**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 

(Mark One)

 

| **x** | **Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|-------|---------------------------------------------------------------------------------------------|

|   | For the quarterly period ended September 30, 2007 |
|--------|---------------------------------------------------|

or

 

| **o** | **Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|-------|----------------------------------------------------------------------------------------------|

 

 

**Commission File Number 1-12396**

 

**THE BEARD COMPANY**

(Exact name of registrant as specified in its charter)

 

|   | **Oklahoma** | **73-0970298** |
|--------|--------------|----------------|

|   | (State or other jurisdiction of | (I.R.S. Employer |
|--------|---------------------------------|------------------|

| incorporation or organization) | Identification No.) |
|--------------------------------|---------------------|

 

 

|   | **Enterprise Plaza, Suite 320** |
|--------|---------------------------------|

|   | **5600 North May Avenue** |
|--------|---------------------------|

|   | **Oklahoma City, Oklahoma** | **73112** |
|--------|-----------------------------|-----------|

|   | (Address of principal executive offices) | (Zip Code) |
|--------|------------------------------------------|------------|

 

 

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

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

 

| Large accelerated filer  o | Accelerated filer  o | Non-accelerated filer 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     

 

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of****November 15, 2007**.**

 

Common Stock $.0006665 par value – 5,657,715

 

Page 1 of 31 Pages

 

 

**THE BEARD COMPANY**

 

**INDEX**

 

 

**PART I. FINANCIAL INFORMATION**

Page

 

**Item 1.**

Financial Statements

3

 

 

Balance Sheets – September 30, 2007 (Unaudited) and December 31, 2006

3

 

 

Statements of Operations - Three Months and Nine Months ended September 30, 2007 and 2006 (Unaudited)

4

 

Statements of Shareholders’ Equity (Deficiency) - Year ended December 31, 2006

 

and Nine Months ended September 30, 2007 (Unaudited)

5

 

 

Statements of Cash Flows – Nine Months ended September 30, 2007 and 2006 (Unaudited)

6

 

 

Notes to Financial Statements (Unaudited)

8

 

**Item 2.**

Management's Discussion and Analysis of Financial Condition and Results of Operations

17

 

**Item 3.**

Quantitative and Qualitative Disclosures About Market Risk

24

 

**Item 4.**

Controls and Procedures

24

 

 

**PART II.  OTHER INFORMATION**

 

**Item 1.**

Legal Proceedings

24

 

**Item 1A.** Risk Factors

27

 

**Item 2.**

Unregistered Sales of Equity Securities and Use of Proceeds

27

 

**Item 3.**

Defaults Upon Senior Securities

27

 

**Item 4.**

Submission of Matters to a Vote of Security Holders

28

 

**Item 5.**

Other Information

28

 

**Item 6.**

Exhibits

29

 

**Signatures**

30

 

 

Page 2 of 31 Pages

 

 

 

**PART I  FINANCIAL INFORMATION.**

 

 

 

 

 

 

 

 

 

**Item 1.  Financial Statements**

 

 

 

 

 

 

 

 

 

**THE BEARD COMPANY AND SUBSIDIARIES**

Balance Sheets

September 30, 2007 (Unaudited) and December 31, 2006

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

**Assets**

2007

 

2006

 

 

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$              21,000 

 

$         270,000 

 

Accounts receivable, less allowance for doubtful receivables of $80,000 in 2007 and 2006

332,000 

 

313,000 

 

Inventories

109,000 

 

205,000 

 

Prepaid expenses and other assets

10,000 

 

26,000 

 

Current maturities of notes receivable

-           

 

6,000 

 

Assets of discontinued operations held for resale

20,000 

 

20,000 

 

 

Total current assets 

492,000 

 

840,000 

 

 

 

 

 

 

Note receivable, less allowance for doubtful receivable of$30,000 in 2006

-           

 

7,000 

 

 

 

 

 

 

Restricted certificate of deposit

50,000 

 

50,000 

 

 

 

 

 

 

Investments and other assets

66,000 

 

58,000 

 

 

 

 

 

 

Property, plant and equipment, at cost 

3,384,000 

 

2,925,000 

 

Less accumulated depreciation, depletion and amortization

1,722,000 

 

1,628,000 

 

 

Net property, plant and equipment 

1,662,000 

 

1,297,000 

 

 

 

 

 

 

Intangible assets, at cost 

539,000 

 

482,000 

 

Less accumulated amortization

367,000 

 

312,000 

 

 

Net intangible assets 

172,000 

 

170,000 

 

 

 

 

 

 

 

 

 

$         2,442,000 

 

$       2,422,000 

 

 

 

 

 

 

 

 

**Liabilities and Shareholders' Equity (Deficiency)**

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

Trade accounts payable

$            186,000 

 

$         162,000 

 

Accrued expenses

374,000 

 

438,000 

 

Short-term debt

45,000 

 

-           

 

Short-term debt - related entities

169,000 

 

200,000 

 

Current maturities of long-term debt 

1,311,000 

 

271,000 

 

Current maturities of long-term debt - related entities 

531,000 

 

-           

 

Liabilities of discontinued operations held for resale

40,000 

 

40,000 

 

 

Total current liabilities

2,656,000 

 

1,111,000 

 

 

 

 

 

 

Long-term debt less current maturities 

1,364,000 

 

1,290,000 

 

 

 

 

 

 

Long-term debt - related entities 

7,122,000 

 

7,236,000 

 

 

 

 

 

 

Other long-term liabilities

149,000 

 

133,000 

 

 

 

 

 

 

 

 

Page 3 of 31 Pages

 

 

 

Shareholders' equity (deficiency):

 

 

 

 

Convertible preferred stock of $100 stated value; 5,000,000 shares authorized; 27,838 shares issued and outstanding

889,000 

 

889,000 

 

Common stock of $.0006665 par value per share; 15,000,000 shares authorized; 5,657,715 and 5,591,580 shares

4,000 

 

4,000 

 

Capital in excess of par value

38,777,000 

 

38,665,000 

 

Accumulated deficit

(48,558,000)

 

(46,928,000)

 

Accumulated other comprehensive loss

39,000 

 

22,000 

 

 

Total shareholders' equity (deficiency)

(8,849,000)

 

(7,348,000)

 

 

 

 

 

 

Commitments and contingencies (note 7)

 

 

 

 

 

 

$         2,442,000 

 

$      2,422,000 

 

 

 

 

 

 

See accompanying notes to financial statements.

 

 

Page 4 of 31 Pages

 

 

 

**THE BEARD COMPANY AND SUBSIDIARIES**

Statements of Operations 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

**For Three Months Ended**

 

**For Nine Months Ended**

 

 

**September 30,**

 

**September 30,**

 

**September 30,**

 

**September 30,**

 

 

**2007**

 

**2006**

 

**2007**

 

**2006**

**Revenues:**

 

 

 

 

 

 

 

 

Coal reclamation

$           -      

 

$        12,000 

 

$           -       

 

$        25,000 

 

Carbon dioxide

401,000 

 

428,000 

 

1,007,000 

 

1,124,000 

 

China

50,000 

 

103,000 

 

166,000 

 

284,000 

 

**e**-Commerce

-         

 

-         

 

5,000 

 

5,000 

 

Oil & gas

14,000 

 

28,000 

 

51,000 

 

124,000 

 

 

465,000 

 

571,000 

 

1,229,000 

 

1,562,000 

**Expenses:**

 

 

 

 

 

 

 

 

Coal reclamation 

103,000 

 

68,000 

 

379,000 

 

620,000 

 

Carbon dioxide

105,000 

 

34,000 

 

268,000 

 

126,000 

 

China

262,000 

 

303,000 

 

851,000 

 

897,000 

 

**e**-Commerce

29,000 

 

15,000 

 

87,000 

 

67,000 

 

Oil & gas

4,000 

 

5,000 

 

17,000 

 

19,000 

 

Selling, general and administrative

195,000 

 

215,000 

 

520,000 

 

651,000 

 

Depreciation, depletion & amortization

59,000 

 

67,000 

 

156,000 

 

163,000 

 

 

757,000 

 

707,000 

 

2,278,000 

 

2,543,000 

**Operating profit (loss):**

 

 

 

 

 

 

 

 

Coal reclamation

(105,000)

 

(79,000)

 

(386,000)

 

(630,000)

 

Carbon dioxide

279,000 

 

382,000 

 

691,000 

 

963,000 

 

China

(221,000)

 

(209,000)

 

(713,000)

 

(640,000)

 

**e**-Commerce

(30,000)

 

(15,000)

 

(82,000)

 

(62,000)

 

Oil & gas

7,000 

 

21,000 

 

23,000 

 

95,000 

 

Other, primarily corporate

(222,000)

 

(236,000)

 

(582,000)

 

(707,000)

 

 

(292,000)

 

(136,000)

 

(1,049,000)

 

(981,000)

**Other income (expense):**

 

 

 

 

 

 

 

 

Interest income

2,000 

 

1,000 

 

7,000 

 

6,000 

 

Interest expense

(253,000)

 

(254,000)

 

(706,000)

 

(751,000)

 

