehensive income related to foreign currency translation adjustments resulting
        from its equity investment in Xianghe BH Fertilizer Co., Ltd (“XBH”). The
        assets and liabilities of XBH, a wholly-owned subsidiary of BEE/7HBF, LLC, in which Beard
        owns 50% through Beard Environmental Engineering, LLC (“BEE”), a wholly-owned
        subsidiary of Beard, and Beijing Beard Sino-American Bio-Tech Engineering Co., Ltd.
        (“BTEC”), a wholly-owned subsidiary of Beard, are stated in the local currency
        (the Chinese yuan renminbi, “RMB”) and are translated into U.S. dollars using
        the current exchange rate in effect at the balance sheet date, while income and expenses
        are translated at average rates for the respective periods. Translation adjustments have no
        effect on net loss and are included in accumulated other comprehensive loss.



Reclassifications

Certain
        2006 and 2005 balances have been reclassified to conform to the 2007
        presentation.



**(2) Ability to Fund Operations
        and Continue as a Going Concern**

Overview

The
        accompanying financial statements have been prepared based upon the Company’s belief
        that it will continue as a going concern. The Company’s revenues from continuing
        operations increased in 2005 and 2006, but decreased in 2007 primarily as a result of sharp
        drops in both production and prices received in the Oil & Gas Segment. The Company has
        incurred operating losses and negative cash flows from operations during each of the last
        six years. The Company commenced projects in both its Coal and China Segments in 2005. Both
        of these were projected to begin generating positive cash flow during the last half of
        2006, but such projections have not been attained. (See “Additional Details”
        and “Subsequent Developments” below). Although the Company finalized its first
        licensing arrangement in its e-Commerce Segment in 2003, the
        arrangement did not make the segment profitable in 2005, 2006 or 2007 and will not make it
        profitable in 2008. The CO2 Segment received 11% less in revenues in 2007 than
        in 2006 and operating and SG&A expenses, including an additional $68,000 in
        severance taxes, were up, as well, resulting in a 20% decline in operating profit.
        Effective August 1, the Company elected to take a portion of its share of CO2
        production in kind from the McElmo Dome field and sell it through an entity designed for
        this purpose. The net revenues received according to the terms of the contracts dedicated
        to this entity were greater than they would have been under the terms of the contracts with
        the prior operator. Additionally, a total of 329,000 Mcf of production was placed in
        long-term storage during 2007.



During the
        three years ended December 31, 2007, the Company took several steps which reduced its
        negative cash flow to some degree, including (i) salary deferrals by its Chairman and
        President (2005 only), (ii) deferrals of directors’ fees into its Deferred Stock
        Compensation Plans (the “DSC Plans”) and (iii) suspension of the
        Company’s 100% matching contribution (up to a cap of 5% of gross salary) under its
        401(k) Plan.



Five
        private debt placements raised gross proceeds of $4,184,000 during such period, including
        $105,000 in the first quarter of 2007. In the first half of 2005 the Company borrowed
        $850,000 from a related party to finance most of the cost of a fertilizer plant in China.
        Starting in the fourth quarter of 2005, the Company borrowed $1,100,000 from the pond owner
        to begin constructing the plant for its coal fines recovery project in West Virginia. That
        funding ultimately increased to more than $14,150,000, as of March 31, 2007 including
        $2,800,000 of equity provided by affiliates of the pond owner. In addition, the Company
        secured a $350,000 long-term bank credit facility (the “2006 Facility”) in
        March of 2006 and borrowed $200,000 from one of the Company’s Note holders in May of
        2006. These financings were supplemented in 2007 by (i) the $105,000 of additional
        convertible notes discussed above, (ii) a $150,000 short-term loan from a shareholder of a
        former affiliate in March, (iii) $192,000 of
        short-term loans from the Company’s Note holders, (iv) a $1,500,000 long-term bank
        facility (the “2007 Facility”) in June, and (v) sale of the Company’s
        interest in the Bravo Dome CO2 field in October which generated net cash of
        $285,000. The remaining $220,000 principal balance of the 2006 Facility was paid from the
        proceeds of the 2007 Facility. In addition, the Coalition Managers Litigation has now been
        concluded, and the Company received approximately $96,000 from the defense fund in August
        of 2007. In March of 2008 the Company sold 35% of its interest in the McElmo Dome
        CO2 field, generating net cash of approximately $3,475,000. These measures
        enabled the Company to continue operating. As a result of the McElmo Dome sale, the
        Company’s balance sheet, liquidity and working capital have significantly improved
        from their year-end 2007 position.



The private
        placements resulted in additional dilution to the Company’s common equity. 72,240
        warrants were issued in 2005 and 12,869 warrants were issued in 2007 in connection with two
        of the private debt placements and 1,014,000 Stock Units (including 40,000 Units in the
        2008 first quarter) were accrued in the participants’ accounts as a result of salary
        and fee deferrals into the various DSC Plans. During such period $4,184,000 of convertible
        notes were also issued which are



---



convertible
        into 3,506,000 shares of common stock. Additional dilution also occurred due to an
        adjustment to the Preferred Stock conversion ratio resulting from the issuance of the
        warrants, the convertible notes and the salary deferrals. Termination of the 2003-2 DSC
        Plan resulted in the issuance of 218,000 common shares in 2005, 98,000 in 2006, 66,000 in
        2007, and another 66,000 in the first quarter of 2008. In addition, 25,000 options were
        issued to a financial consultant in 2005 and 30,000 employee stock options were issued in
        2006 (both figures net of forfeitures).



Additional Details

The
        Company’s principal business is coal reclamation, and this is where
        management’s operating attention is primarily focused. The Coal
        Segment had a signed contract to construct and operate a pond fines recovery project in
        West Virginia (the “Pinnacle Project” or the “Project”) and
        commenced construction on the Project in September of 2005. The Company obtained
        commitments for (i) $2,800,000 of equity for the Project provided by a group of investors
        (the “Group”) who were affiliates of PinnOak Resources, LLC
        (“PinnOak”), the pond owner. in exchange for 50% ownership in the Project; and
        (ii) a $9,000,000 bank loan subject to obtaining a USDA guaranty (the
        “Guaranty”) of 70% of the loan amount. PinnOak committed to fund or to arrange
        the funding for the Project if the Guaranty was not obtained.



Due to cost
        over-runs of more than $3,000,000, the Group elected, effective October 1, 2006, to
        exercise their option to assume control of Beard Pinnacle, LLC (“BPLLC”), the
        limited liability company which owned the Pinnacle Project, and reduce the Company’s
        interest therein to 25%. As a result, the Company was precluded from obtaining the
        USDA-guaranteed financing for the Project and PinnOak became the permanent source of
        financing. Despite the fact that PinnOak was providing all of the financing for the
        Project, the Company was deemed to own 100% of the Project until the Group subscribed to
        their ownership effective September 30, 2006. Effective October 1, 2006 the Company’s
        ownership percentage was reduced to 25% and the Group took control of the Project. At that
        point BPLLC ceased to be a consolidated entity and all of its assets and liabilities were
        removed from the Company’s balance sheet.



The
        Pinnacle Project produced its first coal in October of 2006. In May of 2007 the Company and
        the PinnOak parties agreed to terminate most of the agreements governing the Project. The
        Company gave up its remaining 25% interest in the Project while remaining as contract
        operator. As part of the agreement, the Company was relieved of the guaranty made by a
        Company subsidiary of loans made by PinnOak totaling more than $11,350,000 secured by the
        subsidiary’s 25% interest in the Project and the Company’s ownership percentage
        in the Project was reduced to zero.



On October
        11, 2007, the Company signed a purchase agreement and on October 31, 2007, it made a down
        payment on the site for a new project (the “Yukon Project”). A new subsidiary,
        Beard Yukon, LLC, was formed to conduct recovery operations at this site. The Company had
        raised $280,000 of the $450,000 necessary to fund the Yukon Project when it was determined
        that the owner of the site would not allow us to use the site to test the equipment we were
        planning to use during the recovery process. Alternative equipment would have been too
        expensive for a stand alone project, and accordingly the project was abandoned.



The Coal
        Segment is actively pursuing multi-project financing for its future coal projects through
        two separate investment banking sources. Meanwhile, it is continuing to develop projects so
        as to have them ready when the financing becomes available. The timing of the projects the
        Company is actively pursuing is uncertain and their continuing development is subject to
        obtaining the necessary financing. There is no assurance that the required financing will
        be obtained or that any of the projects under development will materialize.



To date the
        China fertilizer plant has not marketed sufficient product to reach its projected breakeven
        point. Several new marketing initiatives were attempted, but all were unsuccessful. In
        December of 2007 the Company’s Board of Directors voted to discontinue the China
        Segment. The Company engaged an investment banking firm to explore available alternatives
        including, but not limited to: sale of the plant, merger of the operation with a
        competitor, or bringing in a new partner. It is currently exploring the possibility of
        manufacturing product for a Chinese company which currently produces liquid fertilizer and
        has announced its intention to expand into the granular fertilizer business. If this
        company elects to proceed, our partner will then take over the China fertilizer plant. We
        will retain a 2% interest in the partnership and be relieved of all of the existing debt.
        Meanwhile, the Company and its partner advanced a total of $297,000 during 2007 and an
        additional $49,000 during the 2008 first quarter to fund the plant’s operations. It
        is estimated that the Company may need to make additional advances of up to $50,000 while
        the negotiations concerning the production contract are being concluded.



Several
        developments have taken place which have benefited, or are expected to benefit, the
        Company’s cash flow position:



(i) On October 11, 2007, the Company entered into a Change of Terms
        Agreement on its $1,500,000 bank credit facility (the “2007 Facility”) whereby
        no principal reduction was required on the facility for the months of July



---



through October of 2007, only a $25,000 reduction was required in November
        and December of 2007, a $50,000 reduction in January and February of 2008, and a $75,000
        per month reduction in March through December of 2008. This made $100,000 available under
        the 2007 Facility that had already been paid and eliminated by verbal agreement the need to
        pay the September payment. It also had the effect of deferring a portion of the principal
        reductions until (a) the Kinder Morgan matter (see below) was resolved, (b) the disposition
        of the China fertilizer plant has been concluded, and (c) the Company transfers the balance
        of its CO2 production to a new purchaser, which is expected to significantly
        improve the Company’s cash flow.



