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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, 1999
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 |
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(State or other jurisdiction of |
(I.R.S. Employer Identification No.) |
201 Third St., NW, Suite 1750, Albuquerque, NM 87102
(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 November 12, 1999: 16,501,288
NORD RESOURCES CORPORATION
AND SUBSIDIARIES
INDEX
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PAGE |
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PART I. |
FINANCIAL INFORMATION: |
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ITEM 1. |
Condensed Consolidated Financial Statements: |
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Balance Sheets - September 30, 1999 and |
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Statements of Operations - Three months ended |
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Statements of Operations - Nine months ended |
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Statements of Cash Flows - Nine Months ended |
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Notes to Condensed Financial Statements (Unaudited) |
7-9 |
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ITEM 2. |
Management's Discussion and Analysis |
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ITEM 3 |
Quantitative and Qualitative Disclosures |
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PART II |
OTHER INFORMATION: |
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ITEM 1-3 |
Not Applicable |
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ITEM 4 |
Submission of Matters to a Vote of Securities Holders |
13 |
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ITEM 5 |
Other information |
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ITEM 6 |
Exhibits and Reports on Form 8-K |
13 |
PART I. FINANCIAL INFORMATION
ITEM 1
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
ASSETS
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September 30, |
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December 31, |
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Current assets: |
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Cash and cash equivalents |
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$ 3,115 |
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$ 6,136 |
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Accounts receivable - trade |
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184 |
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-- |
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Accounts receivable - Nord Pacific Limited ("NPL") |
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284 |
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443 |
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Other accounts receivable |
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9 |
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29 |
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Copper Inventory |
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73 |
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-- |
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Prepaid expenses |
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82 |
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73 |
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TOTAL CURRENT ASSETS |
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3,747 |
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6,681 |
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INVESTMENT IN AND ADVANCES TO SIERRA RUTILE LIMITED AND |
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INVESTMENT IN AND ADVANCES TO NPL (note 4) |
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5,825 |
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5,733 |
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PROPERTY, PLANT AND EQUIPMENT, net |
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2,750 |
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247 |
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OTHER ASSETS |
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5,800 |
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5,730 |
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$ 18,122 |
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$ 18,391 |
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current LIABILITIES: |
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Accounts payable |
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$ 269 |
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$ 471 |
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Accrued expenses |
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46 |
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104 |
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Current maturities of long-term debt |
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500 |
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-- |
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TOTAL CURRENT LIABILITIES |
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815 |
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575 |
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LONG-TERM DEBT |
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1,050 |
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-- |
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RETIREMENT BENEFITS |
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7,738 |
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7,657 |
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STOCKHOLDERS' EQUITY: |
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Common stock , par value $.01 per share. Authorized 50,000,000 |
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Additional paid-in capital |
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79,667 |
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81,539 |
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Accumulated deficit |
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(70,428) |
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(70,714) |
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Accumulated other comprehensive loss |
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(885) |
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(885 ) |
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TOTAL STOCKHOLDERS' EQUITY |
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8,519 |
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10,159 |
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$ 18,122 |
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$ 18,391 |
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See notes to condensed consolidated financial statements
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
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Three Months Ended |
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1999 |
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1998 |
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SALES |
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$ 254 |
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$ -- |
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COSTS AND EXPENSES |
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Cost of sales |
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(558) |
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-- |
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General and administrative |
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(902) |
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(881) |
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TOTAL COSTS AND EXPENSES |
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(1,460) |
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(881) |
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OPERATING LOSS |
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(1,206) |
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(881) |
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OTHER INCOME (EXPENSE): |
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Interest and other income |
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101 |
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269 |
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Interest expense |
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(39) |
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(15) |
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Gain on sale of interest in SRL |
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3,877 |
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-- |
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Losses relating to investment in SRL |
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-- |
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(514) |
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Equity in loss of NPL |
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(292) |
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352 |
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TOTAL OTHER INCOME |
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3,647 |
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92 |
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NET EARNINGS (LOSS) |
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$ 2,441 |
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$ (789) |
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BASIC EARNINGS (LOSS) PER SHARE |
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$ 0.10 |
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$ (0.04) |
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |
23,429 |
21,905 |
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See notes to condensed consolidated financial statements
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)(In Thousands, Except Per Share Amounts)
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Nine Months Ended |