Equity in operations of unconsolidated affiliates

-         

 

-         

 

-         

 

51,000 

 

Gain on sale of assets 

-         

 

-         

 

2,000 

 

7,000 

 

Minority interest in operations of consolidated subsidiary

-         

 

-         

 

-         

 

8,000 

 

Other

97,000 

 

(2,000)

 

118,000 

 

(3,000)

 

 

 

 

 

 

 

 

 

**Loss from continuing operations****before income taxes**

(446,000)

 

(391,000)

 

(1,628,000)

 

(1,663,000)

**Income tax benefit (expense)**

1,000 

 

17,000 

 

1,000 

 

17,000 

 

 

 

 

 

 

 

 

 

**Loss from continuing operations**

(445,000)

 

(374,000)

 

(1,627,000)

 

(1,646,000)

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

(1,000)

 

(1,000)

 

(3,000)

 

(27,000)

**Net loss**

$    (446,000)

 

$    (375,000)

 

$ (1,630,000)

 

$ (1,673,000)

 

 

 

 

 

 

 

 

 

**Net loss per average common share outstanding:**

 

 

 

 

 

 

 

 

**Basic and diluted:**

 

 

 

 

 

 

 

 

Loss from continuing operations

$          (0.08)

* *

$         (0.07)

* *

$          (0.28)

* *

$          (0.30)

 

Loss from discontinued operations

(0.00)

* *

(0.00)

* *

(0.00)

* *

(0.00)

 

Net loss

$          (0.08)

* *

$          (0.07)

* *

$          (0.28)

* *

$          (0.30)

 

 

 

* *

 

* *

 

* *

 

**Weighted average common shares outstanding -**

 

* *

 

* *

 

* *

 

 

**Basic and diluted**

5,925,000

* *

5,672,000

* *

5,868,000

* *

5,637,000

 

 

 

 

 

 

 

 

 

See accompanying notes to financial statements.

 

 

Page 5 of 31 Pages

 

 

 

**THE BEARD COMPANY AND SUBSIDIARIES**

Statements of Shareholders' Equity (Deficiency)

 

 

 

 

 

Preferred

 

Common

 

Capital in Excess of Par Value

 

Accumulated Deficit

 

Accumula-ted Other Compre-hensive Income (loss)

 

TotalCommonShare-holders'Equity(Deficiency)

 

Shares

Stock

 

Shares

Stock

 

**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:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currencytranslation adjustment 

-

-

 

-

-

 

-      

 

-

 

33,000 

 

33,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive loss

-

-

 

-

-

 

-      

 

-

 

- 

 

(1,521,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock for warrants exercised

-

-

 

10,000

-

 

4,000

 

-

 

- 

 

4,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock with debt

-

-

 

10,000

-

 

6,000

 

-

 

- 

 

6,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensationrelated to employee stock compensation

-

-

 

-

-

 

1,000

 

-

 

- 

 

1,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reservation of sharespursuant to compensationplan 

-

-

 

-

-

 

145,000

 

-

 

- 

 

145,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of shares pursuantto deferred

-

-

 

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 (unaudited)

-

-

 

-

-

 

-

 

(1,630,000)

 

- 

 

(1,630,000)

Comprehensive income(loss) (unaudited):

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currencytranslation adjustment(unaudited)

-

-

 

-

-

 

-

 

-

 

17,000 

 

17,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive loss(unaudited)

-

-

 

-

-

 

-

 

-

 

- 

 

(1,613,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensationrelated to employee stockoptions (unaudited)

-

-

 

-

-

 

5,000

 

-

 

- 

 

5,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reservation of sharespursuant to deferredcompensation plan(unaudited)

-

-

 

-

-

 

107,000

 

-

 

- 

 

107,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of shares pursuantto deferred compensationplan (unaudited)

-

-

 

66,135

-

 

-

 

-

 

- 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Balance, September 30,****2007 (unaudited)**

27,838

$889,000

 

5,657,715

$4,000

* *

$38,777,000

 

$(48,558,000)

 

$39,000 

 

$(8,849,000)

 

* *

* *

 

 

* *

* *

* *

* *

* *

 

 

 

 

See accompanying notes to financial statements.

 

 

Page 6 of 31 Pages

 

 

 

**THE BEARD COMPANY AND SUBSIDIARIES**

Statements of Cash Flows

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

**For the Nine Months Ended** 

 

 

 

 

**September 30, 2007**

 

**September 30, 2006**

**Operating activities:**

 

 

 

 

 

Cash received from customers

 

$            1,304,000 

 

$            1,564,000 

 

Gain on settlement

 

-         

 

-         

 

Cash paid to suppliers and employees

 

(1,866,000)

 

(2,791,000)

 

Interest received

 

7,000 

 

6,000 

 

Interest paid

 

(380,000)

 

(488,000)

 

Taxes received (paid)

 

-         

 

(28,000)

 

Operating cash flows of discontinuedoperations

 

(3,000)

 

(28,000)

 

Net cash used in operating activities

 

(938,000)

 

(1,765,000)

 

 

 

 

 

 

 

**Investing activities:**

 

 

 

 

 

Acquisition of property, plant and equipment

 

(468,000)

 

(8,914,000)

 

Acquisition of intangibles

 

(9,000)

 

(22,000)

 

Proceeds from sale of assets

 

21,000 

 

7,000 

 

Proceeds from sale of assets of discontinuedoperations

 

-         

 

3,000 

 

Proceeds from redemption of investmentaccount

 

-         

 

107,000 

 

Other 

 

(8,000)

 

48,000 

 

Net cash used in investing activities

 

(464,000)

 

(8,771,000)

 

 

 

 

 

 

 

**Financing activities:**

 

 

 

 

 

Proceeds from term notes

 

1,650,000 

 

441,000 

 

Payments on line of credit and term notes

 

(515,000)

 

(44,000)

 

Proceeds from related party debt

 

265,000 

 

10,080,000 

 

Payments on related party debt

 

(330,000)

 

(190,000)

 

Capitalized costs associated with issuance ofsubordinated debt

 

(47,000)

 

(17,000)

 

Proceeds from exercise of stock warrants

 

-         

 

4,000 

 

Advance from related party for investment in fifty percent-owned subsidiary in China

 

106,000 

 

-         

 

Advance to related party

 

(19,000)

 

-         

 

Payments received on notes receivable

 

35,000 

 

4,000 

 

Other

 

8,000 

 

15,000 

 

Net cash provided by financing activities

 

1,153,000 

 

10,293,000 

 

 

 

 

 

 

 

**Net decrease in cash and cash equivalents**

 

(249,000)

 

(243,000)

 

 

 

 

 

 

 

**Cash and cash equivalents at beginning of period**

 

270,000 

 

363,000 

 

 

 

 

 

 

 

**Cash and cash equivalents at end of period**

 

$                 21,000 

 

$               120,000 

 

 

 

 

 

 

 

Continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 7 of 31 Pages

 

 

 

**THE BEARD COMPANY AND SUBSIDIARIES**

Statements of Cash Flows

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Reconciliation of Net loss to Net Cash****Used in Operating Activities**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**For the Nine Months Ended** 

 

 

 

 

**September 30, 2007**

 

**September 30, 2006**

 

 

 

 

 

 

 

**Net loss**

 

$           (1,630,000)

 

$           (1,673,000)

**Adjustments to reconcile net loss to net****cash used in operating activities:**

 

 

 

 

 

Depreciation, depletion and amortization

 

156,000 

 

163,000 

 

Gain on sale of assets

 

(2,000)

 

(7,000)

 

Gain on sale of assets of discontinued operations

 

-         

 

(3,000)

 

Equity in net earnings of unconsolidated affiliates

 

-         

 

(51,000)

 

Noncash compensation expense 

 

108,000 

 

108,000 

 

Minority interest in consolidated partnership

 

-         

 

(8,000)

 

Other

 

(1,000)

 

6,000 

 

(Increase) decrease in accounts receivable, prepaid expenses and other current assets

 

(2,000)

 

17,000 

 

(Increase) decrease in inventories

 

96,000 

 

(65,000)

 

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

 

337,000 

 

(252,000)

 

**Net cash used in operating activities**

 

$              (938,000)

 

$           (1,765,000)

 

 

 

 

 

 

 

See accompanying notes to financial statements.

 
 

 

 

 

 

 

 

 

Page 8 of 31 Pages

 

 

**THE BEARD COMPANY AND SUBSIDIARIES**

Notes to Financial Statements

 

September 30, 2007 and 2006

(Unaudited)

 

***(1)***  ***Summary of Significant Accounting Policies***

*Basis of Presentation*******

The accompanying financial statements and notes thereto have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  Accordingly, certain disclosures normally prepared in accordance with accounting principles generally accepted in the United States have been omitted.  The accompanying financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in The Beard Company’s 2006 annual report on Form 10-K.

 

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

 

The financial information included herein is unaudited; however, such information reflects solely normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented.

 

The results of operations for the three and nine-month periods ended September 30, 2007, are not necessarily indicative of the results to be expected for the full year.

