NCOC National Coal Corp (MM)

National Coal Corp. (Nasdaq: NCOC):

• 2009 revenues from continuing operations totaled approximately $88.0 million, up 35.2% from $65.1 million in 2008
• Tons of coal sold during 2009 increased approximately 20% to 1.2 million tons, up from 1.0 million tons sold during the year-ago period
• 2009 net loss from continuing operations decreased 30.5% from $25.5 million in 2008 to $17.7 million in 2009, and adjusted EBITDA for the year increased to $0.1 million, from ($6.9) million in 2008
• Revenues for fourth quarter 2009 totaled approximately $23.3 million, up 71.1% from $13.6 million in the fourth quarter 2008.
• Production from continuing operations decreased 17.7% from 1.0 million tons in 2008 to 0.8 million tons in 2009

National Coal Corp. (Nasdaq: NCOC), a Central and Southern Appalachian coal producer, reports that for the year ended December 31, 2009, it achieved total revenues from continuing operations of $88.0 million based primarily on the sale of 1.2 million tons of coal. In the same prior-year period, National Coal generated revenues from continuing operations of $65.1 million based primarily on the sale of 1.0 million tons of coal.

For the three months ended December 31, 2009, total revenues from continuing operations of $23.3 million were based primarily on the sale of 0.3 million tons of coal at an average net sales price of $74.74 per ton. Revenues from continuing operations for the same period in 2008 totaled $13.6 million and were based primarily on the sale of approximately 0.2 million tons of coal at an average net sales price of $75.00 per ton. The Company had a net loss for the quarter of $4.3 million versus a net loss of $7.9 million in the year-ago quarter.

For the twelve months ended December 31, 2009, National Coal reports a net loss from continuing operations of $17.7 million or $0.52 per diluted share compared to a net loss of $25.5 million or $0.83 per diluted share for the twelve months ended December 31, 2008. During 2009, the Company’s continuing operations produced 0.8 million tons of coal and sold 1.2 million tons of coal; this compares to 1.0 million tons produced and 1.0 million tons sold during 2008. Also for the year ended December 31, 2009, National Coal had an Adjusted Earnings Before Interest, Taxes, and Depreciation and Amortization (“Adjusted EBITDA”) of $0.1 million, compared to an Adjusted EBITDA of ($6.9) million for the year ended December 31, 2008.

Liquidity

At December 31, 2009, the Company had cash and cash equivalents of approximately $1.2 million and negative working capital of approximately $54.8 million. Cash flows provided by (used in) continuing operations were approximately $38,000, $(9.6) million and $(9.1) million for the years ended December 31, 2009, 2008 and 2007, respectively.

During the first quarter of 2010, National Coal experienced a significant reduction in cash receipts following the suspension of coal shipments to a major customer due to freezing weather in the Southeastern United States, the resulting impact on cash has been financed primarily by the Company’s vendors, resulting in a significant increase in accounts payable since the beginning of the year. The deterioration in National Coal’s financial position has caused Centaurus Energy Master Fund, LP, the lender under the Company’s short-term revolving credit facility and the holder of $30.3 million (or 72.1%) of its 10.5% Notes due 2010, to assert that National Coal is insolvent, which assertion the Company disputes. The Company nonetheless is in default under its $5 million short-term revolving credit agreement as of the date of this report. Under the terms of this facility, the annual financial statements that we file with the SEC must be reported on without a “going concern” qualification from our independent certified public accountants. Because the accompanying accountants’ report for the year ended December 31, 2009, does contain a going concern explanatory paragraph, the Company is in default of this covenant as of the date this report is filed. While the Company has not obtained an agreement from Centaurus to forbear from exercising its available remedies, Centaurus has indicated that it will not immediately seek to accelerate the amounts due under the revolving credit agreement so long as the Company continues to pursue a transaction that pays down this indebtedness in the near term.

Additionally, the Company has concluded that it will not be able to generate from operations the amount of cash necessary to pay in December 2010 the amounts due on its 10.5% Notes due 2010 and its short-term revolving credit facility, the combined outstanding principal balance of which was $45.0 million at December 31, 2009. Accordingly, the Company’s immediate focus is to improve its operating liquidity in the short-term by reducing accounts payable to historical levels, and to pay off its secured debt by its maturity date. The Company has explored and continues to explore a number of options to achieve both of these objectives, including selling assets, refinancing its debt, exchanging its equity for its debt, selling the Company, merging with another company, or some combination of these options. National Coal is presently negotiating with a third party to sell a portion of its assets to improve its working capital, including reducing amounts due Centaurus under the $5 million short-term credit facility, which will address the default under this facility and the immediate insolvency issues raised by Centaurus. If the Company is unsuccessful in this and other attempts to remedy its insolvency issues, it will consider whether to pursue these and other potential transactions after filing for protection under the federal bankruptcy laws.

