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National Coal Corp. Reports Second Quarter 2005 Financial Results

Posted on: Monday, 15 August 2005, 09:00 CDT

National Coal Corp. (Nasdaq:NCOC):

-- Quarterly revenue increases 27% to $16 million

-- Coal tonnage sales increased to 287,900 for the quarter

-- Company Acquires Baldwin Facility (Preparation Plant and Rail

Loadout)

National Coal Corp. (Nasdaq:NCOC), an Appalachian Region coal producer, reports its financial results for the three months and six months ended June 30, 2005. Revenues for the second quarter equaled approximately $16 million based on approximately 287,900 tons of coal sold during the quarter at an average price of approximately $56 per ton. These numbers have increased when compared to the first quarter of 2005, when revenues equaled approximately $12.6 million based on approximately 226,000 tons of coal sold during the quarter.

Adjusted EBITDA, a non-GAAP financial measure that reflects net income (loss) excluding interest, depreciation, depletion, accretion and amortization expenses, non-cash compensation expenses, other non-operating expenses, and taxes, totaled $2,563,105 in the second quarter of 2005, up from $266,264 in the first quarter of 2005 and up from a negative EBITDA of ($103,806) in the comparable quarter in 2004. EBITDA for the first half of 2005 totaled $2,829,369, compared to a negative EBITDA of ($651,043) in the first half of 2004.

"We've shown a strong track record of quarterly growth and that continues with our performance this past quarter," explains Jon Nix, president, CEO and chairman of the board at National Coal. "The improvements we're making at the Baldwin facility are going to help us continue increasing production there and throughout our Tennessee operations. Recent improvements like this, coupled with the operational improvements we made over the last year, are illustrations of our corporate focus on continually addressing our operational efficiencies."

In July, 2005, National Coal purchased one permitted mine, a preparation plant, haul road and other miscellaneous assets (the "Baldwin Facility") located within the boundaries of its coal mining properties in Devonia, Tennessee. The Company previously leased a portion of these facilities. The acquisition of the Baldwin Facility will allow the Company to undertake improvements designed to increase production capacity and improve utilization of resources in its Tennessee operations as well as enable the Company to meet the increasing demand for coal from its existing and potential customers. The Company acquired the Baldwin Facility by assuming current liabilities of the seller consisting of outstanding reclamation bond obligations of approximately $1,000,000.

It is the Company's policy to periodically review the estimated useful lives of its fixed assets. This review during the second quarter of 2005 indicated that the estimated lives for certain asset categories generally were determined to be less than that used in calculating depreciation expense. As a result, the Company revised the estimated useful lives of certain categories of property, principally mining equipment, as of April 1, 2005. The effect of this change in estimate was to increase depreciation expense and the net loss by approximately $999,000 and the per share loss by $.07 for the three and six months ended June 30, 2005.

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 Eastern Tennessee and Southeastern Kentucky. For more information, visit www.nationalcoal.com.

The Company's Form 10-QSB for the quarter ended June 30, 2005, can be accessed through its website: www.nationalcoal.com, or on the Securities and Exchange Commission's website: www.sec.gov.

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 projected tons of coal produced from the Baldwin Facility. 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: (i) the worldwide demand for coal; (ii) the price of coal; (iii) the price of alternative fuel sources; (iv) the supply of coal and other competitive factors; (v) the costs to mine and transport coal; (vi) the ability to obtain new mining permits; (vii) the costs of reclamation of previously mined properties; (viii) the risks of expanding coal production; (ix) the ability to bring new mining properties on-line on schedule; (x) industry competition; (xi) our ability to continue to execute our growth strategies; and (xii) general economic conditions. These and other risks are 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-KSB and Quarterly Reports on Form 10-QSB, 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.

Reconciliation of Non-U.S. GAAP Measures to U.S. GAAP

National Coal Corp. has prepared Adjusted EBITDA data applicable to 2005 and 2004 to supplement the reporting of its results determined under applicable generally accepted accounting principles (GAAP). Adjusted EBITDA is a non-GAAP financial measure that reflects net income (loss) excluding interest, depreciation, depletion, accretion and amortization expenses, non-cash compensation expenses, other non-operating expenses, and taxes. The adjusted amounts are not meant as a substitute for GAAP, but are included solely for informational purposes.