 

The Company’s current significant operations are within the following segments:  (1) the Coal Reclamation (“Coal”) Segment, (2) the Carbon Dioxide (“CO2”) Segment, (3) the China (“China”) Segment, (4) the **e**-Commerce (“**e**-Commerce”) Segment, and (5) the Oil & 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 China Segment is in the business of manufacturing fertilizer in China.  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.

 

*Inventories*

Inventories consist of the materials used to manufacture fertilizer to be sold to third parties by a 50%-owned subsidiary in the China Segment and, at September 30, 2007, was made up of raw materials of $41,000, work-in-process of $4,000 and finished goods of $64,000.  Inventories at December 31, 2006 consisted of raw materials of $73,000, work-in-process of $29,000 and finished goods of $103,000.  The inventories are valued at the lower of cost or market on the first-in, first-out method.

 

*Stock-Based Compensation*

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 

 

Page 9 of 31 Pages

 

 

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 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.  Also, on May 1, 2006, the Company 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

 

264.5%

Expected risk term (in years)

 

5.5

Risk-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 nine months ended September 30, 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 forStock-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.  

 

As of September 30, 2007, there were $40,000 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 nine years.

 

On November 10, 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. FAS 123R-3 “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards.”  The Company has elected to adopt the alternative transition method provided in the FASB Staff Position for calculating the tax effects of stock-based compensation pursuant to SFAS 123R.  The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and consolidated statements of cash flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS 123R.  SFAS 123R also requires the benefits of tax deductionsin excess of recognized compensation expense to be reported as a financing cash flow, rather than as an operating cash flow as prescribed under prior accounting rules.  This requirement reduces net operating cash flows and increases net financing cash flows in periods after adoption.  Total cash flow remains unchanged from what would have been reported under prior accounting rules.  Since no tax benefit was recorded for share based payment awards in the three or nine-month periods ended September 30, 2007 or 2006, the aforementioned provisions of SFAS 123R and the related FASB Staff Position No. FAS 123R-3 had no impact on the consolidated financial statements of the Company.

 

Page 10 of 31 Pages

 

 

*Option Activity*

A summary of the activity under the Company’s stock option plans for the nine-month period ended September 30, 2007 is presented below: 

 

 

**Shares**

**Weighted Average****Exercise Price**

**Weighted Average Remaining Contractual Term****(Years)**

**Average Intrinsic****Value**

 

 

 

 

 

Options outstanding at December 31, 2006:

30,000

$1.53

9.33

-

Granted

-

-

-

-

Exercised

-

-

-

-

Canceled

-

-

 

-

Options outstanding at September 30, 2007

30,000

$1.53

8.58

-

Options exercisable at September 30, 2007

-

-

-

-

Options vested and options expected to vest at September 30, 2007

30,000

$1.53

8.58

-

 

*Reclassifications*

Certain 2006 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 have increased in each of the last three fiscal years.  The Company has incurred operating losses and negative cash flows from operations during each of the last five fiscal years.  The Company commenced projects in both its Coal and China Segments in 2005.  Although both projects were completed, to date they have failed to generate positive cash flow.  The Coal Segment reflected decreased operating losses in the nine-month period ended September 30, 2007 compared to the same period in 2006 as a result of the deconsolidation of Beard Pinnacle.  The Coal Segment’s loss in the third quarter of 2006 was less than in the 2007 third quarter because it had capitalized $291,000 of expenses associatedwith the construction of the Pinnacle Project in the prior year quarter.  The China Segment reflected increased operating losses for the three and nine-month periods ended September 30, 2007.  Prices for the segment’s product were lowered by roughly 20% in the second quarter of 2007 in an unsuccessful effort to maintain or improve market share.  The China Segment was also charged $15,000 per month by the parent for accounting services and other overhead items provided by the parent.  See “Additional Details” and Note 8 below.  Although the Company finalized its first licensing arrangement in its e-Commerce Segment in 2003, the arrangement did not make the segment profitable during the last three fiscal years and will not make it profitable in 2007.  In the CO2 Segment where revenues, profit and cash flow were on a sharp upward trend during the last three fiscal years, there was a reversal of this trend in the three andnine-month periods ended September 30, 2007. It is believed that such reversal is a temporary aberration.  The Oil & Gas Segment reflected disappointing results for the three and nine-month periods ended September 30, 2007, as both production and prices were down sharply.

 

During the two years ended December 31, 2006, the Company took several steps which reduced its negative cash flow to some degree, including salary deferrals by its Chairman and President and deferrals of directors’ fees into its Deferred Stock Compensation Plans (the “DSC Plans”) and continuing 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 $4,079,000 during such period and 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.  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 fundinghad increased to more than $14,150,000 as of April 30, 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 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) $191,000 of short-term loans from the Company’s 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 this facility were used to retire the remaining principal balance under the earlier 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.  These measures enabled the 

 

Page 11 of 31 Pages

 

 

Company to continue operating until the events described below under Additional Details and Recent Developments had occurred or until they do occur.

 

The negative result of the above has been a substantial amount of dilution to the Company’s common equity.  From January 1, 2005 through September 30, 2007, a total of 85,109 warrants were issued in connection with the private debt placements, and 391,000 Stock Units were accrued in the participants’ accounts as a result of salary and fee deferrals into two 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 November of 2005, 56,000 in January of 2006, 42,000 in June of 2006, 24,000 in June of 2007, and another 42,000 inJuly of 2007.  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).

 

The Company’s working capital position has deteriorated by $1,893,000 since December 31, 2006 to $(2,164,000) at September 30, 2007.  On June 8, 2007, however, the Company consummated a $1,500,000 long-term bank revolving reducing line of credit collateralized by a priority position in its interest in the McElmo Dome field.  All of the parent’s then short-term debt and current maturities of its long-term debt, along with accrued interest, were eliminated.  At September 30, 2007, $25,000 remained available under the line of credit.  Initially, the Company could borrow up to $1,500,000 under the 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.  (See “Recent Developments” below).  The line accrues interest at 1.5% above the Wall Street Journal Prime Rate which is currently 7.5%.  Additionally,the Company paid $30,000, which the Company capitalized, to another note holder to subordinate his note to the new lender.

 

*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”) and commenced construction on the project in September of 2005.  The Company obtained commitments for (i) $2,800,000 of equity for the Pinnacle Project provided by a group of investors (the “Group”) who are affiliates of PinnOak Resources, LLC (“PinnOak”), the pond owner, in exchange for 50% ownership in the Pinnacle Project; and (ii) a $9,000,000 bank loan subject to obtaining a USDA 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 owns 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 Pinnacle Project and PinnOak became the permanent source of financing.  Despite the fact that PinnOak was providing all of the financing for the Pinnacle Project, the Company was deemed to own 100% of the Pinnacle 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 Pinnacle Project.  At that point BPLLC ceased to be a consolidated entity and all of itsassets and liabilities were removed from the Company’s balance sheet.

 

The Pinnacle Project, which produced its first coal in October of 2006, achieved a low rate of production during the ramp-up period due to initial start-up problems with the plant.  Effective May 11, 2007, the Company and the PinnOak parties agreed to terminate most of the agreements governing the Pinnacle Project.  The Company gave up its remaining 25% interest in the Pinnacle 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 Pinnacle Project.  In addition, the Company’s ownership percentage in the Pinnacle Project was reduced to zero.

 

*Recent Developments*

Meanwhile, the Coal Segment is actively pursuing a number other projects which it has under development. 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 “Reichard Project”).  A new subsidiary, Beard Reichard, LLC, has been formed to conduct the operations at this site, located near Pittsburgh, Pennsylvania.  The Company is seeking partners to finance the Reichard Project, which is expected to commence operations in December of 2007.  $280,000 of the $450,000 necessary to fund the Reichard Project had been committed as of November 16th.  The timing of the other projects the Company is actively pursuing is uncertain and their continuing development, as well as that of the Reichard Project, is subject to obtaining the necessary financing.  There is no assurance that the requiredfinancing will be obtained for the Reichard Project or that it or any of the other projects under development will materialize.

 

Page 12 of 31 Pages

 

 

To date the China fertilizer plant has not marketed sufficient product to reach its projected breakeven point.  Several new marketing initiatives have been undertaken, but all were unsuccessful.  The Company has 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 also 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.  It presently appears that the sale of the plant is the most likely outcome.  Meanwhile, the Company and its partner have advanced a total of $182,000 during the first nine months of 2007 to fund the plant’s operations.  It is estimated that the Company may need to make additionaladvances of up to $50,000 while the exploratory efforts are being concluded.****

 

Six developments have taken or are expected to take place subsequent to September 30, 2007, which have or are expected to significantly 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 whereby no principal reduction was required on the facility for the months of July through October of 2007, only a $25,000 reduction will be required in November and December of 2007, a $50,000 reduction in January and February of 2008, and a $75,000 reduction in March through December of 2008.  This made $100,000 available under the line 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) is resolved, (b) the disposition of the China plant has been concluded, and (c) the Company transfers the balance of its CO2 production to a new purchaser, which will significantly improve the Company’scash 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 has been no market for the Company’s share of the production from the unit for the last 10 years, and it has 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 carriedalong with Exxon Mobil (paying 12% interest until payout of such costs out of production from the Expansion).  Meanwhile, during all of 2007, KM has been billing the Company for its expanded 0.968564% interest in the Unit.  Due to the Company’s illiquid cash position, it has not paid any of such costs since April of this year, and they have suspended the Company’s runs, which had been in excess of $100,000 per month, since that time.  This has caused the Company irreparable harm and has severely impacted its cash flow.  The Company has now elected option (b) and has been advised that KM will release the cash which they have arbitrarily suspended prior to year-end.  The Company estimates that the amount owed to it, ignoring interest, as of the end of September totaled $381,000, and additional sums are owed to it for the month of October.  