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1999 |
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1998 |
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SALES |
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$ 254 |
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$ -- |
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COSTS AND EXPENSES |
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Cost of sales |
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(558) |
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-- |
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General and administrative |
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(2,361) |
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(2,418) |
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TOTAL COSTS AND EXPENSES |
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(2,919) |
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(2,418) |
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OPERATING LOSS |
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(2,665) |
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(2,418) |
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OTHER INCOME (EXPENSE): |
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Interest and other income |
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293 |
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683 |
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Interest expense |
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(39) |
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(68) |
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Gain on sale of interest in SRL |
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3,877 |
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-- |
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Losses relating to investment in SRL |
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(523) |
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(3,219) |
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Equity in loss of NPL |
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(657) |
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(203) |
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TOTAL OTHER INCOME (EXPENSE) |
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2,951 |
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(2,807) |
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NET EARNINGS (LOSS) |
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$ 286 |
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$ (5,225) |
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BASIC EARNINGS (LOSS) PER SHARE |
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$ 0.01 |
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$ (0.24) |
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |
22,548 |
21,905 |
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See notes to condensed consolidated financial statements
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
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Nine Months Ended |
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1999 |
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1998 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net earnings (loss) |
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$ 286 |
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$ (5,225) |
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Adjustments to reconcile net loss to net cash used in |
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operating activities: |
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Gain on sale of investment in SRL |
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(3,877) |
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-- |
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Equity in loss of NPL |
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657 |
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203 |
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Provision for retirement benefits, net of payments |
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81 |
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(989) |
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Depreciation and amortization |
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126 |
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24 |
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Stock compensation |
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-- |
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8 |
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Forgiveness of loans due from officers |
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-- |
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100 |
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Reduction in accounts receivable for insurance claim |
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-- |
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14,205 |
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Changes in non-cash working capital |
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(347) |
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(901) |
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Net cash (used in) provided by operating activities |
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(3,074) |
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7,425 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchases of property and equipment |
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(377) |
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(80) |
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Proceeds from sale of investment in SRL |
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1,250 |
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-- |
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Proceeds from sale of investment in Manatee |
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-- |
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954 |
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Advances to NPL |
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(750) |
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-- |
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Change in other assets |
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(70) |
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4 |
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Reduction in obligation under guarantee of loans |
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payable by SRL |
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-- |
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(8,015) |
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Net cash provided by (used in) investing activities |
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53 |
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(7,137) |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Decrease in restricted cash |
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-- |
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(5,547) |
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Net cash used in financing activities |
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-- |
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(5,547) |
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DECREASE IN CASH AND CASH EQUIVALENTS |
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(3,021) |
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(5,259) |
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CASH AND CASH EQUIVALENTS - beginning of period |
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6,136 |
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12,581 |
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CASH AND CASH EQUIVALENTS - end of period |
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$ 3,115 |
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$ 7,322 |
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CASH PAID FOR INTEREST |
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$ 39 |
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$ 68 |
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NON-CASH TRANSACTIONS |
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Issuance of common stock in exchange for property rights |
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$ 700 |
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$ -- |
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Issuance of long-term debt in exchange for capital assets |
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$ 1,550 |
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$ -- |
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See notes to condensed consolidated financial statements
NORD RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
In the opinion of management, these unaudited interim financial statements reflect all adjustments of a normal and recurring nature which are necessary to present fairly the financial position and results of operations for the interim periods presented. The results shown for the interim periods are not necessarily indicative of the results that may be expected for the entire year.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Certain reclassifications have been made in the 1998 financial statements to conform to the classification used in 1999. These reclassifications had no effect on results of operations or shareholders' equity as previously reported.
2. BASIS OF PRESENTATION
The Company owns a 28.5% interest in Nord Pacific Limited ("NPL"), a publicly traded mining and exploration company engaged in the production of copper in Australia and the exploration for gold, copper, nickel, cobalt and other minerals in Australia, Papua New Guinea, North America and Mexico. The Company also owns a 100% interest in Nord Copper Corporation which acquired a copper mining facility ("Johnson Camp Mine") in Cochise County, Arizona, from Arimetco, Inc on June 8, 1999.
