<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-6202-2
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Nord Resources Corporation
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(Exact name of registrant as specified in its charter)
Delaware 85-0212139
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
201 Third St., NW, Suite 1750, Albuquerque, NM 87102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (505) 766-9955
--------------
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 May 14, 1998: 21,905,488
<PAGE>
NORD RESOURCES CORPORATION
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
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<S> <C>
PART I. FINANCIAL INFORMATION:
ITEM 1. Condensed Financial Statements:
Balance Sheets - March 31, 1998 and
December 31, 1997 3
Statements of Operations - Quarters ended
March 31, 1998 and 1997 4
Statements of Cash Flows -
Quarters ended March 31, 1998 and 1997 5
Notes to Condensed Financial Statements 6-10
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11-12
PART II. OTHER INFORMATION:
ITEM 1-5. Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K 13
</TABLE>
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,667 $12,581
Accounts receivable 104 29
Prepaid expenses 149 166
------- -------
TOTAL CURRENT ASSETS 6,920 12,776
INVESTMENTS IN AND ADVANCES TO SRL 37,144 34,649
INVESTMENTS IN AND ADVANCES TO AFFILIATES 6,406 6,369
PROPERTY, PLANT AND EQUIPMENT, net 179 150
OTHER ASSETS 6,643 6,150
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$57,292 $60,094
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 214 $ 93
Accrued expenses 419 869
Unearned revenue 1,500 1,500
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TOTAL CURRENT LIABILITIES 2,133 2,462
RETIREMENT BENEFITS 7,905 8,047
STOCKHOLDERS' EQUITY:
Common stock 219 219
Additional paid-in capital 78,108 78,100
Retained (deficit) (30,630) (28,291)
Cumulative foreign currency
translation adjustment 281 281
Minimum pension liability (724) (724)
------- -------
47,254 49,585
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$57,292 $60,094
------- -------
------- -------
</TABLE>
See notes to condensed financial statements
3
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------
1998 1997
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<S> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES AND $ (790) $ (954)
(LOSS) FROM OPERATIONS
OTHER INCOME (EXPENSE):
Interest income 218 272
Interest expense (31) (31)
Equity in net loss of SRL (1,739) (1,630)
Equity in net earnings of affiliate 3 20
------- -------
TOTAL OTHER INCOME (EXPENSE) (1,549) (1,369)
------- -------
NET (LOSS) $(2,339) $(2,323)
------- -------
------- -------
BASIC (LOSS) PER SHARE: $ (.11) $ (.11)
------- -------
------- -------
AVERAGE COMMON SHARES OUTSTANDING 21,905 21,840
------- -------
------- -------
</TABLE>
See notes to condensed financial statements
4
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF
CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(2,339) $(2,323)
Adjustments to reconcile net (loss) to
net cash (used in) operating activities:
Changes in non-cash working capital (386) 71
Stock compensation 8 --
Forgiveness of loans due from officers 50 --
Provision for retirement benefits (142) --
Depreciation and amortization 7 7
Equity in net loss of SRL 1,739 1,630
Equity in net (loss) of affiliate (3) (20)
Net cash (used in) discontinued operations -- (500)
------- -------
Net Cash (Used In) Operating Activities (1,066) (1,135)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to other assets (543) (263)
Increase in investments in and advances to affiliates (35) (1,785)
Increase in investment in SRL (4,235) (1,090)
Capital expenditures (35) --
------- -------
Net cash (used in) investing activities (4,848) (3,138)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options exercised -- 10
Restricted cash and investments -- (9)
------- -------
Net cash provided by financing activities -- 1
------- -------
(DECREASE) IN CASH AND CASH
EQUIVALENTS (5,914) (4,272)
------- -------
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 12,581 15,583
------- -------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 6,667 $11,311
------- -------
------- -------
</TABLE>
See notes to condensed financial statements
5
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1. FINANCIAL STATEMENTS
These interim financial statements are unaudited. In the opinion of
management, all adjustments, which consist of normal recurring accruals
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 quarter of 1998 are not necessarily indicative of the
results that may be expected for the entire year.
The Company has adopted SFAS No. 129 "Disclosure of Information about
Capital Structure", which was effective for financial statements for
periods ending after December 15, 1997 and established standards for
disclosing information about an entity's capital structure. The adoption
of SFAS No. 129 had no significant effect on the Company's disclosures
about its capital structure.
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income",
which was effective for financial statements for periods beginning after
December 15, 1997 and established standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. The
adoption of SFAS No. 130 had no impact on the Company's financial statement
presentation or related disclosures.
The Company has adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information", which was effective for fiscal years
beginning after December 15, 1997 and established standards for the way
that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. The Company operates in one business segment and the Company's
adoption of FASB No. 131 has not had a material impact on its financial
statement presentation or related disclosures.
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 statements be read in conjunction with the financial statements
and notes thereto included in the Company's December 31, 1997 annual report
to shareholders.
2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Nord
Resources Corporation,
6
<PAGE>
its 50% interest in a rutile mining operation ("SRL") and its 28.6%
interest in a mineral exploration and production company ("Nord Pacific")
(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% interest in SRL is now carried on the equity basis.
