<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-6202-2
Nord Resources Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 85-0212139
---------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
8150 Washington Village Drive, Dayton Ohio 45458
----------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (937) 433-6307
Not Applicable
-------------------------------------
Former name, former address and former fiscal
year, if changed since last report
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 twelve 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
--- ---
Common shares outstanding as of November 10, 1997: 21,905,488
<PAGE>
NORD RESOURCES CORPORATION
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
---- ------
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
ITEM 1. Condensed Financial Statements:
Balance Sheets - September 30, 1997 and
December 31, 1996 1
Statements of Operations - Quarter and Three
Quarters ended September 30, 1997 and 1996 2
Statements of Cash Flows -
Quarter and Three Quarters ended
September 30, 1997 and 1996 3
Notes to Condensed Financial Statements 4-11
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 12-15
PART II. OTHER INFORMATION:
ITEM 1. Legal Proceedings 16
ITEM 2-5. Inapplicable 16
ITEM 6. Exhibits and Reports on Form 8-K 16
</TABLE>
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 16,797 $ 15,583
Restricted Investments - available for sale 2,376
Accounts Receivable 254 179
Prepaid Expenses 312 163
Net Assets of Discontinued Operations 9,766
--------- ---------
TOTAL CURRENT ASSETS 17,363 28,067
INVESTMENTS IN AND ADVANCES TO AFFILIATES 9,345 9,840
INVESTMENT IN SRL 75,024 67,552
PROPERTY, PLANT AND EQUIPMENT, net 53 27
OTHER ASSETS 6,927 4,817
--------- ---------
$ 108,712 $ 110,303
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 221 $ 77
Accrued Expenses 1,044 539
Unearned Revenue 1,500 1,500
Obligations to Lenders - SRL 20,349 21,620
--------- ---------
TOTAL CURRENT LIABILITIES 23,114 23,736
RETIREMENT BENEFITS 7,667 6,987
STOCKHOLDERS' EQUITY:
Common Stock 219 218
Additional Paid-in Capital 78,100 77,950
Retained Earnings (Deficit) (484) 1,274
Cumulative Foreign Currency
Translation Adjustment 239 281
Minimum Pension Liability (143) (143)
--------- ---------
77,931 79,580
--------- ---------
$108,712 $110,303
--------- ---------
--------- ---------
</TABLE>
See notes to condensed financial statements
1
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED THREE QUARTERS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES $(1,020) $ (865) $ (3,559) $(2,966)
OTHER INCOME (EXPENSE):
Interest Income 632 245 1,571 625
Interest Expense (31) (35) (94) (107)
Litigation Recoveries 150
Equity in Net Earnings (Loss) of Affiliate 166 135 99 223
------- ------- -------- -------
TOTAL OTHER INCOME (EXPENSE) 767 345 1,576 891
------- ------- -------- -------
(LOSS) FROM CONTINUING OPERATIONS (253) (520) (1,983) (2,075)
GAIN (LOSS) FROM DISCONTINUED OPERATIONS (1,444) 225 (4,353)
------- ------- -------- -------
NET (LOSS) $ (253) $(1,964) $ (1,758) $(6,428)
------- ------- -------- -------
------- ------- -------- -------
GAIN (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
From Continuing Operations $ (.01) $ (.03) $ (.09) $ (.12)
From Discontinued Operations . (.08) .01 (.25)
------- ------- -------- -------
Net (Loss) $ (.01) $ (.11) $ (.08) $ (.37)
------- ------- -------- -------
------- ------- -------- -------
AVERAGE SHARES 21,901 18,718 21,865 17,278
------- ------- -------- -------
------- ------- -------- -------
</TABLE>
See notes to condensed financial statements
2
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF
CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE QUARTERS ENDED
SEPTEMBER 30,
--------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $ (1,758) $ (6,428)
Adjustments to reconcile net (loss) to
net cash (used in) operating activities:
Changes in Assets and Liabilities 1,042 1,942
(Gain) Loss from Discontinued Operations (225) 4,353
Depreciation and Amortization 22 27
Equity in Net (Earnings) Loss of Affiliate (98) (223)
Net Cash (Used in) Discontinued Operations (930) (4,183)
------- -------
Net Cash (Used In) Operating Activities (1,947) (4,512)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Cash from Sale of Fixed Assets 186
Capital Expenditures (40)
Additions to Other Assets (1,154) (1,169)
Sale (Purchase) of Short Term Investments 2,376 (6,820)
Proceeds from Sale of Investment 243
Proceeds from Sale of Discontinued Operations 10,921
(Decrease) in Investments in and Advances
to Affiliates (594) (180)
Increase in Investment in SRL (8,742) (1,315)
------- -------
Net Cash Provided By (Used In) Investing Activities 3,010 (9,298)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock Option Activity 151 (88)
Restricted Cash and Investments 235
Issuance of Common Stock 10,000
------- -------
Net Cash Provided by Financing Activities 151 10,147