 

(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)  If the Company is successful in funding the Reichard Project (see above), it anticipates that such project will provide most of the cash flow needed to make the Coal Segment self-sustaining for the next 18 months.  However, there is no assurance that the required financing will be obtained. 

 

(vi) If the Company is successful in disposing of its fertilizer plant in China, this will eliminate the burden of supporting such operation in the future.

 

The Company expects to generate cash of at least $50,000 from the disposition of the remaining assets from two of its discontinued segments, and expects to arrange short-term loans, if necessary, to satisfy its liquidity needs until the disposition of the China plant, the release of funds by KM and the finalization of new production sales contracts at McElmo Dome have 

 

Page 13 of 31 Pages

 

 

been concluded.  The Company also believes that it will be successful in securing the necessary funds for the Reichard Project.  If these objectives are achieved, the cash flow drain from the China Segment would be eliminated and the Coal Segment would shortly thereafter be expected to become self-sustaining.   The Company  also believes there is a chance of receiving an award in connection with the binding arbitration the Plaintiffs in the McElmo Dome Litigation lost in August of 2006.  An appeal concerning the decision reached on the arbitration was filed in November of 2006.  

 

***(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 joint venture was dissolved in 2000 and the Company took over certain remaining assets and liabilities.  The Company recorded no revenues for this segment for either the three or nine-month periods ended September 30, 2007 or September 30, 2006.  The Company recorded $2,000 and $1,000 in losses for this segment for the nine-month periods ended September 30, 2007 and September 30, 2006, respectively.  As of September 30, 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 September 30, 2007.  The Company is actively pursuing opportunities to sell the segment’s few remaining assets and expectsthe 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.  The segment recorded no revenues for either the first nine months of 2007 or 2006.  The Company recorded a loss of $28,000 for the first quarter of 2006 as a result of moving certain assets to a location near its headquarters to facilitate their sale.  This loss was partially offset by a gain of $3,000 in the second quarter of 2006, resulting in a loss for the six and nine-month periods of $25,000.  The segment recorded a loss of less than $1,000 for the first nine months of 2007.  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.  As of September 30, 2007, the significant assets of the WS Segment were fixed assets totaling$20,000.  The significant liabilities of the segment consisted of trade accounts payable and other accrued expenses totaling $40,000.  The Company anticipates that all of the liabilities of the segment will be paid prior to December 31, 2008.

 

***(4)***  ***Convertible Preferred Stock***

Effective January 1, 2003, the Company’s preferred stock became convertible into Beard common stock.  Each share of Beard preferred stock was convertible into 10.64163303 shares on September 30, 2007 (total of 296,241 shares).  The conversion ratio will be adjusted if additional warrants or convertible notes are issued or if additional shares of stock are credited to the accounts of the Company’s Chairman or President in the Company’s Deferred Stock Compensation Plan, in each case at an exercise, conversion or grant price below $1.38308329 per share.  Fractional shares will not be issued, and cash will be paid in redemption thereof.  

 

***(5)***  ***Loss Per Share***

Basic earnings (loss) per share data is computed by dividing earnings (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the period.  Included in the weighted average number of common shares outstanding are the shares issuable according to the terms of the 2005 DSC Plan.  The shares in the 2005 DSC Plan are considered common stock equivalents because the covered individuals may resign their positions at will which would also terminate their participation in the DSC Plan resulting in the issuance of the shares.  In the fourth quarter of 2005 four of the five participants in the 2003-2 DSC Plan elected, irrevocably, to receive a portion of their shares in such Plan over periods ranging from two to 10 years.  Those shares were included in the calculation of the common stock equivalents up to the date of those elections in 2005 but areexcluded from the 2006 computation except for 42,370 shares which were distributed in the second quarter of 2006.  In the first nine months of 2007, the computation includes 23,765 shares which were distributed in June of 2007 and 42,370 shares which were distributed in July of 2007.  As the remaining shares are distributed in future years, they will then be included in the computation of shares outstanding.  415,408 of such shares from the 2003-2 DSC Plan remain to be distributed in the years 2008 through 2014.  Diluted earnings per share reflect the potential dilution that could occur if the Company’s outstanding options and warrants were exercised (calculated using the treasury stock method) and if the Company’s preferred stock and convertible notes were converted to common stock.

 

Diluted loss per share from continuing operations in the statements of operations for the three and six-month periods ended September 30, 2007 and 2006 exclude all potential common shares issuable upon conversion of convertible preferred stock, convertible notes or exercise of options and warrants as the effect would be anti-dilutive due to the Company’s losses from continuing operations.  

 

 

Page 14 of 31 Pages

 

 

 

 

For the Three Months  Ended

 

For  the Nine Months Ended

 

September 30, 2007

September 30, 2006

 

September 30, 2007

September 30, 2006

Basic and Diluted EPS:

 

 

 

 

 

Weighted average common shares outstanding

5,645,971

5,591,580

 

5,612,129

5,555,379

Weighted average shares in 2005 deferred stock compensation plan treated as common stock equivalents

267,219

80,595

 

210,379

53,312

Weighted average shares in 2003-2 deferred stock compensation plan treated as common stock equivalents

11,744

-

 

45,586

28,106

 

5,924,934

5,672,175

 

5,868,094

5,636,797

 

***(6)***  ***Income Taxes***

In accordance with the provisions of the Statement of Financial Accounting Standard No. 109,  “Accounting for Income Taxes” ("SFAS No. 109"), the Company's net deferred tax asset is being carried at zero book value, which reflects the uncertainties of the Company's utilization of the future net deductible amounts.  The Company recorded no provisions for income taxes for either of the three or nine-month periods ended September 30, 2007 or September 30, 2006.

 

At September 30, 2007, the Company estimates that it had the following income tax carryforwards available for both income tax and financial reporting purposes (in thousands):  

 

 

 

Expiration

Date

Amount

 

 

Federal regular tax operating loss carryforwards

2007-2008

$    41,100

 

 

Federal regular tax operating loss carryforwards

2021-2027

$     5,100

 

 

Tax depletion carryforward

Indefinite

$     3,000

 

 

Effective January 1, 2007, the Company adopted Financial Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”.  FIN 48 requires companies to determine whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate tax authorities before any tax benefit can be recorded in the financial statements.  It also provides guidance on the recognition, measurement, classification and disclosure in the financial statements for uncertain tax positions taken or expected to be taken in a tax return.  The Company files numerous consolidated and separate returns in the United States federal and state jurisdictions and in China.  The statute of limitations for the tax years 1992-1993 and 2001-2002 are closed except as to the proper amount of net operatingloss carryover to open years.  The statute of limitations for the tax years 2003–2006 remain open to examination by the federal and most state authorities in which the Company has transacted business.  No income tax returns are currently under audit and no extensions of statutes of limitations have been granted.  The Company’s historical operating losses raise considerable doubt as to when, if ever, any of the deferred tax assets will be realized.  As a result, management has provided a full valuation allowance for the net deferred tax assets.  In the event it is determined that the Company will realize sufficient future taxable income and a portion or all of the previously recorded valuation allowance is no longer needed, the Company will reduce the valuation allowance by providing an income tax benefit in the period that such a determination is made.  Based upon its ongoing assessment, management has concluded that the adoption of FIN 48 had no impact on the Company’sconsolidated financial statements.  The Company’s policy is to record interest on tax assessments, if any, as interest expense and penalties, if any, as a component of general and administrative expenses.

 

***(7)***  ***Commitments and Contingencies***

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

 

Page 15 of 31 Pages

 

 

***(8)***  ***Business Segment Information***

The Company manages its business by products and services and by geographic location (by country).  The Company evaluates its operating segments’ performance based on earnings or loss from operations before income taxes.  The Company had five reportable segments in the first nine months of 2007 and 2006.  The segments are Coal, Carbon Dioxide, China,**e**-Commerce and Oil & Gas.

 

The Coal Segment is in the business of operating coal fines reclamation facilities in the U.S. and provides slurry pond core drilling services, fine coal laboratory analytical services and consulting services.  The CO2 Segment consists of the production of CO2 gas.  The China Segment manufactures fertilizer in China.  The **e**-Commerce Segment consists of a 71%-owned subsidiary whose current strategy is to develop business opportunities to leverage the subsidiary’s intellectual property portfolio of Internet payment methods and security technologies**.**The Oil & Gas Segment consists of the production of oil and gas.

