NCOC National Coal Corp (MM)

National Coal Corp. (Nasdaq: NCOC):

• Second quarter 2010 revenues from continuing operations totaled approximately $10.6 million and net income for the three months ending June 30, 2010 was $248,967
• During the three months ended June 30, 2010, National Coal reported an Adjusted EBITDA of $3.4 million, compared to $1.2 million for the second quarter of 2009

National Coal Corp. (Nasdaq: NCOC), a Central and Southern Appalachian coal producer, reports that for the three months ended June 30, 2010, it achieved total revenues from continuing operations of $10.6 million based primarily on the sale of 117,017 tons of coal. In the same prior-year period, National Coal generated revenues from continuing operations of $22.6 million based primarily on the sale of 290,508 tons of coal. The decrease in revenue from coal sales for the three months ended June 30, 2010, as compared to the same period in 2009, was primarily due to the assignment of a coal supply agreement to Ranger Energy Investments, LLC on April 20, 2010 as part of the Company's sale of certain assets and real property.

For the three month period ended June 30, 2010, National Coal had an Adjusted Earnings Before Interest, Taxes, and Depreciation and Amortization (“Adjusted EBITDA”) of $3.4 million, compared to an Adjusted EBITDA of $1.2 million for the second quarter of 2009. For the three months ended June 30, 2010, National Coal reported income from continuing operations of $248,967 or $0.03 per share compared to a net loss of $6.3 million or $0.75 per share for the three months ended June 30, 2009.

In order to strengthen the Company’s balance sheet position, the Company completed the following transactions during the second quarter of 2010:

(i)

On April 20, 2010, the Company completed an asset sale which included a preparation plant and rail loadout facility located in Devonia, Tennessee, an active underground mine, two inactive mines, related property, plant and equipment, coal inventories located on the properties, associated permits, and a coal supply agreement for an aggregate sales price of $11.8 million.

 

(ii)

On May 19, 2010, the Company sold the short line railroad which served the New River operations and was owned by the Company’s wholly-owned subsidiary NC Railroad, Inc. for $3.0 million.

 

(iii)

On June 30, 2010, the Company’s wholly-owned subsidiary, National Coal Corporation sold an idle Superior Highwall Mining System for $4.1 million.

As a result of the above transactions, the Company received gross proceeds of $14.0 million and realized a net gain on the sale of assets of $3.6 million during the second quarter of 2010. However, an impairment loss was recorded during the first quarter of 2010 related to the April 20th sale, which reduced the net gain to $2.5 million for the six months ended June 30, 2010. In addition, cash and cash equivalents increased $4.1 million during the second quarter to $5.3 million at June 30, 2010, while accounts payable declined $8.3 million to $5.3 million during the same time period.

“This was an important quarter for us as we took significant steps to strengthen our balance sheet, and successfully tackled a number of short term challenges. We are beginning to see the positive effects of these changes, namely in the improvement of our net income and EBITDA figures. In addition, we are moving ahead with the startup of our mine 12 operations,” explains Daniel A. Roling, President and CEO of National Coal. “We are still working on, and remain committed to, the resolution of our biggest challenge which is refinancing our debt, which matures December 15, 2010. However, that said and with all else considered, our balance sheet is evidence of the ground we have been gaining during this difficult time.”

Also, the Company has engaged the services of a financial advisory firm to evaluate possible strategic and financing transactions. Among these alternatives, the Company has been pursuing a restructuring of its debt, the issuance of common stock in exchange for the purchase and cancellation of its debt, transactions in which the Company would issue preferred or additional common stock for cash, and merger transactions with other coal producers.

About National Coal Corp.

Headquartered in Knoxville, Tenn., National Coal Corp., through its wholly owned subsidiary, National Coal Corporation, is engaged in coal mining in East Tennessee. Currently, National Coal employs about 155 people. National Coal sells steam coal to electric utilities in the Southeastern United States. For more information and to sign-up for instant news alerts visit www.nationalcoal.com.

Information About Forward Looking Statements

This release contains “forward-looking statements” that include information relating to future events and future financial and operating performance. Examples of forward looking-statements include the Company’s efforts to address the deterioration in its financial position, including its efforts to sell assets and secure future growth opportunities. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause these differences include, but are not limited to the risks more fully described in the Company's filings with the Securities and Exchange Commission including the Company's most recently filed Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, which should be read in conjunction herewith for a further discussion of important factors that could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

National Coal Corp.