------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,214 (3,663)
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 15,583 6,026
------- -------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $16,797 $ 2,363
------- -------
------- -------
NON-CASH TRANSACTION -
Conversion of advances to affiliate into
Common Stock $ 1748
-------
</TABLE>
See notes to condensed financial statements
3
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
QUARTERS ENDED SEPTEMBER 30, 1997 AND 1996
1. FINANCIAL STATEMENTS
The balance sheet at December 31, 1996 presents condensed financial
information taken from the financial statements, which are audited, but the
independent auditors report included a disclaimer of opinion for an
uncertainty relating to the ability of the Company to continue as a going
concern. The interim financial statements are unaudited. In the opinion
of management, all adjustments, which consist of normal recurring
adjustments necessary to present fairly the financial position and results
of operations for the interim periods presented have been made. The
results shown for the first three quarters of 1997 are not necessarily
indicative of the results that may be expected for the entire year.
In February 1997, the Financial Accounting Standard Board ("FASB") issued
SFAS No. 128, "Earnings Per Share," which is effective for the Company at
December 31, 1997. SFAS No. 128 establishes standards for computing and
presenting earnings per share. It replaces the presentation of primary
earnings per share with a presentation of basic earnings per share. It
also requires dual presentation of basic and diluted earnings per share for
entities with complex capital structures. As the Company incurred a loss
in the first three quarters of 1997 and 1996, the adoption of SFAS No. 128
will have no effect on the Company's financial statements for the periods
ended September 30, 1997 and 1996.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which will require disclosure in the financial statements of all
the changes in equity during a period from transactions and other events
and circumstances from non-owner sources. Items included in comprehensive
income will include separate classification of items based upon their
nature. The Statement requires comparative information for prior years to
be restated. SFAS No. 130 is effective for financial statements for fiscal
years beginning after December 15, 1997. The effect on the Corporation's
financial statements has not yet been determined.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
financial
4
<PAGE>
statements be read in conjunction with the financial statements and notes
thereto included in the Company's December 31, 1996 annual report to
shareholders.
2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Nord
Resources Corporation and its 50% interest in a rutile mining operation
("SRL") (collectively the "Company"). All significant intercompany
transactions and balances are eliminated.
SRL as used in these financial statements includes Sierra Rutile Holdings,
Sierra Rutile Limited (the mining operation) and other subsidiaries of the
Company and Sierra Rutile Holdings that are economically dependent on the
mining operation. As a result of the situation described in Note 3, the
Company's 50% investment in SRL is carried at the cost basis of accounting
in the balance sheet.
Investments in 20% to 40%-owned affiliates and joint ventures are carried
using the equity method.
On an interim basis, all costs subject to recurring year-end adjustments
have been estimated and allocated ratably to the quarters. Income taxes,
if necessary, have been provided based on the estimated tax rate for the
respective years after excluding infrequently occurring items whose
specific tax effect is reported during the same interim period as the
related transaction.
The financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The financial statements do not contain
any adjustments that might be necessary should the Company be unable to
continue as a going concern.
Certain reclassifications have been made to the September 30, 1996 and
December 31, 1996 financial statements to conform to the classifications
used in 1997.
5
<PAGE>
3. INVESTMENT IN SRL
In January 1995, the Company's 50% owned rutile mining operation in
Sierra Leone was attacked by non-government forces. As a result, SRL was
forced to suspend mining operations and subsequently terminated all
nonessential personnel. The resumption of operations by SRL is dependent
upon many conditions including (1) Sierra Leone having an acceptable
political environment within which to operate, (2) having adequate levels
of security in and around the minesite area, (3) completing an accurate
assessment of the cost of resuming operations, (4) successfully
renegotiating SRL's operating agreements with the government of Sierra
Leone and (5) obtaining adequate levels of financing at acceptable terms.
