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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K/A





(Amendment No. 1)



|x | Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------

For the fiscal year ended December 31, 2008



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to
.

Commission file number 0-26509





NATIONAL COAL CORP.

(Exact name of registrant as specified in its charter)







|                                                            |  |                                    
|----------------------------------------------------------- |  | -----------------------------------
|Florida                                                     |  | 65-0601272                         
|State or other jurisdiction ofincorporation or organization |  | (I.R.S. EmployerIdentification No.)

8915 George Williams Road Knoxville, TN 37923

(Address of Principal Executive Offices)

Registrants telephone number, including area code: (865) 690-6900





Securities registered pursuant
to Section 12(b) of the Act:



|                                         |  |                                          
|---------------------------------------- |  | -----------------------------------------
|Title of each class                      |  | Name of each exchange on which registered
|Common Stock, par value $.0001 per share |  | NASDAQ Global Market                     

Securities registered pursuant to Section 12(g) of the Act: None





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes   ̈    No  x

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 12 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   ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large Accelerated Filer |  |  ̈ |  | Non-accelerated Filer     |  |  ̈
|Accelerated Filer       |  | x |  | Smaller Reporting Company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).    Yes   ̈    No  x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2008, based on the closing price of the common stock as reported by The NASDAQ Global
Market on such date, was approximately $290,175,220.

As of March 26, 2009, the issuer had 34,184,824 shares of common stock, par value
$.0001 per share, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the issuers Proxy Statement for its 2009 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report.









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EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A amends the Companys Annual Report on Form 10-K (the Original Filing) for the fiscal year ended December 31, 2008, as filed with the Securities and Exchange
Commission on March 31, 2009, solely to correct certain typographical and/or immaterial errors in the Consolidated Financial Statements and footnotes thereto included in Item 8 described below:



| |  |  | The joint venture distribution line item was inadvertently shown as a component of investing activities within the 2008 Consolidated Statement of Cash Flows. The
2008 Consolidated Statement of Cash Flows has been corrected to move this line item from investing activities to operating activities. This revision does not change the subtotals for Cash flows used in operating activities or Cash
flows provided by investing activities. Additionally, the line item Series A cumulative convertible preferred stock converted to common stock under Noncash investing and financing activities should have been removed in
its entirety from the 2008 Consolidated Statement of Cash Flows as well as from the consolidating schedule in Note 19 to the Consolidated Financial Statements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The preferred stock shares column within the Consolidated Statements of Changes in Stockholders Equity (Deficit) has been corrected for immaterial footing
errors in the rollforward of preferred shares.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Restricted funds on deposit in excess of FDIC-insured limits as disclosed in Note 2 to the Consolidated Financial Statements should have been $22.7 million instead
of $26.5 million.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Bond Warrants outstanding at December 31, 2008 as disclosed in Note 11 to the Consolidated Financial Statements should have been 1,638,125 shares instead of
1,729,632 shares.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition to the revisions to the Consolidated Financial Statements and notes thereto referred to above: 1) as
required by Rule 12b-15 promulgated under the Securities and Exchange Act of 1934, the Companys principal executive officer and principal financial officer are providing new Rule 13a-14(a) certifications in connection with this Form 10-K/A and
are also furnishing, but not filing, a new written statement pursuant to section 906 of the Sarbanes-Oxley Act of 2002, and 2) the Company is filing an updated Consent of Independent Registered Public Accounting Firm.

The only changes to the original Form 10-K being made by this Form 10-K/A are those described above. No attempt has been made in this Form 10-K/A to modify or update
disclosures in the original Form 10-K except as required to address the changes in Item 8. This Form 10-K/A does not reflect events occurring after the filing of the original Form 10-K or modify or update any related disclosures. Information not
affected by the amendment is unchanged and reflects the disclosure made at the time of the filing of the original Form 10-K.



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NATIONAL COAL CORP.

INDEX TO FORM 10-K/A



|         |  |                                             |  |     
|-------- |  | ------------------------------------------- |  | ----
|         |  |                                             |  | Page
|        
|PART II 
|         |  |                                            
|Item 8.  |  | Financial Statements and Supplementary Data |  | 1   
|        
|PART IV 
|         |  |                                            
|Item 15. |  | Exhibits, Financial Statement Schedules     |  | 44  



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PART II



|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                            |  |     
|--------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                            |  | Page
|Reports of Independent Registered Public Accounting Firm                                                                    |  | 2   
|                                                                                                                            | 
|Consolidated Balance Sheets at December 31, 2008 and 2007                                                                   |  | 4   
|                                                                                                                            | 
|Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007, and 2006                                 |  | 5   
|                                                                                                                            | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007, and 2006                                 |  | 6   
|                                                                                                                            | 
|Consolidated Statements of Changes in Stockholders Equity (Deficit) for the Years Ended December 
31, 2008, 2007, and 2006 |  | 7   
|                                                                                                                            | 
|Notes to the Consolidated Financial Statements                                                                              |  | 8   



1



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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of

National Coal Corp.

We have audited the consolidated balance sheets of National Coal Corp. (the Company) as of December 31, 2008 and 2007 and the related consolidated
statements of operations, stockholders equity (deficit) and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the consolidated financial position of National Coal Corp. at December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for the three
years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the
consolidated financial statements, the Company changed its method of accounting for income tax contingencies in accordance with Financial Accounting Standards Board Interpretation No. 48 on January 1, 2007.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), National Coal Corp.s internal control over
financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 30, 2009
expressed an unqualified opinion thereon.

/s/
Ernst & Young LLP

Nashville, Tennessee

March 30, 2009



2



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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

National Coal Corp.

We have audited National Coal Corp.s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). National Coal Corp.s management is responsible for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Managements Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, National Coal Corp. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of National Coal Corp. as of December 31, 2008 and 2007 and
the related consolidated statements of operations, stockholders equity (deficit) and cash flows for each of the three years in the period ended December 31, 2008 and our report dated March 30, 2009 expressed an unqualified opinion
thereon.

/s/ ERNST & YOUNG LLP

Nashville, Tennessee

March 30, 2009



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National Coal Corp.

Consolidated Balance Sheets



|                                                                                                                                                                               |  |                   |              |   |                   |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | ------------ | - | ----------------- | - | ----------- | -
|                                                                                                                                                                               |  | December 31, 2008 |              |   | December 31, 2007 |  
|Assets                                                                                                                                                                         |  |                   |              |   |                   |   |             |  
|Current Assets:                                                                                                                                                                |  |                   |              |   |                   |   |             |  
|Cash and cash equivalents                                                                                                                                                      |  | $                 | 4,624,511    |   |                   | $ | 9,854,351   |  
|Restricted cash                                                                                                                                                                |  |                   | 2,771,445    |   |                   |   |            |  
|Accounts receivable, net                                                                                                                                                       |  |                   | 5,738,137    |   |                   |   | 8,787,046   |  
|Inventory                                                                                                                                                                      |  |                   | 3,690,162    |   |                   |   | 2,946,101   |  
|Prepaid and other current assets                                                                                                                                               |  |                   | 1,550,873    |   |                   |   | 1,951,827   |  
|                                                                                                                                                                               |  |                   |              |   |                   |   |             |  
|Total Current Assets                                                                                                                                                           |  |                   | 18,375,128   |   |                   |   | 23,539,325  |  
|Property, plant, equipment and mine development, net                                                                                                                           |  |                   | 102,446,696  |   |                   |   | 108,880,599 |  
|Deferred financing costs                                                                                                                                                       |  |                   | 4,779,439    |   |                   |   | 6,669,703   |  
|Restricted cash                                                                                                                                                                |  |                   | 19,916,320   |   |                   |   | 28,935,783  |  
|Other non-current assets                                                                                                                                                       |  |                   | 2,291,634    |   |                   |   | 1,229,591   |  
|                                                                                                                                                                               |  |                   |              |   |                   |   |             |  
|Total Assets                                                                                                                                                                   |  | $                 | 147,809,217  |   |                   | $ | 169,255,001 |  
|                                                                                                                                                                               |  |                   |              |   |                   |   |             |  
|Liabilities and Stockholders Equity                                                                                                                                           |  |                   |              |   |                   |   |             |  
|Current Liabilities:                                                                                                                                                           |  |                   |              |   |                   |   |             |  
|Accounts payable                                                                                                                                                               |  | $                 | 13,782,871   |   |                   | $ | 11,025,352  |  
|Accrued expenses                                                                                                                                                               |  |                   | 2,586,312    |   |                   |   | 1,734,241   |  
|Current maturities of long - term debt                                                                                                                                         |  |                   | 3,616,338    |   |                   |   | 15,453,230  |  
|Current installments of obligations under capital leases                                                                                                                       |  |                   | 1,943,968    |   |                   |   | 157,062     |  
|Current portion of asset retirement obligations                                                                                                                                |  |                   | 259,607      |   |                   |   | 1,310,344   |  
|Deferred revenue                                                                                                                                                               |  |                   | 2,224,880    |   |                   |   |            |  
|                                                                                                                                                                               |  |                   |              |   |                   |   |             |  
|Total Current Liabilities                                                                                                                                                      |  |                   | 24,413,976   |   |                   |   | 29,680,229  |  
|Long - term debt, less current maturities, net of discount                                                                                                                     |  |                   | 103,499,899  |   |                   |   | 114,350,348 |  
|Obligations under capital leases, less current portion                                                                                                                         |  |                   | 1,419,099    |   |                   |   | 74,688      |  
|Asset retirement obligations, less current portion                                                                                                                             |  |                   | 7,150,091    |   |                   |   | 8,954,343   |  
|Deferred revenue                                                                                                                                                               |  |                   | 1,303,655    |   |                   |   | 1,553,806   |  
|Other non-current liabilities                                                                                                                                                  |  |                   | 2,138,235    |   |                   |   | 1,774,766   |  
|Deferred tax liability                                                                                                                                                         |  |                   | 2,393,527    |   |                   |   | 3,351,465   |  
|                                                                                                                                                                               |  |                   |              |   |                   |   |             |  
|Total Liabilities                                                                                                                                                              |  |                   | 142,318,482  |   |                   |   | 159,739,645 |  
|                                                                                                                                                                               |  |                   |              |   |                   |   |             |  
|Stockholders Equity:                                                                                                                                                          |  |                   |              |   |                   |   |             |  
|Series A cumulative convertible preferred stock, $.0001 par value; 8% coupon; 1,611 shares authorized; 356.44 shares issued and outstanding at
December 31, 2007               |  |                   |             |   |                   |   |            |  
|Common Stock, $.0001 par value; 80 million shares authorized; 34,184,824 and 27,698,792 shares issued and outstanding at
December 31, 2008 and December 31, 2007, respectively |  |                   | 3,418        |   |                   |   | 2,770       |  
|Additional paid - in capital                                                                                                                                                   |  |                   | 114,770,947  |   |                   |   | 83,309,703  |  
|Accumulated deficit                                                                                                                                                            |  |                   | (109,283,630 | ) |                   |   | (73,797,117 | )
|                                                                                                                                                                               |  |                   |              |   |                   |   |             |  
|Total Stockholders Equity                                                                                                                                                     |  |                   | 5,490,735    |   |                   |   | 9,515,356   |  
|                                                                                                                                                                               |  |                   |              |   |                   |   |             |  
|Total Liabilities and Stockholders Equity                                                                                                                                     |  | $                 | 147,809,217  |   |                   | $ | 169,255,001 |  
|                                                                                                                                                                               |  |                   |              |   |                   |   |             |  

See Accompanying Notes to Consolidated Financial Statements.



4



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National Coal Corp.

Consolidated Statements of Operations



|                                                                                      |  |                         |             |   |      |   |             |      |  |   |             |  
|------------------------------------------------------------------------------------- |  | ----------------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                                                      |  | Year Ended December 31, |            
|                                                                                      |  | 2008                    |             |   | 2007 |   |             | 2006 | 
|Revenues:                                                                             |  |                         |             |   |      |   |             |      |  |   |             |  
|Coal sales                                                                            |  | $                       | 129,377,332 |   |      | $ | 91,942,750  |      |  | $ | 86,830,095  |  
|Other revenues                                                                        |  |                         | 3,271,780   |   |      |   | 837,278     |      |  |   | 686,992     |  
|                                                                                      |  |                         |             |   |      |   |             |      |  |   |             |  
|Total revenues                                                                        |  |                         | 132,649,112 |   |      |   | 92,780,028  |      |  |   | 87,517,087  |  
|Operating expenses:                                                                   |  |                         |             |   |      |   |             |      |  |   |             |  
|Cost of coal sales (exclusive of depreciation, depletion, amortization and accretion) |  |                         | 123,221,638 |   |      |   | 86,566,454  |      |  |   | 79,354,327  |  
|Cost of services                                                                      |  |                         | 2,818,582   |   |      |   |            |      |  |   |            |  
|Depreciation, depletion, amortization and accretion                                   |  |                         | 14,920,713  |   |      |   | 16,525,583  |      |  |   | 15,362,829  |  
|General and administrative                                                            |  |                         | 8,734,307   |   |      |   | 7,036,524   |      |  |   | 9,257,241   |  
|                                                                                      |  |                         |             |   |      |   |             |      |  |   |             |  
|Total operating expenses                                                              |  |                         | 149,695,240 |   |      |   | 110,128,561 |      |  |   | 103,974,397 |  
|                                                                                      |  |                         |             |   |      |   |             |      |  |   |             |  
|Loss from operations                                                                  |  |                         | (17,046,128 | ) |      |   | (17,348,533 | )    |  |   | (16,457,310 | )
|Other income (expense):                                                               |  |                         |             |   |      |   |             |      |  |   |             |  
|Interest expense                                                                      |  |                         | (18,235,031 | ) |      |   | (10,765,285 | )    |  |   | (7,475,824  | )
|Interest income                                                                       |  |                         | 952,184     |   |      |   | 1,297,744   |      |  |   | 791,852     |  
|Income from joint venture                                                             |  |                         | 462,076     |   |      |   | (41,977     | )    |  |   |            |  
|Other                                                                                 |  |                         | (1,704,265  | ) |      |   | 1,093,688   |      |  |   | (279,928    | )
|                                                                                      |  |                         |             |   |      |   |             |      |  |   |             |  
|Other income (expense), net                                                           |  |                         | (18,525,036 | ) |      |   | (8,415,830  | )    |  |   | (6,963,900  | )
|                                                                                      |  |                         |             |   |      |   |             |      |  |   |             |  
|Loss before income taxes                                                              |  |                         | (35,571,164 | ) |      |   | (25,764,363 | )    |  |   | (23,421,210 | )
|Income tax benefit                                                                    |  |                         | 678,214     |   |      |   |            |      |  |   |            |  
|                                                                                      |  |                         |             |   |      |   |             |      |  |   |             |  
|Net loss                                                                              |  |                         | (34,892,950 | ) |      |   | (25,764,363 | )    |  |   | (23,421,210 | )
|Preferred stock dividend                                                              |  |                         | (130,188    | ) |      |   | (398,891    | )    |  |   | (1,029,933  | )
|Preferred stock deemed dividend                                                       |  |                         | (593,563    | ) |      |   | (4,058,358  | )    |  |   |            |  
|                                                                                      |  |                         |             |   |      |   |             |      |  |   |             |  
|Net loss attributable to common shareholders                                          |  | $                       | (35,616,701 | ) |      | $ | (30,221,612 | )    |  | $ | (24,451,143 | )
|                                                                                      |  |                         |             |   |      |   |             |      |  |   |             |  
|Basic net loss per common share                                                       |  | $                       | (1.13       | ) |      | $ | (1.46       | )    |  | $ | (1.59       | )
|                                                                                      |  |                         |             |   |      |   |             |      |  |   |             |  
|Diluted net loss per common share                                                     |  | $                       | (1.13       | ) |      | $ | (1.46       | )    |  | $ | (1.59       | )
|                                                                                      |  |                         |             |   |      |   |             |      |  |   |             |  
|Weighted average common shares outstanding                                            |  |                         | 31,525,271  |   |      |   | 20,680,015  |      |  |   | 15,346,799  |  
|                                                                                      |  |                         |             |   |      |   |             |      |  |   |             |  

See Accompanying Notes to Consolidated Financial Statements.



5



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National Coal Corp.