“We are working with Centaurus to find a near term solution to our default under the credit agreement and to address our liquidity issues,” explains Daniel A. Roling, President and CEO at National Coal Corp. “We are in negotiation with a third party to sell a portion of our assets to improve working capital, including reducing amounts owed to Centaurus.”

2009 Review

During 2009, National Coal idled one of its higher cost underground mines in order to take advantage of purchased coal prices that were lower than its mining cost at that mine. As a result of the mine closure, the Company’s cost per ton sold during 2009 compared to 2008 from its continuing operations declined by $10.44 due primarily to decreases in labor of $3.26 per ton sold, freight and fuel costs of $5.38 per ton sold and equipment usage costs of $1.80 per ton sold.

To offset the production shortfall from the mine closure, National Coal purchased 355,459 tons of coal at an average price of $60.65 in 2009 compared to 31,084 tons in 2008 at an average price of $47.58 per ton leading to an increase in the average cost per ton sold of $16.85 in 2009.

National Coal invested approximately $6.2 million in equipment and mine development in its continuing operations during the year ended December 31, 2009. During 2010, management expects to incur approximately $3.6 million to maintain existing assets.

In June 2009, National Coal of Alabama, Inc. defaulted on its $60 million credit agreement entered into October 2007 with TCW Asset Management Company and various lenders. The lenders foreclosed on the outstanding capital stock of National Coal of Alabama. However, no creditor of National Coal of Alabama, including the lenders under the $60 million credit agreement, has a lien or encumbrance on assets of National Coal Corp. or its other subsidiaries.

As of June 30, 2009, National Coal of Alabama accounted for approximately 55% of National Coal Corp.’s debt and liabilities, approximately 39% of its consolidated revenues for the six months then ended, and about 16% of its December 2008 total reserves. The Company acquired National Coal of Alabama in October 2007, using a combination of debt and equity to finance the acquisition and fund the subsidiary’s operations.

2010 Outlook

The Company’s overall outlook for 2010 is one of cautious optimism. Electricity demand has declined two consecutive years -- 2008 and 2009. This is the first time in well over 60 years electricity generation has declined in the United States of America for two consecutive years. The significance is that 93% of coal consumed in the United States, is consumed generating electricity. This decline has resulted in a decline in coal burn of 113 million tons.

The impact of this situation has been clearly felt by National Coal and its stakeholders. Looking forward, but mindful of the combined obstacles we faced in 2009, and the impact of a major customer exercising its rights of force majeure in early 2010, the outlook is challenging. However, the Company does have significant tons committed at strong prices and a plan to meet its near-term liquidity needs. Committed sales for 2010 are 0.9 million tons at an average contracted price of $79.62 per ton, for 2011 are 0.8 million tons at an average contracted selling price of $76.03 per ton, and for 2012 are 0.5 million tons at an average contracted selling price of $73.70 per ton.

Roling says, “Aside from the significant trouble we are facing in restructuring our debt, our production goals and efforts to reduce costs continue. We have been affected by the fluctuating market and economy, as have many other steam coal producers.”

National Coal’s production goals for 2010, 2011, and 2012 will reflect anticipated market demand as well as our restructured capacity. We continue to anticipate having the ability to produce more than our contracted tonnage.