Cost of resuming operations includes repair or replacement of assets
which have incurred damage and deterioration during the period of
suspension of operations and costs to reestablish and train a workforce,
replenish supplies and restore and recommission facilities. Until SRL
personnel can complete a detailed assessment of the condition of SRL's
assets, it is not possible to accurately estimate these costs. There is
no certainty that adequate financing would be available to fund the above
noted costs, although management of the Company, SRL and the other 50%
owner of SRL had been engaged in advanced discussions with potential
financing sources. However, as a result of increased political
instability in Sierra Leone beginning in May 1997, the lenders have
suspended further discussions with SRL concerning refinancing and SRL has
suspended its mine rehabilitation efforts. The Company is not yet able
to determine when operations will resume at the Sierra Leone mine. If
the above noted conditions for resuming operations in Sierra Leone are
not satisfied, or if such conditions persist for an extended period of
time, the Company may have to record an impairment reserve against a
significant portion or possibly all of its investment in SRL.
Prior to December 31, 1994, the Company proportionately consolidated its
share in each of the assets, liabilities and operations of SRL. As of
December 31, 1994, the Company adopted the cost basis of accounting for its
investment in SRL because the mine was no longer controlled by SRL. The
Company's investment includes original cost plus undistributed earnings
through December 31, 1994 plus SRL obligations to lenders, payment of which
is guaranteed by the Company, less any related restricted cash.
The Company intends to resume proportional consolidation for its 50% share
in each of the assets, liabilities and operations of SRL once SRL
reestablishes its operations. At that time, the Company will recognize its
share of SRL's operating results since January 1, 1995 in its statement of
operations. If the Company had resumed proportional consolidation at
September 30, 1997, it would have recognized $17,972,000 as its share of
SRL's operating loss since January 1, 1995.
6
<PAGE>
would have recognized $17,972,000 as its share of SRL's operating loss
since January 1, 1995.
During the three quarters ended September 30, 1997 the Company contributed
$8,700,000 as its 50% share of funding for SRL's cash needs, primarily to
satisfy vendor payments, to pay carrying costs and principal payments of
bank indebtedness, to fund costs for the ongoing operational needs of SRL
and for certain costs related to the SRL mine rehabilitation program.
Summarized financial data for the Company's 50% share of SRL's operations
are as follows:
<TABLE>
<CAPTION>
THREE QUARTERS ENDED
SEPTEMBER 30,
---------------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Revenues $ 1,392 $ 1,656
Less Costs and Expenses:
Cost of Sales 572 640
Selling, General and Administrative 4,557 2,600
Other Expense 2,468 1,540
Income Tax Expense 39 50
------- -------
Net (Loss) $(6,244) $(3,174)
------- -------
------- -------
</TABLE>
Included in revenues for 1996 is $409,000 received in an insurance
settlement from claims made for costs related to the evacuation of the SRL
operations in Sierra Leone. The increase in selling, general and
administrative costs in 1997 compared to 1996 is primarily related to
security costs incurred in 1997 and increased activity related to
commencement of the mine rehabilitation program. An impairment reserve of
$3,000,000 was recorded in the first quarter of 1995 as the Company's 50%
share of damage to assets. The Company will likely record an additional
impairment reserve when a more extensive damage assessment can be
performed. Although SRL will incur costs to restart the operations, the
amount of an additional impairment and costs to restart the operations
cannot be estimated currently.
7
<PAGE>
4. INDEBTEDNESS
The suspension of its mining operations has resulted in SRL not being in
compliance with certain financial and operational covenants under its bank
financing agreements. The lenders had agreed to forebear from accelerating
the maturities of the loans or enforcing their rights against any
collateral to October 1, 1997 to allow SRL time to determine the damage to
the mining operations, assess the political situation in Sierra Leone and
develop and present a plan for refinancing, rehabilitating and reopening
the mining operation. This forebearance period was extended to January 1,
1998 by the lenders in exchange for a prepayment of interest due during the
extension period and payment of 50% of the next principal payment due each
lender. The Company's share of this payment was $1,471,000. The
forebearance agreement would terminate if there is a material change in
circumstances. As of September 30, 1997 and December 31, 1996, amounts due
the lenders by SRL have been classified in the balance sheet as a current
liability.
The financing agreements contain restrictive covenants relating to SRL
including requirements to maintain minimum current and debt coverage ratios
and a limit on indebtedness compared to net worth and a limit on the amount
of dividends. Additional covenants under these agreements include
restrictions on change of control of SRL and limitations on additional
indebtedness at SRL.