Condensed Consolidated Statements of Cash Flows



|                                                                                          |  |                         |             |   |      |   |             |      |  |   |             |  
|----------------------------------------------------------------------------------------- |  | ----------------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                                                          |  | Year Ended December 31, |            
|                                                                                          |  | 2008                    |             |   | 2007 |   |             | 2006 | 
|Operating Activities                                                                      |  |                         |             |   |      |   |             |      |  |   |             |  
|Net loss                                                                                  |  | $                       | (34,892,950 | ) |      | $ | (25,764,363 | )    |  | $ | (23,421,210 | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                         |             |   |      |   |             |      |  |   |             |  
|Depreciation, depletion, amortization and accretion                                       |  |                         | 14,920,713  |   |      |   | 16,525,583  |      |  |   | 15,362,829  |  
|Deferred income tax benefit                                                               |  |                         | (678,214    | ) |      |   |            |      |  |   |            |  
|Amortization of deferred financing costs                                                  |  |                         | 823,343     |   |      |   | 1,002,214   |      |  |   | 606,858     |  
|Amortization of debt discount                                                             |  |                         | 2,725,260   |   |      |   | 840,393     |      |  |   | 607,524     |  
|Gain on disposal of assets                                                                |  |                         | (86,759     | ) |      |   | (1,122,541  | )    |  |   | (61,771     | )
|Loss on sale of Straight Creek properties                                                 |  |                         | 365,025     |   |      |   |            |      |  |   |            |  
|Loss on extinguishment of debt                                                            |  |                         | 1,676,202   |   |      |   | 50,719      |      |  |   | 1,187       |  
|Income from joint venture                                                                 |  |                         | (462,076    | ) |      |   | 41,977      |      |  |   |            |  
|Settlement of asset retirement obligations                                                |  |                         | (474,113    | ) |      |   | (542,545    | )    |  |   | (1,090,004  | )
|Stock option expense                                                                      |  |                         | 1,349,667   |   |      |   | 1,002,503   |      |  |   | 2,235,224   |  
|Related party stock option expense                                                        |  |                         |            |   |      |   | 434,493     |      |  |   |            |  
|Issuance of stock in lieu of payment for services                                         |  |                         |            |   |      |   | 531,500     |      |  |   |            |  
|Joint venture distribution                                                                |  |                         | 245,000     |   |      |   |            |      |  |   |            |  
|Changes in operating assets and liabilities:                                              |  |                         |             |   |      |   |             |      |  |   |             |  
|Accounts receivable                                                                       |  |                         | 2,862,887   |   |      |   | 2,376,910   |      |  |   | (783,044    | )
|Inventory                                                                                 |  |                         | (610,737    | ) |      |   | (687,674    | )    |  |   | (1,803,628  | )
|Prepaid and other current assets                                                          |  |                         | 1,805,755   |   |      |   | (637,466    | )    |  |   | (746,967    | )
|Other non - current assets                                                                |  |                         | (553,504    | ) |      |   | 67,671      |      |  |   |            |  
|Accounts payable and accrued expenses                                                     |  |                         | 3,696,120   |   |      |   | (2,835,804  | )    |  |   | 5,058,209   |  
|Deferred revenue                                                                          |  |                         | 2,224,880   |   |      |   | 521,379     |      |  |   | 6,900       |  
|Other non - current liabilities                                                           |  |                         | 553,469     |   |      |   | 55,338      |      |  |   | 192,654     |  
|                                                                                          |  |                         |             |   |      |   |             |      |  |   |             |  
|Net cash flows used in operating activities                                               |  |                         | (4,510,032  | ) |      |   | (8,139,713  | )    |  |   | (3,835,239  | )
|Investing Activities                                                                      |  |                         |             |   |      |   |             |      |  |   |             |  
|Capital expenditures                                                                      |  |                         | (12,217,499 | ) |      |   | (4,359,850  | )    |  |   | (24,747,790 | )
|Proceeds from sale of Straight Creek properties                                           |  |                         | 10,638,570  |   |      |   |            |      |  |   |            |  
|Acquisition, net of cash                                                                  |  |                         |            |   |      |   | (58,644,617 | )    |  |   |            |  
|Investment in joint venture                                                               |  |                         |            |   |      |   | (156,800    | )    |  |   |            |  
|Proceeds from sale of equipment                                                           |  |                         |            |   |      |   | 2,550,935   |      |  |   | 8,414,560   |  
|(Increase) decrease in restricted cash                                                    |  |                         | 6,248,018   |   |      |   | (10,169,032 | )    |  |   | (9,923,728  | )
|Additions to prepaid royalties                                                            |  |                         | (740,644    | ) |      |   | (6,164      | )    |  |   | (106,585    | )
|                                                                                          |  |                         |             |   |      |   |             |      |  |   |             |  
|Net cash provided by (used in) investing activities                                       |  |                         | 3,928,445   |   |      |   | (70,785,528 | )    |  |   | (26,363,543 | )
|Financing Activities                                                                      |  |                         |             |   |      |   |             |      |  |   |             |  
|Proceeds from issuance of common stock                                                    |  |                         | 10,843,798  |   |      |   | 35,798,647  |      |  |   | 897,018     |  
|Proceeds from stock option exercises                                                      |  |                         | 1,037,125   |   |      |   |            |      |  |   | 2,657,622   |  
|Proceeds from issuance of notes payable                                                   |  |                         |            |   |      |   | 60,441,077  |      |  |   | 2,623,285   |  
|Proceeds from borrowings on Term Loan Credit Facility                                     |  |                         |            |   |      |   | 2,000,000   |      |  |   | 8,000,000   |  
|Repayments of debt                                                                        |  |                         | (15,618,556 | ) |      |   | (5,518,091  | )    |  |   | (4,039,764  | )
|Repayments of capital leases                                                              |  |                         | (194,182    | ) |      |   | (740,608    | )    |  |   | (2,325,870  | )
|Payments for deferred financing costs                                                     |  |                         | (504,113    | ) |      |   | (3,440,707  | )    |  |   | (504,726    | )
|Dividends paid                                                                            |  |                         | (244,405    | ) |      |   | (239,458    | )    |  |   | (362,886    | )
|Payment of cash to induce conversion of preferred stock                                   |  |                         |            |   |      |   | (1,702,153  | )    |  |   |             |  
|Other financing proceeds                                                                  |  |                         | 32,080      |   |      |   |            |      |  |   |            |  
|                                                                                          |  |                         |             |   |      |   |             |      |  |   |             |  
|Net cash flows (used in) provided by financing activities                                 |  |                         | (4,648,253  | ) |      |   | 86,598,707  |      |  |   | 6,944,679   |  
|                                                                                          |  |                         |             |   |      |   |             |      |  |   |             |  
|Net (decrease) increase in cash and cash equivalents                                      |  |                         | (5,229,840  | ) |      |   | 7,673,466   |      |  |   | (23,254,103 | )
|Cash and cash equivalents at beginning of period                                          |  |                         | 9,854,351   |   |      |   | 2,180,885   |      |  |   | 25,434,988  |  
|                                                                                          |  |                         |             |   |      |   |             |      |  |   |             |  
|Cash and cash equivalents at end of period                                                |  | $                       | 4,624,511   |   |      | $ | 9,854,351   |      |  | $ | 2,180,885   |  
|                                                                                          |  |                         |             |   |      |   |             |      |  |   |             |  
|Supplemental Cash Flow Information                                                        |  |                         |             |   |      |   |             |      |  |   |             |  
|Cash paid during the year for interest                                                    |  | $                       | 14,142,123  |   |      | $ | 9,381,725   |      |  | $ | 6,123,336   |  
|Non-cash investing and financing activities:                                              |  |                         |             |   |      |   |             |      |  |   |             |  
|Series A cumulative convertible preferred stock effective dividends                       |  |                         | 593,563     |   |      |   | 2,356,204   |      |  |   |            |  
|10.5% Senior Secured Notes exchanged for common stock                                     |  |                         | 13,158,958  |   |      |   |            |      |  |   |            |  
|Equipment acquired through capital leases                                                 |  |                         | 3,325,500   |   |      |   | 248,900     |      |  |   | 833,827     |  
|Financed equipment acquisitions                                                           |  |                         | 3,574,173   |   |      |   | 4,914,339   |      |  |   | 1,758,404   |  
|Asset retirement obligations incurred, acquired or recosted                               |  |                         | 2,067,097   |   |      |   | 2,680,427   |      |  |   | 661,027     |  
|Common stock issued for mineral rights                                                    |  |                         | 5,000,000   |   |      |   |            |      |  |   |            |  
|Issuance of warrants                                                                      |  |                         |            |   |      |   | 1,374,676   |      |  |   |            |  

See Accompanying Notes to Consolidated Financial Statements.



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##### Table of Contents

National Coal Corp.

Consolidated Statements of Changes in Stockholders Equity (Deficit)



|                                               |  |                 |   |              |        |                           |        |            |                    |   |       |       |   |             |   |  |   |              |   |  |   |             |  
|---------------------------------------------- |  | --------------- | - | ------------ | ------ | ------------------------- | ------ | ---------- | ------------------ | - | ----- | ----- | - | ----------- | - |  | - | ------------ | - |  | - | ----------- | -
|                                               |  | Preferred Stock |   | Common Stock |        | AdditionalPaid-in Capital |        |            | AccumulatedDeficit |   |       | Total |  
|                                               |  | Shares          |   |              | Amount |                           | Shares |            | Amount             |   |       |      
|Balance, January 1, 2006                       |  | 1,333.44        |   |              | $      |                          |        | 13,977,217 |                    | $ | 1,398 |       | $ | 37,168,122  |   |  | $ | (20,553,186  | ) |  | $ | 16,616,334  |  
|                                               |  |                 |   |              |        |                           |        |            |                    |   |       |       |   |             |   |  |   |              |   |  |   |            |  
|Exercise of warrants                           |  |                 |   |              |        |                           |        | 152,500    |                    |   | 15    |       |   | 1,006,486   |   |  |   |             |   |  |   | 1,006,501   |  
|Conversion of preferred stock                  |  | (550.90         | ) |              |        |                          |        | 1,376,701  |                    |   | 138   |       |   | (138        | ) |  |   |             |   |  |   |            |  
|Conversion of preferred dividends              |  |                |   |              |        |                          |        | 9,427      |                    |   | 1     |       |   | 56,569      |   |  |   |             |   |  |   | 56,570      |  
|Common shares issued for dividend adjustment   |  |                |   |              |        |                          |        | 10,886     |                    |   | 1     |       |   | 65,315      |   |  |   |             |   |  |   | 65,316      |  
|Preferred stock dividend                       |  |                |   |              |        |                          |        |           |                    |   |      |       |   | (1,029,933  | ) |  |   |             |   |  |   | (1,029,933  | )
|Exercise of employee options                   |  |                |   |              |        |                          |        | 712,510    |                    |   | 71    |       |   | 1,651,050   |   |  |   |             |   |  |   | 1,651,121   |  
|Employee option expense                        |  |                |   |              |        |                          |        |           |                    |   |      |       |   | 2,235,224   |   |  |   |             |   |  |   | 2,235,224   |  
|Common stock issued for cash                   |  |                |   |              |        |                          |        | 101,503    |                    |   | 10    |       |   | 897,008     |   |  |   |             |   |  |   | 897,018     |  
|Net loss                                       |  |                |   |              |        |                          |        |           |                    |   |      |       |   |            |   |  |   | (23,421,210  | ) |  |   | (23,421,210 | )
|                                               |  |                 |   |              |        |                           |        |            |                    |   |       |       |   |             |   |  |   |              |   |  |   |             |  
|Balance December 31, 2006                      |  | 782.54          |   |              |        |                          |        | 16,340,744 |                    |   | 1,634 |       |   | 42,049,703  |   |  |   | (43,974,396  | ) |  |   | (1,923,059  | )
|Issuance of warrants                           |  |                |   |              |        |                          |        |           |                    |   |      |       |   | 1,374,676   |   |  |   |             |   |  |   | 1,374,676   |  
|Conversion of preferred stock                  |  | (426.10         | ) |              |        |                          |        | 1,096,634  |                    |   | 110   |       |   | (110        | ) |  |   |             |   |  |   |            |  
|Conversion of preferred dividends              |  |                |   |              |        |                          |        | 27,487     |                    |   | 3     |       |   | 162,001     |   |  |   |             |   |  |   | 162,004     |  
|Common shares issued as inducement             |  |                |   |              |        |                          |        | 431,258    |                    |   | 44    |       |   | 1,367,987   |   |  |   | (1,368,031   | ) |  |   |            |  
|Cash inducement for preferred conversion       |  |                |   |              |        |                          |        |           |                    |   |      |       |   |            |   |  |   | (1,702,154   | ) |  |   | (1,702,154  | )
|Beneficial contingent conversion               |  |                |   |              |        |                          |        |           |                    |   |      |       |   | 988,173     |   |  |   | (988,173     | ) |  |   |            |  
|Common stock issued for services               |  |                |   |              |        |                          |        | 177,000    |                    |   | 18    |       |   | 531,482     |   |  |   |             |   |  |   | 531,500     |  
|Preferred stock dividends                      |  |                |   |              |        |                          |        |           |                    |   |      |       |   | (398,891    | ) |  |   |             |   |  |   | (398,891    | )
|Employee option expense                        |  |                |   |              |        |                          |        |           |                    |   |      |       |   | 1,436,996   |   |  |   |             |   |  |   | 1,436,996   |  
|Common stock issued for cash                   |  |                |   |              |        |                          |        | 9,625,669  |                    |   | 961   |       |   | 35,797,686  |   |  |   |             |   |  |   | 35,798,647  |  
|Net loss                                       |  |                |   |              |        |                          |        |           |                    |   |      |       |   |            |   |  |   | (25,764,363  | ) |  |   | (25,764,363 | )
|                                               |  |                 |   |              |        |                           |        |            |                    |   |       |       |   |             |   |  |   |              |   |  |   |             |  
|Balance December 31, 2007                      |  | 356.44          |   |              |        |                          |        | 27,698,792 |                    |   | 2,770 |       |   | 83,309,703  |   |  |   | (73,797,117  | ) |  |   | 9,515,356   |  
|Exercise of warrants                           |  |                |   |              |        |                          |        | 14,176     |                    |   | 1     |       |   | (1          | ) |  |   |             |   |  |   |            |  
|Conversion of preferred stock                  |  | (356.44         | ) |              |        |                          |        | 923,420    |                    |   | 93    |       |   | (93         | ) |  |   |             |   |  |   |            |  
|Common shares issued as inducement             |  |                |   |              |        |                          |        | 154,573    |                    |   | 15    |       |   | 593,548     |   |  |   | (593,563     | ) |  |   |            |  
|Common stock issued for mineral rights         |  |                |   |              |        |                          |        | 756,430    |                    |   | 76    |       |   | 4,999,924   |   |  |   |             |   |  |   | 5,000,000   |  
|Conversion of notes to common stock            |  |                |   |              |        |                          |        | 1,828,803  |                    |   | 183   |       |   | 12,573,881  |   |  |   |             |   |  |   | 12,574,064  |  
|Conversion of accrued interest to common stock |  |                |   |              |        |                          |        | 27,132     |                    |   | 3     |       |   | 161,780     |   |  |   |             |   |  |   | 161,783     |  
|Common stock issued for cash                   |  |                |   |              |        |                          |        | 2,277,000  |                    |   | 227   |       |   | 10,587,823  |   |  |   |             |   |  |   | 10,588,050  |  
|Common stock issued for cash to management     |  |                |   |              |        |                          |        | 55,000     |                    |   | 6     |       |   | 255,742     |   |  |   |             |   |  |   | 255,748     |  
|Restricted stock issued to management          |  |                |   |              |        |                          |        | 215,000    |                    |   | 21    |       |   | 125,395     |   |  |   |             |   |  |   | 125,416     |  
|Preferred stock dividends                      |  |                |   |              |        |                          |        |           |                    |   |      |       |   | (130,188    | ) |  |   |             |   |  |   | (130,188    | )
|Employee option exercise                       |  |                |   |              |        |                          |        | 211,750    |                    |   | 21    |       |   | 1,037,104   |   |  |   |             |   |  |   | 1,037,125   |  
|Employee option expense                        |  |                |   |              |        |                          |        |           |                    |   |      |       |   | 1,224,251   |   |  |   |             |   |  |   | 1,224,251   |  
|Other                                          |  |                |   |              |        |                          |        | 22,748     |                    |   | 2     |       |   | 32,078      |   |  |   |             |   |  |   | 32,080      |  
|Net loss                                       |  |                |   |              |        |                          |        |           |                    |   |      |       |   |            |   |  |   | (34,892,950  | ) |  |   | (34,892,950 | )
|                                               |  |                 |   |              |        |                           |        |            |                    |   |       |       |   |             |   |  |   |              |   |  |   |             |  
|Balance December 31, 2008                      |  |                |   |              | $      |                          |        | 34,184,824 |                    | $ | 3,418 |       | $ | 114,770,947 |   |  | $ | (109,283,630 | ) |  | $ | 5,490,735   |  
|                                               |  |                 |   |              |        |                           |        |            |                    |   |       |       |   |             |   |  |   |              |   |  |   |             |  

See Accompanying Notes to Consolidated Financial Statements.



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NATIONAL COAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|1. | Business Overview
|-- | -----------------

National Coal Corp. (the Company)
principally engages in the business of mining high quality bituminous steam coal in East Tennessee, North Alabama and until March 31, 2008, in Southeast Kentucky. Its customers are electric utilities and industrial concerns in the surrounding
states.

The Company owns the coal mineral rights to approximately 65,000 acres of land and leases the rights to approximately 17,700 additional acres
excluding the Southeast Kentucky properties. As of December 31, 2008, the Companys mining complexes included three active and two inactive underground mines, one underground mine in the development stage, one inactive and six active
surface mines, and one highwall mine. In addition, the Company has two preparation plants and two unit train loading facilities in Tennessee served by the Norfolk Southern (NS) railroad. The Company is a minority joint venture partner in
a barge loading facility on the Warrior River in North Alabama. The Company holds seven permits that allow them to open new or re-open existing mines close to their current operations. As of December 31, 2008, the Company controlled
approximately 40.8 million estimated recoverable tons of coal reserves as defined by the SEC Industry Guide 7 as that part of a mineral deposit which could be economically and legally extracted at the time of the reserve determination.

At December 31, 2008, the Company had cash and cash equivalents of approximately $4.6 million and negative working capital of approximately $6.0
million. Cash flows used in operations were $4.8 million, $8.1 million and $3.8 million for the years ended December 31, 2008, 2007 and 2006, respectively. At December 31, 2008, the Company had stockholders equity of $5.5 million and
incurred net losses of $34.9 million (excluding preferred stock dividends) for the year then ended. Management expects that the Company may continue to incur net losses in the future, which would decrease stockholders equity and could lead to
an eventual stockholders deficit.

Management believes that the Company has sufficient resources to fund its operations through 2009. However, this
belief is predicated on certain assumptions as to: (i) sales volumes and related pricing, (ii) production levels, (iii) the availability of coal to be purchased at a reasonable price; (iv) budgeted capital expenditures; and
(v) cost per ton level decreases at existing mines and newly opened mines. Significant deviation from any one of these assumptions could have a material adverse effect on the Companys operating cash flows and the ability for the
Companys wholly-owned subsidiary National Coal of Alabama, Inc. (NCA) to meet certain debt covenants. Management believes that NCA will be in compliance with its debt covenants during 2009. However, there can be no assurances that
a debt covenant violation will not occur, or that the Company will have sufficient cash to satisfy its obligations.