The following table illustrates the adjustments to net income (loss) to calculate Adjusted EBITDA for the applicable periods and reconciles the non-GAAP financial data to net income (loss) determined in accordance with GAAP: NATIONAL COAL CORP. CALCULATION OF ADJUSTED EBITDA (NON-GAAP) (Unaudited) Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2004 2005 2004 2005 ------------ ------------ ------------ ------------ Net (Loss) $(1,187,472) $(1,229,367) $(2,253,680) $(3,420,406) Depreciation, depletion, accretion and amortization 310,543 2,552,599 465,505 3,957,925 Interest expense and financing fees 537,998 1,016,511 685,445 1,692,644 Non-cash compensation 235,125 223,362 451,687 449,206 Other -- -- -- 150,000 ------------ ------------ ------------ ------------ Adjusted EBITDA $ (103,806) $ 2,563,105 $ (651,043) $ 2,829,369 ============ ============ ============ ============ NATIONAL COAL CORP. CONSOLIDATED BALANCE SHEET (unaudited) June 30, 2005 ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 585,530 Accounts receivable 1,615,412 Inventory 597,909 Prepaid and other 140,712 ------------ Total current assets 2,939,563 ------------ PROPERTY, PLANT AND EQUIPMENT Land 1,030,756 Mining equipment 23,523,616 Computer equipment and software 122,495 Vehicles and mobile equipment 2,322,503 Buildings 5,682,129 Office equipment and furniture 53,325 ------------ 32,734,824 Less: accumulated depreciation (4,845,146) ------------ Total property, plant and equipment, net 27,889,678 ------------ Coal and mineral rights, net of $757,445 accumulated amortization and depletion 17,335,213 Certificates of deposit and reclamation bond 4,526,600 Loan acquisition costs, net of $487,424 accumulated amortization 133,720 Prepaid royalty 137,492 Deposits 340,747 ------------ Total Assets $53,303,013 ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 6,171,323 Short term portion of capital lease obligations 2,137,420 Accrued payroll and payroll taxes payable 70,502 Note payable, less debt discount of $453,828 4,471,871 Current portion of bank loans - vehicles 387,713 ------------ Total current liabilities 13,238,829 Senior credit facility 16,400,000 Long term portion of capital lease obligations 1,021,600 Long term portion of bank loans - vehicles 35,610 Asset retirement obligations 6,113,764 ------------ Total Liabilities 36,809,803 ------------ STOCKHOLDERS' EQUITY Series A convertible preferred stock, $.0001 par value; 5% coupon; 1,611 shares authorized; 1,403.89 shares issued and outstanding -- Common stock, $.0001 per value; 80 million shares authorized; 13,772,656 shares issued and outstanding 1,377 Additional paid-in capital 33,674,254 Accumulated deficit (17,182,421) ------------ Total Stockholders' Equity 16,493,210 ------------ Total Liabilities and Stockholders' Equity $53,303,013 ============ NATIONAL COAL CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Six Months Ended Ended June 30, June 30, 2004 2005 2004 2005 ------------ ------------ ------------ ------------ REVENUES Coal sales $ 4,499,573 $16,010,644 $ 5,490,195 $28,595,048 Royalty receipts 29,122 -- 103,403 -- ------------ ------------ ------------ ------------ Total revenue 4,528,695 16,010,644 5,593,598 28,595,048 ------------ ------------ ------------ ------------ EXPENSES Cost of sales and selling 3,371,007 11,931,156 4,308,391 22,666,864 General and administrative 1,496,617 1,621,376 2,387,937 3,698,021 Depreciation, depletion, accretion and amortization 310,543 2,670,968 465,505 3,957,925 ------------ ------------ ------------ ------------ Total operating expenses 5,178,167 16,223,500 7,161,833 30,322,810 ------------ ------------ ------------ ------------ LOSS FROM OPERATIONS (649,472) (212,856) (1,568,235) (1,727,762) ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSE) Interest and financing fees (557,578) (1,087,062) (690,378) (1,747,573) Other, net 19,580 70,551 4,933 54,929 ------------ ------------ ------------ ------------ Total other income (expense) (537,998) (1,016,511) (685,445) (1,692,644) ------------ ------------ ------------ ------------ NET (LOSS) (1,187,470) (1,229,367) (2,253,680) (3,420,406) PREFERRED STOCK DIVIDEND -- 304,575 -- 595,765 ------------ ------------ ------------ ------------ NET (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $(1,187,470) $(1,533,942) $(2,253,680) $(4,016,171) ============ ============ ============ ============ BASIC AND DILUTED NET (LOSS) PER COMMON SHARE $ (0.11) $ (0.11) $ (0.21) $ (0.30) ============ ============ ============ ============ WEIGHTED AVERAGE COMMON SHARES 10,846,612 13,736,316 10,510,908 13,604,451 ============ ============ ============ ============ NATIONAL COAL CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) Six Months Ended June 30, ------------------------- 2004 2005 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) $(2,253,680) $(3,420,406) Adjustments to reconcile net (loss) to net cash provided by operating activities Depreciation, depletion, accretion and amortization 465,505 3,957,925 Issuance of common stock in lieu of interest payments 165,313 -- Issuance of warrants for services 36,716 -- Non-cash compensation: Common stock issued in payment of accrued salary 226,573 -- Stock option expense 451,688 449,205 Changes in operating assets and liabilities: Receivables (1,022,935) 288,323 Inventory (49,673) (333,035) Prepaid and other 27,850 93,881 Accounts payable and accrued liabilities 101,508 2,322,219 Deferred revenue (51,087) -- ------------ ------------ Net cash flows provided by (used in) operating activities (1,902,222) 3,358,112 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Property, plant and equipment purchased (5,647,358) (9,128,039) Prepaid royalty (77,500) 255,006 Bank letter of credit (980,000) -- Deposits (560,000) (184,747) ------------ ------------ Net cash flows (used in) investing activities (7,264,858) (9,057,780) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common and preferred stock 2,750,000 253,491 Proceeds from exercise of options and warrants 70,000 472,833 Proceeds from issuance of notes payable 7,500,000 6,933,758 Loan acquisition costs -- (56,000) Payment of related party debt (410,000) -- Proceeds from bank loans 270,671 -- Payments on bank loans -- (109,585) Payments on capital leases (458,803) (1,032,203) Payments of dividends on preferred stock -- (528,794) ------------ ------------ Net cash flows provided by financing activities 9,721,868 5,933,500 ------------ ------------ NET INCREASE IN CASH 554,788 233,832 CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 883 351,698 ------------ ------------ CASH AND CASH EQUIVALENTS END OF PERIOD $ 555,671 $ 585,530 ------------ ------------ SUPPLEMENTAL DISCLOSURES Interest paid in cash $ 64,011 $ 1,239,115 Non-cash investing and financing transactions: Constructive dividend attributable to preferred shareholders -- 66,971

Source: Business Wire

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