 

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 (except for $15,000 per month of “Other” expenses charged to the China Segment beginning in December 2006) 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. 

 

 

Coal

Carbon Dioxide

China

**e**-Commerce

Oil & Gas

Totals

Three months ended September 30, 2007

 

 

 

 

 

 

Revenues from external  customers

$                - 

$      401

$          50 

$          - 

$        14

$      465 

Segment profit (loss)

(105)

279

(237)

(30)

7

(86)

 

* *

* *

* *

* *

* *

* *

Three months ended September 30, 2006

* *

* *

* *

* *

* *

* *

Revenues from external  customers

$             12 

$      428

$       103 

$          - 

$        28

$      571 

Segment profit (loss)

(80)

382

(224)

(15)

20

83 

 

* *

* *

* *

* *

* *

* *

Nine months ended September 30, 2007

* *

* *

* *

* *

* *

* *

Revenues from external  customers

$               - 

$    1,007

$        166 

$           5 

$         51

$    1,229 

Segment profit (loss)

(385)

691

(764)

(82)

25

(515)

Segment assets

239

1,052

540 

18 

321

2,170 

 

 

 

 

 

 

 

Nine months ended September 30, 2006

 

 

 

 

 

 

Revenues from external  customers

$             25 

$    1,124

$        284 

$           5 

$        124

$    1,562 

Segment profit (loss)

(632)

963

(675)

(62)

103 

(303)

Segment assets

12,777

552

704 

18 

350

14,401 

 

Reconciliation of total reportable segment loss to consolidated earnings (loss) from continuing operations before income taxes is as follows for the three and nine-month periods ended September 30, 2007 and 2006 (in thousands):

 

 

Page 16 of 31 Pages

 

 

 

 

For the Three Months Ended

 

 

For the Nine Months  Ended

 

 
 

September 30, 2007

 

September 30, 2006

 

September 30, 2007

 

September 30, 2006

 

 

 

 

 

 

 

 

 

 

Total earnings (loss) for reportable segments

$         (86)

 

$            83 

 

$           (515)

 

$        (303)

 

Net corporate costs not allocated to segments

 

(360)

 

 

(474)

 

 

(1,113)

 

 

(1,360)

 

Total consolidated loss from continuing operations before income taxes

 

$       (446)

 

 

$       (391)

 

 

$        (1,628)

 

 

$     (1,663)

 

 

 

Page 17 of 31 Pages

 

 

**THE BEARD COMPANY AND SUBSIDIARIES**

 

**DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS**

 

THIS REPORT INCLUDES “FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.  ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED OR INCORPORATED BY REFERENCE IN THIS REPORT, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING 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 SIMILARTERMINOLOGY.  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 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” AND ELSEWHERE IN THIS REPORT.  ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO 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.

 

**Item 2.**  **Management's Discussion and Analysis of Financial Condition and Results of Operations**

 

The following discussion focuses on material changes in our financial condition since December 31, 2006 and results of operations for the quarter ended September 30, 2007, compared to the prior year third quarter and the nine months ended September 30, 2007 compared to the prior year nine months.  Such discussion should be read in conjunction with our financial statements including the related footnotes.  

 

In preparing the discussion and analysis, we have presumed readers have read or have access to the discussion and analysis of the prior year's results of operations, liquidity and capital resources as contained in our 2006 Form 10-K.

 

**Overview** 

 

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

 

Our revenues from continuing operations have been on an uptrend, increasing in each of the last three fiscal years.  Most of the increase was attributable to the CO2 Segment where the implementation of the McElmo Dome settlement agreement resulted in increased production and better pricing.  There was a reversal of this trend in the first nine months of 2007, which is believed to be a temporary aberration.  The Oil & Gas Segment reflected disappointing results in the first three quarters of 2007 as both production and prices were down sharply.  Anticipated production increases from the Pinnacle Plant in the Coal Segment and from our China fertilizer plant failed to materialize due to (i) the deconsolidation of Beard Pinnacle and (ii) the failure of the China plant to meet its targeted sales and production goals.

 

**Material changes in financial condition – September 30, 2007 as compared with December 31, 2006.**

 

The following table reflects changes in the Company's financial condition during the periods indicated:

 

Page 18 of 31 Pages

 

 

 

 

September 30,

December 31,

Increase

 

2007

2006

(Decrease)

 

 

 

 

Cash and cash equivalents

$            21,000 

$        270,000 

$         (249,000)

 

 

 

 

Working capital 

$      (2,164,000)

$       (271,000)

$      (1,893,000)

 

 

 

 

Current ratio

0.19 to 1

0.76 to 1

 

 

Our working capital position has deteriorated by $1,893,000 since December 31, 2006 to $(2,164,000) at September 30, 2007.  During the first nine months of 2007, net proceeds from term notes and related party debt provided $1,868,000 to fund operations and to pay off certain debt amounts.  We used $845,000 of those proceeds to pay down debt.  Proceeds from the sale of assets were $21,000 and collections on notes receivables provided another $35,000.  Our CO2 Segment provided working capital of $739,000.  We utilized $396,000 to help fund operations of the Coal Segment and another $742,000 in connection with the fertilizer operations in China.  Also, we used $82,000 to fund the activities of the e-Commerce Segment.  We utilized the majority of the remainder of the working capital to fund other operations.  

 

Six developments have taken place or are expected to take place which have or will significantly benefit our cash flow position going forward:  

 

 

**•**

On October 11, 2007, we entered into a Change of Terms Agreement on our $1,500,000 bank credit facility whereby no principal reduction was required on the facility for the months of July through October of 2007, only a $25,000 reduction will be required in November and December of 2007, a $50,000 reduction in January and February of 2008, and a $75,000 reduction in March through December of 2008.  This made $100,000 available under the line 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 (i) the Kinder Morgan matter (see below) is resolved, (ii) the disposition of the China plant has been concluded, and (iii) we transfer the balance of our CO2 production to a new purchaser, which will significantly improve our cashflow.

 

 

**•**

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

 

 

**•**

In May of 2006 we signed an Authorization for Expenditure to participate for our 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 us that Exxon Mobil had elected not to participate and that we must bear our proportionate share of Exxon Mobil’s share of the costs of the Expansion.  This resulted in our WI percentage in the Expansion being increased from 0.54469% to 0.968564%.  We, 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 fortheir share of such costs, or (b) opt out of the Expansion and be carried along with Exxon Mobil (being charged 12% interest until payout of such costs out of production from the Expansion).  Meanwhile, during all of 2007, KM has been billing us for our expanded 0.968564% interest in the Unit.  Due to our illiquid cash position, we have not paid any of such costs since April of this year, and they have suspended our runs, which had been in excess of $100,000 per month, since that time.  This has caused us irreparable harm and has severely impacted our cash flow.  We have now elected option (b) and have been advised that KM will release the cash which they have arbitrarily suspended prior to year-end.  We estimate that the amount owed to us, ignoring interest, as of the end of September amounted to $381,000, and additional sums are owed to us for the month of October.  

 

 

**•**

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 

 

Page 19 of 31 Pages

 

 

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.  

 

 

**•**

On October 11, 2007, we signed a purchase agreement and, on October 31, 2007, we made a down payment on the site for a new project (the “Reichard Project”).  We have formed a new subsidiary, Beard Reichard, LLC, to conduct the operations at this site, located near Pittsburgh, Pennsylvania.  We are currently seeking partners to finance the Reichard Project, which is expected to commence operations in December of 2007.  $280,000 of the $450,000 necessary to fund the Reichard Project had been committed as of November 16th.    If we are successful, we anticipate that such project will provide most of the cash flow needed to make the Coal Segment self-sustaining for the next 18 months.   The timing of the Reichard Project as well as other coal projects we are actively pursuing is uncertain and their continuing development, as well as that of theReichard Project, is subject to obtaining the necessary financing.  There is no assurance that the required financing will be obtained for the Reichard Project or that it or any of the other projects under development will materialize.

 

 

**•**

We also expect to finalize prior to year-end the disposition of our fertilizer plant in China.  If we are successful, this will eliminate the burden of supporting this operation in the future.   

 

Liquidity will continue to be constrained until (i) we receive the funds owed to us by KM, (ii) the new contracts for the sale of our CO2 production from McElmo Dome have been finalized, and (iii) the developments in the Coal and China Segments have taken place.  Meanwhile, we expect to arrange short-term loans, if necessary, to satisfy our liquidity needs.

 

Our principal business is coal reclamation, and this is where management’s operating attention is primarily focused.  Since the deconsolidation of Beard Pinnacle the Coal Segment has been diligently pursuing new projects and has several in various stages of development.  As discussed above, we are already moving forward on the Reichard Project and are actively pursuing other projects; however, there is no assurance that the required financing will be obtained or that any of the projects will materialize. 

 

As discussed in our 2006 Form 10-K, sales at our fertilizer manufacturing plant in China have developed more slowly than anticipated, and this has necessitated that both we and our 50% partner loan additional funds to support the operations until the plant starts generating positive cash flow.  We have 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.  We are also 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.  It presently appears that the sale of the plant is the most likely outcome.  Meanwhile, we and our partner have advanced a total of $182,000 during the first nine months of 2007 to fund theplant’s operations.  It is estimated that we may need to make additional advances of up to $50,000 while the exploratory efforts are being concluded.