Calculation of EBITDA

(Unaudited)

(Dollars in thousands)

        EBITDA is defined as net loss plus (i) other (income) expense, net, (ii) interest expense, (iii) depreciation, depletion, accretion and amortization minus (iv) interest income. We present EBITDA to enhance understanding of our operating performance. We use EBITDA as criterion for evaluating our performance relative to that of our peers, including measuring our cost effectiveness and return on capital, assessing our allocations of resources and production efficiencies and making compensation decisions. We believe that EBITDA is an operating performance measure that provides investors and analysts with a measure of our operating performance and permits them to evaluate our cost effectiveness and production efficiencies relative to competitors. However, EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States of America (“GAAP”) and may not be comparable to other similarly titled measures of other companies. EBITDA should not be considered as an alternative to cash flows from operating activities, determined in accordance with GAAP, as indicators of cash flows. The following reconciles our net loss to EBITDA:     Three Months Ended Six Months Ended June 30, June 30, 2010   2009 2010   2009 Net income (loss) $ 248,967 $ (6,345,569 ) $ (5,514,902 ) $ (14,235,986 ) Other (income) expense, net 153,063 - 152,901 (9,999 ) Interest income (2,233 ) (74,652 ) (4,756 ) (157,106 ) Interest expense 1,530,193 1,830,869 3,263,724 3,127,412 Depreciation, depletion, amortization and accretion 1,253,555     2,381,669   3,068,203     5,136,345   EBITDA 3,183,545 (2,207,683 ) 965,170 (6,139,334 ) Stock compensation expense 171,892 316,957 729,700 705,300 Discontinued operations, net of tax -     3,138,997   -     5,357,898   Adjusted EBITDA $ 3,355,437     $ 1,248,271   $ 1,694,870     $ (76,136 ) National Coal Corp. Condensed Consolidated Balance Sheets (Unaudited)     June 30, 2010   December 31, 2009   Assets Current Assets: Cash and cash equivalents $ 5,258,463 $ 1,185,725 Accounts receivable, net 841,943 366,680 Inventory 2,149,169 1,403,972 Prepaid and other current assets 765,157   1,550,919   Total Current Assets 9,014,732 4,507,296   Property, plant, equipment and mine development, net 23,517,030 40,298,450 Deferred financing costs 618,596 890,048 Restricted cash 4,158,904 6,211,637 Other non-current assets 884,201   906,097   Total Assets $ 38,193,463   $ 52,813,528       Liabilities and Stockholders' Deficit Current Liabilities: Accounts payable $ 5,326,605 $ 11,551,663 Accrued expenses 1,718,212 1,065,355 Borrowings under short-term line of credit - 3,000,000 Current maturities of long - term debt 42,304,868 42,372,933 Current installments of obligations under capital leases 141,676 1,237,358 Current portion of asset retirement obligations 98,528 98,528 Deferred revenue 449,916   -   Total Current Liabilities 50,039,805 59,325,837   Long - term debt, less current maturities, net of discount 29,172 270,291 Obligations under capital leases, less current installments 66,948 140,958 Asset retirement obligations, less current portion 3,486,775 3,790,212 Deferred revenue 1,000,000 1,000,000 Other non-current liabilities 596,874   589,139   Total Liabilities 55,219,574   65,116,437     Stockholders' Deficit: Preferred stock, $.0001 par value; 10 million shares authorized; no shares issued or outstanding - - Common Stock, $.0001 par value; 120 million shares authorized; 8,628,451 and 8,578,473 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively 863 858 Additional paid - in capital 116,986,106 116,194,411 Accumulated deficit (134,013,080 ) (128,498,178 ) Total Stockholders' Deficit (17,026,111 ) (12,302,909 ) Total Liabilities and Stockholders' Deficit $ 38,193,463   $ 52,813,528     The Condensed Consolidated Balance Sheet as of December 31, 2009 was derived from Audited Financial Statements   See Accompanying Notes to Condensed Consolidated Financial Statements. National Coal Corp. Condensed Consolidated Statements of Operations (Unaudited)         For the Three Months Ended For the Six Months Ended June 30, June 30, 2010   2009 2010   2009 Revenues: Coal sales $ 10,061,479 $ 21,733,844 $ 26,256,712 $ 40,841,859 Other revenues 542,888     844,927   542,888     1,763,578  