The agreements governing the
Companys outstanding senior debt impose a number of restrictions, the most significant of which is the inability to loan funds or infuse capital between NCA and National Coal Corp. Additionally, the terms of the Companys credit
facilities contain financial and other covenants that create limitations on its ability to affect acquisitions or dispositions, incur additional debt and may require the Company to maintain various financial ratios and comply with various other
financial covenants. In the second, third and fourth quarters of 2008, NCA failed to meet certain financial covenants required under its 12% Notes due 2012. In each instance, waivers of covenant failures and modifications of future financial
covenants were obtained. With respect to the second and fourth quarter waivers only, NCA was charged penalties of $300,000 each quarter for covenant waiver and modification. NCAs ability to comply with these restrictions may be affected by
events beyond its control and, as a result, it may be unable to comply with these restrictions. A failure to comply with these restrictions could adversely affect the Companys ability to borrow under a new credit facility or result in an event
of default under these agreements. In the event of a default, NCAs lenders could terminate their commitments to them and declare all amounts borrowed, together with accrued interest and fees, immediately due and payable. If this were to occur,
NCA might not be able to pay these amounts, or could be forced to seek an amendment to its financing arrangements which could make the terms of these arrangements more onerous. As of December 31, 2008, neither the Company nor NCA have a
revolving credit agreement for working capital in place.



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##### Table of Contents

The Company relies primarily on its ability to generate cash from operations to service its debt. If it does not generate
sufficient cash flows to meet its debt service, the Company may need to seek additional financing, the availability of which is uncertain given the current state of credit markets. If it is unable to obtain financing on terms that are acceptable to
them amidst the tightening credit market, the Company could be forced to raise equity financing or sell assets to make up for any shortfall in its payment obligations under unfavorable circumstances. The 10.5% Notes due 2010 and the 12% Notes due
2012 limit its ability to sell assets and also restrict the use of the proceeds from any such sale. However, these debt facilities do allow asset sales if the funds generated from such sales are used to pay outstanding debt and prepayment costs
associated with these debt obligations. Even if asset sales are permitted, the Company may not be able to sell assets in a timely manner or for sufficient amounts to enable them to meet its debt obligations.

The Company does not believe that it will be able to generate from operations the amount of cash necessary to pay in December 2010 the principal amounts of its 10.5%
Notes due 2010. The outstanding principal balance of this indebtedness at December 31, 2008 was $42,000,000. The Company intends to refinance this indebtedness prior to its maturity by incurring additional debt, the availability of which is
uncertain given the current state of credit markets. If the Company is unable to refinance this indebtedness, the Company would be required to repay this indebtedness from other sources, including cash raised from equity financings or sales of
assets, which may occur under unfavorable circumstances.

During the year ended December 31, 2008, the Company generated total revenues of $132.6 million
and sold approximately 2.0 million tons of coal. The Companys revenues are derived primarily from the sale of coal to electric utility companies and industrial customers in the Southeastern United States pursuant to long-term contracts or open
purchase order arrangements with long-time customers. Long-term contracts as are customary in the industry, are those with a contract duration of one year or more. The Companys largest customers were Georgia Power, Alabama Power, and Solutia,
Inc., representing approximately 34%, 21% and 14% of its revenues, respectively.

During 2008, the Company successfully renegotiated several of its
existing coal supply agreements resulting in an increased selling price per ton and additional revenues from those contracts. The weighted average selling price per ton is $75.28, $77.40, and $79.43 on 2.1 million, 1.0 million, and 0.35 million tons
contracted for 2009, 2010, and 2011, respectively. The Company typically sells its coal for a specified per ton amount and at a negotiated price pursuant to both short-term contracts and contracts of twelve months or greater. For the year ended
December 31, 2008, 88% of sales were pursuant to contracts of twelve months or greater. Price adjustment, price reopener and other similar provisions in long-term supply agreements may reduce the protection from short-term coal price
volatility traditionally provided by such contracts. Any adjustment or renegotiation leading to a significantly lower contract price would result in decreased revenues and lower gross margins, which could have a material adverse effect on the
Companys operating cash flows. Additionally, the Companys customers may have the ability to delay the timing of their purchases, which could negatively impact operating cash flows. Finally, coal supply agreements also typically contain
force majeure provisions allowing temporary suspension of performance by the Company or its customers during the duration of specified events beyond the control of the affected party.



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The Company has not yet priced a portion of the coal it has the capability of producing over the next several years in
order to take advantage of possible future market demand or to realize possible long term opportunities with certain users of the high quality coal contained in its reserve base. At December 31, 2008, the Companys un-priced and uncommitted
future production was approximately 0.2 million to 0.3 million tons in 2009, 1.1 million to 1.5 million tons in 2010, and 2.5 million tons in 2011. For 2009, the Company has assumed it will be able to achieve a minimum spot rate on unpriced tons. If
the Company is unable to obtain this rate, it would reduce production.

The Company assumes it will meet its contract commitments through a combination of
produced tons and purchased coal. The Companys ability to produce tons can be negatively impacted by weather, labor shortages or equipment breakdowns. Additionally, geological and mining conditions may not be fully identified by available
exploration data or may differ from experience in current operations. During 2008, the Company experienced severe increases in diesel fuel and costs associated with all petroleum related products and also encountered additional regulatory
examination, as did most of its competitors, that weakened productivity. The Company experienced equipment failure in 2008 which negatively impacted the tons of coal produced and therefore sold. Additionally, coal for purchase may not be available,
or available only at unfavorable prices. The occurrence of such events can adversely affect production, the cost of sales or both, and could have a material adverse effect on the Companys operating cash flows.

The Company invested approximately $24.1 million in equipment and mine development during the year ended December 31, 2008 including $6.9 million purchased through
equipment financing arrangements. Management has estimated capital expenditures for 2009 to be $6.3 million to expand operations and approximately $1.8 million to maintain existing assets. The Company expects to finance $6.3 million of these capital
expenditures in 2009. If financing is unable to be obtained, this could negatively impact planned production levels. During the first quarter of 2008, the Companys dragline equipment utilized in its L. Massey surface mine in Alabama suffered a
major mechanical failure. The equipment has since been repaired and was back in production during the third quarter of 2008. This breakdown resulted in estimated lost production of 140,000 tons and lost revenues of $9.5 million during the year ended
December 31, 2008. In prior years, the Company also experienced the unanticipated loss of the use of a highwall miner, which resulted in lost production and lost revenues. The Company may experience similar mechanical failures in the future, which
could have a material adverse effect on its operating cash flows.



|2. | Summary of Significant Accounting Policies
|-- | ------------------------------------------

Basis of
Presentation

The accompanying consolidated financial statements include the accounts of National Coal Corp. and those of its two wholly-owned operating
subsidiaries, National Coal Corporation and NCC Corp. and their respective wholly-owned subsidiaries, NC Railroad, Inc. and National Coal of Alabama, Inc. NCC Corp. was created and National Coal of Alabama Inc., formerly Mann Steel Products, Inc.,
was acquired on October 19, 2007 and thus, only operations and cash flows for the period from October 20 through December 31, 2007 are reflected in the consolidated financial statements for the year ended December 31, 2007. All
intercompany transactions and balances have been eliminated in consolidation. Investments in business entities in which National Coal Corp. and its subsidiaries do not have control, but have the ability to exercise significant influence over the
operating and financial policies, are accounted for under the equity method.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments, and assumptions
that affect the reported amounts and related disclosures of assets, liabilities, revenues, and expenses at the date of the financial statements and for the periods then ended. On an on-going basis, management evaluates the estimates used, including
those related to workers compensation, reclamation and mine closure obligations, coal reserve values, income taxes, and contingencies. Estimates are inherent in the disclosure of economically recoverable reserves and in the information
developed by management to support its ability to remain in compliance with debt covenants and to have sufficient cash to remain a going concern. Estimates are based on historical experience, actuarial estimates, current conditions, and various
other assumptions that management believes to be reasonable under the circumstances. Actual results may differ from these estimates.



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Cash and Cash Equivalents

Cash and cash equivalents are stated at cost. Cash equivalents consist of highly liquid investments with maturities of three months or less when acquired.

The Company maintains cash or investment accounts at various banks. The accounts are insured by the Federal Deposit Insurance Corporation up to $250,000 per legal ownership. At December 31, 2008, the Company had $3.8 million of non
restricted funds and $22.7 million of restricted funds deposited with financial institutions and regulatory agencies in excess of this insurance limit.

Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Customers are primarily utility
companies. Balances are stated net of an allowance for doubtful accounts, which was $430,000 and $0 at December 31, 2008 and 2007, respectively. Bad debts written off were approximately $253,000, $0 and $0, net of recoveries of approximately
$115,000, $0 and $0 in 2008, 2007 and 2006, respectively.

Inventory

Inventory includes mined coal, purchased coal and tires. Mined coal is classified as inventory at the point it is extracted, and is valued at the lower of average cost or net realizable value. At December 31,
2008 and 2007, the Company reduced the carrying value of its inventories by $1,255,157 and $287,295, respectively, to state mined coal inventories at net realizable value. Mined coal inventory costs include labor, fuel, equipment costs, and
operating overhead. Purchased coal inventory is valued at the lower of cost or net realizable value. Tires are classified as inventory when purchased.

Property, Plant, Equipment and Mine Development

Property and equipment are stated at cost. Maintenance and repairs that do not improve
efficiency or extend economic life are expensed as incurred. Plant and equipment are depreciated using the straight-line method over the estimated useful lives of assets which generally range from seven to thirty years for building and plant and one
to seven years for equipment. On sale or retirement, asset cost and related accumulated depreciation are removed from the accounts and any related gain or loss is reflected in income.

Leasing is used for certain capital additions when considered cost effective relative to other capital sources, and is classified as either capital or operating as appropriate. Leased equipment meeting the capital
lease criteria of Statement of Financial Accounting Standards (SFAS) 13, Accounting for Leasesare capitalized and the present value of the related lease minimum payments are recorded as a corresponding asset and liability. Amortization of
capitalized leased assets is computed using the straight-line method over the shorter of the estimated useful life or the initial lease term.

Mineral
rights represent tangible assets that are recorded at fair value when acquired, including amounts associated with any value beyond proven and probable reserves. Mine development costs are recorded at cost as incurred. The Companys coal
reserves are controlled either through direct ownership or through leasing arrangements which generally last until the recoverable reserves are depleted. Depletion of reserves and amortization of mine development costs is computed using the
units-of-production method over the estimated proven and probable recoverable tons.

The Company reviews its long-lived assets for impairment when events
or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If impairment indicators are present and the future undiscounted cash flows are less than the carrying value of the assets, the carrying values are
reduced to the estimated fair value.



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Deferred Financing Costs

Deferred financing costs represent capitalized expenses associated with the issuance of debt. Deferred financing costs are amortized by the interest method over the life of the associated debt.

Restricted Cash

Restricted cash includes accrued interest and
consists principally of certificates of deposit and money market accounts securing letters of credit and surety bonds in favor of the various federal and state mining commissions. The current portion of restricted cash includes (i) short-term
deposits for which statutory restrictions will be released within one year and (ii) an estimate of performance bond amounts associated with those permits for which the reclamation work has been completed and the release has been requested from
the appropriate mining commission prior to the reporting date.

Investments Accounted For Using the Equity Method

In November 2007, National Coal of Alabama acquired a 49% interest in Powhatan Dock, LLC which operates a barge load-out facility in Alabama. The Company accounts for its
investment using the equity method. During 2008 and 2007, the Company recorded $462,076 and $(41,977) of equity method gains (losses) associated with this investment and, in 2008, received a distribution of $245,000. Powhatan Dock, LLC recorded
revenues of $4,117,625 and $8,656 and net income (loss) of $943,012 and $(85,668) during the years ended December 31, 2008 and 2007, respectively. The Company paid barge loading fees of $847,772 to Powhatan Dock, LLC during 2008.

Prepaid Mining Royalties

Certain coal leases require minimum or
advance payments which are deferred and charged to cost of sales as coal is extracted and sold. The Company had prepaid royalties of approximately $578,000 and $935,000 at December 31, 2008, and 2007, respectively, included in other non-current
assets in the accompanying balance sheets.

Reclamation and Asset Retirement Obligations

The Surface Mining Control and Reclamation Act of 1977 and similar state statutes require mine properties to be restored in accordance with specified standards. Statement
of Financial Accounting Standards No. 143 (SFAS No. 143) requires recognition of an asset retirement obligation (ARO) for eventual reclamation of disturbed acreage remaining after mining has been completed. The
Company records its reclamation obligations on a permit-by-permit basis using requirements as determined by the Office of Surface Mining of the U.S. Department of the Interior (OSM). The liability is calculated based upon the reclamation
activities remaining after coal removal ceases, assuming that reclamation activities have been contemporaneous within state and federal guidelines during mining. A liability is recorded for the estimated future cost that a third party would incur to
perform the required reclamation and mine closure discounted at the Companys credit-adjusted risk-free rate. A corresponding increase in the asset carrying value of mineral rights is also recorded. The ARO asset is amortized on the
units-of-production method over the proven and probable reserves associated with that permit, and the ARO liability is accreted to the expected reclamation date at the Companys credit-adjusted risk-free rate. These expenses are included in
depreciation, depletion, amortization, and accretion in the operating expenses section of the income statement.



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Stock-based Compensation

The Companys 2004 Option Plan (the Plan) was authorized by the Board of Directors of the Company in March 2004, and amended in January 2005. Under the terms of the Plan, stock options may be granted to officers, directors,
employees, and others. At December 31, 2008, 4,450,000 shares of common stock were authorized for issuance under the Plan. Shares subject to awards that expire unexercised or are otherwise terminated, again become available for awards. Upon
exercise, stock is issued from unissued or treasury shares. The grant price of an option under the Plan generally may not be less than the fair market value of the common stock subject to such option on the date of grant. Options have a maximum life
of ten years and generally vest 25% per year over a four year period. Currently, all stock options issued under the plan are non-statutory.

Effective
January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123, Share-Based Payment (SFAS 123(R)) using the modified-prospective transition method. SFAS 123(R) requires all share-based payments
to employees, including grants of employee stock options, to be recognized as compensation expense in the consolidated financial statements based on their fair values. Under the modified-prospective transition method, the Company recognizes
compensation expense for the unvested portion of all share-based payments granted on or prior to December 31, 2005 over the remaining service period based on the grant date fair value estimated in accordance with SFAS 123(R) and recognizes
compensation cost for all share-based payments granted on or subsequent to January 1, 2006 over the service period based on grant date fair value estimated in accordance with SFAS 123(R).

Workers Compensation

In Tennessee, the Company provides for
income replacement and medical treatment for work related injury and occupational disease resulting from coal workers pneumoconiosis (Black Lung Disease), as required by federal and state law, through insurance policies with high deductibles.
In Alabama, the Company provides total cost insurance policies which have minimal deductibles. Loss funding provisions for deductibles are based on determinations by independent actuaries or claims administrators.

Revenue Recognition

The Company recognizes revenue when title or
risk of loss passes to the common carrier or customer. This generally occurs when coal is loaded onto trains, barges or trucks at one of our loading facilities or at third party facilities. In most cases, the Company negotiates a specific sales
contract with each customer, which specifies a fixed price per ton, premiums and penalties for quality variances, a delivery schedule, and payment terms. Contracts range in duration from one to three years. In 2008, the Company entered into a supply
contract with a broker and received advance payment for product to be delivered in January 2009. This payment was recorded as deferred revenue in the accompanying balance sheet.

Revenue is also earned from contract mining services, from tippling fees charged other coal producers to use the Companys loading facilities and from royalties based on coal mined by lessees.

Freight Revenue and Costs

Shipping and handling costs paid to
third-party carriers and invoiced to coal customers are included in coal sales and cost of sales, respectively.

Income Taxes

The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases in accordance with FASB Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. A valuation allowance is provided when it is



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more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends on the
generation of future taxable income during the period in which related temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in
this assessment. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of such change.

Comprehensive
Loss

The Companys comprehensive losses as defined by SFAS No. 130, Reporting Comprehensive Income, are the same as the net losses
reported.

Reclassifications

Certain prior year
amounts have been reclassified to conform to the current year presentation.

Recent Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair
value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements. SFAS 157 is effective
prospectively for fiscal years beginning after November 15, 2007 and interim periods within that fiscal year. In February 2008, the FASB issued FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157, referred to as
FSP 157-2. FSP 157-2 delays the effective date of SFAS 157 for one year for all nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The Company adopted
SFAS 157 effective January 1, 2008. Adoption has not had a material impact on the Companys financial position or results of operations.

In
February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Liabilities  Including an amendment of FASB Statement No. 115(SFAS 159) SFAS 159
permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The Company adopted SFAS 159 effective January 1, 2008. Adoption has not had a material impact on the Companys financial
position or results of operations.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R, Business
Combinations (SFAS 141R) which became effective December 15, 2008. SFAS 141R establishes principles and requirements for determining how an enterprise recognizes and measures the fair value of certain assets and liabilities
acquired in a business combination, including non-controlling interests, contingent consideration, and certain acquired contingencies. SFAS 141R also requires acquisition-related transaction expenses and restructuring costs be expensed as incurred
rather than capitalized as a component of the business combination. SFAS 141R will have an impact on the accounting for any businesses acquired after the effective date of this pronouncement.



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##### Table of Contents

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Non-controlling Interests
in Consolidated Financial Statements-An Amendment of ARB No. 51(SFAS 160).