Separately, as a condition to the forebearance and as security for its
guarantee, the Company has pledged proceeds it may receive from claims
made under a political risk insurance policy with a policy limit of 15.7
million issued by an agency of the United States government. The Company
is entitled to receive directly the first $2.7 million of the proceeds of
which $1.5 million has been received. Any additional proceeds will be
held in trust and funds will be released from the trust when the
Company's 50% share of the deferred principal payments have been made and
no events of default exist under the financing agreements.
5. CONTINGENCY
The Company has guaranteed payment of 50% of the amount due an SRL vendor
for services provided prior to January 1995. The amount due the vendor at
September 30, 1997 was $4,602,000 of which $2,102,000 was paid in
October 1997. Included in the Company's investment at September 30, 1997
is
8
<PAGE>
$550,000 advanced to SRL to fund a portion of the October payment. The
Company advanced an additional $500,000 to SRL in October 1997 to fund the
remainder of the amount due this vendor by SRL. The remaining $2,500,000,
due the vendor, of which the Company's has guaranteed payment is
$1,250,000, is due no later than March 15, 1998. SRL will likely require
funds from the Company for this payment.
6. DISCONTINUED OPERATIONS
On April 23, 1997 the Company sold substantially all the assets (except
cash and accounts receivable) of its 80% owned subsidiary, Nord Kaolin
Company ("NKC"), for $20 million less $735,000 relating to certain accruals
assumed by the purchaser. Under the sale agreement, the Company is
responsible for the payment of a majority of the liabilities of NKC. At
December 31, 1996 the Company recorded a loss on disposal of $18,912,000
and a provision for operating losses to disposal date of $2,500,000.
Through September 30, 1997 the Company received $10.9 million in cash as a
result of this transaction (including collection of accounts receivable and
payment of a majority of NKC's liabilities and other liabilities incurred
as a result of the transaction).
Sales of $8.6 million and $26.2 million for the three quarters ended
September 30, 1997, and 1996, respectively, and the respective cost of
sales, selling, general and administrative expenses and interest expense,
have been reclassified from continuing operations in the statement of
operations and are included in the loss from discontinued operations.
During the first two quarters of 1997, the Company charged $2,275,000
against the provision for operating losses to disposal date. At June 30,
1997 the Company determined that the remaining provision was not required,
the remaining accrual for loss on disposition was eliminated and a $225,000
gain was recorded in the second quarter of 1997.
7. NET (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Net (loss) per common share and common equivalent share is computed by
dividing net (loss) by the weighted average number of common shares
outstanding during the period adjusted for the dilutive effect of common
share equivalents when applicable.
9
<PAGE>
8. EQUITY IN NET (LOSS) OF AFFILIATE
The Company has a 30% interest in Nord Pacific Limited at September 30,
1997 (35% at September 30, 1996). Summary financial data for the
operations of Nord Pacific Limited for the periods are as follows:
<TABLE>
<CAPTION>
THREE QUARTERS ENDED SEPTEMBER 30
---------------------------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Sales $ 12,526 $ 11,441
Less costs and expenses (9,781) (9,530)
Foreign currency transaction gain (loss) 212 (68)
Forward currency exchange contracts
gain (loss) (1,053) 403
Copper contracts gain (loss) 281 (378)
Other (expense) (241) (209)
Provision for taxes (1,900) (1,320)
--------- ---------
Net income $ 44 $ 339
--------- ---------
--------- ---------
</TABLE>
Pacific incurred a net loss through June 30, 1997 and recognized net income
during the third quarter of 1997. Since the Company owned 35% of the
Pacific through July 3, 1997 and 30% thereafter it recognized a larger
share of Pacific's losses than its income in the third quarter. As a
result of this change in ownership, the Company's share of the net income
(loss) for the three quarters ended September 30, 1997 and 1996 was
$99,000 and $223,000, respectively.
In connection with a public offering of stock by Nord Pacific Limited
("Pacific"), on July 3, 1997, the Company used $1,748,000 of the amount
owed it by Pacific to purchase 349,549 Units in a private placement at
$5.00 per unit, the same price received by Pacific in its public offering.
A Unit consists of one common share and one-half of one purchase warrant.
The warrant can be exercised at a price of $9.00 (Canadian) or currently
$6.52 (U.S.) per share at any time prior to July 3, 1998. As a result of
the above transaction the Company's ownership interest in Pacific decreased
to 30%.
10
<PAGE>
9. LITIGATION
The Company has reached settlements with all defendants in SRL's action
against those allegedly responsible for certain allegedly improper and
fraudulent transactions against SRL which occurred prior to 1991. The
financial statements of the Company for the three quarters ended September
30, 1996 include a final payment of $150,000 in other income in connection
with these settlements.