Total revenues

10,604,367 22,578,771 26,799,600 42,605,437   Operating expenses: Cost of coal sales (exclusive of depreciation, depletion, amortization and accretion) 9,335,957 19,272,054 24,455,407 38,266,801 Cost of services (exclusive of depreciation, depletion, amortization and accretion) - 766,286 - 1,708,665 Depreciation, depletion, amortization and accretion 1,253,555 2,381,669 3,068,203 5,136,345 (Gain) loss on asset disposal (3,640,338 ) 40,827 (2,455,749 ) (14,619 ) General and administrative 1,725,203     1,568,290   3,834,772     3,426,026   Total operating expenses 8,674,377     24,029,126   28,902,633     48,523,218     Income (loss) from continuing operations 1,929,990 (1,450,355 ) (2,103,033 ) (5,917,781 )   Other income (expense): Interest expense (1,530,193 ) (1,830,869 ) (3,263,724 ) (3,127,412 ) Interest income 2,233 74,652 4,756 157,106 Other (153,063 )   -   (152,901 )   9,999   Other income (expense), net (1,681,023 ) (1,756,217 ) (3,411,869 ) (2,960,307 )             Income (loss) from continuing operations before income taxes 248,967 (3,206,572 ) (5,514,902 ) (8,878,088 )   Income tax benefit -     -   -     -     Income (loss) from continuing operations 248,967 (3,206,572 ) (5,514,902 ) (8,878,088 )   Loss from discontinued operations, net of taxes -     (3,138,997 ) -     (5,357,898 )   Net income (loss) $ 248,967     $ (6,345,569 ) $ (5,514,902 )   $ (14,235,986 )   Earnings (loss) per common share from continuing operations - basic and diluted $ 0.03     $ (0.38 ) $ (0.65 )   $ (1.04 )   Loss per common share from discontinued operations - basic and diluted $ -     $ (0.37 ) $ -     $ (0.63 )   Earnings (loss) per common share - basic and diluted $ 0.03     $ (0.75 ) $ (0.65 )   $ (1.67 )   Weighted average common shares outstanding 8,534,054     8,499,384   8,526,747     8,497,804       See Accompanying Notes to Condensed Consolidated Financial Statements. National Coal Corp. Condensed Consolidated Statements of Cash Flows (Unaudited)     For the Six Months Ended June 30, 2010 2009   Operating Activities Net loss $ (5,514,902 ) $ (14,235,986 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Loss from discontinued operations, net of tax - 5,357,898 Depreciation, depletion, amortization and accretion 3,068,203 5,136,345 Amortization of deferred financing costs 371,433 397,563 Amortization of debt discount 373,918 325,333 Gain on disposals of assets, net (2,455,749 ) (14,619 ) Settlement of asset retirement obligations (525,000 ) (26,491 ) Loss on extinguishment of debt 153,060 - Stock option expense 729,700 705,300 Stock issuance in exchange for services 62,000 - Changes in operating assets and liabilities: Accounts receivable (475,263 ) (1,902,830 ) Inventory (2,426,496 ) (741,715 ) Prepaid and other current assets 785,762 654,069 Other non - current assets 77,016 111,888 Accounts payable and accrued expenses 1,040,404 5,672,943 Deferred revenue 449,916 (1,241,840 ) Other non - current liabilities 7,735   (167,134 ) Net cash flows (used in) provided by operating activities from continuing operations (4,278,263 ) 30,724 Net cash flows provided by operating activities from discontinued operations -   3,202,943   Net cash flows (used in) provided by operating activities (4,278,263 ) 3,233,667   Investing Activities Capital expenditures (673,039 ) (4,291,069 ) Proceeds from sale of assets 14,029,512 - Change in restricted cash 155,483 (378,001 ) Additions to prepaid royalties (55,120 ) (45,000 ) Net cash provided by (used in) investing activities from continuing operations 13,456,836 (4,714,070 ) Net cash used in investing activities from discontinued operations -   (1,843,947 ) Net cash provided by (used in) investing activities 13,456,836 (6,558,017 )   Financing Activities Proceeds under short-term line of credit 1,500,000 3,605,793 Repayment of short term line of credit (4,500,000 ) - Repayments of long-term debt (683,102 ) (1,642,213 ) Repayments of obligations under capital leases (1,169,692 ) (1,114,674 ) Payments for deferred financing costs (253,041 ) (45,051 ) Net cash flows (used in) provided by financing activities from continuing operations (5,105,835 ) 803,855 Net cash flows used in financing activities from discontinued operations -   (758,996 ) Net cash flows (used in) provided by financing activities (5,105,835 ) 44,859 Net increase in cash and cash equivalents 4,072,738 (3,279,491 ) Cash and cash equivalents at beginning of period 1,185,725   3,908,469   Cash and cash equivalents at end of period $ 5,258,463   $ 628,978     Supplemental Cash Flow Information Cash paid during the period for interest from continuing operations $ 2,514,610 $ 2,534,139 Cash paid during the period for interest from discontinued operations - 547,808 Non-cash investing and financing activities from continuing operations: Financed equipment acquisitions $ - $ 34,852 Equipment acquired through capital leases - 336,000 Non-cash investing and financing activities from discontinued operations: Financed equipment acquisitions $ - $ 42,848 Asset retirement obligations incurred, acquired or recosted - 324,332 Interest and fees paid in-kind or financed at National Coal of Alabama, Inc. - 2,100,000 Accounts payable assumed in asset sale transactions 6,612,605 -   See Accompanying Notes to Condensed Consolidated Financial Statements.