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 220 people. National Coal sells steam coal to electric utilities and industrial companies 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. 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   Twelve Months Ended December 31, December 31, 2009   2008   2009   2008 Net loss (4,314,614 )   (7,933,612 ) (19,214,548 )   (34,892,950 ) Other (income) expense, net (91,561 ) 30,352 (155,504 ) 1,861,879 Interest income 52,195 (157,643 ) (170,086 ) (730,102 ) Interest expense 1,841,609 1,651,212 6,879,517 7,277,975 Depreciation, depletion, amortization and accretion 2,396,377     1,811,869     9,925,328     8,847,711   EBITDA (115,994 ) (4,597,822 ) (2,735,293 ) (17,635,487 ) Stock compensation expense 252,933 313,836 1,379,893 1,313,948 Discontinued operations, net of tax -     1,231,920     1,485,157     9,385,238   Adjusted EBITDA 136,939     (3,052,066 )   129,757     (6,936,301 ) National Coal Corp. Consolidated Balance Sheets       December 31, 2009 December 31, 2008   Assets Current Assets: Cash and cash equivalents $ 1,185,725 $ 3,908,469 Accounts receivable, net 366,680 474,351 Inventory 1,403,972 2,957,654 Prepaid and other current assets 1,550,919 1,282,777 Current assets of discontinued operations -   9,751,877   Total Current Assets 4,507,296 18,375,128   Property, plant, equipment and mine development, net 40,298,450 43,674,758 Deferred financing costs 890,048 1,238,267 Restricted cash 6,211,637 11,338,137 Other non-current assets 906,097 1,562,901 Long term assets of discontinued operations -   71,620,026   Total Assets $ 52,813,528   $ 147,809,217       Liabilities and Stockholders' (Deficit) Equity Current Liabilities: Accounts payable $ 11,551,663 $ 6,188,085 Accrued expenses 1,065,355 880,632 Borrowings under short-term line of credit 3,000,000 - Current maturities of long term debt 42,372,933 2,336,191 Current installments of obligations under capital leases 1,237,358 1,886,251 Current portion of asset retirement obligations 98,528 145,282 Deferred revenue - 1,241,840 Current liabilities of discontinued operations -   11,735,695   Total Current Liabilities 59,325,837 24,413,976   Long - term debt, less current maturities, net of discount 270,291 41,892,645 Obligations under capital leases, less current installments 140,958 1,314,188 Asset retirement obligations, less current portion 3,790,212 3,763,720 Deferred revenue 1,000,000 1,303,655 Other non-current liabilities 589,139 2,138,235 Long-term liabilities of discontinued operations -   67,492,063   Total Liabilities 65,116,437   142,318,482     Stockholders' (Deficit) Equity: Common Stock, $.0001 par value; 80 million shares authorized; 34,313,889 and 34,184,824 shares issued and outstanding at December 31, 2009 and December 31, 2008, respectively 3,431 3,418 Additional paid in capital 116,191,838 114,770,947 Accumulated deficit (128,498,178 ) (109,283,630 ) Total Stockholders' (Deficit) Equity (12,302,909 ) 5,490,735   Total Liabilities and Stockholders' (Deficit) Equity $ 52,813,528   $ 147,809,217       See Accompanying Notes to Consolidated Financial Statements. National Coal Corp. Consolidated Statements of Operations         Year Ended December 31, 2009   2008   2007 Revenues: Coal sales $ 85,598,350 $ 61,827,845 $ 79,038,521 Other revenues 2,437,132     3,223,401     837,278   Total revenues 88,035,482     65,051,246     79,875,799     Operating expenses: Cost of coal sales (exclusive of depreciation, depletion, amortization and accretion) 80,323,782 62,847,621 77,064,753 Cost of coal services (exclusive of depreciation, depletion, amortization and accretion) 2,325,490 2,818,582 - Depreciation, depletion, amortization and accretion 9,925,328 8,847,711 14,661,153 General and administrative 6,636,346     7,635,292     6,969,932   Total operating expenses 99,210,946     82,149,206     98,695,838     Loss from continuing operations (11,175,464 )   (17,097,960 )   (18,820,039 )   Other income (expense): Interest expense (6,879,517 ) (7,277,975 ) (8,990,387 ) Interest income 170,086 730,102 1,179,458 Other 155,504     (1,861,879 )   1,030,932   Other income (expense) (6,553,927 ) (8,409,752 ) (6,779,997 )           Loss from continuing operations before income taxes (17,729,391 ) (25,507,712 ) (25,600,036 )   Income tax benefit -     -     -     Loss from continuing operations (17,729,391 ) (25,507,712 ) (25,600,036 )   Loss from discontinued operations, net of taxes (1,485,157 )   (9,385,238 )   (164,327 )   Net loss (19,214,548 ) (34,892,950 ) (25,764,363 )   Preferred stock dividend - (130,188 ) (398,891 ) Preferred stock deemed dividend -     (593,563 )   (4,058,358 )   Net loss attributable to common shareholders $ (19,214,548 )   $ (35,616,701 )   $ (30,221,612 )   Loss per common share from continuing operations - basic and diluted $ (0.52 )   $ (0.83 )   $ (1.45 )   Loss per common share from discontinued operations - basic and diluted $ (0.04 )   $ (0.30 )   $ (0.01 )   Loss per common share - basic and diluted $ (0.56 )   $ (1.13 )   $ (1.46 )   Weighted average common shares outstanding 34,004,575     31,525,271     20,680,015       See Accompanying Notes to Consolidated Financial Statements. National Coal Corp. Condensed Consolidated Statements of Cash Flows       Year Ended December 31, 2009   2008   2007   Operating Activities Net loss $ (19,214,548 ) $ (34,892,950 ) $ (25,764,363 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Loss from discontinued operations, net of tax 1,485,155 9,385,238 164,327 Depreciation, depletion, amortization and accretion 9,925,328 8,847,711 14,661,153 Amortization of deferred financing costs 1,012,412 490,796 906,488 Amortization of debt discount 680,824 735,728 621,220 Gain (loss) on disposal of assets 159,431 (108,427 ) (1,059,786 ) Loss on sale of Straight Creek properties - 365,025 - Loss on extinguishment of debt - 1,676,202 50,720 Settlement of asset retirement obligations (134,618 ) (205,525 ) (430,655 ) Stock option expense 1,379,893 1,313,948 1,436,996 Issuance of stock in lieu of payment for services - - 531,500 Changes in operating assets and liabilities: Accounts receivable 107,671 1,741,883 1,310,523 Inventory 1,164,099 (725,497 ) 66,140 Prepaid and other current assets 273,437 429,788 627,866 Other non - current assets 744,805 18,605 96,811 Accounts payable and accrued expenses 5,548,301 (1,749,041 ) (2,884,636 ) Deferred revenue (1,545,495 ) 1,241,840 521,379 Other non - current liabilities (1,549,096 )   1,883,469     55,337   Net cash flows used in operating activities from continuing operations 37,599 (9,551,207 ) (9,088,980 ) Net cash flows provided by (used in) operating activities from discontinued operations 3,676,903     5,356,468     (82,065 ) Net cash flows provided by (used in) operating activities 3,714,502 (4,194,739 ) (9,171,045 )   Investing Activities Capital expenditures (5,833,661 ) (8,442,724 ) (4,359,850 ) Proceeds from sale of Straight Creek properties - 10,638,570 - Proceeds from sale of equipment and mine development, net - - 2,375,935 Decrease in restricted cash 5,126,500 5,173,672 734,942 Additions to prepaid royalties (88,000 )   (493,819 )   (6,164 ) Net cash (used in) provided by investing activities from continuing operations (795,161 ) 6,875,699 (1,255,137 ) Net cash used in investing activities from discontinued operations (2,153,052 )   (2,947,254 )   (69,530,391 ) Net cash (used in) provided by investing activities (2,948,213 ) 3,928,445 (70,785,528 )   Financing Activities Proceeds from issuance of common and preferred stock - 10,843,798 35,798,648 Proceeds from stock option exercises - 1,037,125 - Proceeds from issuance of notes - - 441,077 Proceeds under short-term line of credit 5,000,000 - 2,000,000 Repayments of debt (4,842,867 ) (13,951,676 ) (5,518,091 ) Repayments of obligations under capital leases (2,029,010 ) (175,761 ) (740,608 ) Payments for deferred financing costs (793,305 ) (204,113 ) (109,333 ) Payment of deferred dividends - (244,405 ) - Dividends paid - - (239,458 ) Payment of cash to induce conversion of preferred stock - - (1,702,153 ) Other -     32,080     -   Net cash flows (used in) provided by financing activities from continuing operations (2,665,182 ) (2,662,952 ) 29,930,082 Net cash flows (used in) provided by financing activities from discontinued operations (823,851 )   (1,985,301 )   56,668,622   Net cash flows (used in) provided by financing activities (3,489,033 ) (4,648,253 ) 86,598,704   Net (decrease) increase in cash and cash equivalents (2,722,744 ) (4,914,547 ) 6,642,131 Cash and cash equivalents at beginning of year 3,908,469     8,823,016     2,180,885   Cash and cash equivalents at end of year $ 1,185,725     $ 3,908,469     $ 8,823,016     Supplemental Cash Flow Information Cash paid during the year for interest $ 5,778,149 $ 14,142,123 $ 9,381,725 Non-cash investing and financing activities from continued operations: Preferred stock effective dividends $ - $ 593,563 $ - 10.5% Senior Secured Notes exchanged for common stock - 13,158,958 - Financed equipment acquisitions 77,700 3,574,173 4,914,339 Equipment acquired through obligations under capital leases 336,000 3,325,500 248,900 Asset retirement obligations incurred, acquired or recosted 695,120 2,067,097 2,671,909 Issuance of warrants - - 1,374,676 Common stock issued for mineral rights - 5,000,000 - Interest and fees paid in-kind or financed 2,100,000 - -   See Accompanying Notes to Condensed Consolidated Financial Statements.