(ii) On October 31, 2007, the Company closed on the sale of its interest in
        the Bravo Dome CO2 Unit for $300,000. The sale, which was effective October
        1st, added $285,000 to cash flow after payment of a $15,000 finder’s fee.
        The sale was also meaningful since there had been no market for the Company’s share
        of the production from the unit for the last 10 years, and it had received no income during
        such period while having to pay its share of the operating costs.



(iii) In May of 2006 the Company signed an Authorization for Expenditure to
        participate for its 0.54469% working interest (“WI”) share of the $100,000,000
        costs of the Goodman Point expansion (the “Expansion”) of the McElmo Dome Unit.
        In February of 2007 Kinder Morgan (“KM”), the operator, belatedly advised the
        Company that Exxon Mobil had elected not to participate and that the Company must carry its
        share of their costs, increasing its interest in the Expansion to 0.968564% of the costs.
        The Company, together with a number of the small share WI owners strongly objected to this
        arrangement, resulting in a meeting of KM with all of the WI owners on June 30, 2007. As a
        result of the meeting KM sent a letter in late October giving the parties the option to
        either (a) carry Exxon Mobil for their share of such costs, or (b) opt out of the Expansion
        and be carried along with Exxon Mobil (paying 12% interest until payout of such costs out
        of production from the Expansion). Meanwhile, during all of 2007, KM had been billing the
        Company for its expanded 0.968564% interest in the Unit. Due to the Company’s
        illiquid cash position, it had not paid any of such costs since April of 2007, and they had
        suspended the Company’s runs, which had been in excess of $100,000 per month, since
        that time. This caused the Company considerable harm and severely impacted its cash flow.
        The Company elected option (b) and shortly before year-end KM released the cash of nearly
        $620,000, representing the Company’s share of the refunded costs of expansion and the
        revenue which KM had arbitrarily suspended.



(iv) In May of 2007 the Company committed the approximately 30% of its
        McElmo Dome production which had been selling at the lowest prices to a new purchaser which
        began taking such production August 1. The price the Company receives under this contract
        tracks the price of crude oil. Negotiations are currently underway for new contracts
        covering the balance of the Company’s production, again geared to the price of crude
        oil.



(v) In December of 2007 the Company has made the decision to discontinue the
        China Segment; as a result, it will no longer have the burden of supporting such operation
        in the future.



Subsequent Developments


On March
        26, 2008, the Company closed on the sale of 35% of its interest in the McElmo Dome
        CO2 Unit for $3,500,000. The sale, which was effective February 1, 2008, added
        approximately $3,475,000 to cash flow after legal costs. Because our interest in McElmo
        Dome served as the collateral for our primary lines of credit we entered into a new Change
        of Terms Agreement reducing the maximum available credit under the 2007 Facility from
        $1,500,000 to $1,000,000 and modifying the required monthly principal reduction from
        $75,000 per month beginning in March of 2008 to $50,000 per month beginning in April of
        2008. The outstanding principal balance under the facility was reduced down to zero. In
        addition, the outstanding loan agreement and related promissory note with The William M.
        Beard and Lu Beard 1988 Charitable Unitrust (the “Unitrust”) was amended to
        reduce the outstanding principal balance of the loan from $2,783,000 to $2,250,000, pay the
        accrued interest of $697,000 and extend the maturity date from April 1, 2009 to April 1,
        2010. The Company also entered into a Release, Subordination and Amended and Restated
        Nominee Agreement whereby the Unitrust loan will continue to be subordinate to the
        Company’s $390,000 note in favor of Boatright Family, L.L.C.
        (“Boatright”) and the 2007 Facility, and the Boatright note will continue to be
        subordinate to the 2007 Facility.



The Company
        expects to generate cash of at least $40,000 from the disposition of the remaining assets
        from two of its discontinued segments. The excess cash provided by the McElmo Dome sale is
        expected to provide sufficient working capital to satisfy the Company’s liquidity
        needs until the disposition of the assets and liabilities of the China Segment have been
        concluded and the new production sales contracts at McElmo Dome have been finalized. This
        will eliminate the cash flow drain from the China Segment, and it is anticipated that the
        Coal Segment will become self-sustaining from the projects it has under development prior
        to year-end 2008.



---



**(3) Discontinued Operations**

BE/IM
        Segment

In 1999,
        the Management Committee of a joint venture 40%-owned by the Company adopted a formal plan
        to discontinue the business and dispose of its assets. The venture was dissolved in 2000
        and the Company took over certain remaining assets and liabilities. The majority of the
        assets of the segment were sold prior to 2003. In 2005, the Company recorded earnings of
        $44,000 related to this segment, which included $48,000 in gains from the sale of
        equipment. The segment incurred net losses of $3,000 for each of the years 2006 and 2007.
        The Company expects no further material charges to earnings related to the remaining
        assets.



As of
        December 31, 2007, the significant assets related to the segment’s operations
        consisted primarily of equipment with no estimated net realizable value. The segment had no
        significant liabilities at December 31, 2007. The Company is actively pursuing
        opportunities to sell the segment’s few remaining assets and expects the disposition
        to be completed by December 31, 2008.



WS
        Segment

In 2001,
        the Company made the decision to cease pursuing opportunities in Mexico and the WS Segment
        was discontinued. The bulk of the segment’s assets were sold in 2001. In 2005, the
        segment recorded earnings of $98,000, which included gains from the sale of equipment
        totaling $107,000. The segment recorded net losses of $3,000 and $29,000, respectively, in
        2007 and 2006. As of December 31, 2007, the significant assets of the WS Segment were fixed
        assets totaling $20,000. The Company is actively pursuing the sale of the remaining assets
        and expects to have them sold or otherwise disposed of by December 31, 2008. The
        significant liabilities of the segment consisted of trade accounts payable and other
        accrued expenses totaling $43,000. It is anticipated that all of the liabilities of the
        segment will be paid prior to December 31, 2008.



China
        Segment

In December
        of 2007, the Company elected to dispose of its fertilizer manufacturing operations and
        related interests in China. The Company incurred losses of $1,069,000, $923,000 and
        $821,000 for the years ended December 31, 2007, 2006 and 2005, respectively. At December
        31, 2007, the significant assets of the China Segment included (i) fixed assets of
        $337,000, (ii) inventory of $89,000 and (iii) cash, receivables and other current assets
        totaling $41,000. The significant liabilities of the segment included long-term debt of
        $850,000, current debt of $578,000 and trade payables and accrued expenses of $182,000. The
        Company is presently seeking a buyer for the assets and expects to have them sold or
        otherwise disposed of prior to December 31, 2008. The Company expects to pay or otherwise
        be relieved of all liabilities of the segment prior to December 31, 2008.



(4) 1993 Restructure; Convertible Preferred
        Stock

As the
        result of a restructure (the “Restructure”) effected in 1993, a company owned
        by four lenders (the “Institutions”) received substantially all of the
        Company’s oil and gas assets, 25% of the Company’s then outstanding common
        stock, and $9,125,000 stated value (91,250 shares, or 100%) of its preferred stock. As a
        result, $101,498,000 of the Company’s long-term debt and other obligations were
        eliminated.



The
        Company’s preferred stock was mandatorily redeemable through December 31, 2002 from
        one-third of Beard’s consolidated net income. At January 1, 2003, the stock was no
        longer redeemable, and each share of Beard preferred stock became convertible into
        4.26237135 (118,655) shares (pre-split) of Beard common stock. The conversion ratio is
        adjusted periodically (i) for stock splits, (ii) as additional warrants or convertible
        notes are issued, and (iii) as additional shares of stock are credited to the accounts of
        the Company’s Chairman or President in the Company’s Deferred Stock
        Compensation Plans, in each case at a value of less than $1.29165 per share. Fractional
        shares will not be issued, and cash will be paid in redemption thereof. At December 31,
        2007 (after giving effect to a 2-for-1 stock split effected in August of 2004) each share
        of Beard preferred stock was convertible into 10.51925814 (292,835) shares of Beard
        common stock. The preferred stockholder is entitled to one vote for each full share of
        common stock into which its preferred shares are convertible. In addition, preferred shares
        that have not been converted have preference in liquidation to the extent of their $100 per
        share stated value.



From 1995
        through 1998 the Company redeemed or repurchased 63,412 of the preferred shares from the
        Institutions or from individuals to whom the Institutions had sold such shares. The last
        31,318 of such shares were purchased for $31.93 per share in 1998.



At December
        31, 2007 and 2006, the convertible preferred stock was recorded at its estimated fair value
        of $889,000 or $31.93 per share versus its aggregate stated value of $2,784,000.



(5) Investments and Other Assets



---



Investments and other assets consisted of the following:



December 31,2007

                    2006Investment in real estate limited partnerships

                    $ 13,000

                    $ 13,000Other assets

                    53,000

                    45,000$ 66,000

                    $ 58,000




Investment in Real Estate Limited Partnerships

The Company
        owns a limited partnership interest in a real estate limited partnership whose only asset
        consists of a tract of undeveloped land near Houston, Texas, most of which was sold in
        2004. The Company recorded losses of $2,000 in each of the years 2005, 2006 and 2007 from
        its share of the limited partnership’s operations. These losses are attributable to
        the Company’s share of real estate taxes on the property held by the
        partnership.



Other assets

These
        assets consist primarily of deposits on hand with various regulatory agencies. There were
        no impairments of these assets in 2005, 2006 or 2007.



(6) Notes Receivable

At December
        31, 2007, the Company had a $35,000 note receivable from a related party. The note is due
        to be repaid December 31, 2008, is unsecured and bears interest at six percent per year
        beginning January 2, 2008. In addition, at December 31, 2006, the Company had other notes
        receivable totaling $13,000 from the sale of equipment and an $11,000 loan receivable from
        a related party.



(7) Property, Plant and Equipment

Property,
        plant and equipment consisted of the following:



December 31,2007

                    2006Oil and gas leases

                    $ 84,000

                    $ 84,000Proved carbon dioxide properties

                    1,302,000

                    1,414,000Buildings and land improvements

                    38,000

                    28,000Machinery and equipment

                    711,000

                    736,000Other

                    171,000

                    187,000$ 2,306,000

                    $ 2,449,000




The Company
        incurred $83,000, $100,000, and $65,000, of depreciation expense for 2007, 2006, and 2005,
        respectively.