Investment In and Advances to SRL and its Subsidiaries and Affiliates
On September 30, 1999, the Company completed the sale to MIL (Investments) S.A.R.L. ("MIL") of its 50% interest in the Sierra Rutile titanium dioxide project in Sierra Leone, West Africa. The Company's shareholders voted to approve the sale on September 8, 1999.
The sale resulted in the return for cancellation of MIL's 7,004,200 shares of common stock in the Company, representing 29.7% of the outstanding common shares of Nord Resources which were owned by MIL; the receipt by the Company of $1,250,000 in cash; and the release of the Company's guarantee of approximately $6,000,000 of Sierra Rutile bank debt. Nord Resources also retained a 5% carried interest in the Sierra Rutile interest sold. The shares of common stock received in the transaction. As a result of the transaction, Company has 16,501,288 shares outstanding as of September 30, 1999.
Until it sold its interest on September 30, 1999 to MIL, the Company owned a 50% interest in Sierra Rutile Holdings Limited which in turn owned 100% of Sierra Rutile Limited and Sierra Rutile America, and a 50% interest in Sierra Rutile Services Limited, Titanium Minerals Marketing International and Titanium Minerals Marketing International, USA (collectively, "SRL"). Until being forced to suspend operations in January 1995, SRL produced and marketed rutile and ilmenite (titanium dioxide). These products were sold primarily to the paint pigment industry in the United States, Europe and the Far East. Production facilities and raw material supplies for the rutile operation are located in Sierra Leone, West Africa. As Sierra Leone is a third-world country, the operations are subject, at any time, to the potentially volatile effects of political instability and economic uncertainty often present in such countries.
In January 1995, rebel forces attacked SRL's mining operation in Sierra Leone, which had been in operation since 1978. As a result, SRL was forced to suspend mining operations and subsequently terminated all nonessential personnel. In April 1996, SRL regained control of the mine site. Maintenance personnel, protected by a security force, have since resumed activities at the mine. In May 1997, a military coup ousted the democratically elected government. Although the democratically elected government of Sierra Leone was restored to power in February 1998, rebel activity in the country has continued.
The resumption of operations at the mine is dependent upon a number of conditions including (1) a sustainable acceptable political environment in Sierra Leone within which to operate, (2) adequate levels of security in and around the minesite area, (3) the successful renegotiation of operating agreements between SRL and the government of Sierra Leone, (4) the existence of a suitable marketing environment and (5) the receipt of adequate financing on acceptable terms to cover the costs of resuming operations. These costs include repair or replacement of assets, which have incurred damage and deterioration during the period of suspension of operations and costs to re-establish and train a workforce, replenish supplies and restore and recommission the facilities. SRL is not able to determine when operations will resume at the mine.
As a result of the initial rebel attack on SRL's mining operations in Sierra Leone and the continuing uncertainty resulting from the ongoing rebel activity in the country, significant uncertainty existed as to the Company's ability to recover its investment in SRL. Accordingly, the Company previously recorded a provision for impairment of its entire investment in SRL, including its estimate of amounts it was required to advance to SRL for the repayment of loans payable by SRL, which it had guaranteed.
During the nine months ended September 30, 1999 and 1998, the Company advanced $523,000 and $3,219,000 respectively, to SRL as its 50% share of funding for SRL's cash needs, primarily to fund vendor payments and the ongoing operating cash requirements of SRL. Amounts advanced to SRL prior to 1998, which were used to reduce the principal amounts of loans outstanding, were recorded as a reduction of the obligation under guarantee of loans payable by SRL. Other amounts were charged to expense as they were advanced to SRL. Subsequent to 1997, all amounts advanced to SRL were charged to expense.