Investments in 20% to 50%-owned affiliates and joint ventures are carried
using the equity method.
The accompanying condensed 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 March 31, 1997 and December
31, 1997 financial statements to conform to the classifications used in
1998.
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 is dependent upon numerous
conditions including (1) an acceptable political environment in Sierra
Leone within which to operate, (2) adequate levels of security provided by
SRL in and around the minesite area, (3) an accurate assessment by SRL of
the cost of resuming operations, (4) the successful renegotiation of
operating agreements between SRL and the government of Sierra Leone and (5)
SRL obtaining adequate financing at acceptable terms. Costs of resuming
operations include 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 will be available to fund the above noted costs, although
management of the Company, SRL and the other 50% owner of SRL are engaged
in discussions with potential financing sources. 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, the Company may have to record an impairment reserve against a
significant portion or possibly all of its investment in SRL.
7
<PAGE>
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 and through September 30, 1997, the Company adopted the
cost basis of accounting for its investment in SRL on the basis that the
mine was no longer under the control of SRL. Under the cost basis, the
Company's investment included original cost plus undistributed earnings
through December 31, 1994 plus SRL's obligations to various lending
institutions (the "Lenders") payment of which is guaranteed by the Company,
plus funds advanced since January 1, 1995 to fund SRL's operations less any
related restricted cash and provision for impairment of assets.
Subsequent to September 30, 1997, SRL again regained control of the mine.
The Company subsequently changed it method of accounting for its investment
in SRL from the cost basis to the equity method. In accordance with
Accounting Principles Board ("APB") Opinion No. 18, "The Equity Method of
Accounting for Investments In Common Stock", the Company's financial
statements for March 31, 1997 have been restated to reflect this change.
Under the equity method, the Company reports its share of SRL's net loss in
the statements of operations as equity in net loss of SRL. The result of
this change was to increase the Company's net loss for the three months
ended March 31, 1997 by $1.6 million and net loss per share by $.07 per
share.
The Company intends to resume proportional consolidation for its 50% share
in each of the assets, liabilities and operations of SRL once SRL
re-establishes its mining operations.
During the quarter ended March 31, 1998 the Company contributed $4.2
million to SRL as its 50% share of funding for SRL's cash needs, primarily
to satisfy bank requirements, vendor payments and the ongoing operating
cash requirements of SRL.
Summarized financial data for the Company's 50% share of SRL's operations
are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
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(in thousands)
<S> <C> <C>
Revenues $ -- $ 492
Less costs and expenses:
Cost of sales -- 272
Selling, general and administrative 685 1,094
Other expense 1,051 738
Income tax expense 3 18
------- -------
Net (loss) $(1,739) $(1,630)
------- -------
------- -------
</TABLE>
8
<PAGE>
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 may
record an additional impairment reserve when a more extensive damage
assessment can be performed. Although SRL will incur costs to restart
operations, the amount of any additional impairment and costs to restart
operations cannot currently be estimated. If SRL cannot maintain adequate
security in and around the minesite or the estimated costs of resuming
operations in Sierra Leone are prohibitive, the Company may have to record
an impairment reserve against a portion or possibly all of its investment
in SRL.
4. INDEBTEDNESS
Under the terms of SRL's financial agreements, the Company has guaranteed
50% of SRL's debt to the Lenders. The Company's share of the amount
guaranteed at March 31, 1998 totaled $17,125,000. As a result of the
suspension of its mining operations resulting from civil disturbances in
January 1995, SRL is not in compliance with certain financial and
operational covenants under its financing agreements. The Lenders have
agreed to forebear from accelerating the maturities of the loans or
enforcing their rights against any collateral until at least May 15, 1998
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. The
forebearance agreement would terminate if there is a material change in
circumstances.
The financing agreements contain restrictive covenants relating to SRL,
including requirements to maintain minimum current ratios 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 a 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 issued by an agency of the United
States government. The Company will be able to retain the first $4.6
million of the proceeds of which it has already received $1.5 million. Any
additional proceeds will be held in trust and funds will be released from
the trust to pay the Company's 50% share of the deferred principal and
interest payments to the Lenders. Any additional funds will be released
when all principal payments have been made and no events of default exist
under the financing agreements.
5. 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 accrued
liabilities assumed by the purchaser. The purchaser
9
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also assumed certain lease obligations of NKC. Net proceeds received from
this transaction totaled $10.5 million (including collection of accounts
receivable and less payment of NKC's liabilities and other liabilities
incurred as a result of the transaction).
6. NET LOSS PER COMMON SHARE
Net loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding during the period.
7. EQUITY IN NET (LOSS) OF AFFILIATE
The Company had a 28.6% interest in Nord Pacific Limited ("Nord Pacific")
at March 31, 1998 and had a 35% interest in Nord Pacific at March 31, 1997.