(8) Intangible Assets

Intangible assets are summarized as follows:



December 31,2007

                    2006Debt issuance costs

                    $ 517,000

                    $ 460,000Patent costs

                    -

                    12,000Other

                    1,000

                    4,000$ 518,000

                    $ 476,000




Accumulated amortization is summarized as follows:





---





December 31,2007

                    2006Debt issuance costs

                    $ 380,000

                    $ 304,000Patent costs

                    -

                    2,000Other

                    1,000

                    -$ 381,000

                    $ 306,000




During
        2005, the Company capitalized $228,000 of costs associated with the issuance of the 12%
        Convertible Subordinated Notes due August 31, 2009, the 12% Convertible Subordinated Notes
        due February 15, 2010 and an $850,000 3.83% Note due February 14, 2010. The costs of the
        12% notes due in 2009 will be fully amortized by the end of August, 2009; the costs of the
        12% notes due in 2010 and the 3.83% note due also in February, 2010,are being amortized
        over five years and will be fully amortized by the first quarter of 2010, all as a result
        of such notes having been paid off.



During
        2006, the Company capitalized $16,000 of costs associated with the issuance of the 12%
        Convertible Subordinated Series A and Series B Notes due August 30, 2008 and November 30,
        2008, respectively. The costs of the 12% notes due in 2008 will be fully amortized by the
        end of November, 2008. In 2007, the Company capitalized $57,000 of costs associated with
        revising the terms of its reducing revolving credit facility with a local bank. These costs
        will be fully amortized by the end of 2008.



The Company
        incurred $77,000, $78,000, and $57,000 of amortization expense for 2007, 2006 and 2005,
        respectively. In addition, in 2005 the Company wrote off another $51,000 of previously
        unamortized costs associated with an unsuccessful effort to obtain funding for either or
        both of the China or Coal Segments. In 2007, the Company wrote off another $13,000 of
        previously unamortized costs associated with unsuccessful attempts to gain a patent in
        its e-Commerce Segment. If no capital assets are added, amortization
        expense is expected to be as follows.



Year

                    Amount2008

                    $ 87,0002009

                    45,0002010

                    5,000$ 137,000




(9) Long-term Debt



Long-term debt is summarized as follows:



December 31,2007

                    2006Coal (a)

                    $ 10,000

                    $ 38,00012% Convertible Subordinated Notes due February, 2010 (b)
                        (c)

                    2,205,000

                    2,100,00012% Convertible Subordinated Notes due August, 2009
                        (d)

                    1,328,000

                    1,328,0003.83% Loan due February, 2010 (e)

                    850,000

                    850,0006% Loan due January, 2009 (e)

                    578,000

                    397,00012% Loan due May, 2007 (h)

                    -

                    200,000Revolving Credit Facility (i)

                    1,375,000

                    260,000Series A 12% Convertible Subordinated Notes due August 30,
                        2008 (g)

                    83,000

                    83,000Series B 12% Convertible Subordinated Notes due November 30,
                        2008 (g)

                    568,000

                    568,00012% Notes due February, 2008 (b)

                    55,000

                    -Loans including accrued interest – affiliated entities
                        (f)

                    3,599,000

                    3,173,00010,651,000

                    8,997,000Less current maturities, debt of discontinued operations and
                        short term debt

                    3,662,000

                    1,718,000Long-term debt

                    $ 6,989,000

                    $ 7,279,000






---



(a)

                    At December 31, 2007, the Company’s Coal Segment had a
                        note payable with a total balance due of $10,000. The note bears interest
                        at zero%, requires monthly payments of principal and interest totaling $531
                        and matures in 2009. The note is secured by an automobile with an
                        approximate book value of $10,000 at December 31, 2007.




(b)

                    On August 31, 2007, the Company issued $79,000 of short-term
                        notes, along with two-year warrants to purchase the 7,869 shares of the
                        Company’s common stock for $0.80 per share, in lieu of the
                        semi-annual interest payment due on its 12% Convertible Subordinated Debt
                        due August 31, 2009. The notes bore interest at 12%. The Company repaid
                        $24,000 along with accrued interest totaling less than $1,000 on October
                        11, 2007. The remaining $55,000, along with accrued interest totaling
                        $3,000, were repaid on February 29, 2008.




(c)

                    In September of 2004, the Company arranged for an investment
                        firm to sell $1,800,000 of 9% convertible subordinated notes (the “9%
                        Notes”) in a private placement. As of December 15, 2004, a total of
                        $255,000 of the offering had been subscribed and closed, including $150,000
                        by directors of the Company, and the offering was terminated. On December
                        29, 2004, a new private
                        placement of the Company’s 12% Convertible Subordinated Notes (the
                        “12% Notes”) was commenced. In December of 2004 the 9% Notes
                        were exchanged for a like amount of 12% Notes and the holders forgave all
                        accrued interest on the 9% Notes, totaling $5,000. An additional $1,845,000
                        of the 12% Notes were subscribed and closed in January bringing the total
                        offering amount to $2,100,000. In February of 2007, an additional $105,000
                        of these notes were sold making the total amount outstanding $2,205,000.
                        The Company began paying interest only on a semi-annual basis effective
                        August 15, 2005. Such payments will be made until the February 15, 2010
                        maturity date, at which time the Company will make a balloon payment of the
                        outstanding principal balance plus accrued and unpaid interest. The Company
                        granted a security interest in Beard Technologies’ equipment to the
                        holders of the 12% Notes. The security interest was released when the
                        Company raised sufficient funds to finance the Pinnacle Project. The notes
                        are convertible into shares of the Company’s stock at an initial
                        conversion price of $1.00 per share. The Company may force conversion of
                        the notes after February 15, 2007 if the weighted average sales price of
                        the Company’s common stock has been more than two times the
                        conversion price for more than sixty (60) consecutive trading
                        days.




(d)

                    In June of 2005, the Company arranged for an investment
                        banking firm to commence a private debt placement of up to $2,004,102 of
                        its 12% Convertible Subordinated Notes (the “2009 Notes”) due
                        August 31, 2009. As part of the offering, holders of the remaining $804,102
                        of 10% Notes due November 30, 2006 were given the right to exchange such
                        notes for the 2009 Notes. Holders of $624,000 of the 10% Notes did exchange
                        their notes and the Company sold an additional $511,000 of the 2009 Notes
                        bringing the total of the 2009 Notes outstanding to $1,135,000 at December
                        31, 2005. The Company began paying interest only on a semi-annual basis
                        effective February 28, 2006. Such payments will be made until the August
                        31, 2009 maturity date, at which time the Company will make a balloon
                        payment of the outstanding principal balance plus accrued and unpaid
                        interest. The 2009 Notes are convertible into shares of the Company’s
                        common stock. The conversion price for the 2009 Notes was determined by the
                        weighted average price of Beard common stock during the 90-day period
                        preceding the date each subscription was received by the Company, subject
                        to the proviso that all notes issued in connection with subscriptions
                        received on or before July 15, 2005, would have a conversion price of
                        $2.25. The Company has the right to force conversion of the 2009 Notes
                        after February 28, 2007 if the weighted average sales price of its common
                        stock has been more than two times the conversion price for more than 60
                        consecutive trading days. These notes are convertible into 504,444 shares
                        of the Company’s common stock. The unrelated third party which
                        purchased $500,000 of the 10% Notes---see footnote (b) above---was allowed
                        to retain its security interest in the McElmo Dome collateral to the extent
                        of $390,000 (the remaining principal balance of its note). In February of
                        2006, the Company sold another $193,000 of the 2009 Notes. These notes are
                        convertible into 145,415 shares of the Company’s common
                        stock.




(e)

                    On February 14, 2005, the Company borrowed $850,000 from its
                        50%-partner in the U.S limited liability company which owns Xianghe BH
                        Fertilizer Co., Ltd. (“XBH”), the owner and operator of the
                        China Segment’s fertilizer plant. XBH was formed in and operates
                        solely in China. The note bears interest at 3.83%, which was the Applicable
                        Federal Mid Term rate on the date of the note. Interest is payable annually
                        commencing on February 14, 2006 and will be paid until the maturity of the
                        note, February 14, 2010. At December 31, 2007, the Company had accrued
                        interest totaling $61,000 on this unsecured note. During 2006 and 2007, the
                        Company borrowed an additional $578,000 from its 50% partner in the
                        U.S.




---



limited liability company which owns XBH. The note bears interest at 6%,
        payable semi-annually, with the principal balance due at maturity on January 13, 2008. In
        January of 2008 the maturity date of the note was extended to January 13, 2009. At December
        31, 2007, the Company had accrued interest totaling $42,000 on this unsecured note. Both
        the 2006 and 2007 principal and accrued interest balances associated with these notes are
        included in “Liabilities of discontinued operations held for resale” on the
        balance sheets presented.



(f)

                    At December 31, 2007, the Company had borrowed $2,783,000
                        from an affiliated entity of the Chairman of the Company under terms of a
                        note that bears interest at 10%. Such borrowings are subject to a Deed of
                        Trust, Assignment of Production, Security Agreement and Financing Statement
                        recorded against the Company’s working and overriding royalty
                        interests in the McElmo Dome Field. At December 31, 2007, the Company owed
                        $668,000 of accrued interest on this note. The note, which was due to be
                        repaid on April 1, 2008, has been extended to April 1, 2009. At December
                        31, 2007, the Company had borrowed another $98,000 from this same affiliate
                        under terms of a loan that bears interest at 1⁄2% above the Wall
                        Street Journal prime rate. The loan was repaid on March 27, 2008. At
                        December 31, 2007, the Company owed $2,000 of accrued interest on this
                        loan. In September, 2007 the Company borrowed $50,000 under a note from a
                        related party for working capital. The noteholder was also given two-year
                        warrants to purchase 5,000 shares of the Company’s common stock for
                        $0.80 per share. The note bore interest at 12% and was repaid on March 27,
                        2008. At December 31, 2007, the Company owed $2,000 of accrued interest on
                        this note.