4. INVESTMENT IN NPL
The Company has a 28.5% interest in NPL at September 30, 1999 and 1998. Summary financial data for the operations of NPL is as follows:
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Three Months Ended |
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Nine Months Ended |
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1999 |
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1998 |
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1999 |
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1998 |
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(In Thousands) |
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(In Thousands) |
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Sales |
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$ 2,473 |
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$ 3,802 |
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$ 8,096 |
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$ 10,447 |
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Cost and expenses |
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(3,443) |
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(3,286) |
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(10,744) |
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(9,925) |
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Interest and other income |
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27 |
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75 |
|
78 |
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209 |
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Interest and debt issuance costs |
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(79) |
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(70) |
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(204) |
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(190) |
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Foreign currency forward exchange |
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Foreign currency transaction losses |
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(48) |
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(1) |
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(330) |
|
(261) |
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(Loss) earnings before taxes |
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(1,252) |
|
170 |
|
(2,118) |
|
(900) |
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Income tax benefit |
|
338 |
|
1,200 |
|
338 |
|
1,200 |
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Net (loss) earnings |
|
$ (914) |
|
$ 1,370 |
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$ (1,780) |
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$ 300 |
During the quarter ended September 30, 1999, the Company advanced to NPL $750,000 in the form of a note receivable. The terms of the note provide for interest to be accrued at a rate of 10% per annum. The principal and accrued interest is due and payable on September 30, 2000.
In June 1999, Nord Copper Corporation acquired a copper mining facility ("Johnson Camp Mine") in Cochise County, Arizona, from Arimetco, Inc. At the time of the acquisition, Summo USA Corporation had a purchase agreement to acquire the Johnson Camp Mine and related assets from Arimetco. The total consideration paid by Nord Resources Corporation and Nord Copper Corporation included (a) $310,000 in cash, (b) the issuance to Summo of 1,600,000 unregistered shares of Nord Resources Corporation's common stock $0.01par value and (c) a promissory note ("Promissory Note") from Nord Copper Corporation in the amount of $1,550,000, payable in three principal payments of $500,000, $500,000 and $550,000, due on June 8, 2000, June 8, 2001 and June 8, 2002, respectively, together with interest at the rate of 8% per annum payable quarterly. In addition to the purchase price, Nord Copper Corporation assumed the obligation to pay up to $1,000,000 to Arimetco out of revenues from the Johnson Camp Mine, at a rate of $0.02 per pound of copper sold, except that no payment is due where the price is less than $1.00 per pound. The payment of the Promissory Note is guaranteed by Nord Resources Corporation and is secured by a lien on the Johnson Camp Mine until the Promissory Note is paid in full.
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 1999 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 annual report on Form 10-K.
Liquidity and Capital Resources
Cash at September 30, 1999 was $3,115,000 compared to $6,136,000 at December 31, 1998. Cash and cash equivalents decreased $685,000 and $3,021,000 for the three and nine months ended September 30, 1999. Cash used in operations was $1,120,000 and 3,074,000 for the three and nine months ended September 30, 1999 compared to cash used in operations of $1,670,000 and cash provided by operations of $7,425,000 for the same periods in 1998 respectively. Cash provided by operations was greater in 1998 as a result of the receipt on May 15, 1998 of the $14,205,000 balance of the proceeds from the civil strife insurance policy owned by the Company. The Company received cash proceeds of $1,250,000 during the three months ended September 30, 1999 from the sale of its interest in SRL and advanced NPL $750,000 in the form of a note receivable. The Company used $377,000 of cash primarily for the purchase of the Johnson Camp Mine during the nine months ended September 30, 1999 compared to $8,015,000 used primarily for SRL debt repayment for the same period in 1998. There were no financing activities for the nine months ended September 30, 1999 compared to cash used by financing activities of $5,547,000 in the same period in 1998 related to cash deposited into a collateral account as security for the Company's share of SRL's next scheduled debt payment.
Results of Operations
The Company reported net earnings of $2,441,000 for the three months ended September 30, 1999 compared to a net loss of $789,000 for the same period in 1998. The company reported net earnings of $286,000 for the nine months ended September 30, 1999 compared to a net loss of $5,225,000 for the same period in 1998.
The Company's Johnson Camp mine sold 336,000 pounds of copper for the three months ended September 30, 1999 at a realized price of $0.76 per pound or $254,000 while incurring cost of sales of $558,000 and general administrative costs of $85,000 resulting in a loss from operations of $389,000. The operating costs are high at Johnson Camp Mine as a result of startup requirements for the processing facilities, which had been previously shut down.
The Company recognized a gain of $3,877,000 on the sale of its interest in SRL. The gain was comprised of $2,627,000 from the return for cancellation of MIL's 7,004,200 shares of common stock in the Company, and the receipt by the Company of $1,250,000 in cash.