SFAS 160 establishes accounting and reporting standards
for the non-controlling interest in a subsidiary (previously referred to as minority interests). SFAS 160 would have an impact on the presentation and disclosure of the non-controlling interests of any non wholly-owned businesses acquired in the
future. SFAS 160 will be effective for fiscal years beginning after December 15, 2008; earlier adoption is prohibited. The Company does not expect the adoption of SFAS 160 to have a material impact on the Companys financial position
or results of operations.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activitiesan amendment of FASB Statement No. 133 (SFAS 161) which changes the disclosure requirements for derivative instruments and hedging activities. SFAS 161 requires enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133, Accounting for Derivative Instruments and Hedging Activitiesand its related
interpretations, and (c) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. This SFAS 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. The Company does not expect adoption of SFAS 161 to have a material impact on the Companys financial position or results of operations.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles(SFAS
162). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally
accepted accounting principles in the United States of America. SFAS 162 is effective sixty days following the SECs approval of PCAOB amendments to AU Section 411, The Meaning of Present fairly in conformity with generally
accepted accounting principles. The Company does not expect the adoption of SFAS 162 to have a material impact on the Companys financial position or results of operations.



|3. | Acquisitions and Divestitures
|-- | -----------------------------

Mann Steel Acquisition

On October 19, 2007, NCC Corp. acquired all of the outstanding stock of Mann Steel Products, Inc. (Mann Steel) for an aggregate
purchase price of $55,000,000 less (i) $1,900,000 placed in escrow for payment to certain key employees of Mann Steel (or otherwise returned to sellers), and (ii) $7,406,745 for repayment of certain indebtedness of Mann Steel that existed
at the closing date. Simultaneously, the Company completed (i) $60 million in debt private placements with detachable warrants to purchase 250,000 shares of National Coal Corp. common stock at a per share price of $4.00 and (ii) $11.6
million in equity private placements through the issuance of 3,866,968 shares of common stock at a per share price of $3.00 (see Notes 8 and 11). The Company used the proceeds of the private placements to capitalize NCC Corp. which was then used to
pay a portion of the purchase price to the sellers of Mann Steel. Mann Steel became a wholly-owned subsidiary of NCC Corp. and changed its name to National Coal of Alabama, Inc. (NCA).

On December 19, 2007, the Company paid $3,281,313 to the sellers, pursuant to a working capital adjustment clause contained in the purchase agreement, bringing the
total consideration paid to $58,660,706 which includes acquisition costs of $379,393.



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##### Table of Contents

The following table summarizes the final purchase price allocation based on the fair values of the assets acquired and
liabilities assumed at the date of acquisition:



|                                                            |  |        |            |  
|----------------------------------------------------------- |  | ------ | ---------- | -
|Description                                                 |  | Amount |           
|Cash                                                        |  | $      | 16,089     |  
|Restricted cash                                             |  |        | 1,900,000  |  
|Accounts receivable                                         |  |        | 7,451,177  |  
|Inventory                                                   |  |        | 36,684     |  
|Other current assets                                        |  |        | 447,115    |  
|Property, plant and equipment                               |  |        | 21,816,394 |  
|Mineral rights                                              |  |        | 37,552,948 |  
|Other long-term assets                                      |  |        | 748,760    |  
|Accounts payable                                            |  |        | (3,616,470 | )
|Reclamation obligations                                     |  |        | (2,720,249 | )
|Deferred tax liability, net                                 |  |        | (3,071,742 | )
|Other liabilities                                           |  |        | (1,900,000 | )
|                                                            |  |        |            |  
|Total fair value of assets acquired and liabilities assumed |  | $      | 58,660,706 |  
|                                                            |  |        |            |  

The allocation of the purchase price to the fair values of the assets acquired and liabilities assumed of Mann
Steel resulted in negative goodwill of $6,314,096. In accordance with Statement of Financial Accounting Standards No. 141, Accounting for Business Combinations, the excess goodwill was allocated as a pro rata reduction of the amounts
assigned to the assets acquired excluding financial assets, deferred taxes and all other current assets. This resulted in the following allocation of excess goodwill:



|                              |  |        |            |  
|----------------------------- |  | ------ | ---------- | -
|Description                   |  | Amount |           
|Property, plant and equipment |  | $      | (2,320,235 | )
|Mineral rights                |  |        | (3,993,861 | )
|                              |  |        |            |  
|Excess goodwill               |  | $      | (6,314,096 | )
|                              |  |        |            |  

The following summarized unaudited consolidated pro forma results of operations, assuming the Mann Steel
acquisition occurred on January 1, 2006, are as follows (in $000s, except for per share amounts):



|                                          |  |      |         |   |      |   |         |  
|----------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                          |  | 2007 |         |   | 2006 |  
|Revenues                                  |  | $    | 146,573 |   |      | $ | 142,741 |  
|Operating loss                            |  |      | (9,797  | ) |      |   | (2,490  | )
|Net loss                                  |  |      | (18,434 | ) |      |   | (12,364 | )
|Net loss available to common stockholders |  |      | (22,891 | ) |      |   | (12,364 | )
|Basic earnings per share                  |  | $    | (1.11   | ) |      | $ | (1.56   | )
|Diluted earnings per share                |  | $    | (1.11   | ) |      | $ | (1.56   | )



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##### Table of Contents

Straight Creek Divestiture

On March 31, 2008, the Companys wholly-owned subsidiary, National Coal Corporation, completed the sale of the real and personal property assets that comprised its Straight Creek mining operations in Bell, Leslie and Harlan
Counties, Kentucky to Xinergy Corp. (Xinergy) for $11,000,000 in cash in accordance with the terms and conditions of a Purchase Agreement entered into among the parties on February 8, 2008 (the Purchase Agreement). In
addition to the receipt of the purchase price for the assets, the transaction also resulted in the return of approximately $7,400,000 in cash that was previously pledged to secure reclamation bonds and other liabilities associated with the Straight
Creek operation, and relieved the Company of approximately $3,600,000 in reclamation liabilities, and approximately $2,700,000 of equipment related debt assumed by Xinergy in the transaction. The Company recorded a loss of $365,025 as a result of
the transaction.

The Company used a portion of the sale proceeds to repay the $10,000,000 senior secured credit agreement entered into in October 2006
with Guggenheim Corporate Funding, LLC, as administrative agent, which indebtedness otherwise would have matured in December 2008 (see Note 8).

Xinergy
Corp. was founded and is controlled by Jon Nix, who is a founder, significant stockholder, and former officer and director of National Coal. Mr. Nix served as a director of National Coal Corp. from January 2003 until July 2007, and as Chairman
of the Board from March 2004 until July 2007. Mr. Nix also served as the Companys President and Chief Executive Officer from January 2003 until August 2006.

The major categories of assets and liabilities associated with the Straight Creek mining property recorded in the balance sheet as of December 31, 2007 are as follows:



|                                                     |  |        |            |  
|---------------------------------------------------- |  | ------ | ---------- | -
|Balance Sheet Caption                                |  | Amount |           
|Inventory                                            |  | $      | 642,733    |  
|Property, plant, equipment and mine development, net |  |        | 17,010,089 |  
|Restricted Cash (to be retained by Company)          |  |        | 6,097,244  |  
|Installment purchase obligations                     |  |        | (2,786,959 | )
|Asset retirement obligations                         |  |        | (3,428,724 | )

Revenue and net losses attributable to the Straight Creek operations were $5.0 million and $(2.4) million, $35.4
million and $(3.1) million, and $46.0 million and $(9.7) million in 2008, 2007 and 2006, respectively.



|4. | Inventory
|-- | ---------

Inventory at December 31 is as follows:



|                |  |      |           |      |   |          
|--------------- |  | ---- | --------- | ---- | - | ---------
|                |  | 2008 |           | 2007
|Coal inventory  |  | $    | 3,587,182 |      | $ | 2,830,926
|Tire inventory  |  |      | 102,980   |      |   | 115,175  
|                |  |      |           |      |   |          
|Total Inventory |  | $    | 3,690,162 |      | $ | 2,946,101
|                |  |      |           |      |   |          



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##### Table of Contents

|5. | Property, Plant, Equipment, and Mine Development
|-- | ------------------------------------------------

Property, plant,
equipment and mine development as of December 31 follows:



|                                                           |  |      |             |   |      |   |             |  
|---------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                           |  | 2008 |             |   | 2007 |  
|Mining equipment and vehicles                              |  | $    | 76,946,861  |   |      | $ | 77,625,779  |  
|Land and buildings                                         |  |      | 5,512,129   |   |      |   | 6,764,479   |  
|Furniture and office equipment                             |  |      | 354,129     |   |      |   | 468,178     |  
|Mineral rights                                             |  |      | 48,858,386  |   |      |   | 48,487,494  |  
|Mine development                                           |  |      | 10,713,820  |   |      |   | 12,955,114  |  
|Construction in progress                                   |  |      | 3,484,666   |   |      |   | 1,268,512   |  
|                                                           |  |      |             |   |      |   |             |  
|                                                           |  |      | 145,869,991 |   |      |   | 147,569,556 |  
|Less accumulated depreciation, depletion and amortization  |  |      | (43,423,295 | ) |      |   | (38,688,957 | )
|                                                           |  |      |             |   |      |   |             |  
|Total property, plant, equipment and mine development, net |  | $    | 102,446,696 |   |      | $ | 108,880,599 |  
|                                                           |  |      |             |   |      |   |             |  

Mining equipment includes approximately $3,871,650 and $593,000 of gross assets under capital leases at
December 31, 2008 and 2007, respectively.

Depreciation, depletion, amortization and accretion expense for the years ended December 31, 2008,
2007 and 2006 was primarily related to the cost of coal sales for the years then ended. Depreciation expense, which includes amortization of assets under capital leases, was $12,426,162, $12,788,128, and $13,889,816 for the years ended
December 31, 2008, 2007, and 2006, respectively. Depletion expense related to mineral rights and amortization of mine development costs was $3,126,762, $2,509,230, and $997,969 for the years ended December 31, 2008, 2007, and 2006,
respectively.

On November 12, 2007, the Company received $2 million from the sale of certain real property and mineral leases at Pine
Mountain, an idle mining complex located in Kentucky, and an additional $1 million from the sale to the same purchaser of an option entitling it to purchase for $10.00 the remaining, additional properties at Pine Mountain.The Company
recognized a gain of approximately $745,000 on the sale of the certain real property and mineral leases at Pine Mountain and deferred recognition of the $1.0 million proceeds on the remaining additional properties until the option is exercised and
the additional properties are sold. As of December 31, 2008, the option has not been exercised

On September 18, 2006, the Company entered
into a sale-leaseback transaction with First National Capital Corporations assignee, GATX Financial Corporation, involving the Companys highwall miner initially purchased in February 2006. The Company sold the highwall miner for
approximately $6.4 million and recorded a deferred gain of approximately $875,000 which is being recognized over the forty-two month term of the operating lease. The lease is a net lease and requires that the Company maintain and insure
the equipment as well as pay rental payments of $166,568 per month. As a condition of the lease, the Company provided two standby letters of credit totaling $1,288,883 in lieu of security deposits which are 100% collateralized with cash on deposit
at two financial institutions. Pursuant to the sale of its Straight Creek operation, the Company is sub-leasing the highwall miner to Xinergy for $166,568 per month, and holds a $1.4 million deposit in escrow, which is classified in the non-current
portion of restricted cash at December 31, 2008.



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##### Table of Contents

At maturity, the Company has the option of purchasing the highwall miner or extending the lease for an additional twelve
month term, both at the then-fair market value, or allowing the lease to expire, at which time the Company would be responsible for the expense of transporting the highwall miner to a lessor designated location within the continental United States.



|6. | Other Noncurrent Assets
|-- | -----------------------

Other noncurrent assets at
December 31 are as follows:



|                                    |  |      |           |      |   |          
|----------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                    |  | 2008 |           | 2007
|Prepaid royalties                   |  | $    | 578,099   |      | $ | 935,168  
|Long-term portion of prepaid assets |  |      | 354,787   |      |   |         
|Deposits                            |  |      | 766,849   |      |   | 179,600  
|Investment in joint venture         |  |      | 331,899   |      |   | 114,823  
|Franchise tax receivable            |  |      | 260,000   |      |   |         
|                                    |  |      |           |      |   |          
|Total other noncurrent assets       |  | $    | 2,291,634 |      | $ | 1,229,591
|                                    |  |      |           |      |   |          



|7. | Accrued Expenses
|-- | ----------------

Accrued expenses at December 31 are as
follows:



|                                          |  |      |           |      |   |          
|----------------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                          |  | 2008 |           | 2007
|NCA employee retention payment obligation |  | $    | 1,379,380 |      | $ |         
|Legal settlement reserve                  |  |      | 250,000   |      |   |         
|Accrued expenses                          |  |      | 242,522   |      |   | 447,050  
|Accrued payroll and related taxes         |  |      | 279,866   |      |   | 747,995  
|Accrued interest                          |  |      | 223,750   |      |   | 300,625  
|Accrued federal, state and local taxes    |  |      | 210,794   |      |   | 238,571  
|                                          |  |      |           |      |   |          
|Total accrued expenses                    |  | $    | 2,586,312 |      | $ | 1,734,241
|                                          |  |      |           |      |   |          

At December 31, 2008, the legal settlement reserve represents an accrual for a case that was settled in early
2009.



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##### Table of Contents

|8. | Debt and Financing Arrangements
|-- | -------------------------------

Long-term debt obligations of the
Company, excluding capital leases, consist of the following as of December 31:



|                                                     |  |      |             |   |      |   |             |  
|---------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                     |  | 2008 |             |   | 2007 |  
|12.0% Senior Secured Notes, due 2012                 |  | $    | 60,000,000  |   |      | $ | 60,000,000  |  
|10.5% Senior Secured Notes, due 2010                 |  |      | 42,000,000  |   |      |   | 55,000,000  |  
|Term Loan Credit Facility, due 2008                  |  |      |            |   |      |   | 10,000,000  |  
|Overriding Royalty Interest obligation               |  |      | 9,056,734   |   |      |   | 9,177,273   |  
|Equipment loans and installment purchase obligations |  |      | 4,581,277   |   |      |   | 6,839,462   |  
|Insurance premium financing                          |  |      | 581,627     |   |      |   |            |  
|Other                                                |  |      |            |   |      |   | 51,817      |  
|                                                     |  |      |             |   |      |   |             |  
|                                                     |  |      | 116,219,638 |   |      |   | 141,068,552 |  
|Unamortized discounts                                |  |      | (9,103,401  | ) |      |   | (11,264,974 | )
|Current portion of long-term debt                    |  |      | (3,616,338  | ) |      |   | (15,453,230 | )
|                                                     |  |      |             |   |      |   |             |  
|Total long-term debt                                 |  | $    | 103,499,899 |   |      | $ | 114,350,348 |  
|                                                     |  |      |             |   |      |   |             |  

Maturities of long-term debt for the next five years and thereafter follow:



|                                       |  |   |             |  
|-------------------------------------- |  | - | ----------- | -
|2009                                   |  | $ | 3,616,338   |  
|2010                                   |  |   | 44,695,617  |  
|2011                                   |  |   | 1,769,687   |  
|2012                                   |  |   | 61,125,372  |  
|2013                                   |  |   | 187,649     |  
|Thereafter                             |  |   | 4,824,975   |  
|                                       |  |   |             |  
|                                       |  |   | 116,219,638 |  
|Less unamortized discounts             |  |   | (9,103,401  | )
|                                       |  |   |             |  
|                                       |  |   | 107,116,237 |  
|Less current portion of long-term debt |  |   | (3,616,338  | )
|                                       |  |   |             |  
|Long-term debt                         |  | $ | 103,499,899 |  
|                                       |  |   |             |  

The Company had deferred financing costs of $4,779,439 and $6,669,703 at December 31, 2008 and 2007,
respectively. The Company recorded $823,343 and $1,002,214 of amortization related to deferred financing costs in 2008 and 2007, respectively. Additionally, the Company wrote off deferred financing charges of $1.6 million in 2008 associated with the
extinguishment of debt. This amount is included in other expense in the accompanying statement of operations.



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10.5% Senior Secured Notes Due 2010

On December 29, 2005, the Company issued $55.0 million of 10.5% Senior Secured Notes due 2010 and warrants to purchase a total of 1,732,632 shares of the Companys common stock. The issue consisted of 55,000
units, with each unit comprised of one $1,000 principal amount note due 2010 and one warrant, which entitles the holder to purchase 31.5024 shares of the Companys common stock at an exercise price of $8.50 per share, subject to adjustment. The
warrants are subject to mandatory conversion if the price of the Companys common stock remains above $12.75 for more than nineteen days out of a consecutive thirty day trading period. The warrants will be exercisable at any time on or after
their first anniversary date and will expire on December 15, 2010. Net proceeds from this sale were approximately $52.1 million. The Company immediately used approximately $22.1 million of the proceeds to repay existing indebtedness. During
2006, the Company used approximately $2.0 million to purchase a forty-two mile rail line in Tennessee, approximately $8.3 million as collateral to support reclamation bonds, and $19.7 million to purchase other equipment, refurbish preparation
facilities and rail load-outs, and provide working capital.