(g)

                    In October of 2006, the Company arranged for an investment
                        banking firm to commence a private debt placement of up to $700,000 of its
                        Series A 12% Convertible Subordinated Notes (the “Series A
                        Notes”) due August 30, 2008 and up to $568,000 of its Series B 12%
                        Convertible Subordinated Notes (the “Series B Notes”) due
                        November 30, 2008. As part of the offering, holders of the Company’s
                        outstanding Production Payment totaling $568,000 associated with the 10%
                        Participating Notes due November 30, 2006 were given the opportunity to
                        tender their Production Payment in exchange for a like amount of the Series
                        B Notes and all such holders elected to do so. Holders of the Production
                        Payment that exchanged their Production Payment and holders of the
                        Company’s other outstanding convertible subordinated debt were given
                        the right to purchase Series A Notes. Under these terms, the Company placed
                        an additional $83,000 of the Series A Notes. The Series A and B Notes bear
                        interest at an annual rate of 12%. The initial payment of interest on the
                        Series A Notes was due on February 28, 2007 and is payable semi-annually
                        thereafter. The initial payment of interest on the Series B Notes was on
                        November 30, 2006 and is also payable semi-annually thereafter. Only
                        interest will be paid until the respective maturity dates of the Series A
                        and B Notes, which are convertible into shares of the Company’s
                        common stock. The conversion price for the Notes is determined by the
                        weighted average closing price of Beard common stock during the 90-day
                        period preceding the date each subscription was received by the Company
                        with a floor of $1.00 per share, subject to the proviso that all notes
                        issued in connection with subscriptions received on or before October 19,
                        2006, would have a conversion price of $1.00. The Company has the right to
                        force conversion of the Series A and B Notes after March 31, 2008 if the
                        weighted average closing sales price of its common stock has been more than
                        two times the conversion price for more than 40 consecutive trading days.
                        These notes are convertible into 651,000 shares of the Company’s
                        common stock.




(h)

                    On May 22, 2006, the Company borrowed $200,000 from the
                        unrelated third party that holds the $390,000 note referred to in (d)
                        above. The note bore interest at 12% and the principal and all accrued
                        interest was due to be repaid May 22, 2007. Such borrowing was subject to a
                        Deed of Trust, Assignment of Production, Security Agreement and Financing
                        Statement recorded against the Company’s working and overriding
                        royalty interests in the McElmo Dome property, which is superior to both
                        the lien held by the Chairman’s affiliate referred to in (b) above
                        and by the $390,000 prior lien already held by such third party. In
                        addition and in order to obtain this financing, the Company issued the
                        lender 10,000 shares of its common stock which had a fair market value of
                        $1.05 per share on the date of issuance. This note was repaid, along with
                        accrued interest of $25,000, on June 8, 2007.




(i)

                    On March 28, 2006, the Company obtained a $350,000 reducing
                        revolving credit facility from a local bank (the “2006
                        Facility”. Terms of the 2006 Facility provided that on April 30,
                        2006, and on the last day of each month thereafter, the principal amount of
                        the note was to be reduced by $10,000. Such borrowing was subject to a Deed
                        of Trust, Assignment of Production, Security Agreement and Financing
                        Statement recorded against the Company’s working and overriding
                        royalty interests in the Yuma County, Colorado gas wells. The Company paid
                        $30,000, which it capitalized, to another note holder to subordinate its
                        note to the new lender. The Company borrowed a maximum of $290,000 under
                        the terms of the 2006 Facility, and the balance outstanding at December 31,
                        2006 was $260,000. The note bore interest at the Wall Street Journal Prime
                        Rate plus 1.5% and was payable monthly. The note was to mature on September
                        30, 2007. On June 8, 2007, however, the Company consummated a $1,500,000
                        long-term bank revolving reducing line of credit (the “2007
                        Facility”) collateralized by a priority position in its interest in
                        the McElmo Dome field (the “Collateral”) and the remaining
                        balance of $220,000 on the 2006 Facility was repaid. Initially, the Company
                        could borrow up to $1,500,000 under the new line but that limit began
                        reducing by $50,000 per month starting on July 31, 2007 and is to be fully
                        repaid by December 31, 2008.




---



On October 11, 2007, the Company entered into a Change of Terms Agreement on
        the 2007 Facility whereby no principal reduction was required on the facility for the
        months of July through October of 2007, only a $25,000 reduction was required in November
        and December of 2007, a $50,000 reduction in January and February of 2008, and a
        $75,000 per month reduction was required in
        March through December of 2008. (See “Recent Developments” above). At December
        31, 2007, the balance outstanding on the 2007 Facility was $1,375,000. The line accrues
        interest at 1.5% above the Wall Street Journal Prime Rate which at December 31, 2007 was
        7.25%. In connection with the sale of 35% of the Company’s interest in the McElmo
        Dome Unit on March 26, 2008, the Company entered into a new Change in Terms Agreement on
        March 25, 2008, whereby the 2007 Facility was modified to reduce the maximum credit
        available under the facility to $1,000,000 and to change the required monthly reductions to
        $50,000 per month beginning April 30, 2008. The Company reduced the outstanding principal
        balance under the 2007 Facility to zero on March 28, 2008. As part of the agreement for the
        2007 Facility, all prior liens held by third parties will be released, and the bank has
        agreed to grant a partial release covering 35% of the Collateral. The third parties will
        then place new liens against the Collateral reflecting their respective positions which
        will again be subordinate to the bank’s secured position.



At December
        31, 2007, the annual maturities of long-term debt were $2,812,000 in 2008, $4,783,000 in
        2009 and $3,056,000 in 2010.



The Company
        incurred $717,000, $725,000 and $713,000 of interest expense relating to debt to related
        parties in 2007, 2006 and 2005, respectively. The Company paid $381,000, $384,000 and
        $464,000 of those amounts for 2007, 2006 and 2005, respectively.



The
        weighted average interest rates for the Company’s short-term borrowings were 11.3%
        and 10.6% as of December 31, 2007 and 2006, respectively.



The above
        financings were further supplemented in 2007 by (i) a $150,000 short-term loan from a
        shareholder of a former affiliate, (ii) $39,000 of short-term loans from our Note holders,
        and (iii) an additional short-term note of $23,000 from a current affiliate.



(10) Operating Leases

Noncancelable operating leases for continuing operations relate principally
        to office space, vehicles and operating equipment. Gross future minimum payments under such
        leases as of December 31, 2007 are summarized as follows:



Year

                    Amount2008

                    $ 109,0002009

                    -2010

                    -$ 109,000




Gross
        future minimum payments under such leases for the discontinued China Segment are $100,000,
        $100,000 and $58,000 for 2008, 2009 and 2010, respectively.



Rent
        expense under operating leases aggregated $174,000, $166,000, and $166,000, in 2007, 2006,
        and 2005, respectively. Additionally, rent expense under operating leases in the now
        discontinued China Segment totaled $97,000, $157,000 and $130,000 in 2007, 2006, and 2005,
        respectively.



(11) Income Taxes

Total
        income tax expense (benefit) was allocated as follows:



Year ended December 31,2007

                    2006

                    2005Continuing operations

                    $ (1,000)

                    $ (17,000)

                    $ 35,000Discontinued operations

                    -

                    -

                    -$ (1,000)

                    $ (17,000)

                    $ 35,000




Current
        income tax expense (benefit) from continuing operations consisted of:



---





Year ended December 31,2007

                    2006

                    2005U. S. federal

                    $ (1,000)

                    $ (17,000)

                    $ 35,000Various states

                    -

                    -

                    -$ (1,000)

                    $ (17,000)

                    $ 35,000




Total
        income tax expense (benefit) allocated to continuing operations differed from the amounts
        computed by applying the U. S. federal income tax rate to loss from continuing operations
        before income taxes as a result of the following:



Year ended December 31,2007

                    2006

                    2005Computed U. S. federal statutory expense
                        (benefit)

                    $ (343,000)

                    $ (225,000)

                    $ (536,000)Federal alternative minimum tax (benefit)

                    (1,000)

                    (17,000)

                    35,000Increase (decrease) in the valuation allowance for deferred
                        tax assets

                    343,000

                    225,000

                    536,000State income tax (benefit)

                    -

                    -

                    -$   (1,000)

                    $  (17,000)

                    $    35,000




The
        components of deferred tax assets and liabilities are as follows:



December 31,2007

                    2006Deferred tax assets – tax effect of:Net operating loss carryforwards

                    $ 10,545,000

                    $ 16,781,000Statutory depletion and investment tax credit

                        carryforwards

                    1,275,000

                    1,275,000Other, principally investments and property, plant
                        and

                        equipment

                    308,000

                    356,000Total gross deferred tax assets

                    $ 12,128,000

                    $ 18,412,000Less valuation allowance

                    (12,105,000)

                    (18,371,000)Deferred tax liabilities

                    (23,000)

                    (41,000)Net deferred tax asset/liability

                    $               
                             -

                    $                
                            -




In
        assessing the recoverability of deferred tax assets, management considers whether it is
        more likely than not that some portion or all of the tax assets will not be realized. The
        ultimate realization of deferred tax assets is dependent upon the generation of future
        taxable income during the periods in which those temporary differences become deductible.
        Management considers the scheduled reversal of deferred tax liabilities, projected future
        taxable income, and tax planning strategies in making this assessment.



At December
        31, 2007, the Company had federal regular tax operating loss carryforwards (the
        “NOL’s”) of approximately $27.6 million and tax depletion carryforwards
        of approximately $3.45 million. Another $22.8 million of the NOL’s will expire in
        2008 and $4.8 million will expire from 2021 to 2027. These carryforwards may be limited if
        the Company undergoes a significant ownership change.