Interest income decreased for both the three and nine months ended September 30, 1999 compared to the same periods in 1998 due primarily to decreased funds available for investment in 1999. The Company recorded no losses relating to its investment in SRL for the three months ended September 30, 1999 compared to losses related to its investment in SRL of $514,000 for the same period in 1998. For the nine months ended September 30, 1999, the Company recorded $523,000 of losses related to its investment in SRL compared to $3,219,000 of losses in its investment in SRL for the same period in 1998. A significantly reduced level of activity during the nine months ended September 30, 1999 compared to 1998 contributed to the reduction in losses related to the Company's investment in SRL. The company recorded an equity loss in NPL of $292,000 for the three months ended September 30, 1999 compared to equity in earnings of $352,000 in NPL for the same period in 1998. The Company recorded an equity loss in NPL of $657,000 for the nine months ended September 30, 1999 compared to an equity loss in NPL of $203,000 for the same period in 1998.
Year 2000 Compliance
In January 1998, the Company initiated a Year 2000 project to address the issue of computer programs and embedded computer chips being unable to distinguish between the year 1900 and the year 2000 ("Year 2000 Issues"). The project involves converting to Year 2000 compliant accounting software, testing existing software, hardware and operational systems and communicating with third-party customers, suppliers and service providers to ensure that they are taking appropriate action with respect to their Year 2000 Issues.
The Company has installed Year 2000 compliant accounting software. The Company's local area network and PC hardware and on-accounting software, such as spreadsheets and word processing, have been tested and, to the best of the Company's knowledge, are Year 2000 compliant. Other non-information technology systems, such as the telephone system and other office equipment, have been assessed for Year 2000 readiness and are compliant
The Company believes that the computer systems and applications it maintains would not have a material impact on the operations of the Company or its revenues in the event that the systems fail to operate in the Year 2000.
The Company is communicating with third party customers and suppliers and has received notification from its building manager, its bank, the New York Stock Exchange and other service providers indicating that they expect to be Year 2000 compliant. Due to the general uncertainty inherent with respect to Year 2000 Issues, resulting in part from the uncertainty of the Year 2000 readiness of third-party customers, suppliers, and service providers, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on the Company's results of operations or financial condition.
The total cost of Year 2000 testing and compliance was $50,000, which includes costs related to the conversion to Year 2000 compliant accounting software.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, including the effects of adverse changes in commodity prices as discussed below.
Commodity Price Risk
The Company sells copper produced from its Johnson Camp Mine in Arizona. As a result, the Company is subject to changes in copper prices, which directly impact its profitability and cash flows.
PART II. OTHER INFORMATION
ITEM 1-3. NOT APPLICABLE
ITEM 4. SUBMISSION OF MATERS TO A VOTE OF SECURITY HOLDERS
The Annual General Meeting of the stockholders was held on September 8, 1999. The following matters were acted upon and passed at the meeting:
1. Election of seven Directors
2. Approve the sale of the Company's 50% ownership interest in the Sierra
Rutile titanium dioxide mine in Sierra Leone to an affiliate of MIL (INVESTMENTS)
S.A.R.L.
VOTE TABULATION
|
|
Votes For |
Votes Against |
Votes Abstained |
|
1. Directors |
|
|
|
|
W. Pierce Carson |
19,270,344 |
311,612 |
-- |
|
Edgar F. Cruft |
19,269,663 |
312,293 |
-- |
|
James Askew |
19,269,544 |
312,412 |
-- |
|
Marc Franklin |
19,265,196 |
316,760 |
-- |
|
Terence H. Lang |
19,269,923 |
312,033 |
-- |
|
Leonard Lichter |
19,269,548 |
312,408 |
-- |
|
Francis Waldron |
19,269,869 |
313,087 |
-- |
|
|
|
|
|
|
2. Approve the sale of |
6,175,274 |
569,130 |
60,860 |
ITEM 5. OTHER INFORMATION
On November 11, 1999, the Company was informed by the New York Stock Exchange ("NYSE") that its shares would be delisted from the NYSE. In July 1999, the NYSE adopted new rules which require, among other things, that a company maintain shareholders' equity and market capitalization of $50,000,000 to continue listing. Trading in the Company's stock will move to the over-the-counter bulletin board system.
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 |
|
|
|
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: November 12, 1999
|
|