The indenture allows the Company to incur additional indebeteness a Term Loan Credit Facility
in the amount of $10.0 million, but limits further indebtedness unless certain fixed charge coverage ratios are maintained on a pro forma basis. Please refer to the Term Loan Credit Facility note below for a discussion of our entrance into such a
credit facility. The fixed charge coverage ratio is defined as the ratio of net income (loss) plus (i) fixed charges, (ii) depreciation, depletion and amortization, (iii) taxes, (iv) extraordinary losses, and (v) other
non-cash income and expenses to fixed charges defined to include 25% of capital expenditures made by the Company and its subsidiaries. To incur additional indebtedness, the Company must maintain a fixed charge coverage ratio of 2.0 to 1 for 2006,
2.25 to 1 for 2007, and 2.5 to 1 for the remaining term of the Notes. The indenture also restricts payment of dividends on the Companys common stock. Notes issued under the indenture are guaranteed fully and unconditionally as well as jointly
and severally by the Company, which has no independent assets or operations, and each of its wholly-owned subsidiaries with the exception of National Coal of Alabama.

In connection with the December 29, 2005 issuance of notes, the Company entered into a separate registration rights agreement with the purchasers. Pursuant to the separate registration rights agreement, the
Company agreed to file an exchange offer registration statement registering the resale by the purchasers of all of the notes and attached warrants. Pursuant to the separate registration rights agreement, the Company filed two registration statements
with the Securities and Exchange Commission in May 2006, which were declared effective on July 28, 2006. On September 5, 2006, the Company exchanged $51 million of the total $55 million 10.5% Senior Secured Notes due 2010 for $51 million
in new Notes, dated August 31, 2006, which are registered for resale with the Securities and Exchange Commission. The new Notes are issued under substantially the same terms as the old Notes.



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During 2008, the Company exchanged notes in the aggregate principal amount of $13 million and accrued interest of
$161,783 for 1,855,935 shares of common stock and recorded a loss on extinguishment of debt of $504,392.

12% Notes Payable Due in 2012

On October 19, 2007, NCA completed $60 million in private placements through the issuance of Senior Secured Notes (the 12% Notes due
2012) to TCW Energy Fund XIV, L.P., TCW Energy Fund XIV-A, L.P. and TCW Energy Fund XIV (Cayman), L.P. pursuant to a note purchase agreement dated October 19, 2007, among NCA, the Holders and TCW Asset Management Company
(TAMCO). The 12% Notes due 2012 have a maturity date of October 19, 2012 and accrue interest at the rate of 12% per annum due quarterly. In lieu of paying interest due on the 12% Notes due 2012 on each quarterly payment date in
full in cash, NCA may elect to pay a portion of such interest in cash equal to the amount of interest which would be owing on such quarterly payment date if the interest rate had been 9% per annum, and to borrow the remaining portion from the
Holders in the form of additional loans made through the increase of the principal amounts of the 12% Notes due 2012.

NCA violated its loan covenants
related to its 12% Notes due 2012 in each of the second through fourth quarters of 2008. On August 13, 2008, November 12, 2008, and March 26 (Note 20), NCA received waivers of all existing defaults and covenant violations and
obtained amended terms for certain covenants through December 31, 2009, as follows:

(i) the fixed charge coverage ratio minimum
requirement of 1.00 to 1.00 has been reduced for all fiscal quarters in 2009 to minimum requirements of 0.65 to 1.00 for the fiscal quarter ending March 31, 2009 and 0.75 to 1.00 for each fiscal quarter ending June 30,
2009, September 30, 2009 and December 31, 2009; and

(ii) the current ratio minimum requirement of 1.00 to 1.00 has been
reduced for all fiscal quarters in 2009 to minimum requirements of 0.65 to 1.00 for the fiscal quarter ending March 31, 2009 and 0.80 to 1.00 for each fiscal quarter ending June 30, 2009, September 30, 2009 and December 31,
2009; and

(iii) the minimum EBITDA requirement has been reduced from $3,000,000 for the fiscal quarter ending December 31, 2008 to
minimum requirements of $2,000,000 for the fiscal quarter ending March 31, 2009 and $2,250,000 for each fiscal quarter ending June 30, 2009, September 30, 2009 and December 31, 2009; and

(iv) the Debt to EBITDA ratio requirement set forth in the Note Agreement has been eliminated for the fiscal quarters ending March 31,
2009, June 30, 2009, September 30, 2009 and December 31, 2009; and

(v) in lieu of paying interest due
March 29, 2009, the Company has elected to borrow the full amount of the interest from the holders in the form of a PIK (Payment in Kind) loan in principal amount equal to such interest of approximately $1.8 million.

Management expects NCA to be in compliance with its debt covenants during 2009 and, accordingly, has classified the related debt as long-term in the accompanying balance
sheet.

On each quarterly payment date from and after March 2008, NCA is required to make a principal payment in respect of the 12% Notes due 2012 in an
aggregate amount equal to the adjusted net cash flow for the applicable quarter (as specified in the note purchase agreement), provided that in no event shall NCA be required to make a payment that results in its having cash and cash equivalents
(exclusive of any cash and cash equivalents that have been pledged to secure other obligations permitted under the note purchase agreement or that otherwise constitutes restricted cash permitted under the note purchase agreement) of less
than $2,000,000. NCA is also required to repay outstanding amounts upon the sale of collateral approved by the Holders of a majority of



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the aggregate unpaid principal amount under the 12% Notes due 2012 and upon the receipt of certain casualty insurance proceeds. In addition, NCA will be
required to pay a make-whole amount or incur a prepayment premium in the event that it prepays the Notes prior to their stated maturity. During 2008, NCA was not required to make any payments pursuant to the aforementioned provisions,
nor is any payment expected to be made in 2009.

Pursuant to the terms of the note purchase agreement and related security and pledge agreements, all dated
October 19, 2007, NCA granted the holders a security interest in all of the companys assets to secure repayment of the obligations arising under the note purchase agreement and related agreements, and established a debt service reserve
account equal to six months of interest on the then outstanding aggregate principal amount of the Notes. The 12% Notes due 2012 are not guaranteed by National Coal Corp., National Coal Corporation or its subsidiaries.

As additional consideration to the holders, NCA conveyed to the Holders an Overriding Royalty Interest with respect to all coal mined by NCA in the state of Alabama.
Pursuant to the Conveyance of Overriding Royalty Interest (ORRI Agreement), dated October 19, 2007, NCA agreed to pay the holders of the interest a royalty on 18.5 million tons of coal mined and sold by NCA, in an amount equal
to (i) $2.00 per ton of coal mined and sold while the obligations remain outstanding under the note purchase agreement, and (ii) an amount equal to 1% of the gross sales price of coal mined and sold annually, subject to a one million ton
minimum, after repayment of the obligations under the note purchase agreement. The present value of the expected cash flows associated with the Overriding Royalty Interest, estimated at $9,321,873, reflecting a discount rate of 16.83%, was recorded
as a liability and as a discount to the 12% Notes due 2012. During 2008, the Company recorded an additional $0.5 million of interest expense associated with: (i) a change in the estimated gross sales price of coal mined and sold after repayment
of the obligations under the note purchase agreement of the Companys future overriding royalty obligation, net of (ii) a reduction in production assumptions, thereby deferring certain cash flows to future dates. Additionally, the Company
did not meet the one million minimum annual tons produced and sold requirement as specified in the ORRI Agreement, and was required to pay an interest penalty of $0.2 million in 2008.

NCA also paid to TAMCO a commitment fee of $900,000, which is equal to 1.5% of the aggregate commitments of $60 million under the note purchase. The Company also paid fees of $1.1 million and 175,000 shares of the
Companys common stock to a broker who assisted with this transaction. These amounts were recorded as deferred financing costs in the accompanying balance sheets.

Each of NCC Corp. and NCA is an unrestricted subsidiary within the meaning of the Companys 10.5% Senior Secured Notes due 2010, which means that: (i) these unrestricted subsidiaries cannot have
any indebtedness for which National Coal Corp. or any of its other subsidiaries is directly or indirectly liable, or which National Coal Corp. or any of its other subsidiaries guarantees or otherwise provides credit support; (ii) these
unrestricted subsidiaries cannot be party to any agreement with National Coal Corp. or any of its other subsidiaries unless the terms of any such agreement are no less favorable to National Coal Corp. or such other subsidiaries than those that might
be obtained at the time from persons who are not the Companys affiliates; (iii) none of National Coal Corp. or its other subsidiaries can have any direct or indirect obligation to subscribe for additional equity interests of the
unrestricted subsidiaries or maintain or preserve the unrestricted subsidiaries financial condition or cause them to achieve any specified levels of operating results.

NCA is restricted in its ability to distribute cash to the other subsidiaries of the Company, and to the Company for use in their operations under the terms of the TCW credit facility. On an annual basis, NCA can
distribute cash to the Company only if it meets certain EBITDA based operating requirements for the immediately preceding fiscal year. Additionally, the Company has entered into a management services agreement with NCA that compensates National Coal
Corp. for services that it provides to NCA, and a tax sharing agreement that requires NCA to pay to National Coal Corp. 75% of its tax liability. In fiscal 2009, however, the Company anticipates NCAs operations to provide cash for use in its
other operations limited to the annual management services fee.



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Term Loan Credit Facility

On October 12, 2006, the Companys wholly-owned subsidiary, National Coal Corporation, entered into a Term Loan Credit Facility that provides for borrowings of $10.0 million with Guggenheim Corporate
Funding, LLC to fund general operating and working capital needs (the Term Loan Credit Facility). The Company borrowed $8.0 million in 2006 and $2.0 million in March 2007. The Companys obligations under the credit facility are
secured by a first priority senior lien on substantially all of the Companys assets.

Initially, the credit agreement provided that all amounts under
the facility would be due and payable in March 2010 and would bear interest at a rate equal to, at the Companys option, the Eurodollar Rate plus 3.5% or the Base Rate (which approximates the prime rate) plus 2.5%. The term loan credit facility
also contained financial covenants and default provisions including that the Company maintain minimum levels of EBITDA and liquidity, maintain minimum interest coverage ratios, not exceed maximum leverage ratios, and that it limit certain future
categories of transactions such as the incurrence of additional indebtedness and the sale of assets.

In March 2007, Guggenheim agreed to amend the credit
agreement and reset the financial covenants, as a result of which the applicable margin on the credit facility was increased by 1.0%. At June 30, 2007, the Company was not in compliance with certain financial covenants under the credit
agreement and on August 15, 2007, Guggenheim agreed to a further amendment under which (1) the maturity date was changed to December 31, 2008, (2) the interest rate was changed to 12%, (3) fees equal to 5% of all balances
outstanding at December 31, 2007 and 10% of all amounts outstanding at June 30, 2008 were provided for, (4) the EBITDA financial covenant was reset, and (5) prepayment penalties were eliminated.

On October 19, 2007, the lenders party to the credit agreement assigned to Steelhead Offshore Capital, LP, Big Bend 38 Investments, L.P., and J-K Navigator Fund,
L.P., the Companys outstanding obligations to repay funds loaned to the Company pursuant to the credit agreement in the aggregate principal amount of $10,000,000 and, to the extent permitted to be assigned under applicable law, all claims,
suits, causes of action and any other right of the lenders against any person arising under or in connection with the credit agreement. Guggenheim remained as Administrative Agent under the credit agreement.

On October 19, 2007, the parties to the credit agreement entered into a Waiver and Amendment No. 3 (the Waiver and Amendment) to the credit
agreement, pursuant to which the parties agreed to waive and amend certain provisions of the credit agreement. Pursuant to the Waiver and Amendment, Guggenheim and each lender waived certain fees related to amounts outstanding under the term loan
facility as of December 31, 2007, the Companys compliance with certain minimum consolidated EBITDA requirements for the fiscal quarters ending September 30, 2007 and December 31, 2007, and the registration and processing fee due
to Guggenheim solely with respect to the assignment and acceptance of the Companys outstanding obligations to Steelhead Offshore Capital, LP, Big Bend 38 Investments, L.P., and J-K Navigator Fund, L.P. The Waiver and Amendment also amended
various restrictive covenants in the credit agreement, including covenants to permit the Company to consummate the acquisition of Mann Steel Products, Inc. and incur the debt financing for such acquisition. Fees equal to 10% of all amounts
outstanding under the credit agreement at June 30, 2008, provided for in the second amendment dated August 15, 2007, remain in place. The Company did not accrued any amounts relative to these fees as management did not believe it probable
that the Company would be required to pay the fees due to its belief that the term loan credit agreement would be refinanced prior to June 30, 2008.



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On October 19, 2007, the parties to the credit agreement also entered into a letter agreement (the Lender Fee
Letter) pursuant to which the Company agreed, at its election and as compensation for the Waiver and Amendment and assignment agreements, (i) to issue warrants (the Refinance Fee Warrants) on or before June 30, 2008 to
purchase up to 750,000 shares of the Companys common stock at an exercise price of $3.00 per share with a term through December 31, 2011 or (ii) make a cash payment on or before October 17, 2008 in an amount equal to the
Black-Scholes value of a warrant, exercisable on or before December 31, 2011, for up to 750,000 shares of the Companys common stock at an exercise price of $3.00 per share, obtained using the OV function on Bloomberg Financial
Markets and reflecting the calculation assumptions set forth in the Lender Fee Letter, to Steelhead Offshore Capital, LP, Big Bend 38 Investments L.P., and J-K Navigator Fund, L.P. In the event that the Company issues the Refinance Fee Warrant, the
shares issuable upon exercise of these warrants shall have registration rights similar to those provided in the Registration Rights Agreement entered into in connection with the October 19, 2007 equity financing (see Note 11,
Stockholders Equity (Deficit). Fees and expenses totaling approximately $323,000 were expensed as incurred and the value of the warrant was capitalized as deferred financing fees to be amortized over the remaining life of the loan using
the effective interest method.

The Company elected to issue the Refinance Fee Warrant pursuant to the Lender Fee Letter and, on December 31, 2007,
entered into the Warrant Agreement with the parties to the letter agreement.

On November 16, 2007, the lenders party to the credit agreement entered
into a Waiver under which the EBITDA financial covenant was waived for the fiscal quarters ending March 31, 2008 and June 30, 2008. As of April 2, 2008, the Company repaid the $10 million credit agreement with a portion of the
proceeds from the sale of its Straight Creek properties, and terminated this agreement.

Installment Purchase Obligations and Equipment Notes

During 2008, the Company financed equipment and vehicles with an aggregate principal value of approximately $3.6 million. The notes require
payments over 36 to 55 months with fixed interest rates ranging from of 4.02% to 8.69%. The obligations under the notes are secured by the purchased assets.

During 2007, the Company financed equipment and vehicles with an aggregate principal value of approximately $4.9 million. These installment sale contracts require payments over 36 to 60 months at fixed interest rates ranging from 5.97% to
7.99%. The obligations under the installment sale contracts are secured by the equipment purchased.

During 2007, the Company refinanced equipment with an
aggregate principal value of approximately $0.7 million formerly acquired under various capital leases. These installment sale contracts require payments over 36 months at fixed interest rates ranging from 5.29% to 8.75%. The obligations under the
installment sale contracts are secured by the equipment purchased.

During 2006, the Company financed equipment and vehicles with an aggregate principal
value of approximately $1.8 million. These installment sales contracts require payments over 36 to 60 months at fixed interest rates ranging from 4.48% to 9.28%.

Approximately $2.6 million of equipment related debt was assumed by Xinergy Corp. on March 31, 2008, as a result of the sale of the Companys Straight Creek, Kentucky properties.



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|9. | Leases
|-- | ------

The Company leases mining and certain other equipment under
noncancelable lease agreements with terms up to five years. Rental expense for equipment under operating lease agreements with initial lease terms of one year or greater was approximately $2,034,529, $2,102,694 and $1,011,323 for the years ended
December 31, 2008, 2007, and 2006, respectively.

The Company entered into capital lease agreements with various equipment suppliers for mining
equipment totaling $3,325,500, $248,900 and $833,827 during 2008, 2007 and 2006, respectively. The leasing periods for these arrangements is typically 24 to 36 months.

Future minimum lease payments for noncancelable leases with initial terms of one year or greater at December 31, 2008 are as follows:



|                                        |  |               |            |   |                 |   |          
|--------------------------------------- |  | ------------- | ---------- | - | --------------- | - | ---------
|                                        |  | CapitalLeases |            |   | OperatingLeases
|2009                                    |  | $             | 2,236,395  |   |                 | $ | 2,018,367
|2010                                    |  |               | 1,440,050  |   |                 |   | 507,256  
|2011                                    |  |               | 44,392     |   |                 |   | 3,249    
|2012                                    |  |               |           |   |                 |   | 2,388    
|2013                                    |  |               |           |   |                 |   | 1,990    
|Thereafter                              |  |               |           |   |                 |   |         
|                                        |  |               |            |   |                 |   |          
|Total minimum lease payments            |  |               | 3,720,837  |   |                 | $ | 2,533,250
|                                        |  |               |            |   |                 |   |          
|Imputed interest                        |  |               | (357,770   | ) |                 |   |          
|                                        |  |               |            |   |                 |   |          
|Present value of minimum lease payments |  |               | 3,363,067  |   |                 |   |          
|Current portion                         |  |               | (1,943,968 | ) |                 |   |          
|                                        |  |               |            |   |                 |   |          
|Long-term obligations                   |  | $             | 1,419,099  |   |                 |   |          
|                                        |  |               |            |   |                 |   |          



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|10. | Asset Retirement Obligations
|--- | ----------------------------

The following table summarizes the
activity with respect to the Companys asset retirement obligations for the years ended December 31:



|                                              |  |      |            |   |      |   |            |  
|--------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                              |  | 2008 |            |   | 2007 |  
|Obligation at January 1                       |  | $    | 10,264,687 |   |      | $ | 7,214,894  |  
|Accretion expense                             |  |      | 1,012,087  |   |      |   | 911,911    |  
|Obligations acquired and incurred             |  |      | 2,327,232  |   |      |   | 3,250,887  |  
|Obligations disposed from Straight Creek Sale |  |      | (3,609,258 | ) |      |   |           |  
|Obligations paid                              |  |      | (474,113   | ) |      |   | (542,545   | )
|Obligations released                          |  |      | (1,850,802 | ) |      |   |           |  
|Adjustments from annual recosting             |  |      | (260,135   | ) |      |   | (570,460   | )
|                                              |  |      |            |   |      |   |            |  
|Obligation at December 31                     |  |      | 7,409,698  |   |      |   | 10,264,687 |  
|Current portion                               |  |      | (259,607   | ) |      |   | (1,310,344 | )
|                                              |  |      |            |   |      |   |            |  
|Long-term liability                           |  | $    | 7,150,091  |   |      | $ | 8,954,343  |  
|                                              |  |      |            |   |      |   |            |  



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|11. | Stockholders Equity (Deficit)
|--- | ------------------------------

Series A Cumulative,
Convertible Preferred Stock

During 2008, 2007 and 2006, the holders of 356.44, 426.10 and 550.90 shares of Series A preferred stock, with liquidation
preferences totaling $5,346,600, $6,391,500 and $8,260,206, plus accrued dividends of $131,712, $159,152 and $65,439 converted their shares into 946,168, 1,124,121 and 1,386,128 shares of the Companys common stock, respectively. During 2008,
the Company offered an additional 154,573 common shares as an inducement to convert Series A preferred stock into common stock. During 2007, the Company offered $1,702,154 as a cash inducement and an additional 431,258 common shares as an inducement
to convert Series A preferred stock into common stock. EITF Topic D-42, The effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock requires that if convertible preferred stock is converted
to other securities pursuant to an inducement offer, the Company should record the excess of (1) the fair value of all securities and other consideration transferred to the holders of the convertible preferred stock over (2) the fair value
of securities issuable pursuant to the original conversion terms as an increase to net loss to arrive at net loss attributable to common shareholders. Accordingly, the Company recorded deemed dividends of $593,563 and $3,070,185 as a result of the
aforementioned inducements in 2008 and 2007, respectively. Additionally, during 2007, the Company sold common stock in a private placement that triggered a reduction in the preferred stock conversion rate; in accordance with EITF Issue
No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, the Company recorded a deemed dividend of $988,173 associated with the resolution of this beneficial
conversion contingency.