(12) Deferred Compensation Plans

The Company
        has adopted a series of deferred compensation plans for certain key executives and the
        board of directors which provide for payments in the form of the Company’s common
        stock upon (i) the death, disability, retirement or termination of the participant or (ii)
        termination of the plans. Under such plans, the number of shares of stock credited to each
        participant’s account is equal to the amount of compensation deferred divided by the
        fair market value of the stock on the deferral date. 700,000 shares of stock were issued
        effective January 31, 2003, upon termination of the initial plan adopted in 1996. 300,000
        shares were issued effective September 30, 2003, upon termination of a second plan. 800,000
        shares of stock were authorized



---



for
        issuance under the third plan (the “2003-2 Plan”), adopted in September of 2003
        and amended in February of 2004. As of December 31, 2004, there were 712,716 shares
        reserved for distribution under the 2003-2 Plan and another85,095 shares werereserved for
        distribution in 2005 before the plan’s termination on November 17, 2005. A total of
        217,653 shares from the 2003-2 Plan were distributed to the participants in 2005, along
        with an immaterial cash payment for fractional shares. Another 98,612 and 66,135 shares
        from the 2003-2 Plan were distributed to the participants in 2006 and 2007, respectively.
        The Company will distribute the remaining 415,408 shares in the following years, according
        to the binding elections of the participants:



Year(s)

                    Total Shares2008-2009

                        (66,135 shares per year)

                    132,2702010-2011

                        (66,134 shares per year)

                    132,2682012

                    66,1322013-2014

                        (42,369 shares per year)

                    84,738Total

                    415,408




The Company
        adopted a fourth plan, the 2005 Deferred Stock Compensation Plan, on November 17, 2005 and
        100,000 total shares of stock were authorized for issuance under this plan. On April 27,
        2006 and April 26, 2007 the authorized shares were increased to 200,000 and 400,000,
        respectively. As of December 31, 2007, 360,042 shares were reserved for distribution under
        this plan, none of which have been issued at such date. As of February 29, 2008, the
        authorized shares in the plan had been exhausted and the plan was terminated. 399,997
        shares were distributed to the participants in March, together with an immaterial cash
        payment for fractional shares.



The
        weighted-average fair values of stock units issued under the plans were $0.69, $1.177 and
        $1.887 for 2007, 2006 and 2005, respectively.



(13) Employee Benefit Plan

Employees
        of the Company participate in either of two defined contribution plans with features under
        Section 401(k) of the Internal Revenue Code. The purpose of the Plans is to provide
        retirement, disability and death benefits for all full-time employees of the Company who
        meet certain service requirements. One of the plans allows voluntary "savings"
        contributions up to a maximum of 50%, and the Company matches 100% of each employee’s
        contribution up to 5% of such employee's compensation. The second plan covers those
        employees in the Coal Segment and allows voluntary “savings” contributions up
        to a maximum of 40%. Under this plan, the Company contributes $1.00 per hour of service
        performed for hourly employees and up to 6% of compensation for salaried employees
        regardless of the employees’ contribution. The Company’s contributions under
        both plans are limited to the maximum amount that can be deducted for income tax purposes.
        Benefits payable under the plans are limited to the amount of plan assets allocable to the
        account of each plan participant. The Company retains the right to modify, amend or
        terminate the plans at any time. Effective July 16, 2002 the Company notified all
        participants in the two plans that it was suspending the 100% match until further notice.
        In November 2006 the Company, according to the terms of a union contract, notified the
        union participants employed at the Coal Segment’s coal fines recovery facility in
        West Virginia that it had re-instituted the 100% match (effective with each
        employee’s date of hire), and $9,000 of contributions were made to the plan during
        the remainder of the year. The Company made contributions totaling $11,000 under terms of
        this plan in 2007. No other contributions were made to the plans in 2005, 2006 or
        2007.



(14) Commitments and Contingencies

In the
        normal course of business various actions and claims have been brought or asserted against
        the Company. Management does not consider them to be material to the Company's financial
        position, liquidity or future results of operations.



(15) 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 three reportable segments in 2005 and four
        reportable segments in 2006 and 2007. The segments are Coal, Carbon Dioxide,
        e-Commerce, with the new Oil & Gas Segment added as a reportable segment
        in 2006.



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 e-Commerce Segment consists of a 71%-owned subsidiary whose
        current strategy is to develop business opportunities to leverage a subsidiary’s
        intellectual property portfolio of Internet payment methods and security technologies. The
        Oil & Gas Segment is in the business of producing of oil and gas.



The
        accounting policies of the segments are the same as those described in the summary of
        significant accounting policies in note 1.



The
        following is certain financial information regarding the Company’s reportable
        segments (presented in thousands of dollars).



General
        corporate assets and expenses are not allocated to any of the Company’s operating
        segments; therefore, they are included as a reconciling item to consolidated total assets
        and loss from continuing operations before income taxes reported in the Company’s
        accompanying financial statements.





CarbonCoal

                    Dioxide

                    e-Commerce

                    Oil & Gas

                    Totals2007Revenues from external customers

                    $ 21

                    $ 1,367

                    $ 5

                    $ 74

                    $ 1,467Interest income

                    -

                    -

                    -

                    2

                    2Interest expense

                    -

                    -

                    -

                    -

                    -Depreciation, depletion and

                        amortization

                    12

                    50

                    -

                    15

                    77Segment profit (loss)

                    (503)

                    1,063

                    (125)

                    9

                    444Segment assets

                    262

                    970

                    5

                    323

                    1,560Expenditures for segment assets

                    14

                    85

                    -

                    -

                    992006Revenues from external customers

                    $ 25

                    $ 1,540

                    $ 5

                    $ 147

                    $ 1,717Interest income

                    -

                    -

                    -

                    2

                    2Interest expense

                    2

                    -

                    -

                    -

                    2Depreciation, depletion and

                        amortization

                    40

                    46

                    -

                    15

                    101Segment profit (loss)

                    (120)

                    1,324

                    (95)

                    89

                    1,198Segment assets

                    301

                    557

                    18

                    343

                    1,219Expenditures for segment assets

                    25

                    92

                    3

                    -

                    1202005Revenues from external customers

                    $ 52

                    $ 1,172

                    $ 31

                    $ 95

                    $ 1,350Interest income

                    -

                    -

                    -

                    1

                    1Interest expense

                    19

                    -

                    -

                    -

                    19Depreciation, depletion and

                        amortization

                    9

                    42

                    3

                    5

                    59Segment profit (loss)

                    (783)

                    949

                    (139)

                    12

                    39Segment assets

                    1,816

                    522

                    13

                    401

                    2,752Expenditures for segment assets

                    1,991

                    34

                    -

                    277

                    2,302




Reconciliation of reportable segment revenues to consolidated revenues is as
        follows (in thousands):



2007

                    

                    2006

                    

                    2005Total revenues for reportable segments

                    $ 1,467

                    

                    $ 1,717

                    

                    $ 1,350Revenues from corporate activities not allocated

                        to segments

                    -

                    

                    -

                    

                    -Total consolidated revenues

                    $ 1,467

                    

                    $ 1,717

                    

                    $ 1,350




Reconciliation of reportable segment interest expense to consolidated
        interest expense is as follows (in thousands):





---





2007

                    

                    2006

                    

                    2005Total interest expense for reportable segments

                    $      -

                    

                    $     2

                    

                    $   19Interest expense from corporate activities not

                        allocated to segments

                    892

                    

                    957

                    

                    956Total consolidated interest expense

                    $ 892

                    

                    $ 959

                    

                    $ 975




Reconciliation of reportable segment depreciation, depletion and
        amortization to consolidated depreciation, depletion and amortization is as follows (in
        thousands):



2007

                    

                    2006

                    

                    2005Total depreciation, depletion and amortization

                        for reportable segments

                    $    77

                    

                    $ 101

                    

                    $    59Corporate depreciation and amortization

                        not allocated to segments

                    97

                    

                    77

                    

                    114Total consolidated depreciation, depletion and

                        amortization

                    $ 174

                    

                    $ 178

                    

                    $ 173




Reconciliation of total reportable segment profit (loss) to consolidated
        loss from continuing operations before income taxes is

as follows
        (in thousands):



2007

                    

                    2006

                    

                    2005Total earnings for reportable segments

                    $   444

                    

                    $ 1,198

                    

                    $         39Net corporate income (costs) not allocated

                        to segments

                    (1,397)

                    

                    (1,822)

                    

                    (1,527)Total consolidated loss from

                        continuing operations

                    $ (953)

                    

                    $ (624)

                    

                    $ (1,488)




Reconciliation of reportable segment assets to consolidated assets is as
        follows (in thousands):



2007

                    

                    2006Total assets for reportable segments

                    $ 1,560

                    

                    $ 1,219Assets of discontinued operations

                    487

                    

                    789Corporate assets not allocated to segments

                    287

                    

                    414Total consolidated assets

                    $ 2,334

                    

                    $ 2,422




Reconciliation of expenditures for segment assets to total expenditures for
        assets is as follows (in thousands):



2007

                    

                    2006Total expenditures for assets for reportable

                        Segments

                    $ 99

                    

                    $ 120Expenditures for assets in discontinued
                        operations

                    -

                    

                    49Corporate expenditures not allocated to segments

                    10

                    

                    19Total expenditures for assets

                    $ 109

                    

                    $ 188




All of
        2005, 2006 and 2007 segment revenues were derived from customers in the United States of
        America. All remaining continuing segment assets are located in the United States of
        America.



For the
        year 2007, one customer accounted for 97% of the Coal Segment’s and 1% of the
        Company’s continuing revenues. During the year 2006, two customers accounted for 91%
        of the Coal Segment’s and 1% of the Company’s continuing revenues. During the
        year 2005, three customers accounted for 87% of the Coal Segment’s and 3% of the
        Company’s continuing



---



revenues.
        All of the e-Commerce Segment’s 2005, 2006 and 2007 revenues
        were derived from one customer. In 2007, the Company’s CO2 revenues were received
        from three parties in the CO2 Segment who market the CO2 gas to numerous end users on
        behalf of the interest owners who elect to participate in such sales. There were two such
        parties in 2005 and 2006. During 2007, 2006 and 2005, sales by these parties accounted for
        93%, 86%, and 76%, respectively, of the Company’s segment revenues and all of the
        Carbon Dioxide Segment’s revenues. The Company’s oil and gas revenues are
        received from two operators in the Oil & Gas Segment who market the oil and natural gas
        to numerous end users on behalf of the interest owners who elect to participate in such
        sales. During 2007, 2006 and 2005, sales by these two operators accounted for 5%, 8% and
        7%, respectively, of the Company’s segment revenues and all of the Oil & Gas
        Segment’s revenues.