 

The Company expects to generate cash of at least $50,000 from the disposition of the remaining assets from two of its discontinued segments and is continuing to pursue such disposition.  We also believe there is a chance of receiving an award in connection with the binding arbitration the Plaintiffs in the McElmo Dome Litigation lost in August of 2006.  An appeal concerning the decision reached on the arbitration was filed in November of 2006.    (See “PART II.  Item 1. Legal Proceedings.  McElmo Dome Litigation.”).****

 

**Material changes in results of operations - Quarter ended September 30, 2007 as compared with the Quarter ended September 30, 2006.**

 

The net loss for the third quarter of 2007 was $446,000 compared to $375,000 for the 2006 third quarter.  Continuing operations posted a net loss of $445,000, after a tax benefit of $1,000 compared to a net loss from continuing operations of $374,000 after a tax benefit of $17,000 for the same period in 2006.  In addition, the Company’s discontinued operations had losses of $1,000 for the third quarter of both 2006 and 2007.

 

The Coal Segment’s revenues decreased $12,000 to none for the third quarter of 2007 compared to the third quarter of 2006.  This decrease in revenues along with an increase in operating and SG&A expenses of $35,000 accounted for the decrease in the segment’s operating loss which amounted to $105,000 in the third quarter of 2007 versus $79,000 in the 2006 third quarter.  These increased expenses were partially offset by a decrease in depreciation expenses in the segment.  The operating profit in the CO2 Segment decreased $103,000 to $279,000 

 

Page 20 of 31 Pages

 

 

compared to $382,000 a year earlier.  The China Segment’s loss for the third quarter of 2007 totaled $221,000 compared to $209,000 for the same period in 2006.  The e-Commerce Segment incurred operating losses of $30,000 for the third quarter of 2007 compared to $15,000 in the third quarter of 2006.  The operating income in the Oil & Gas Segment decreased $14,000 to $7,000 for the third quarter of 2007 compared to $21,000 for the same period in 2006.  The operating loss in Other activities for the third quarter of 2007 decreased $14,000 compared to the same period in 2006.  As a result, the operating loss for the current quarter increased $156,000 to $292,000 versus $136,000 in the corresponding quarter of the prior year. 

 

Operating results of the Company’s primary operating Segments are reflected below:

 

 

 

**2007**

**2006**

 

 

**Operating profit (loss):**

 

 

 

 

Coal reclamation

$  (105,000)

$  (79,000)

 

 

Carbon dioxide

279,000

382,000

 

 

China

(221,000)

(209,000)

 

 

**e**-Commerce

(30,000)

(15,000)

 

 

Oil & gas

7,000

21,000

 

 

Subtotal

(70,000)

100,000

 

 

Other

(222,000)

(236,000)

 

 

**Total**

$  (292,000)

$  (136,000)

 

 

The “Other” in the above table reflects primarily general and corporate activities, as well as other activities of the Company.

 

**Coal reclamation**

 

The segment recorded less than $1,000 in revenues in the third quarter of 2007 compared to $12,000 for the third quarter of 2006 as a result of performing fewer consulting and coring jobs in the 2007 period.  Operating costs increased $35,000 to $103,000 for the third quarter of 2007 compared to $68,000 for the same period in 2006.  The segment had capitalized $291,000 of expenses associated with the construction of the Pinnacle Project in the third quarter of 2006.  Effective October 1, 2006, however, the LLC operating the Pinnacle Project ceased to be a consolidated entity and as a result there were no comparable expenses for the remainder of 2006 or the first nine months of 2007.  Depreciation and amortization expenses decreased $21,000 for the segment when comparing the third quarter of 2006 to the same period in 2007.

 

**Carbon dioxide**

 

Third quarter 2007 operations reflected an operating profit of $279,000 compared to $382,000 for the 2006 third quarter.  The sole component of revenues for this segment is the sale of CO2 gas from the working and overriding royalty interests of the Company’s carbon dioxide producing unit in Colorado.  Operating revenues in this segment decreased $27,000 to $401,000 for the third quarter of 2007 compared to $428,000 for the same period in 2006.  The reduction in revenue for the current quarter was due primarily to decreased production as the paid volumes to the Company’s interest were approximately 23 mmcf less for the third quarter of 2007 than the same period in the prior year.  Lifting costs increased $71,000 for the third quarter of 2007 compared to the same period in 2006.  Higher accounting, severance and ad valorem taxes accounted for the majority of the increasein lifting costs.  Depreciation expense increased to $19,000 for the third quarter of 2007 compared to $12,000 for the same period in 2006.

 

**China**

 

The China Segment incurred an operating loss of $221,000 for the third quarter of 2007 compared to $209,000 for the same period in 2006.  The segment recorded revenues of $50,000 for the third quarter of 2007 compared to $103,000 for the same period in 2006.  Although operating and SG&A costs decreased $41,000 to a total of $262,000 for the third quarter of 2007 compared to $303,000 for the same period in 2006, reflecting costs associated with the plant start-up, they were more than offset by the $53,000 revenue decrease, resulting in the net $12,000 increase in operating losses for the third quarter of 2007 compared to the same period in 2006.

 

**e-Commerce**

 

Page 21 of 31 Pages

 

 

The **e**-Commerce Segment incurred an operating loss of $30,000 for the third quarter of 2007 versus an operating loss of $15,000 in the prior year quarter.  The segment recorded no revenue for either the third quarter of 2007 or 2006.  Under the segment’s patent license agreement, the provision for an annual license fee of $25,000 terminated at the end of the first quarter of 2005.  The segment will continue to receive royalty fee income according to the terms of the agreement.  The segment incurred $14,000 more in SG&A costs in the 2007 third quarter than it did in the comparable 2006 quarter.  Because of the snail’s pace at which the Visa lawsuit was progressing, we granted the request of Marc Messner, the managing member of starpay, to spend a portion of his time, from February through September of 2006, assisting his wife in hernewly purchased business.  Accordingly, he received only half his normal salary during such period.  Increased salary and related expenses accounted for $11,000 of the increase and increased legal fees accounted for the remaining $3,000 of the total $14,000 increase.  

 

**Oil & Gas**

 

Our newest segment, Oil & Gas, is a familiar one to management.  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 $14,000 in revenues for the third quarter of 2007 compared to $28,000 for the same period in 2006 due to decreases in both price and production.  Operating costs totaled $4,000 and $5,000 for the third quarter of 2007 and the third quarter of 2006, respectively.  As a result, the segmentcontributed $7,000 of operating profit for the third quarter of 2007 compared to $21,000 for the same period in the prior year.

 

**Other corporate activities**

 

Other corporate activities include general and corporate activities, as well as assets unrelated to our operating segments or held for investment.  These activities generated operating losses of $222,000 for the third quarter of 2007 compared to $236,000 for the same period of 2006.  This $14,000 decrease in operating losses 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 $57,000 in the third quarter of 2007.  This reduction was offset by a $38,000 increase in salaries and associated expenses and legal and accounting expenses for the third quarter of 2007 compared to the same period in 2006.

 

**Selling, general and administrative expenses**

 

Our selling, general and administrative expenses (“SG&A”) in the current quarter decreased $20,000 to $195,000 compared to $215,000 for the third quarter of 2006.  There were numerous minor increases and decreases in SG&A accounts resulting in the net decrease.  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.   

 

**Depreciation, depletion and amortization expenses**

 

DD&A expense decreased $8,000 from $67,000 in the third quarter of 2006 to $59,000 in the same period of 2007.  DD&A expenses in the Coal Segment decreased $21,000 for the third quarter of 2007 compared to the same period in 2006 due to the deconsolidation of the entity owning the Pinnacle Project in the fourth quarter of 2006.  DD&A expenses in the CO2 Segment increased $7,000 for the three-month period in 2007 compared to the same period in 2006 because of the expansion project in the McElmo Dome field.  

 

**Other income and expenses**

 

Other income and expenses for the third quarter of 2007 netted to a loss of $154,000 compared to a loss of $255,000 for the third quarter of 2006.  Interest income increased $1,000 for the third quarter of 2007 versus the same period in 2006.  Interest expense was $1,000 less for the same periods.  We received a $96,000 distribution from the defense fund associated with the Coalition Managers Litigation.  Such income had not been accrued in prior periods as the exact amount and timing of the distribution had not been assured.  

 

Page 22 of 31 Pages

 

 

**Income taxes**

 

The Company recorded a refund for federal alternative minimum taxes of $17,000 in the third quarter of 2006 compared to $1,000 for the same period in 2007.  We have not recorded any financial benefit attributable to our various tax carryforwards due to uncertainty regarding their utilization and realization.  

 

**Discontinued operations**

 

Our financial results for the 2007 and 2006 third quarters realized losses of $1,000 each as a result of activities in two of our four discontinued segments.  Both the third quarters of 2007 and 2006 posted a loss of $1,000 associated with our discontinued iodine manufacturing segment.  As of September 30, 2007, assets of discontinued operations held for resale totaled $20,000 and liabilities of discontinued operations totaled $40,000.  We believe that all of the assets of the discontinued segments have been written down to their realizable value.  We are actively pursuing opportunities to sell the remaining assets and expect the dispositions to be completed by December 31, 2008. 