As of December 31, 2008, all remaining Series A preferred stock had been converted to common stock.

National Coal Corp. Common Stock

During 2008, the Company purchased
a 1,000 acre mineral and surface tract in eastern Tennessee that includes approximately 2.3 million tons of high quality coal. The purchase price was $7.0 million of which $2.0 million was paid in cash and $5.0 million in the issuance of
756,430 shares of the Companys common stock.

During 2008, the Company completed the sale of 2,332,000 shares of common stock in a private placement
at a price of $4.65 per share for gross proceeds of $10,843,798.

During 2007, the Company completed the sale of 9,625,669 shares of common stock in
private placements at prices ranging between $3.00 to $4.65 per share, for gross proceeds of $35,797,686, including 3,866,968 shares sold in connection with the Mann Steel Acquisition (see Note 3). All common shares have been subsequently registered
pursuant to registration rights agreements.

During 2006, the Company issued 101,503 shares of common stock for gross proceeds of $897,018.



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Outstanding Stock Purchase Warrants

At December 31, 2008, the following warrants for the purchase of National Coal Corp. common stock were outstanding:



|                       |  |                 |  |                      |      |                       |                   |                 |                  
|---------------------- |  | --------------- |  | -------------------- | ---- | --------------------- | ----------------- | --------------- | -----------------
|Title                  |  | Number ofShares |  | CurrentStrike Price* |      | EarliestExercise Date |                   | Expiration Date
|Crestview Warrants     |  | 396,620         |  | $                    | 3.00 |                       | March 10, 2005    |                 | March 10, 2010   
|Bond Warrants          |  | 1,638,125       |  | $                    | 8.50 |                       | December 29, 2006 |                 | December 15, 2010
|Alabama Warrant        |  | 250,000         |  | $                    | 4.00 |                       | October 19, 2007  |                 | December 31, 2010
|Refinance Fee Warrants |  | 750,000         |  | $                    | 3.00 |                       | December 31, 2007 |                 | December 31, 2011



|* | Crestview Warrants have been adjusted per the anti-dilution provision in the warrant agreement
|- | ----------------------------------------------------------------------------------------------

The Crestview warrants and the Bond warrants are subject to mandatory conversion if the price of the Companys common stock remains above $12.50 for more than thirty days.

The Crestview Warrants are subject to price and share adjustment on: a) a weighted average basis when the Company issues common stock at a price below $6.60 per share or
b) a full adjustment basis when the Company issues warrants below the current strike price. Based upon the December 31, 2007 warrant issuance discussed below, the warrants have adjusted to 396,620 shares at a price of $3.00 per share.

During 2008, 3,000 of the Bond Warrants were converted into 14,176 shares of the Companys common stock.

On October 19, 2007, as part of capitalizing its newly formed subsidiary, NCC Corp., the Company issued warrants to purchase 250,000 shares of National Coal Corp.
common stock at a per share price of $4.00 and a term expiring on December 31, 2010 (the Alabama Warrant). NCC Corp. assigned this warrant to National Coal of Alabama, Inc., which further assigned the warrant to the holders of the
12% Notes Payable due 2012. These warrants were valued at $263,067 using the Black-Scholes Option Pricing Model and recorded in the equity section of the accompanying balance sheet. Pursuant to a registration rights agreement, these warrant shares
were subsequently registered.

On December 31, 2007, the Company issued the Refinance Fee Warrant to three parties which provides the right to
purchase up to 750,000 shares of National Coal Corp. common stock at a price per share of $3.00 through December 31, 2011 (see Note 8).



|12. | Fair Value of Financial Instruments
|--- | -----------------------------------

The following methods and
assumptions were used by the Company in estimating its fair value disclosures for financial instruments at December 31, 2008, and 2007:

Cash and accounts receivable:The carrying amount approximates fair value because of the short maturity of these instruments.

Debt:The fair value of the Companys long-term debt is estimated based on the quoted market prices for similar issues or on the estimated current rate of incremental borrowing available to the Company for similar liabilities.



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The estimated fair values of the Companys financial instruments at December 31 are as follows:



|                          |  |                |             |           |   |                |  |           |             |  |   |            
|------------------------- |  | -------------- | ----------- | --------- | - | -------------- |  | --------- | ----------- |  | - | -----------
|                          |  | 2008           |             | 2007     
|                          |  | CarryingAmount |             | FairValue |   | CarryingAmount |  | FairValue
|Financial Assets:         |  |                |             |           |   |                |  |           |             |  |   |            
|Cash and cash equivalents |  | $              | 4,624,511   |           | $ | 4,624,511      |  | $         | 9,854,351   |  | $ | 9,854,351  
|Accounts receivable       |  |                | 5,738,137   |           |   | 5,738,137      |  |           | 8,787,046   |  |   | 8,787,046  
|Restricted cash           |  |                | 19,916,320  |           |   | 19,916,320     |  |           | 28,935,783  |  |   | 28,935,783 
|Financial liabilities:    |  |                |             |           |   |                |  |           |             |  |   |            
|Debt                      |  |                | 107,116,237 |           |   | 98,716,237     |  |           | 129,803,578 |  |   | 127,603,578



|13. | Concentrations of Credit Risk and Major Customers
|--- | -------------------------------------------------

Financial
instruments which potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. Accounts receivable are from brokers or purchasers of the Companys coal with payment terms that typically do not
exceed 20 days. The Company routinely performs credit evaluations of customers purchasing on account and generally does not require collateral.

For the
year ending December 31, 2008, two utility providers and one industrial customer represented approximately 34%, 21% and 14% of the Companys revenues, respectively. The following table lists the percentage of each type of revenue generated
by market:



|                     |  |              |   |  |      |   |  |      |  
|-------------------- |  | ------------ | - |  | ---- | - |  | ---- | -
|                     |  | December 31, |  
|                     |  | 2008         |   |  | 2007 |   |  | 2006 |  
|Electric utilities   |  | 64.4         | % |  | 83.9 | % |  | 91.5 | %
|Industrial companies |  | 33.6         | % |  | 13.6 | % |  | 8.2  | %
|Coal reseller        |  | 2.0          | % |  | 2.5  | % |  | 0.3  | %



|14. | Income Taxes
|--- | ------------

At December 31, 2008, the Company had federal
and state net operating loss (NOL) carryforwards of $175.6 million that will begin to expire in 2015. The use of deferred tax assets including federal net operating losses and credits are limited to future taxable earnings. Based on an
analysis of future taxable income, management believes that there is not sufficient evidence at December 31, 2008 indicating that the results of operations will generate sufficient taxable income to realize the net deferred tax asset in years
beyond 2008. As a result, a valuation allowance has been provided for the entire net deferred tax asset related to future years, including loss and credit carryforwards. The valuation allowance increased by $15,450,912 and $6,779,997 in 2008 and
2007, respectively.



30



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The net deferred income taxes as of December 31 include the following amounts of deferred income tax assets and
liabilities:



|                                            |  |      |             |   |      |   |             |  
|------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                            |  | 2008 |             |   | 2007 |  
|Deferred tax assets  current               |  |      |             |   |      |   |             |  
|Inventory reserve                           |  | $    |            |   |      | $ | 77,675      |  
|Allowance for doubtful accounts             |  |      | 164,647     |   |      |   |            |  
|Intangibles                                 |  |      | 33,063      |   |      |   | 58,230      |  
|Current liabilities                         |  |      | 95,261      |   |      |   |            |  
|                                            |  |      |             |   |      |   |             |  
|Total deferred tax assets  current         |  |      | 292,971     |   |      |   | 135,905     |  
|                                            |  |      |             |   |      |   |             |  
|Deferred tax assets  noncurrent:           |  |      |             |   |      |   |             |  
|Net operating loss carryforwards            |  |      | 32,692,992  |   |      |   | 21,141,630  |  
|Reclamation expenditures                    |  |      | 1,248,300   |   |      |   |            |  
|Charitable contributions carryforwards      |  |      | 101,030     |   |      |   | 56,326      |  
|Deferred revenues                           |  |      | 499,169     |   |      |   |            |  
|Debt                                        |  |      | 712,919     |   |      |   | 289,018     |  
|Stock option expense                        |  |      | 1,000,940   |   |      |   |            |  
|Equity method investment basis              |  |      |            |   |      |   | 15,767      |  
|                                            |  |      |             |   |      |   |             |  
|Total deferred tax assets  noncurrent      |  |      | 36,255,350  |   |      |   | 21,502,741  |  
|                                            |  |      |             |   |      |   |             |  
|Total gross deferred tax assets             |  |      | 36,548,321  |   |      |   | 21,638,646  |  
|Deferred tax liabilities  current          |  |      | (171,979    | ) |      |   | (152,352    | )
|Deferred tax liabilities  noncurrent:      |  |      |             |   |      |   |             |  
|Fixed assets                                |  |      | (1,737,010  | ) |      |   | (1,703,305  | )
|Reclamation expenditures                    |  |      |            |   |      |   | (461,901    | )
|Mineral properties                          |  |      | (13,449,000 | ) |      |   | (14,101,079 | )
|Equity method basis                         |  |      | (127,084    | ) |      |   |            |  
|Stock option expense                        |  |      |            |   |      |   | (565,611    | )
|                                            |  |      |             |   |      |   |             |  
|Total deferred tax liabilities  noncurrent |  |      | (15,313,094 | ) |      |   | (16,831,896 | )
|                                            |  |      |             |   |      |   |             |  
|Total gross deferred tax liabilities        |  |      | (15,485,073 | ) |      |   | (16,984,248 | )
|                                            |  |      |             |   |      |   |             |  
|Valuation allowance                         |  |      | (23,456,775 | ) |      |   | (8,005,863  | )
|                                            |  |      |             |   |      |   |             |  
|Net deferred tax liabilities                |  | $    | (2,393,527  | ) |      | $ | (3,351,465  | )
|                                            |  |      |             |   |      |   |             |  



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The Companys deferred income taxes relate principally to deferred revenue, deferred compensation and federal and
state net operating loss and credit carryforwards. The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before the provision for income taxes. The sources and tax effects of the
differences are as follows:



|                                                  |  |      |             |   |      |   |            |      |  |   |            |  
|------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                  |  | 2008 |             |   | 2007 |   |            | 2006 | 
|Federal income tax benefit                        |  | $    | (12,094,196 | ) |      | $ | (8,759,883 | )    |  | $ | (7,963,211 | )
|State income tax benefit                          |  |      | (1,526,003  | ) |      |   | (1,105,292 | )    |  |   | (767,103   | )
|Permanent differences                             |  |      | (409,335    | ) |      |   | 51,339     |      |  |   | 316,863    |  
|Change in valuation allowance                     |  |      | 13,351,319  |   |      |   | 9,813,836  |      |  |   | 8,413,451  |  
|                                                  |  |      |             |   |      |   |            |      |  |   |            |  
|Total income tax benefit on continuing operations |  | $    | (678,214    | ) |      | $ |           |      |  | $ |           |  
|                                                  |  |      |             |   |      |   |            |      |  |   |            |  

As a result of implementing FIN 48, effective January 1, 2007, the Company did not have any unrecognized
tax benefits or liabilities, or any associated amounts for interest and penalties. As such, there was no effect on its financial condition or results of operations as of and for the year ended December 31, 2008.

The Company has no material unrecognized tax benefits or any known material tax contingencies at December 31, 2008.

We recognize interest and penalties related to uncertain tax positions in income tax expense, which was $0 for 2008, 2007 and 2006.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. There are no income tax examinations currently in process. With
few exceptions, the Company is no longer subject to U.S. federal examinations or state and local income tax examinations by tax authorities for years before 2003.



32



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|15. | Earnings per Share
|--- | ------------------

Basic earnings or loss per share are computed
by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per share are computed similarly to basic earnings per share except that they reflect the potential dilution that could occur if
dilutive securities or other obligations to issue common stock were exercised or converted into common stock. Diluted earnings or loss per share includes dilutive common stock equivalents, using the treasury stock method, and assumes that the
potentially dilutive instruments were converted into common stock at the beginning of the year or upon issuance. Stock options with exercise prices greater than the average fair market price for a period, which are defined as anti-dilutive, are not
included in the diluted earnings (loss) per share calculations because of their anti-dilutive effect. In periods of losses, diluted loss per share is computed on the same basis as basic loss per share as the inclusion of any other potential shares
outstanding would be anti-dilutive.

For the years ended December 31, 2008, 2007, and 2006, 1,448,597, 189,117 and 3,866,360, respectively,
potentially dilutive shares of the Company from warrants, convertible preferred stock and stock options were not included in the computation of diluted loss per share because to do so would be anti-dilutive.

The computations for basic and diluted loss per share from continuing operations for the period ending December 31 are as follows:



|                                 |  |      |             |   |      |   |             |      |  |   |             |  
|-------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                 |  | 2008 |             |   | 2007 |   |             | 2006 | 
|Numerator:                       |  |      |             |   |      |   |             |      |  |   |             |  
|Net loss                         |  | $    | (34,892,950 | ) |      | $ | (25,764,363 | )    |  | $ | (23,421,210 | )
|Preferred dividends              |  |      | (130,188    | ) |      |   | (398,891    | )    |  |   | (1,029,933  | )
|Preferred stock deemed dividends |  |      | (593,563    | ) |      |   | (4,058,358  | )    |  |   |            |  
|                                 |  |      |             |   |      |   |             |      |  |   |             |  
|Numerator for basic and diluted  |  | $    | (35,616,701 | ) |      | $ | (30,221,612 | )    |  | $ | (24,451,143 | )
|                                 |  |      |             |   |      |   |             |      |  |   |             |  
|Denominator:                     |  |      |             |   |      |   |             |      |  |   |             |  
|Weighted average shares - basic  |  |      | 31,525,271  |   |      |   | 20,680,015  |      |  |   | 15,346,799  |  
|Net loss per share - basic       |  | $    | (1.13       | ) |      | $ | (1.46       | )    |  | $ | (1.59       | )
|Net loss per share - diluted     |  | $    | (1.13       | ) |      | $ | (1.46       | )    |  | $ | (1.59       | )



|16. | Stock-based Compensation Plans
|--- | ------------------------------

The Companys 2004 Option Plan
(the Plan) was authorized by the Board of Directors of the Company in March 2004, and amended in January 2005. Under the terms of the Plan, stock options may be granted to officers, directors, employees, and others. At December 31,
2007, 4,450,000 shares of common stock were authorized for issuance under the Plan. Shares subject to awards that expire unexercised or are otherwise terminated, again become available for awards. Upon exercise, stock is issued from unissued or
treasury shares. The grant price of an option under the Plan may not be less than the fair market value of the common stock subject to such option on the date of grant. Options have a maximum life of ten years and generally vest 25% per year
over a four year period.



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##### Table of Contents

During the year ended December 31, 2008, 2007 and 2006, the Company recognized compensation expense of $1,349,667,
$1,436,996 and $2,235,224, respectively, related to stock options.