(16) Quarterly Financial Data
                        (unaudited)




Three Months EndedMarch 31,

                        2007

                    June 30,

                        2007

                    September 30,

                        2007

                    December 31,

                        2007(in thousands except per share data)Revenues

                    $ 319

                    $ 328

                    $ 355

                    $ 465Operating profit (loss)

                    (141)

                    (267)

                    72

                    (42)Loss from

                        continuing operations

                    (323)

                    (476)

                    (66)

                    (88)Loss from

                        discontinued operations

                    (250)

                    (135)

                    (381)

                    (307)Net loss

                    (573)

                    (611)

                    (447)

                    (395)Basic loss per share

                    (0.10)

                    (0.10)

                    (0.08)

                    (0.06)Diluted loss per share

                    (0.10)

                    (0.10)

                    (0.08)

                    (0.06)




Three Months EndedMarch 31,

                        2006

                    June 30,

                        2006

                    September 30,

                        2006

                    December 31,

                        2006(in thousands except per share data)Revenues

                    $ 403

                    $ 407

                    $ 468

                    $ 439Operating profit (loss)

                    (184)

                    (230)

                    73

                    (68)Earnings (loss) from

                        continuing operations

                    (362)

                    (467)

                    (150)

                    372Loss from

                        discontinued operations

                    (271)

                    (198)

                    (225)

                    (253)Net earnings (loss)

                    (633)

                    (665)

                    (375)

                    119Basic earnings (loss) per

                        share

                    (0.11)

                    (0.12)

                    (0.07)

                    0.03Diluted earnings (loss)

                        Per share

                    (0.11)

                    (0.12)

                    (0.07)

                    0.03




The
        quarterly information presented above has been restated to conform to the final year-end
        2007 presentation.



The Company
        recorded no economic impairments in the fourth quarter of 2005 or 2006. In the fourth
        quarter of 2007, the Company expensed $13,000 of costs associated with unsuccessful
        attempts to obtain a patent in the e-Commerce Segment.



(17) Subsequent events


See Note 2 – “Additional Details – Subsequent
        Events”



(18) Impact of Recently Issued Accounting
        Pronouncements

In
        December 2007, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standards No. 141 (revised 2007), “Business
        Combinations” (“FAS 141R”), which replaces FAS 141.  FAS 141R
        establishes principles and requirements for how an acquirer in a business combination
        recognizes and measures in its financial statements the



---



identifiable assets acquired, the liabilities assumed, and any controlling
        interest; recognizes and measures the goodwill acquired in the business combination or a
        gain from a bargain purchase; and determines what information to disclose to enable users
        of the financial statements to evaluate the nature and financial effects of the business
        combination.  FAS 141R is to be applied prospectively to business combinations for
        which the acquisition date is on or after an entity’s fiscal year that begins after
        December 15, 2008 (the Company’s fiscal year ending December 31, 2009). 
        Management has not completed its evaluation of the potential impact, if any, of the
        adoption of FAS 141R on its consolidated financial position, results of operations and cash
        flows.



In
        December 2007, the FASB issued Statement of Financial Accounting Standards
        No. 160 “Noncontrolling Interests in Consolidated Financial Statements –
        an amendment of ARB No. 51” (“FAS 160”). FAS 160 establishes
        accounting and reporting standards that require the ownership interest in subsidiaries held
        by parties other than the parent be clearly identified and presented in the consolidated
        balance sheets within equity, but separate from the parent’s equity; the amount of
        consolidated net income attributable to the parent and the noncontrolling interest be
        clearly identified and presented on the face of the consolidated statement of earnings; and
        changes in a parent’s ownership interest while the parent retains its controlling
        financial interest in its subsidiary be accounted for consistently. This statement is
        effective for fiscal years beginning on or after December 15, 2008, (the
        Company’s fiscal year ending December 31, 2009). Management has not completed its
        evaluation of the potential impact, if any, of the adoption of FAS 160 on its consolidated
        financial position, results of operations and cash
        flows.



In
        September 2006, the FASB issued Statement No. 157, “Fair
        Value Measurements” (“SFAS No. 157”). SFAS No.
        157 addresses how companies should measure fair value when they are required to use a fair
        value measure for recognition or disclosure purposes under generally accepted accounting
        principles. SFAS No. 157 defines fair value, establishes a framework for measuring fair
        value and expands disclosures about fair value measurements. SFAS No. 157 is effective for
        fiscal years beginning after November 15, 2007, with earlier adoption permitted. Management
        is assessing the impact of the adoption of this Statement.



In February
        2007, the FASB issued Statement No. 159, “The Fair Value
        Option for Financial Assets and Financial Liabilities – Including an amendment of
        FASB Statement No. 115” (“SFAS No. 158”). SFAS
        No. 158 permits entities to choose to measure many financial instruments and certain other
        items at fair value. It requires companies to provide information helping financial
        statement users to understand the effect of a company’s choice to use the fair value
        on its earnings, as well as to display the fair value of the assets and liabilities a
        company has chosen to use fair value for on the face of the balance sheet. Additionally,
        SFAS No. 158 establishes presentation and disclosure requirements designed to simplify
        comparisons between companies that choose different measurement attributes for similar
        types of assets and liabilities. The Statement is effective as of the beginning of an
        entity’s first fiscal year beginning after November 15, 2007. Management is assessing
        the impact of this statement.



---



Item
        9. Changes in and
        Disagreements with Accountants on Accounting and Financial Disclosure.



No matters require disclosure here.



Item
        9A. Controls and
        Procedures.



See "Item 8.  Financial Statements and Supplemental Data" for
        Managements Annual Report on Internal Control Over Financial Reporting.



We, under the supervision and with the participation of our management,
        including our Chief Executive Officer and Chief Financial Officer, have evaluated the
        effectiveness of the design and operation of our disclosure controls and procedures. Based
        on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded
        that our disclosure controls and procedures (as defined in Rule a-15(f) under the Exchange
        Act) were not effective as discussed in Management's Annual Report on Internal Control Over
        Financial Reporting as of December 31, 2007 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 rules and forms and that such information is accumulated and
        communicated to our management as appropriate to allow timely decisions regarding required
        disclosures.



There were no changes in our internal control over financial reporting
        during our fiscal fourth quarter ended December 31, 2007, that have materially affected, or
        are reasonably likely to materially affect, our internal control over financial
        reporting.



Item
        9B. Other
        Information.



There was no information required to be disclosed in a report on Form 8-K
        during the fourth quarter ended December 31, 2007, that was not reported.



PART
        III



Item
        10. Directors, Executive
        Officers and Corporate Governance.



The information regarding our directors and executive officers will be
        contained in the definitive proxy statement which will be filed pursuant to Regulation 14A
        with the Commission not later than 120 days after the end of the fiscal year covered by
        this Form 10-K, and the information to be contained therein is incorporated herein by
        reference.



Item
        11. Executive
        Compensation.



The information regarding executive compensation will be contained in the
        definitive proxy statement which will be filed pursuant to Regulation 14A with the
        Commission not later than 120 days after the end of the fiscal year covered by this Form
        10-K, and the information to be contained therein is incorporated herein by
        reference.



Item 12.
        Security Ownership of Certain Beneficial Owners and Management and
        Related Stockkholder Matters.



The information regarding security ownership of certain beneficial owners
        and management and related stockholder matters will be contained in the definitive proxy
        statement which will be filed pursuant to Regulation 14A with the Commission not later than
        120 days after the end of the fiscal year covered by this Form 10-K, and the information to
        be contained therein is incorporated herein by reference.



Item
        13. Certain Relationships
        and Related Transactions, and Director Independence.







---



The information regarding transactions with management and others will be
        contained in the definitive proxy statement which will be filed pursuant to Regulation 14A
        with the Commission not later than 120 days after the end of the fiscal year covered by
        this Form 10-K, and the information to be contained therein is incorporated herein by
        reference.



Item
        14. Principal Accounting
        Fees and Services.



The information regarding principal accountant fees and services will be
        contained in the definitive proxy statement which will be filed pursuant to Regulation 14A
        with the Commission not later than 120 days after the end of the fiscal year covered by
        this Form 10-K, and the information to be contained therein is incorporated herein by
        reference.



PART
        IV



Item
        15. Exhibits and
        Financial Statement Schedules.



(a)  The following documents are filed as part of this
        report:



1.

                    Financial Statements. Reference is made to the Index to
                        Financial Statements and Financial Statement.




2.

                    Financial Statement Schedules. Financial Statement Schedules
                        are omitted as inapplicable or not required, or the required information is
                        shown in the financial statements or in the notes thereto.




3.

                    Exhibits. The following exhibits are filed with this Form
                        10-K and are identified by the numbers indicated:




3.1

                    Restated Certificate of Incorporation of Registrant as filed
                        with the Secretary of State of Oklahoma on September 20, 2000. (This
                        Exhibit has been previously filed as Exhibit 3(i) to Registrant’s
                        Form 10-Q for the period ended September 30, 2000, filed on November 20,
                        2000, and same is incorporated herein by reference).3.2

                    Amended Certificate of Incorporation of Registrant as filed
                        with the Secretary of State of Oklahoma on July 20, 2004, effective on the
                        close of business August 6, 2004. (This Exhibit has been previously filed
                        as Exhibit 3.2 to Registrant’s Form 10-K for the period ended
                        December 31, 2005, filed on April 17, 2006, and same is incorporated by
                        reference).3.3

                    Registrant’s By-Laws as currently in effect. (This
                        Exhibit has been previously filed as Exhibit 3(ii) to Registrant’s
                        Form 10-K for the period ended December 31, 1997, filed on March 31, 1998,
                        and same is incorporated herein by reference).4

                    Instruments defining the rights of security
                        holders:4.1

                    Certificate of Designations, Powers, Preferences and
                        Relative, Participating, Option and Other Special Rights, and the
                        Qualifications, Limitations or Restrictions Thereof of the Series A
                        Convertible Voting Preferred Stock of the Registrant. (This Exhibit has
                        been previously filed as Exhibit 3(c) to Amendment No. 2, filed on
                        September 17, 1993 to Registrant's Registration Statement on Form S-4, File
                        No. 33-66598, and same is incorporated herein by reference).10

                    Material contracts:10.1*

                    The Beard Company 2006 Stock Option Plan adopted on May 1,
                        2006. (This Exhibit has been previously filed as Exhibit C to
                        Registrant’s Proxy Statement filed on May 1, 2006, and same is
                        incorporated herein by reference).