 

**Material changes in results of operations - Nine months ended September 30, 2007 as compared with the Nine months ended September 30, 2006.**

 

The Company recorded a loss of $1,630,000 for the first nine months of 2007 compared to a loss of $1,673,000 for the first nine months of 2006.  Continuing operations reflected losses of $1,627,000 compared to $1,646,000 for the same period in 2006.  In addition, the Company had losses from discontinued operations of $3,000 for the first nine months of 2007 compared to $27,000 for the same period in 2006.

 

Operating results of the Company’s primary operating segments are reflected below:

 

 

 

**2007**

**2006**

 

 

**Operating profit (loss):**

 

 

 

 

Coal reclamation

$      (386,000)

$    (630,000)

 

 

Carbon dioxide

691,000

963,000

 

 

China

(713,000)

(640,000)

 

 

**e**-Commerce

(82,000)

(62,000)

 

 

Oil & gas

23,000

95,000

 

 

Subtotal

(467,000)

(274,000)

 

 

Other

(582,000)

(707,000)

 

 

**Total**

$   (1,049,000)

$   (981,000)

 

 

The “Other” in the above table reflects primarily general and corporate activities, as well as our other activities and investments.

 

**Coal reclamation**

 

Revenues decreased $25,000 to less than $1,000 for the first nine months of 2007 compared to the same period in 2006 as the result of fewer consulting and coring jobs in the current year.  Operating costs decreased $241,000 to $379,000 for the first nine months of 2007 compared to $620,000 for the same period in 2006 as a result of decreased labor, expendable supplies, advertising, travel and other costs.  The results of operations for the first nine months of 2006 included losses totaling $199,000 associated with the coal project in West Virginia that was disposed of in the fourth quarter of 2006.  The first nine months of 2007 included no such costs.  As a result, the operating loss for the first nine months of 2007 decreased $244,000 to $386,000 compared to $630,000 in the first nine months of 2006.

 

**Carbon dioxide**

 

Operations for the first nine months of 2007 resulted in an operating profit of $691,000 compared to a $963,000 operating profit for the nine months ended September 30, 2006.  The sole component of revenues for this segment is the sale of CO2 gas from the working and overriding royalty interests of our carbon dioxide producing unit in Colorado.  Segment operating revenues decreased $117,000 or 11% to $1,007,000 for the first nine months of 2007 compared to $1,124,000 for the same period in 2006.  We recorded an additional $142,000 in operating costs 

 

Page 23 of 31 Pages

 

 

associated with our properties in the first three quarters of 2007 compared to the same period in 2006.  Severance taxes accounted for $68,000 of the increase.  Beginning in August of 2007, the Company entered into an arrangement to take a portion of its share of the production from the McElmo Dome field and market these volumes through an LLC set up for this purpose.  There were increased costs associated with this arrangement which accounted for the remainder of the increase in the operating expenses.  The decrease in revenue for the current nine months was due to lower volumes to our interest accompanied by a decrease in pricing. We received an average of $0.70 per mcf sold in the first nine months of 2007 versus $0.76 per mcf in the year earlier period.  Paid volumes were down 35 mmcf in the current nine months versus a year ago.

 

**China**

 

The China Segment incurred an operating loss of $713,000 for the first nine months of 2007 compared to $640,000 for the same period in 2006.  Revenues decreased $118,000 from $284,000 for the first three quarters of 2006 to $166,000 for the same period in 2007 as the segment reduced prices for its products to meet market competition.  Expenses were reduced $46,000 to $851,000 for the first nine months of 2007 compared to $897,000 for the same period in 2006.  The plant recorded its first production and sales in October of 2005.  

 

**e-Commerce**

 

The **e**-Commerce Segment incurred an operating loss of $82,000 for the first three quarters of 2007 versus an operating loss of $62,000 in the prior year period.  The segment recorded revenues of $5,000 of royalty fee income for both the nine-month periods ended September 30, 2007 and 2006.  Under the segment’s patent license agreement, the provision for an annual license fee of $25,000 terminated at the end of the first quarter of 2005.  The segment will continue to receive royalty fee income according to the terms of the agreement.  Because of the snail’s pace at which the Visa lawsuit was progressing, we granted the request of Marc Messner, the managing member of starpay, to spend a portion of his time, from February through September of 2006, assisting his wife in her newly purchased business.  Accordingly, he received only half hisnormal salary during such period.  An $11,000 decrease in legal fees accounted for the majority of the remaining change as the segment continued its suit against Visa.

 

**Oil & Gas**

 

Our newest segment, Oil & Gas, is a familiar one to management.  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 $51,000 in revenues for the first nine months of 2007 compared to $124,000 for the same period in 2006.  The revenue decline was attributable to decreases in both price and in production.  Operating costs totaled $17,000 and $19,000 for the first nine months of 2007 and 2006, respectively.As a result, the segment contributed $23,000 of operating profit for the first three quarters of 2007 compared to $95,000 for the same period in the prior year. 

 

**Other corporate activities**

 

Other corporate activities include general and corporate operations, as well as assets unrelated to the Company’s operating segments or held for investment.  These activities generated operating losses of $582,000 for the first nine months of 2007 as compared to $707,000 in the same period of 2006.  The $125,000 decrease in operating losses was due primarily to our practice, begun in the latter part of 2006, of charging related entities for certain overhead items incurred by us that pertain to their operations.  Such charges amounted to $168,000 for the first three quarters of 2007.  We charged $4,000 more in DD&A costs for the nine-month period in 2007 compared to the same period in 2006 because of the amortization of capitalized costs associated with the issuance of the $1.5MM reducing credit facility obtained in June of 2007.  We also incurred several smaller increases innumerous other expense accounts.  

 

**Selling, general and administrative expenses**

 

Our selling, general and administrative expenses (“SG&A”) in the first nine months of 2007 decreased $131,000 to $520,000 from $651,000 for the 2006 nine months.  The primary reason for the decrease is the practice, which we 

 

Page 24 of 31 Pages

 

 

began in late 2006, of charging related entities for accounting and other overhead type items that the parent provides.  See “Other corporate activities” above. 

 

**Depreciation, depletion and amortization expenses**

 

DD&A expense decreased $7,000 from $163,000 for the nine months ended September 30, 2006 to $156,000 for the same period in 2007.  The nine months ended September 30, 2006 included $19,000 of DD&A associated with the Pinnacle Project which was deconsolidated effective October 1, 2006.  The nine months ended September 30, 2007 included $11,000 of additional amortization associated with the capitalized costs relating to the Company’s revolving credit facility with a local bank.  These two items accounted for the majority of the decrease.**

 

**Other income and expense**

 

The other income and expenses for the first nine months of 2007 netted to a loss of $579,000 compared to $682,000 for the same period in 2006.  Interest income was $7,000 for the first nine months of 2007 compared to $6,000 for the first nine months of 2006.  Interest expense for the first nine months of 2007 was $706,000 compared to $751,000 for the same period in 2006.  We realized gains on sale of assets for the first nine months of 2007 totaling $2,000 compared to $7,000 in the prior year period.  We realized an $8,000 reduction in expenses attributable to our operations in China during the first nine months of 2006 compared to none for the same period in 2007 as a result of the 50% minority interest held by our investor in the start-up LLC included as a consolidated subsidiary in these financial statements.  We also received a $96,000 distribution from the defense fund associated withthe Coalition Managers Litigation.  Such income had not been accrued in prior periods as the exact amount, timing and actual receipt of the distribution had not been assured.  

 

Our equity in earnings of unconsolidated affiliates reflected no earnings or losses for the first nine months of 2007 compared to $51,000 for the same period in 2006.  We recorded $51,000 in 2006 as our share of earnings from our investment in Cibola Corporation compared to none in the current year nine months.  While we owned 80% of the common stock of Cibola, we did not have financial or operating control of this gas marketing subsidiary.  The majority of the amount received in the first nine months of 2006 was the result of a negotiated settlement with the minority common shareholders regarding the termination of the ownership agreement effective December 1, 2006. 

 

**Income taxes**

 

The Company recorded a refund of $1,000 for the first nine months of 2007 compared to $17,000 for the same period in 2006 for federal alternative minimum taxes.  

 

**Discontinued operations**

 

Our financial results for the nine months ended in 2007 and 2006 were impacted by losses of $3,000 and $27,000, respectively, as a result of activities in two of our four discontinued segments.   The majority of the loss for the first three quarters of 2007 related to rental expense for equipment storage associated with one of our discontinued segments.  The first nine months of 2006 benefited from the disposition of assets which generated gains of $3,000.  These gains were offset by expenses totaling $30,000 for the nine-month period ending September 30, 2006.  As of September 30, 2007, assets of discontinued operations held for resale totaled $20,000 and liabilities of discontinued operations totaled $40,000.  We believe that all of the assets of the discontinued segments have been written down to their realizable value.  We are actively pursuing opportunities to sell the remaining assetsand expect the dispositions to be completed by December 31, 2008.  