The fair value of each option was estimated on the date of the grant using the
Black-Scholes option-pricing model with the following weighted average assumptions:



|                            |  |                         |   |  |              |   |  |              |  
|--------------------------- |  | ----------------------- | - |  | ------------ | - |  | ------------ | -
|                            |  | Year Ended December 31, |  
|                            |  | 2008                    |   |  | 2007         |   |  | 2006         |  
|Expected term (years)       |  | 6.25                    |   |  | 6.25         |   |  | 6.25         |  
|Risk-free interest rates    |  | 3.02% - 3.52            | % |  | 3.61% - 4.69 | % |  | 4.36% - 5.19 | %
|Expected dividend yield     |  | 0.0                     | % |  | 0.0          | % |  | 0.0          | %
|Expected volatility         |  | 54.47% - 69.24          | % |  | 50.2% - 53.1 | % |  | 50.3% - 54.0 | %
|Weighted-average volatility |  | 66.2                    | % |  | 51.2         | % |  | 52.2         | %

The risk-free interest rate is based on the U.S. Treasury rate for the expected life at the time of grant,
volatility is based on the average long-term implied volatilities of peer companies as the Companys trading history is limited, and the expected term is determined using the simplified method as accepted under Securities and Exchange
Commission Staff Accounting Bulletin No. 107 assuming a ten-year original contract term and graded vesting over four years. The weighted-average grant-date fair value of options issued during the years ended December 31, 2008, 2007, and
2006 were $3.43, $1.92 and $3.16, respectively. The total intrinsic value of options exercised during the years ended December 31, 2008 and 2006 was $555,398 and $2,450,313, respectively.

The following table summarizes activity under the Plan for the year ended December 31, 2008:



|                                 |  |                    |   |  |                              |      |                                                   |      |                          |   |          
|-------------------------------- |  | ------------------ | - |  | ---------------------------- | ---- | ------------------------------------------------- | ---- | ------------------------ | - | ---------
|                                 |  | OptionsOutstanding |   |  | WeightedAverageExercisePrice |      | WeightedAverageRemainingContractualTerm(in years) |      | AggregateIntrinsic Value
|Outstanding at December 31, 2006 |  | 1,323,625          |   |  | $                            | 6.90 |                                                   | 8.81 |                          | $ | 505,825  
|Granted                          |  | 390,000            |   |  |                              | 3.53 |                                                   |      |                          |   |          
|Exercised                        |  |                   |   |  |                              |     |                                                   |      |                          |   |          
|Forfeited                        |  | (145,500           | ) |  |                              | 5.19 |                                                   |      |                          |   |          
|Expirations                      |  | (2,500             | ) |  |                              | 6.95 |                                                   |      |                          |   |          
|                                 |  |                    |   |  |                              |      |                                                   |      |                          |   |          
|Outstanding at December 31, 2007 |  | 1,565,625          |   |  | $                            | 6.22 |                                                   | 8.19 |                          | $ | 1,053,320
|Granted                          |  | 516,500            |   |  |                              | 5.49 |                                                   |      |                          |   |          
|Exercised                        |  | (211,750           | ) |  |                              | 4.86 |                                                   |      |                          |   |          
|Forfeited                        |  | (239,500           | ) |  |                              | 4.87 |                                                   |      |                          |   |          
|Expirations                      |  |                   |   |  |                              |     |                                                   |      |                          |   |          
|                                 |  |                    |   |  |                              |      |                                                   |      |                          |   |          
|Outstanding at December 31, 2008 |  | 1,630,875          |   |  |                              | 6.35 |                                                   | 6.51 |                          | $ |         
|                                 |  |                    |   |  |                              |      |                                                   |      |                          |   |          
|Vested or expected to vest       |  | 2,801,402          |   |  | $                            | 4.75 |                                                   |      |                          |   |          
|Exercisable                      |  | 698,375            |   |  | $                            | 6.51 |                                                   |      |                          | $ |         



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As of December 31, 2008, there was $1,560,904 of total unrecognized compensation cost related to non-vested stock
options granted under the Plan. That cost is expected to be recognized over a weighted average period of 3.34 years. The weighted average remaining contractual term of exercisable options at December 31, 2008 was 1.47 years. The total fair
value of shares vested during the years ended December 31, 2008, 2007, and 2006, was $2,548,300, $1,143,942, and $2,762,529, respectively.



|17. | Commitments and Contingencies
|--- | -----------------------------

The Company is made a party to legal
actions, claims, arbitration and administrative proceedings from time to time in the ordinary course of business. Management is not aware of any pending or threatened proceedings that might have a material impact on its cash flows, results of
operations or financial condition.



|18. | Related Party Transactions
|--- | --------------------------

On October 20, 2008, the Company
executed employee retention contracts with two executive officers of the Company. These agreements in the aggregate, provide for cash payments of $350,000 upon execution and an additional $100,000 payable on January 31, 2012. These amounts are
being expensed over the terms of the agreements. In addition, the agreements provide for a total of 200,000 restricted shares of the Companys common stock as well as the option to purchase 75,000 additional shares under a three year vesting
schedule.

On May 7, 2008, the Company completed the sale of 2,332,000 shares of common stock at a price of $4.65 per share in a private placement for
gross proceeds of $10,843,800. Three executive officers participated in the offering and acquired an aggregate of 55,000 of the shares.

On March 31,
2008, the Companys wholly-owned subsidiary, National Coal Corporation, completed the sale of the real and personal property assets that comprised its Straight Creek mining operations in Bell, Leslie and Harlan Counties, Kentucky to Xinergy
Corp. (Xinergy) for $11,000,000 in cash in accordance with the terms and conditions of a Purchase Agreement entered into among the parties on February 8, 2008 (the Purchase Agreement). In addition to the receipt of the
purchase price for the assets, the transaction also resulted in the return of approximately $7,400,000 in cash that was previously pledged to secure reclamation bonds and other liabilities associated with the Straight Creek operation, and relieved
the Company of approximately $3,600,000 in reclamation liabilities and approximately $2,600,000 of equipment related debt which were assumed by Xinergy in the transaction.

Xinergy Corp. was founded and is controlled by Jon Nix, who is a founder, significant stockholder, and former officer and director of National Coal. Mr. Nix served as a director of National Coal Corp. from
January 2003 until July 2007, and as Chairman of the Board from March 2004 until July 2007. Mr. Nix also served as President and Chief Executive Officer from January 2003 until August 2006.

On October 19, 2007, the CEO and President of the Company, purchased 200,000 shares of the Companys common stock at a price of $3.00 per share from common
stock authorized under the 2004 Stock Option Plan.

On October 19, 2007, Jon Nix, the former Chairman of the Companys Board of Directors, who is
also the former President and CEO, received a commission of $100,000 related to the completion of the acquisition of Mann Steel Products, Inc.

In March
2007, the then-Chairman of the Companys Board of Directors, who is also the former President and CEO, sold to the current President and CEO for $10.00 the fully vested option to purchase 400,000 shares of National Coal Corp. common stock at
$7.00 per share until December 31, 2008. The transaction resulted in $434,493 of additional compensation expense to the Company in the year ended December 31, 2007.



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##### Table of Contents

On February 28, 2007, the Company sold an additional 200,000 shares to the Companys President and CEO for a
total price of $930,000.

On June 5, 2006 the Company sold 100,000 shares of National Coal Corp. common stock to the Companys President and CEO,
for a total price of $888,000.



|19. | Supplemental Guarantor and Non-Guarantor Information
|--- | ----------------------------------------------------

National Coal
of Alabama, Inc. and its parent company, NCC Corp. (the Alabama Companies), have been designated as unrestricted subsidiaries with regard to the 10.5% Senior Secured Notes due 2010 and the Term Loan Credit Facility, which
designation exempts them from being guarantors under those facilities. Further, the Alabama Companies do not guarantee any debt in which either National Coal Corp. or National Coal Corporation is the borrower. Conversely, National Coal Corp.,
National Coal Corporation and its subsidiaries (the Tennessee Companies) have been excluded as guarantors under the 12% Notes Payable due 2012.

The following condensed consolidating financial information sets forth the financial position as of December 31, 2008 and results of operations and cash flows for the year ended December 31, 2008 of National Coal Corp. (NCC) and
NCA. NCA was acquired on October 19, 2007.



36



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National Coal Corp.

Supplemental Consolidated Balance Sheets

December 31, 2008



|                                                           |  |     |             |   |     |   |             |              |  |   |              |   |  |   |              |  
|---------------------------------------------------------- |  | --- | ----------- | - | --- | - | ----------- | ------------ |  | - | ------------ | - |  | - | ------------ | -
|                                                           |  | NCC |             |   | NCA |   |             | Eliminations |  |   | Consolidated |  
|Assets                                                     |  |     |             |   |     |   |             |              |  |   |              |   |  |   |              |  
|Current Assets:                                            |  |     |             |   |     |   |             |              |  |   |              |   |  |   |              |  
|Cash and cash equivalents                                  |  | $   | 3,908,469   |   |     | $ | 716,042     |              |  | $ |             |   |  | $ | 4,624,511    |  
|Restricted cash                                            |  |     |            |   |     |   | 2,771,445   |              |  |   |             |   |  |   | 2,771,445    |  
|Accounts receivable, net                                   |  |     | 477,706     |   |     |   | 5,263,786   |              |  |   | (3,355       | ) |  |   | 5,738,137    |  
|Inventory                                                  |  |     | 2,957,654   |   |     |   | 732,508     |              |  |   |             |   |  |   | 3,690,162    |  
|Prepaid and other current assets                           |  |     | 1,282,777   |   |     |   | 268,096     |              |  |   |             |   |  |   | 1,550,873    |  
|                                                           |  |     |             |   |     |   |             |              |  |   |              |   |  |   |              |  
|Total current assets                                       |  |     | 8,626,606   |   |     |   | 9,751,877   |              |  |   | (3,355       | ) |  |   | 18,375,128   |  
|Property, plant, equipment and mine development, net       |  |     | 43,674,758  |   |     |   | 58,771,938  |              |  |   |             |   |  |   | 102,446,696  |  
|Deferred financing costs                                   |  |     | 1,238,267   |   |     |   | 3,541,172   |              |  |   |             |   |  |   | 4,779,439    |  
|Restricted cash                                            |  |     | 11,338,137  |   |     |   | 8,578,183   |              |  |   |             |   |  |   | 19,916,320   |  
|Other non-current assets                                   |  |     | 14,662,826  |   |     |   | 728,733     |              |  |   | (13,099,925  | ) |  |   | 2,291,634    |  
|                                                           |  |     |             |   |     |   |             |              |  |   |              |   |  |   |              |  
|Total Assets                                               |  | $   | 79,540,594  |   |     | $ | 81,371,903  |              |  | $ | (13,103,280  | ) |  | $ | 147,809,217  |  
|                                                           |  |     |             |   |     |   |             |              |  |   |              |   |  |   |              |  
|Liabilities and Stockholders Equity                       |  |     |             |   |     |   |             |              |  |   |              |   |  |   |              |  
|Current Liabilities:                                       |  |     |             |   |     |   |             |              |  |   |              |   |  |   |              |  
|Accounts payable                                           |  | $   | 6,191,440   |   |     | $ | 7,594,786   |              |  | $ | (3,355       | ) |  | $ | 13,782,871   |  
|Accrued expenses                                           |  |     | 880,632     |   |     |   | 1,705,680   |              |  |   |             |   |  |   | 2,586,312    |  
|Current maturities of long-term debt                       |  |     | 2,336,191   |   |     |   | 1,280,147   |              |  |   |             |   |  |   | 3,616,338    |  
|Current installments of obligations under capital leases   |  |     | 1,886,251   |   |     |   | 57,717      |              |  |   |             |   |  |   | 1,943,968    |  
|Current portion of asset retirement obligations            |  |     | 145,282     |   |     |   | 114,325     |              |  |   |             |   |  |   | 259,607      |  
|Deferred revenue                                           |  |     | 1,241,840   |   |     |   | 983,040     |              |  |   |             |   |  |   | 2,224,880    |  
|                                                           |  |     |             |   |     |   |             |              |  |   |              |   |  |   |              |  
|Total Current Liabilities                                  |  |     | 12,681,636  |   |     |   | 11,735,695  |              |  |   | (3,355       | ) |  |   | 24,413,976   |  
|Long - term debt, less current maturities, net of discount |  |     | 41,892,645  |   |     |   | 61,607,254  |              |  |   |             |   |  |   | 103,499,899  |  
|Obligations under capital lases, less current portion      |  |     | 1,314,188   |   |     |   | 104,911     |              |  |   |             |   |  |   | 1,419,099    |  
|Asset retirement obligations, less current portion         |  |     | 3,763,720   |   |     |   | 3,386,371   |              |  |   |             |   |  |   | 7,150,091    |  
|Deferred revenue                                           |  |     | 1,303,655   |   |     |   |            |              |  |   |             |   |  |   | 1,303,655    |  
|Other non - current liabilities                            |  |     | 2,138,235   |   |     |   |            |              |  |   |             |   |  |   | 2,138,235    |  
|Deferred tax liability                                     |  |     |            |   |     |   | 2,393,527   |              |  |   |             |   |  |   | 2,393,527    |  
|                                                           |  |     |             |   |     |   |             |              |  |   |              |   |  |   |              |  
|Total Liabilities                                          |  |     | 63,094,079  |   |     |   | 79,227,758  |              |  |   | (3,355       | ) |  |   | 142,318,482  |  
|                                                           |  |     |             |   |     |   |             |              |  |   |              |   |  |   |              |  
|Stockholders Equity:                                      |  |     |             |   |     |   |             |              |  |   |              |   |  |   |              |  
|Preferred stock                                            |  |     |            |   |     |   |            |              |  |   |             |   |  |   |             |  
|Common stock                                               |  |     | 3,418       |   |     |   | 104         |              |  |   | (104         | ) |  |   | 3,418        |  
|Additional paid - in capital                               |  |     | 114,735,227 |   |     |   | 13,135,541  |              |  |   | (13,099,821  | ) |  |   | 114,770,947  |  
|Accumulated deficit                                        |  |     | (98,292,130 | ) |     |   | (10,991,500 | )            |  |   |             |   |  |   | (109,283,630 | )
|                                                           |  |     |             |   |     |   |             |              |  |   |              |   |  |   |              |  
|Total Stockholders Equity                                 |  |     | 16,446,515  |   |     |   | 2,144,145   |              |  |   | (13,099,925  | ) |  |   | 5,490,735    |  
|                                                           |  |     |             |   |     |   |             |              |  |   |              |   |  |   |              |  
|Total Liabilities and Stockholders Equity                 |  | $   | 79,540,594  |   |     | $ | 81,371,903  |              |  | $ | (13,103,280  | ) |  | $ | 147,809,217  |  
|                                                           |  |     |             |   |     |   |             |              |  |   |              |   |  |   |              |  



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National Coal Corp.

Supplemental Consolidated Balance Sheets

December 31, 2007



|                                                           |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|---------------------------------------------------------- |  | --- | ----------- | - | --- | - | ---------- | ------------ |  | - | ------------ | - |  | - | ----------- | -
|                                                           |  | NCC |             |   | NCA |   |            | Eliminations |  |   | Consolidated |  
|Assets                                                     |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Current Assets:                                            |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Cash and cash equivalents                                  |  | $   | 8,823,016   |   |     | $ | 1,031,335  |              |  | $ |             |   |  | $ | 9,854,351   |  
|Accounts receivable, net                                   |  |     | 2,402,256   |   |     |   | 6,384,790  |              |  |   |              |   |  |   | 8,787,046   |  
|Inventory                                                  |  |     | 2,155,603   |   |     |   | 790,498    |              |  |   |              |   |  |   | 2,946,101   |  
|Prepaid and other current assets                           |  |     | 239,381     |   |     |   | 1,712,446  |              |  |   |              |   |  |   | 1,951,827   |  
|                                                           |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Total current assets                                       |  |     | 13,620,256  |   |     |   | 9,919,069  |              |  |   |             |   |  |   | 23,539,325  |  
|Property, plant, equipment and mine development, net       |  |     | 50,828,149  |   |     |   | 58,052,450 |              |  |   |              |   |  |   | 108,880,599 |  
|Deferred financing costs                                   |  |     | 3,170,984   |   |     |   | 3,498,719  |              |  |   |              |   |  |   | 6,669,703   |  
|Restricted cash                                            |  |     | 16,511,809  |   |     |   | 12,423,974 |              |  |   |              |   |  |   | 28,935,783  |  
|Other non-current assets                                   |  |     | 13,785,705  |   |     |   | 892,723    |              |  |   | (13,448,837  | ) |  |   | 1,229,591   |  
|                                                           |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Total Assets                                               |  | $   | 97,916,903  |   |     | $ | 84,786,935 |              |  | $ | (13,448,837  | ) |  | $ | 169,255,001 |  
|                                                           |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Liabilities and Stockholders Equity                       |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Current Liabilities:                                       |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Accounts payable                                           |  | $   | 7,954,606   |   |     | $ | 3,070,746  |              |  |   |              |   |  | $ | 11,025,352  |  
|Accrued expenses                                           |  |     | 1,139,682   |   |     |   | 594,559    |              |  |   |              |   |  |   | 1,734,241   |  
|Current maturities of long-term debt                       |  |     | 13,053,230  |   |     |   | 2,400,000  |              |  |   |              |   |  |   | 15,453,230  |  
|Current installments of obligations under capital leases   |  |     | 157,062     |   |     |   |           |              |  |   |              |   |  |   | 157,062     |  
|Current portion of asset retirement obligations            |  |     | 1,095,029   |   |     |   | 215,315    |              |  |   |              |   |  |   | 1,310,344   |  
|                                                           |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Total Current Liabilities                                  |  |     | 23,399,609  |   |     |   | 6,280,620  |              |  |   |             |   |  |   | 29,680,229  |  
|Long - term debt, less current maturities, net of discount |  |     | 56,219,120  |   |     |   | 58,131,228 |              |  |   |              |   |  |   | 114,350,348 |  
|Obligations under capital leases, less current portion     |  |     | 74,688      |   |     |   |           |              |  |   |              |   |  |   | 74,688      |  
|Asset retirement obligations, less current portion         |  |     | 6,493,296   |   |     |   | 2,461,047  |              |  |   |              |   |  |   | 8,954,343   |  
|Deferred revenue                                           |  |     | 1,553,806   |   |     |   |           |              |  |   |              |   |  |   | 1,553,806   |  
|Other non - current liabilities                            |  |     | 254,766     |   |     |   | 1,520,000  |              |  |   |              |   |  |   | 1,774,766   |  
|Deferred tax liability                                     |  |     |            |   |     |   | 3,351,465  |              |  |   |              |   |  |   | 3,351,465   |  
|                                                           |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Total Liabilities                                          |  |     | 87,995,285  |   |     |   | 71,744,360 |              |  |   |             |   |  |   | 159,739,645 |  
|                                                           |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Stockholders Equity:                                      |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Preferred stock                                            |  |     |            |   |     |   |           |              |  |   |             |   |  |   |            |  
|Common stock                                               |  |     | 2,770       |   |     |   | 104        |              |  |   | (104         | ) |  |   | 2,770       |  
|Additional paid - in capital                               |  |     | 83,309,703  |   |     |   | 13,448,733 |              |  |   | (13,448,733  | ) |  |   | 83,309,703  |  
|Accumulated deficit                                        |  |     | (73,390,855 | ) |     |   | (406,262   | )            |  |   |             |   |  |   | (73,797,117 | )
|                                                           |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Total Stockholders Equity                                 |  |     | 9,921,618   |   |     |   | 13,042,575 |              |  |   | (13,448,837  | ) |  |   | 9,515,356   |  
|                                                           |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Total Liabilities and Stockholders Equity                 |  | $   | 97,916,903  |   |     | $ | 84,786,935 |              |  | $ | (13,448,837  | ) |  | $ | 169,255,001 |  
|                                                           |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  



38



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##### Table of Contents

National Coal Corp.