11
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995.
The statements contained in this report which are not historical fact are
"forward looking statements" that involve various important risks, uncertainties
and other factors which could cause the Company's actual results for 1997 and
beyond to differ materially from those expressed in such forward looking
statements. These factors include, without limitation, the risks and factors
set forth below as well as other risks previously disclosed in the Company's
securities filings.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased from $15.6 million at December 31, 1996 to $16.8 million at
September 30, 1997. The Company's administrative activities required $1.1
million in cash during the first three quarters of 1997 while $930,000 was used
to fund the discontinued kaolin segment. Cash of $1.1 million was used for
additions to other assets, $8.7 million was advanced to SRL and $594,000 was
repaid by Nord Pacific to the company during the first three quarters of 1997.
At June 30, 1997, the Company was owed $3.3 million by Nord Pacific Limited
("Pacific") for advances to fund Pacific's cash requirements. In connection
with a public offering of Units by Pacific, on July 3, 1997 the Company used
$1,748,000 of the amount owed it by Pacific to purchase 349,549 Units in a
private placement at $5.00 per Unit, the same price received by Pacific in its
public offering. A Unit consists of one common share and one-half of one
purchase warrant. The remaining amount owed by Pacific was repaid to the
Company from proceeds of the aforementioned public offering. As a result of the
above transactions, the Company's ownership interest in Pacific decreased
from 35% to 30%.
On April 23, 1997, the Company completed the sale of substantially all of the
assets of Nord Kaolin Company ("NKC"). Including collection of NKC's accounts
receivable and settlement of NKC's liabilities and other liabilities incurred as
a result of this transaction, the Company received $10.9 million from this
transaction during 1997. In addition, the restriction on use of $2.4 million of
investments, previously used to secure payment of certain of NKC's liabilities,
has been removed.
12
<PAGE>
The Company's business consists of a 50% ownership in SRL and a 30%
ownership in Pacific. The Company anticipates that its cash balances will be
sufficient to fund its administrative activities for the foreseeable future.
The Company does not anticipate that it will be requested to provide any
additional funding to Pacific for the foreseeable future. However, the Company
expects to be required to fund SRL's cash needs as described below.
During the suspension of its operations, SRL has relied and will continue
to rely on funds from the Company and its other 50% owner to sustain its
operations. Funds are expected to continue to be required by SRL for
maintaining a limited workforce, payment of vendors, costs of security at the
mine and payment of interest on loans outstanding. The Company has sufficient
funds to continue funding SRL for these purposes for the foreseeable future;
however, it is the Company's and SRL's intention to continue with plans for
resumption of SRL's operations. Among other key factors in that process is the
availability of adequate levels of funding. SRL's preliminary projections
indicate that it may require approximately $90 million through 1998 for asset
rehabilitation, completion of a new powerhouse and dredge, mine development and
working capital. SRL held discussions with its current lenders and other
lending sources to determine if funds would be available from these sources to
fund the majority of the above requirements. However, as a result of increased
political instability in Sierra Leone beginning in May 1997, the lenders have
suspended further discussions with SRL concerning refinancing. The Company
cannot determine if any additional funding will be available and, if available,
whether the terms thereof would be acceptable to SRL, the Company and the other
shareholder of SRL. To the extent funds are not available from these or other
sources, the Company would be required to contribute its 50% share of SRL's cash
requirements. However, the Company would likely not be able to fund a
significant amount to SRL without obtaining capital from other sources. One
source of cash could be from the payment of claims which have been and will be
made by the Company under an insurance policy covering damage to assets at SRL
due to political violence, as described below. SRL began various aspects of its
planned rehabilitation program in early 1997. However, in late May 1997, a
military coup, which renewed civil disturbances in Sierra Leone, caused SRL to
suspend its mine rehabilitation efforts and evacuate all expatriate personnel
from Sierra Leone. During October 1997, an accord was signed among dissident
groups involved in the aforementioned increased political instability and the
elected officials of the government of Sierra Leone. Subsequently, hostilities
in Sierra Leone have diminished but the elected government officials have not
yet returned to perform their duties in Sierra Leone. Neither SRL nor the
Company is able to project when political conditions in Sierra Leone will
improve to allow resumption of the mine rehabilitation efforts.