 

**Item 3.**  **Quantitative and Qualitative Disclosures About Market Risk.**

 

At September 30, 2007, we had total debt of $10,542,000 which included $597,000 of accrued interest to a related party which was treated as a long-term obligation.  Included in the remaining $9,945,000 of debt was $8,331,000 of long-term debt which had fixed interest rates and $214,000 of short-term debt; therefore, our interest expense and operating results would not be affected by an increase in market interest rates for this portion of the debt.  The remaining $1,400,000 of debt is accruing interest at Wall Street Journal Prime plus 1.5%, or 9.25%, at September 30, 2007.  At September 30, 2007, a 10% increase in market interest rates would have reduced the fair value of our debt by $97,000.

 

We have no other market risk sensitive instruments.

 

Page 25 of 31 Pages

 

 

**Item 4.**  **Controls and Procedures.**

 

It is the responsibility of our principal executive officer and principal financial officer to ensure that we maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file with the Securities and Exchange Commission is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.  Disclosure controls and procedures include controls and procedures designed to ensure that the information required to be disclosed by us in the reports that we file is accumulated and communicated to our management, including our principal executive officer or officers and principal financial officer to allow timely decisions regarding required disclosure.  Based on their evaluation of those controls and procedures as of a date within 90 days of thedate of this filing, our CEO and CFO determined that our disclosure controls and procedures currently in place are effective as of the end of the period covered by this report.  There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date the chief executive officer and chief financial officer completed their evaluation. 

 

**PART II.**  

**OTHER INFORMATION.**

 

**Item 1.**  **Legal Proceedings.**

 

*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 9-11 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 has also now been lost.  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”). Reference is made to the material developments in this case reported in our Form 10-Q’s for the periods ended March 31 and June 30 of this year.  As indicated in our filing for the second quarter, the case is now closed and the only open item was the distribution of the defense fund.  On August 30, 2007, we received $96,000 as our share of the fund.

 

*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 Officebased 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. 

 

Page 26 of 31 Pages

 

 

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 they**be found not to infringe the VIMachine Patent.  Visa asked for other related relief based on**these two allegations.

 

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

 

From May through October 2004, the Plaintiffs and Defendants submitted numerous filings related to interpretation of the terms and phrases set out in the VIMachine Patent claims.  A hearing regarding patent claim construction (a “Markman hearing”) was held 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 rulingon 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 Lindsay. In his report Judge Sanderson found no reason to change any portions of his recommendations filed on January 4, 2005, in light of the FederalCircuit’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 thefirst half of the year......a 194% year-over-year increase.”  

 

Page 27 of 31 Pages

 

 

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 judgment motions will be fully briefed by early to mid-2008.  Upon resolution of the summary judgment motions, Plaintiffs will push for trial as quickly as possible, possibly toward the end of 2008.

 

**Item 1A.**  **Risk Factors.**

Only the Risk Factors enumerated below have changed since the Form 10-K:

 

*Lack of Profitable Operations in Recent Periods.***Although we were profitable in 2004 as a result of the McElmo Dome Settlement (see “Item 1.  Legal Proceedings---McElmo Dome Litigation” above for complete details), we have suffered net operating losses during each of the last seven years**,**and recorded additional operating losses during the first nine months of 2006.  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 additional installments of the Settlement reduced the deficiency to ($4,144,000) at year-end 2004.  Such deficiency increased to ($8,849,000) at September 30, 2007, and will continue to increase until we are able to achieve profitability in our Coal and China Segments.  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 during the first half of next year and complete the disposition of our China Segment by year-end.  If a turnaround is not successful or is only partially successful, we willneed 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 at all.

 

*We have substantial indebtedness and may not have enough revenues to pay our debts.*  As of September 30, 2007, we had $10,542,000 of total debt outstanding, including $597,000 of accrued interest to an affiliate of the Chairman.  While only $2,000 of the total debt is due to be repaid in 2007, another $2,770,000 of the total currently outstanding is due to be repaid by December 31, 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 10 firms making a market in our stock, the volume of trading has been relatively low and fairly sporadic.  Approximately 57.0% of our 5,658,000outstanding shares are held by management and another 8.3% are held by a long-term institutional holder.  In addition, at September 30, 2006, there is substantial potential dilution, with preferred shares convertible into 296,000 shares, presently exercisable warrants and stock options totaling 670,000 shares, notes convertible into 3,506,000 shares and a total of 721,000 shares in two DSC Plans scheduled for distribution in 2007 and future years. 

 

**Item 2.**  **Unregistered Sales of Equity Securities and Use of Proceeds.**

On August 31, 2007, we exchanged $79,000 aggregate principal amount of 12% notes due February 29, 2008 (the “S-T Notes”), for interest payments due to holders of our 12% Convertible Subordinated Notes due August 31, 2009.  On September 17, 2007, we sold $50,000 of S-T Notes due March 17, 2008, for cash.  In connection with the exchange or sale of the S-T notes we issued two-year warrants (the “2007 Warrants”) to purchase a total of 12,869 shares of our common stock at $0.80 per share.  On October 11, 2007, one of the S-T Notes in the principal amount 

 

Page 28 of 31 Pages

 

 

of $24,000 was prepaid in order to secure a consent from the holder of such note to the Change in Terms Agreement in connection with our $1,500,000 bank credit facility.

 

None of the 2007 Warrants or the Underlying Common Stock which may be issued in connection with the 2007 Warrants are registered under the Securities Act of 1933, as amended (the “Securities Act”).  The  2007 Warrants and the Underlying Common Stock were issued in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act for “transactions by the issuer not involving a public offering,” in transactions that fell within the safe harbor provided by Rule 506 of Regulation D of the Securities Act.

 

**Item 3.**  **Default Upon Senior Securities.**

Not applicable.

 

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

 

Commencing on June 5, 2007, proxies were solicited on behalf of the Board of Directors of the Company in connection with the Annual Meeting of Stockholders.

 

(a)  The annual meeting was held on July 11, 2007.

 

(b)  The business of the meeting included the election of Harlon E. Martin, Jr. and Herb Mee, Jr. to serve as directors for three-year terms or until their successors have been elected and qualified.

 

In addition, the following persons continue to serve as directors for terms expiring on the dates indicated or until their successors have been elected and qualified:

 

 

W.M. Beard

(2008)

 

 

 

 

Allan R. Hallock

(2009)

 

 

 

 

Ford C. Price

(2009)

 

 

 

 

To date the preferred stockholder has not elected to fill the vacancy created by the resignation of Michael E. Carr who resigned effective February 1, 2002.

 

The table below sets forth the voting for election of directors:

 

 

**Name of Nominee**

**Votes For**

**Votes****Against**

**Votes****Withheld**

**Abstentions**

**Broker Non-Votes**

 

 

 

 

 

 

 

 

 

 

Harlon E. Martin, Jr.

4,461,928

-0-

6,302

296,275

827,075

 

 

Ford C Price

4,462,404

-0-

5,826

296,275

827,075

 

 

 

(c)  At the meeting the stockholders also voted to approve the adoption of The Beard Company 2005 Deferred Stock Compensation Plan, as amended.  The table below sets forth the voting for such proposal:

 

 

**Votes For**

**Votes Against**

**Abstentions**

**Broker Non-Votes**

 

 

 

 

 

 

 

 

3.603,561

20,154

317,305 

1,650,560

 

 

(d)  At the meeting the stockholders also voted to ratify the appointment of Cole & Reed, P.C. as our independent auditors for fiscal year 2007.  The table below sets forth the voting for such proposal:

 

 

**Votes For**

**Votes Against**

**Abstentions**

**Broker Non-Votes**

 

 

 

 

 

 

 

 

4,462,557

1,073

300,875 

827,075

 

 

**Item 5.**  **Other Information.**

Not applicable.

 

Page 29 of 31 Pages

 

 

**Item 6.**  **Exhibits.**

 

(a)  The following exhibits are filed with this Form 10-Q 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 herein 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).

 

* *

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.

 

 

Page 30 of 31 Pages

 

 

**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

THE BEARD COMPANY(Registrant)

 

 

 

 

November 19, 2007

/s/ Herb Mee, Jr.                     Herb Mee, Jr., President and Chief Financial Officer

 

 

 

 

November 19, 2007

/s/ Jack A. Martine                 Jack A. Martine, Controller and Chief Accounting Officer

 

 

 

**Exhibit Index**

 

 

 

**Exhibit No.**

**Description**

**Method of Filing**

 

 

 

3.1

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

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 

Incorporated herein by reference

 

 

 

3.3

Registrant’s By-Laws as currently in effect

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

Incorporated herein by reference

 

* *

* *

31

*Rule 13a-14(a)/15d-14(a) Certifications:*

* *

 

 

 

31.1

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

Filed herewith electronically

 

 

 

31.2

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

Filed herewith electronically

 

* *

* *

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

Filed herewith electronically

 

 

 

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

Filed herewith electronically

 

 

Page 31 of 31 Pages

 

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