Summary financial data for the operations of Nord Pacific are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1998 1997
----------- -----------
(in thousands)
<S> <C> <C>
Sales $ 3,252 $ 3,936
Less costs and expenses (3,273) (3,409)
Foreign currency transaction gain (loss) (329) 31
Forward currency exchange contracts
gain (loss) 155 (170)
Copper contracts gain (loss) -- 232
Other income 82 37
Provision for taxes -- (700)
------- -------
Net (loss) $ (113) $ (43)
------- -------
------- -------
</TABLE>
The Company's share of the net (loss) for the three months ended March 31,
1998 and 1997 was $(33,000) and $(15,000), respectively. Amortization of
the difference between the Company's investment in Nord Pacific and its
share of the underlying net assets of Nord Pacific was $36,000 and $35,000
for the three months ended March 31, 1998 and 1997, respectively.
10
<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 1998 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 and cash equivalents decreased $5.9 million for the three months ended
March 31, 1998 compared to a decrease of 4.3 million for the same period in
1997. Cash used by operations was $1.1 million for the three months ended
March 31, 1998 and for the same period in 1997. Cash totaling $4.2 million
was advanced to Sierra Rutile Limited ("SRL") in 1998 compared to $1.1
million in 1997. Cash totaling $543,000 in 1998 was used for additions to
other assets compared to $263,000 in 1997. Cash totaling $35,000 was
advanced to Nord Pacific Limited ("Nord Pacific") in 1998 compared to $1.8
million in 1997 and $35,000 was used to fund capital expenditures in 1998.
On April 23, 1997, the Company completed the sale of substantially all of its
kaolin assets. With the sale of the kaolin operations, the Company's business
consists of a 50% ownership interest in SRL and a 28.6% ownership interest in
Nord Pacific. The Company anticipates that its cash balances at March 31,
1998 will be sufficient to fund its administrative activities for the
foreseeable future.
Due to the suspension of its operations, SRL has relied on 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 debt
service, maintenance of a limited workforce, payments to vendors and costs of
security at the mine. 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 1999 for asset rehabilitation, completion of a new powerhouse and
dredge, mine development and working capital. SRL has held discussions with
its current lenders (the "Lenders") and other lending sources to determine if
funds would be available from these sources to fund the above requirements.
The Company cannot determine if additional funding will be available at terms
that will be acceptable to SRL and the Company. To the extent funds are not
available from these or other sources, the Company will be required to
contribute its 50% share
11
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of SRL's cash requirements. The Company will not be able to fund a
significant amount of these requirements without obtaining capital from other
sources.
As a result of the suspension of the SRL operations, SRL is not in compliance
with certain financial and operational covenants under its bank financing
agreements. At March 31, 1998, the Company's 50% share of SRL's obligations to
the Lenders was $17,125,000, payment of which has been guaranteed by the
Company. The Lenders have agreed to forebear through at least May 15, 1998
(extended from March 15, 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
a portion of the principal payments. Based on discussions to date with the
Lenders, SRL and the Company believe they will be successful in negotiating
repayment terms acceptable to the Lenders. However, there can be no assurance
that the Lenders will approve any modification of the present loan terms or
extend the forebearance beyond May 15, 1998, at which date the Lenders could
demand payment of the entire amount of the loans outstanding.
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. The Company has received a $1.5 million provisional payment from the
insurer and anticipates receipt of further payments in the second quarter of
1998; however, it is not able to estimate the total amount or exact timing of
the receipt of these payments. The Company is obligated to return any or all
of this amount if it does not comply with certain provisions with respect to
its efforts to repair damage at SRL or if the final amount of damage is less
than that amount. The Company has pledged any additional proceeds in excess
of $3.1 million it may receive under this policy as security under the bank
financing agreements.
RESULTS OF OPERATIONS
The Company incurred net losses of $2.3 million and $2.3 million for the three
months ended March 31, 1998 and 1997, respectively. Selling, general and
administrative expenses for the three months ended March 31, 1998, which
comprised a portion of the Company's loss, decreased compared to the same period
in 1997 due to the closing of the Company's office in Dayton, Ohio, and the
related reductions in staff and other costs associated with the closing of this
office. The Company now shares office space and administrative and other costs
with Nord Pacific.
Interest income decreased in 1998 compared to 1997 due primarily to a lower
level of funds available for investment in 1998. The net loss for the three
months ended March 31, 1998 includes the Company's equity in the net loss of SRL
of $1.7 million compared to its equity in the net loss of SRL of $1.6 million
for the three months ended March 31, 1997.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1998.
(a) Exhibits required by Item 601 of Regulation S-K.
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
13
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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)
By: /s/ Ray W. Jenner
---------------------------------
Ray W. Jenner
Vice President - Finance
(Principal Financial Officer
and Authorized Officer)
DATE: May 14, 1998
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORD
RESOURCES CORPORATION FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,667
<SECURITIES> 0
<RECEIVABLES> 104
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,920
<PP&E> 597
<DEPRECIATION> 418
<TOTAL-ASSETS> 57,292
<CURRENT-LIABILITIES> 2,133
<BONDS> 0
0
0
<COMMON> 219
<OTHER-SE> 47,035
<TOTAL-LIABILITY-AND-EQUITY> 57,292
<SALES> 0
<TOTAL-REVENUES> 218
<CGS> 0
<TOTAL-COSTS> 790
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> (2,339)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,339)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,339)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