13
<PAGE>
The suspension of its operations has resulted in SRL not being in
compliance with certain financial and operational covenants under its bank
financing agreements. At September 30, 1997, the Company's 50% share of SRL's
obligations to the lenders is $20.3 million, payment of which has been
guaranteed by the Company. The lenders have agreed to forebear to January 1,
1998 from accelerating payment of the outstanding indebtedness, to enable SRL to
assess its future operating alternatives. The forebearance would terminate if a
material change in conditions occurs, as determined by the lenders, and requires
SRL to expend at least $500,000 each quarter to pay for its liabilities and
purchases. In addition to discussing the availability of additional financing
from these lenders, SRL has discussed revision of the terms of the present
financing agreements, including deferral of payments to beyond 1999. SRL and
the Company are not able to determine the willingness of the lenders to approve
any modification of the present loan terms beyond December 31, 1997, at which
date payment of the entire amount of the loans outstanding could be demanded by
the lenders. The Company presently does not have sufficient funds to repay the
entire amount of SRL's obligations to lenders for which it has guaranteed
payment. If the lenders were to request full payment at the end of the
forebearance period, the Company would likely have to seek funding from other
sources, including funds which may be available from the political risk
insurance policy described below.
The Company has filed a claim for damage due to political violence at SRL
under a political risk insurance policy which has a coverage limit of $15.7
million. Additional documents and proof of loss are required to be filed as
more information becomes available as to damage at the mine and the cost to
repair equipment. The Company has received a $1.5 million provisional payment
from the insurer; however, it is not able to estimate the total amount or timing
of any future payments which may be received from claims under this policy. The
Company is obligated to return any or all of this payment if the final amount of
damage is less than that amount. The Company has pledged any proceeds in excess
of $2.7 million it receives under this policy as security under the bank
financing agreements.
POLITICAL SITUATION IN SIERRA LEONE
As previously disclosed, a military coup occurred in Sierra Leone on
Sunday, May 25, 1997.
No real progress had been made toward a resolution to this crisis until
late October 1997 when an accord was reached on October 23, 1997 between the
Economic Organization of West African States (ECOWAS) and the Armed Forces
Revolutionary Council (AFRC) of Sierra Leone.
14
<PAGE>
The accord provides for the reinstatement within six months of the
democratically elected government of President Tejan Kabbah; immediate cessation
of hostilities; disarmament, demobilization, and reintegration of combatants;
the provision of humanitarian assistance; the return of refugees and displaced
persons; and the broadening of the power base in Sierra Leone.
The Company is very pleased to see progress towards a negotiated settlement
and a return of democracy to Sierra Leone. The Company is hopeful that the
parties to the accord will build upon the current good will and follow through
with the re-establishment of constitutional rule. This would remove one
impediment to SRL reopening the mine which has over many years provided
significant economic benefits to the people of Sierra Leone.
RESULTS OF OPERATIONS
The Company incurred a net loss from continuing operations of $1,983,000 and
$253,000 in the three quarters and quarter ended September 30, 1997 and
$2,075,000 and $520,000 for the same periods in 1996. Since the Company has
adopted the cost basis of accounting for its investment in the rutile segment,
the results do not include any amounts relating to its operations. The increase
in selling general and administrative expense in 1997 compared to 1996 was
primarily due to forgiveness of $300,000 of loans to two executives as part of
employment agreements and an additional $300,000 accrued for severance of other
employees. Overall costs were lower due to a reduction in administrative staff
and activities. Interest income increased in 1997 compared to 1996 due
primarily to a higher level of funds available for investment in 1997.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEMS 2-5.
Inapplicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K.
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) No reports were filed under Form 8-K during the
quarter ended September 30, 1997.
16
<PAGE>
Signature
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.
NORD RESOURCES CORPORATION
(Registrant)
s/Terence H. Lang
--------------------------------
Terence H. Lang
Senior Vice President - Finance
(Principal Financial Officer and
Authorized Officer)
DATE: November 14, 1997
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORD
RESOURCES CORPORATION FORM 10-Q FOR THE THREE QUARTERS ENDED JUNE 30, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 16,797
<SECURITIES> 0
<RECEIVABLES> 254
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,363
<PP&E> 526
<DEPRECIATION> 473
<TOTAL-ASSETS> 108,712
<CURRENT-LIABILITIES> 23,114
<BONDS> 0
0
0
<COMMON> 219
<OTHER-SE> 77,712
<TOTAL-LIABILITY-AND-EQUITY> 77,931
<SALES> 0
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<CGS> 0
<TOTAL-COSTS> 3,559
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 94
<INCOME-PRETAX> (1,983)
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<INCOME-CONTINUING> (1,983)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,758)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> 0
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