---





10.2

                    Form of Indemnification Agreement dated December 15, 1994,
                        by and between Registrant and five directors. (This Exhibit has been
                        previously filed as Exhibit 10(b) to Registrant’s Form 10-K for the
                        period ended December 31, 2000, filed on April 2, 2001, and same is
                        incorporated herein by reference).10.3*

                    Amendment No. One to The Beard Company 2003-2 Deferred Stock
                        Compensation Plan as amended effective February 13, 2004. (This Amendment,
                        which supersedes the original Plan adopted on September 30, 2003, has been
                        previously filed as Exhibit 10.5 to Registrant’s Form 10-K for the
                        period ended December 31, 2003, filed on March 30, 2004, and same is
                        incorporated herein by reference).10.4*

                    Amendment No. One to The Beard Company 2005 Deferred Stock
                        Compensation Plan as amended effective April 27, 2006. (This Amendment,
                        which supersedes the original Plan adopted on November 17, 2005, has been
                        previously filed as Exhibit B to Registrant’s Proxy Statement filed
                        on May 1, 2006, and same is incorporated herein by reference).10.5*

                    Amendment No. Two to The Beard Company 2005 Deferred Stock
                        Compensation Plan as amended effective April 26, 2007. (This Amendment,
                        which supersedes the Plan as amended on April 27, 2006, has been previously
                        filed as Exhibit A to Registrant’s Proxy Statement filed on April 30,
                        2007, and same is incorporated herein by reference).10.6

                    Amendment to Restated and Amended Letter Loan Agreement by
                        and between Registrant and The William M. Beard and Lu Beard 1988
                        Charitable Unitrust (the “Unitrust”) dated June 25, 2004. (This
                        Exhibit has been previously filed as Exhibit 10.11 to Registrant’s
                        Form 10-K for the period ended December 31, 2004, filed on March 31, 2005,
                        and same is incorporated herein by reference).10.7

                    Restated and Amended Letter Loan Agreement by and between
                        Registrant and the Unitrust dated March 3, 2006. (This Exhibit, which
                        superseded all prior Agreements between the parties (except for the third
                        paragraph of Exhibit 10.6), has been previously filed as Exhibit 10.1 to
                        Registrant’s Form 10-Q for the period ended March 31, 2006, filed on
                        May 22, 2006, and same is incorporated herein by reference).10.8

                    Second Replacement Renewal and Extension Promissory Note
                        from Registrant to the Trustees of the Unitrust dated effective February
                        14, 2005. (This Exhibit, which superseded all prior Notes between the
                        parties (except for the third paragraph of Exhibit 10.6), has been
                        previously filed as Exhibit 10.2 to Registrant’s Form 10-Q for the
                        period ended March 31, 2006, filed on May 22, 2006, and same is
                        incorporated herein by reference).10.9

                    Restated and Amended Letter Loan Agreement by and between
                        Registrant and the Unitrust dated June 13, 2007. (This Exhibit, which
                        superseded all prior Agreements between the parties, has been previously
                        filed as Exhibit 10.7 to Registrant’s Form 10-Q for the period ended
                        June 30, 2007, filed on August 20, 2007, and same is incorporated herein by
                        reference).10.10

                    Third Replacement Renewal and Extension Promissory Note from
                        Registrant to the Trustees of the Unitrust dated effective February 14,
                        2005. (This Exhibit, which superseded all prior Notes between the parties
                        (except for the third paragraph of Exhibit 10.6), has been previously filed
                        as Exhibit 10.8 to Registrant’s Form 10-Q for the period ended June
                        30, 2007, filed on August 20, 2007, and same is incorporated herein by
                        reference).10.11

                    Form of 2002 Warrant. (This Exhibit has been previously
                        filed as Exhibit 10(d) to Registrant’s Form 10-Q for the period ended
                        June 30, 2002, and same is incorporated herein by reference).








---





10.12

                    Form of 2003 Warrant. (This Exhibit has been previously
                        filed as Exhibit 10(c) to Registrant’s Form 10-Q for the period ended
                        March 31, 2003, filed on May 15, 2003, and same is incorporated herein by
                        reference).10.13

                    Form of Deed of Trust, Assignment of Production, Security
                        Agreement and Financing Statement dated as of February 21, 2003. (This
                        Exhibit has been previously filed as Exhibit 10(d) to Registrant’s
                        Form 10-Q for the period ended March 31, 2003, filed on May 15, 2003, and
                        same is incorporated herein by reference).10.14

                    Subordination and Nominee Agreement dated February 21, 2003.
                        (This Exhibit has been previously filed as Exhibit 10.26 to
                        Registrant’s Form 10-K for the period ended December 31, 2003, filed
                        on March 30, 2004, and same is incorporated herein by
                        reference).10.15

                    Form of 2004 Warrant. (This Exhibit has been previously
                        filed as Exhibit 10.2 to Registrant’s Form 10-Q for the period ended
                        June 30, 2004, filed on August 16, 2004, and same is incorporated herein by
                        reference).10.16

                    Form of Deed of Trust, Assignment of Production, Security
                        Agreement and Financing Statement by and between Registrant and McElmo Dome
                        Nominee, LLC (“Nominee”), dated as of May 21, 2004. (This
                        Exhibit has been previously filed as Exhibit 10.25 to Registrant’s
                        Form 10-K for the period ended December 31, 2004, filed on March 31, 2005,
                        and same is incorporated herein by reference).10.17

                    Subordination and Nominee Agreement dated May 21, 2004, by
                        and between the Unitrust and Boatright Family, L.L.C.
                        (“Boatright”) (This Exhibit has been previously filed as
                        Exhibit 10.27 to Registrant’s Form 10-K for the period ended December
                        31, 2004, filed on March 31, 2005, and same is incorporated herein by
                        reference).10.18

                    Form of 12% Convertible Subordinated Promissory Note due
                        February 15, 2010. (This Exhibit has been previously filed as Exhibit 10.1
                        to Registrant’s Form 10-Q for the period ended March 31, 2005, filed
                        on May 16, 2005, and same is incorporated herein by reference).10.19

                    Form of 2005 Warrant. (This Exhibit has been previously
                        filed as Exhibit 10.3 to Registrant’s Form 10-Q for the period ended
                        March 31, 2005, filed on May 16, 2005, and same is incorporated herein by
                        reference).10.20

                    Letter Agreement by and between 7HBF, Ltd.
                        (“7HBF”) and Registrant dated February 7, 2005. (This Exhibit
                        has been previously filed as Exhibit 10.4 to Registrant’s Form 10-Q
                        for the period ended March 31, 2005, filed on May 16, 2005, and same is
                        incorporated herein by reference).10.21

                    Unsecured Promissory Note from BEE/7HBF, LLC to 7HBF dated
                        February 14, 2005. (This Exhibit has been previously filed as Exhibit 10.5
                        to Registrant’s Form 10-Q for the period ended March 31, 2005, filed
                        on May 16, 2005, and same is incorporated herein by reference).10.22

                    Beard Boatright 12% Convertible Subordinated Promissory Note
                        due August 31, 2009. (This Exhibit has been previously filed as Exhibit
                        99.1 to the Registrant’s Form 8-K, Current Report, filed on July 25,
                        2005, and same is incorporated herein by reference).10.23

                    Form of 12% Convertible Subordinated Promissory Note due
                        August 31, 2009 issued to all other 2009 Note purchasers. (This Exhibit has
                        been previously filed as Exhibit 99.2 to the Registrant’s Form 8-K,
                        Current Report, filed on July 25, 2005, and same is incorporated herein by
                        reference).








---





10.24

                    Note Assumption Agreement and Release by and among the
                        Unitrust, Registrant and Boatright. (This Exhibit has been previously filed
                        as Exhibit 99.3 to the Registrant’s Form 8-K, Current Report, filed
                        on July 25, 2005, and same is incorporated herein by reference).10.25

                    Subordination and Nominee Agreement dated as of July 22,
                        2005, by and among the Unitrust, Boatright and Nominee. (This Exhibit has
                        been previously filed as Exhibit 99.4 to the Registrant’s Form 8-K,
                        Current Report, filed on July 25, 2005, and same is incorporated herein by
                        reference).10.26

                    Form of Amended and Restated Deed of Trust, Assignment of
                        Production, Security Agreement and Financing Statement by and between
                        Registrant, the Public Trustees of Dolores and Montezuma Counties,
                        Colorado, for the benefit of Nominee, dated as of July 22, 2005. (This
                        Exhibit has been previously filed as Exhibit 99.5 to the Registrant’s
                        Form 8-K, Current Report, filed on July 25, 2005, and same is incorporated
                        herein by reference).10.27

                    Form of 12% Convertible Subordinated Series A Promissory
                        Note due August 30, 2008. (This Exhibit has been previously filed as
                        Exhibit 10.30 to Registrant’s Form 10-K for the period ended December
                        31, 2006, filed on April 17, 2007, and same is incorporated herein by
                        reference).10.28

                    Form of 12% Convertible Subordinated Series B Promissory
                        Note due November 30, 2008.. (This Exhibit has been previously filed as
                        Exhibit 10.31 to Registrant’s Form 10-K for the period ended December
                        31, 2006, filed on April 17, 2007, and same is incorporated herein by
                        reference).10.29

                    Amended and Restated Contract Operating Agreement between
                        BTI and BPLLC, dated October 31, 2006. (This Exhibit has been previously
                        filed as Exhibit 10.30 to Registrant’s Form 10-K for the period ended
                        December 31, 2006, filed on April 17, 2007, and same is incorporated herein
                        by reference).10.30

                    Business Loan Agreement dated June 8, 2007 by and between
                        Registrant and First Fidelity Bank, N.A. (This Exhibit has been previously
                        filed as Exhibit 99.1 to Registrant’s Form 8-K, Current Report, filed
                        on June 12, 2007, and same is incorporated herein by reference).10.31

                    Promissory Note dated June 8, 2007, by and between
                        Registrant and FFB. (This Exhibit has been previously filed as Exhibit 99.2
                        to Registrant’s Form 8-K, Current Report, filed on June 12, 2007, and
                        same is incorporated herein by reference).10.32

                    Form of Deed of Trust, Assignment, Security Agreement and
                        Financing Statement dated as of June 8, 2007 by and between Registrant and
                        the Public Trustees of Dolores and Montezuma Counties, Colorado for the
                        benefit of FFB. (This Exhibit has been previously filed as Exhibit 99.4 to
                        Registrant’s Form 8-K, Current Report, filed on June 12, 2007, and
                        same is incorporated herein by reference).10.33

                    Subordination Agreement and Release dated June 8, 2007, by
                        and among the Unitrust, Boatright and Nominee. (This Exhibit has been
                        previously filed as Exhibit 99.3 to Registrant’s Form 8-K, Current
                        Report, filed on June 12, 2007, and same is incorporated herein by
                        reference).10.34

                    Consent and Amendment to Subordination Agreement and Release
                        dated October 11, 2007, by and among the Unitrust, Boatright and
                        Nominee.10.35

                    Change in Trms Agreement dated October 11, 2007 by and
                        between Registrant and FFB.14

                    Code of Ethics as amended March 9, 2006. (This Exhibit has
                        been previously filed as Exhibit 14 to Registrant’s Form 10-K for the
                        period ended December 31, 2006, filed on April 17, 2007, and same is
                        incorporated herein by reference).21

                    Subsidiaries of the Registrant.








---





23

                    Consents of Experts and Counsel:23.1

                    Consent of Cole & Reed, P.C.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 Section 13 or 15(d) of the Securities
        Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf
        by the undersigned, thereunto duly authorized.



THE BEARD COMPANY(Registrant)By   /s/ Herb Mee, Jr.Herb Mee, Jr.,
                        PresidentDate:  April 14, 2008






Pursuant to
        the requirements of the Securities Exchange Act of 1934, as amended, this report has been
        signed by the following persons on behalf of the Registrant and in the capacities and on
        the dates indicated below.



Signature

                    Title

                    DateBy /s/ W.M.
                        BeardW.M.
                        Beard

                    Chief Executive Officer

                    April 14, 2008By /s/ Herb
                        Mee, Jr.Herb
                        Mee, Jr.

                    President and Chief Financial Officer

                    April 14, 2008








---





By Jack A.
                        MartineJack
                        A. Martine

                    Controller and Chief Accounting Officer

                    April 14, 2008By /s/ W.M.
                        BeardW.M.
                        Beard

                    Chairman of the Board

                    April 14, 2008By /s/ Herb
                        Mee, Jr.Herb
                        Mee, Jr.

                    Director

                    April 14, 2008By /s/
                        Allan R. HallockAllan R.
                        Hallock

                    Director

                    April 14, 2008By /s/
                        Harlon E. Martin, Jr.Harlon E.
                        Martin, Jr.

                    Director

                    April 14, 2008By /s/ Ford
                        C. PriceFord C.
                        Price

                    Director

                    April 14, 2008








EXHIBIT INDEXExhibit
                        No.

                    Descripiton of Document

                    Method of Filing3.1

                    Restated Certificate of Incorporation of Registrant as filed
                        with the Secretary of State of Oklahoma on September 20, 2000

                    Incorporated herein by reference3.2

                    Amended Certificate of Incorporation of Registrant as filed
                        with the Secretary of State of Oklahoma on July 20, 2004, effective on the
                        close of business August 6, 2004

                    Incorporated herein by reference3.3

                    Registrant’s By-Laws as currently in effect

                    Incorporated herein by reference4.1

                    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

                    Incorporated herein by reference3.1

                    Restated Certificate of Incorporation of Registrant as filed
                        with the Secretary of State of Oklahoma on September 20, 2000

                    Incorporated herein by reference3.2

                    Amended Certificate of Incorporation of Registrant as filed
                        with the Secretary of State of Oklahoma on July 20, 2004, effective on the
                        close of business August 6, 2004

                    Incorporated herein by reference3.3

                    Registrant’s By-Laws as currently in
                        effect.

                    Incorporated herein by reference








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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

                    Incorporated herein by reference10.1

                    The Beard Company 2006 Stock Option Plan adopted on May 1,
                        2006

                    Incorporated herein by reference10.2

                    Form of Indemnification Agreement dated December 15, 1994,
                        by and between Registrant and five directors

                    Incorporated herein by reference10.3

                    Amendment No. One to The Beard Company 2003-2 Deferred Stock
                        Compensation Plan as amended effective February 13, 2004.

                    Incorporated herein by reference10.4

                    Amendment No. One to The Beard Company 2005 Deferred Stock
                        Compensation Plan as amended effective April 27, 2006

                    Incorporated herein by reference10.5

                    Amendment No. Two to The Beard Company 2005 Deferred Stock
                        Compensation Plan as amended effective April 26, 2007

                    Incorporated herein by reference10.6

                    Amendment to Restated and Amended Letter Loan Agreement by
                        and between Registrant and The William M. Beard and Lu Beard 1988
                        Charitable Unitrust (the “Unitrust”) dated June 25,
                        2004.

                    Incorporated herein by reference10.7

                    Restated and Amended Letter Loan Agreement by and between
                        Registrant and the Unitrust dated March 3, 2006.

                    Incorporated herein by reference10.8

                    Second Replacement Renewal and Extension Promissory Note
                        from Registrant to the Trustees of the Unitrust dated effective February
                        14, 2005.

                    Incorporated herein by reference10.9

                    Restated and Amended Letter Loan Agreement by and between
                        Registrant and the Unitrust dated June 13, 2007.

                    Incorporated herein by reference10.10

                    Third Replacement Renewal and Extension Promissory Note from
                        Registrant to the Trustees of the Unitrust dated effective February 14,
                        2005

                    Incorporated herein by reference10.11

                    Form of 2002 Warrant. (This Exhibit has been previously
                        filed as Exhibit 10(d) to Registrant’s Form 10-Q for the period ended
                        June 30, 2002, and same is incorporated herein by reference).

                    Incorporated herein by reference10.12

                    Form of 2003 Warrant.

                    Incorporated herein by reference10.13

                    Form of Deed of Trust, Assignment of Production, Security
                        Agreement and Financing Statement dated as of February 21, 2003.

                    Incorporated herein by reference








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10.14

                    Subordination and Nominee Agreement dated February 21,
                        2003.

                    Incorporated herein by reference10.15

                    Form of 2004 Warrant

                    Incorporated herein by reference10.16

                    Form of Deed of Trust, Assignment of Production, Security
                        Agreement and Financing Statement by and between Registrant and McElmo Dome
                        Nominee, LLC (“Nominee”), dated as of May 21, 2004

                    Incorporated herein by reference10.17

                    Subordination and Nominee Agreement dated May 21, 2004, by
                        and between the Unitrust and Boatright Family, L.L.C.
                        (“Boatright”).

                    Incorporated herein by reference10.18

                    Form of 12% Convertible Subordinated Promissory Note due
                        February 15, 2010.

                    Incorporated herein by reference10.19

                    Form of 2005 Warrant.

                    Incorporated herein by reference10.20

                    Letter Agreement by and between 7HBF, Ltd.
                        (“7HBF”) and Registrant dated February 7, 2005.

                    Incorporated herein by reference10.21

                    Unsecured Promissory Note from BEE/7HBF, LLC to 7HBF dated
                        February 14, 2005.

                    Incorporated herein by reference10.22

                    Beard Boatright 12% Convertible Subordinated Promissory Note
                        due August 31, 2009.

                    Incorporated herein by reference10.23

                    Form of 12% Convertible Subordinated Promissory Note due
                        August 31, 2009 issued to all other 2009 Note purchasers.

                    Incorporated herein by reference10.24

                    Note Assumption Agreement and Release by and among the
                        Unitrust, Registrant and Boatright.

                    Incorporated herein by reference10.25

                    Subordination and Nominee Agreement dated as of July 22,
                        2005, by and among the Unitrust, Boatright and Nominee.

                    Incorporated herein by reference10.26

                    Form of Amended and Restated Deed of Trust, Assignment of
                        Production, Security Agreement and Financing Statement by and between
                        Registrant, the Public Trustees of Dolores and Montezuma Counties,
                        Colorado, for the benefit of Nominee, dated as of July 22, 2005.

                    Incorporated herein by reference10.27

                    Form of 12% Convertible Subordinated Series A Promissory
                        Note due August 30, 2008.

                    Incorporated herein by reference10.28

                    Form of 12% Convertible Subordinated Series B Promissory
                        Note due November 30, 2008.

                    Incorporated herein by reference10.29

                    Amended and Restated Contract Operating Agreement between
                        BTI and BPLLC, dated October 31, 2006.

                    Incorporated herein by reference








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10.30

                    Business Loan Agreement dated June 8, 2007 by and between
                        Registrant and First Fidelity Bank, N.A.

                    Incorporated herein by reference10.31

                    Promissory Note dated June 8, 2007, by and between
                        Registrant and FFB.

                    Incorporated herein by reference10.32

                    Form of Deed of Trust, Assignment, Security Agreement and
                        Financing Statement dated as of June 8, 2007 by and between Registrant and
                        the Public Trustees of Dolores and Montezuma Counties, Colorado for the
                        benefit of FFB. .

                    Incorporated herein by reference10.33

                    Subordination Agreement and Release dated June 8, 2007, by
                        and among the Unitrust, Boatright and Nominee.

                    Incorporated herein by reference10.34

                    Consent and Amendment to Subordination Agreement and Release
                        dated October 11, 2007, by and among the Unitrust, Boatright and
                        Nominee.

                    Filed herewith electronically10.35

                    Change in Terms Agreement dated October 11, 2007 by and
                        between Registrant and FFB.

                    Filed herewith electronically14

                    Code of Ethics as amended March 9, 2006.

                    Incorporated herein by reference21

                    Subsidiaries of the Registrant.

                    Filed herewith electronically23.1

                    Consent of Cole & Reed, P.C.

                    Filed herewith electronically31.1

                    Chief Executive Officer Certification required by Rule
                        13a-14(a) or Rule 15d-14(a).

                    Filed herewith electronically31.2

                    Chief Financial Officer Certification required by Rule
                        13a-14(a) or Rule 15d-14(a).

                    Filed herewith electronically32.1

                    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.

                    Filed herewith electronically32.2

                    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.

                    Filed herewith electronically










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