Supplemental Consolidated Statements of Operations

For the Year Ended December 31, 2008



|                                                                                                            |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|----------------------------------------------------------------------------------------------------------- |  | --- | ----------- | - | --- | - | ----------- | ------------ |  | - | ------------ | - |  | - | ----------- | -
|                                                                                                            |  | NCC |             |   | NCA |   |             | Eliminations |  |   | Consolidated |  
|Revenues:                                                                                                   |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|Coal sales                                                                                                  |  | $   | 61,827,845  |   |     | $ | 67,549,487  |              |  | $ |             |   |  | $ | 129,377,332 |  
|Other revenues                                                                                              |  |     | 4,423,401   |   |     |   | 48,379      |              |  |   | (1,200,000   | ) |  |   | 3,271,780   |  
|                                                                                                            |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|Total revenues                                                                                              |  |     | 66,251,246  |   |     |   | 67,597,866  |              |  |   | (1,200,000   | ) |  |   | 132,649,112 |  
|Operating expenses:                                                                                         |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|Cost of coal sales (exclusive of depreciation, depletion, amortization and accretion)                       |  |     | 62,847,621  |   |     |   | 60,374,017  |              |  |   |             |   |  |   | 123,221,638 |  
|Cost of services                                                                                            |  |     | 2,818,582   |   |     |   |            |              |  |   |             |   |  |   | 2,818,582   |  
|Depreciation, depletion, amortization and accretion                                                         |  |     | 8,847,711   |   |     |   | 6,073,002   |              |  |   |             |   |  |   | 14,920,713  |  
|General and administrative                                                                                  |  |     | 7,635,292   |   |     |   | 2,299,015   |              |  |   | (1,200,000   | ) |  |   | 8,734,307   |  
|                                                                                                            |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|Total operating expenses                                                                                    |  |     | 82,149,206  |   |     |   | 68,746,034  |              |  |   | (1,200,000   | ) |  |   | 149,695,240 |  
|                                                                                                            |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|Loss from operations                                                                                        |  |     | (15,897,960 | ) |     |   | (1,148,168  | )            |  |   |             |   |  |   | (17,046,128 | )
|Other income (expense):                                                                                     |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|Interest expense                                                                                            |  |     | (7,277,975  | ) |     |   | (10,957,056 | )            |  |   |             |   |  |   | (18,235,031 | )
|Interest income                                                                                             |  |     | 730,102     |   |     |   | 222,082     |              |  |   |             |   |  |   | 952,184     |  
|Income from joint venture                                                                                   |  |     |            |   |     |   | 462,076     |              |  |   |             |   |  |   | 462,076     |  
|Other                                                                                                       |  |     | (1,861,879  | ) |     |   | 157,614     |              |  |   |             |   |  |   | (1,704,265  | )
|                                                                                                            |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|Other income (expense), net                                                                                 |  |     | (8,409,752  | ) |     |   | (10,115,284 | )            |  |   |             |   |  |   | (18,525,036 | )
|                                                                                                            |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|Loss before income taxes                                                                                    |  |     | (24,307,712 | ) |     |   | (11,263,452 | )            |  |   |             |   |  |   | (35,571,164 | )
|Income tax benefit                                                                                          |  |     |            |   |     |   | 678,214     |              |  |   |             |   |  |   | 678,214     |  
|                                                                                                            |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|Net loss                                                                                                    |  | $   | (24,307,712 | ) |     | $ | (10,585,238 | )            |  | $ |             |   |  | $ | (34,892,950 | )
|                                                                                                            |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|                                                                                                           
|National Coal Corp. Supplemental Consolidated Statements of Operations For the Year Ended December 31, 2007 | 
|                                                                                                            |  |     |             |  
|                                                                                                            |  | NCC |             |   | NCA |   |             | Eliminations |  |   | Consolidated |  
|Revenues:                                                                                                   |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|Coal sales                                                                                                  |  | $   | 79,038,521  |   |     | $ | 12,904,229  |              |  | $ |             |   |  | $ | 91,942,750  |  
|Other revenues                                                                                              |  |     | 1,079,213   |   |     |   |            |              |  |   | (241,935     | ) |  |   | 837,278     |  
|                                                                                                            |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|Total revenues                                                                                              |  |     | 80,117,734  |   |     |   | 12,904,229  |              |  |   | (241,935     | ) |  |   | 92,780,028  |  
|Operating expenses:                                                                                         |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|Cost of coal sales (exclusive of depreciation, depletion, amortization and accretion)                       |  |     | 77,064,753  |   |     |   | 9,501,701   |              |  |   |             |   |  |   | 86,566,454  |  
|Depreciation, depletion, amortization and accretion                                                         |  |     | 14,661,153  |   |     |   | 1,864,430   |              |  |   |             |   |  |   | 16,525,583  |  
|General and administrative                                                                                  |  |     | 6,969,932   |   |     |   | 308,527     |              |  |   | (241,935     | ) |  |   | 7,036,524   |  
|                                                                                                            |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|Total operating expenses                                                                                    |  |     | 98,695,838  |   |     |   | 11,674,658  |              |  |   | (241,935     | ) |  |   | 110,128,561 |  
|                                                                                                            |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|Loss from operations                                                                                        |  |     | (18,578,104 | ) |     |   | 1,229,571   |              |  |   |             |   |  |   | (17,348,533 | )
|Other income (expense):                                                                                     |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|Interest expense                                                                                            |  |     | (8,990,387  | ) |     |   | (1,774,898  | )            |  |   |             |   |  |   | (10,765,285 | )
|Interest income                                                                                             |  |     | 1,179,458   |   |     |   | 118,286     |              |  |   |             |   |  |   | 1,297,744   |  
|Income from joint venture                                                                                   |  |     |            |   |     |   | (41,977     | )            |  |   |             |   |  |   | (41,977     | )
|Other                                                                                                       |  |     | 1,030,932   |   |     |   | 62,756      |              |  |   |             |   |  |   | 1,093,688   |  
|                                                                                                            |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|Other income (expense), net                                                                                 |  |     | (6,779,997  | ) |     |   | (1,635,833  | )            |  |   |             |   |  |   | (8,415,830  | )
|                                                                                                            |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|Loss before income taxes                                                                                    |  |     | (25,358,101 | ) |     |   | (406,262    | )            |  |   |             |   |  |   | (25,764,363 | )
|Income tax benefit                                                                                          |  |     |            |   |     |   |            |              |  |   |             |   |  |   |            |  
|                                                                                                            |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  
|Net loss                                                                                                    |  | $   | (25,358,101 | ) |     | $ | (406,262    | )            |  | $ |             |   |  | $ | (25,764,363 | )
|                                                                                                            |  |     |             |   |     |   |             |              |  |   |              |   |  |   |             |  



39



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##### Table of Contents

National Coal Corp.

Supplemental Condensed Consolidated Statements of Cash Flows

For the Year Ended December 31,
2008



|                                                                    |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|------------------------------------------------------------------- |  | --- | ----------- | - | --- | - | ---------- | ------------ |  | - | ------------ | - |  | - | ----------- | -
|                                                                    |  | NCC |             |   | NCA |   |            | Eliminations |  |   | Consolidated |  
|Operating Activities                                                |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Net cash flows used in operating activities                         |  | $   | (9,551,207  | ) |     | $ | 5,041,175  |              |  | $ |             |   |  | $ | (4,510,032  | )
|Investing Activities                                                |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Capital expenditures                                                |  |     | (8,442,724  | ) |     |   | (3,774,775 | )            |  |   |             |   |  |   | (12,217,499 | )
|Proceeds from sale of Straight Creek properties                     |  |     | 10,638,570  |   |     |   |           |              |  |   |             |   |  |   | 10,638,570  |  
|Decrease in restricted cash                                         |  |     | 5,173,672   |   |     |   | 1,074,346  |              |  |   |             |   |  |   | 6,248,018   |  
|Return of capital from subsidiary                                   |  |     | 423,913     |   |     |   |           |              |  |   | (423,913     | ) |  |   |            |  
|Additions to prepaid royalties                                      |  |     | (493,819    | ) |     |   | (246,825   | )            |  |   |             |   |  |   | (740,644    | )
|                                                                    |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Net cash provided by (used in) investing activities                 |  |     | 7,299,612   |   |     |   | (2,947,254 | )            |  |   | (423,913     | ) |  |   | 3,928,445   |  
|Financing Activities                                                |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Proceeds from issuance of common stock                              |  |     | 10,843,798  |   |     |   |           |              |  |   |             |   |  |   | 10,843,798  |  
|Proceeds from stock option exercises                                |  |     | 1,037,125   |   |     |   |           |              |  |   |             |   |  |   | 1,037,125   |  
|Repayments of debt                                                  |  |     | (13,951,676 | ) |     |   | (1,666,880 | )            |  |   |             |   |  |   | (15,618,556 | )
|Repayments of capital leases                                        |  |     | (175,761    | ) |     |   | (18,421    | )            |  |   |             |   |  |   | (194,182    | )
|Payments for deferred financing costs                               |  |     | (204,113    | ) |     |   | (300,000   | )            |  |   |             |   |  |   | (504,113    | )
|Payment of preferred dividends                                      |  |     | (244,405    | ) |     |   |           |              |  |   |             |   |  |   | (244,405    | )
|Distribution to Parent                                              |  |     |            |   |     |   | (423,913   | )            |  |   | 423,913      |   |  |   |            |  
|Other                                                               |  |     | 32,080      |   |     |   |           |              |  |   |             |   |  |   | 32,080      |  
|                                                                    |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Net cash flows provided by (used in) financing activities           |  |     | (2,662,952  | ) |     |   | (2,409,214 | )            |  |   | 423,913      |   |  |   | (4,648,253  | )
|                                                                    |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Net decrease in cash and cash equivalents                           |  |     | (4,914,547  | ) |     |   | (315,293   | )            |  |   |             |   |  |   | (5,229,840  | )
|Cash and cash equivalents at beginning of period                    |  |     | 8,823,016   |   |     |   | 1,031,335  |              |  |   |             |   |  |   | 9,854,351   |  
|                                                                    |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Cash and cash equivalents at end of period                          |  | $   | 3,908,469   |   |     | $ | 716,042    |              |  | $ |             |   |  | $ | 4,624,511   |  
|                                                                    |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Supplemental Cash Flow Information                                  |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Cash paid during the year for interest                              |  | $   | 5,876,678   |   |     | $ | 8,265,445  |              |  | $ |             |   |  | $ | 14,142,123  |  
|Non-cash investing and financing activities:                        |  |     |             |   |     |   |            |              |  |   |              |   |  |   |             |  
|Series A cumulative convertible preferred stock effective dividends |  |     | 593,563     |   |     |   |           |              |  |   |             |   |  |   | 593,563     |  
|10.5% Senior Secured Notes exchanged for common stock               |  |     | 13,158,958  |   |     |   |           |              |  |   |             |   |  |   | 13,158,958  |  
|Equipment acquired through capital leases                           |  |     | 3,144,450   |   |     |   | 181,050    |              |  |   |             |   |  |   | 3,325,500   |  
|Financed equipment acquisitions                                     |  |     | 1,707,787   |   |     |   | 1,866,386  |              |  |   |             |   |  |   | 3,574,173   |  
|Asset retirement obligations incurred, acquired or recosted         |  |     | (101,835    | ) |     |   | 2,168,932  |              |  |   |             |   |  |   | 2,067,097   |  
|Common stock issued for mineral rights                              |  |     | 5,000,000   |   |     |   |           |              |  |   |             |   |  |   | 5,000,000   |  



40



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##### Table of Contents

National Coal Corp.

Supplemental Condensed Consolidating Statement of Cash Flows

For the Period Ended
December 31, 2007



|                                                            |  |     |             |   |     |   |             |              |  |              |   |  |   |             |  
|----------------------------------------------------------- |  | --- | ----------- | - | --- | - | ----------- | ------------ |  | ------------ | - |  | - | ----------- | -
|                                                            |  | NCC |             |   | NCA |   |             | Eliminations |  | Consolidated |  
|Operating Activities                                        |  |     |             |   |     |   |             |              |  |              |   |  |   |             |  
|Net cash flows (used in) provided by operating activities   |  | $   | (8,847,046  | ) |     | $ | 707,333     |              |  | $            |  |  | $ | (8,139,713  | )
|Investing Activities                                        |  |     |             |   |     |   |             |              |  |              |   |  |   |             |  
|Acquisition, net of cash acquired                           |  |     |            |   |     |   | (58,644,617 | )            |  |              |  |  |   | (58,644,617 | )
|Investment in subsidiary                                    |  |     | (13,185,771 | ) |     |   | 13,185,771  |              |  |              |  |  |   |            |  
|Investment in joint venture                                 |  |     |            |   |     |   | (156,800    | )            |  |              |  |  |   | (156,800    | )
|Capital expenditures                                        |  |     | (4,359,850  | ) |     |   |            |              |  |              |  |  |   | (4,359,850  | )
|Proceeds from sale of equipment & mine development, net     |  |     | 2,375,935   |   |     |   | 175,000     |              |  |              |  |  |   | 2,550,935   |  
|Decrease (increase) in restricted cash                      |  |     | 734,942     |   |     |   | (10,903,974 | )            |  |              |  |  |   | (10,169,032 | )
|Increase in prepaid royalties                               |  |     | (6,164      | ) |     |   |            |              |  |              |  |  |   | (6,164      | )
|                                                            |  |     |             |   |     |   |             |              |  |              |   |  |   |             |  
|Net cash flows used in investing activities                 |  |     | (14,440,908 | ) |     |   | (56,344,620 | )            |  |              |  |  |   | (70,785,528 | )
|Financing Activities                                        |  |     |             |   |     |   |             |              |  |              |   |  |   |             |  
|Proceeds from issuance of common stock                      |  |     | 35,798,647  |   |     |   |            |              |  |              |  |  |   | 35,798,647  |  
|Proceeds from exercise of options and warrants              |  |     |            |   |     |   |            |              |  |              |  |  |   |            |  
|Proceeds from issuance of notes                             |  |     | 441,077     |   |     |   | 60,000,000  |              |  |              |  |  |   | 60,441,077  |  
|Proceeds from borrowings on Term Loan Credit Facility       |  |     | 2,000,000   |   |     |   |            |              |  |              |  |  |   | 2,000,000   |  
|Repayments of notes payable                                 |  |     | (5,518,091  | ) |     |   |            |              |  |              |  |  |   | (5,518,091  | )
|Repayments of capital leases                                |  |     | (740,608    | ) |     |   |            |              |  |              |  |  |   | (740,608    | )
|Payments for deferred financing costs                       |  |     | (109,329    | ) |     |   | (3,331,378  | )            |  |              |  |  |   | (3,440,707  | )
|Dividends paid                                              |  |     | (239,458    | ) |     |   |            |              |  |              |  |  |   | (239,458    | )
|Payment of cash to induce conversion of preferred           |  |     | (1,702,153  | ) |     |   |            |              |  |              |  |  |   | (1,702,153  | )
|                                                            |  |     |             |   |     |   |             |              |  |              |   |  |   |             |  
|Net cash flows provided by financing activities             |  |     | 29,930,085  |   |     |   | 56,668,622  |              |  |              |  |  |   | 86,598,707  |  
|                                                            |  |     |             |   |     |   |             |              |  |              |   |  |   |             |  
|Net decrease in cash and cash equivalents                   |  |     | 6,642,131   |   |     |   | 1,031,335   |              |  |              |  |  |   | 7,673,466   |  
|Cash and cash equivalents at beginning of period            |  |     | 2,180,885   |   |     |   |            |              |  |              |  |  |   | 2,180,885   |  
|                                                            |  |     |             |   |     |   |             |              |  |              |   |  |   |             |  
|Cash and cash equivalents at end of period                  |  | $   | 8,823,016   |   |     | $ | 1,031,335   |              |  | $            |  |  | $ | 9,854,351   |  
|                                                            |  |     |             |   |     |   |             |              |  |              |   |  |   |             |  
|Supplemental Cash Flow Information                          |  |     |             |   |     |   |             |              |  |              |   |  |   |             |  
|Cash paid during the year for interest                      |  | $   | 7,981,725   |   |     | $ | 1,400,000   |              |  | $            |  |  | $ | 9,381,725   |  
|Non-cash investing and financing activities:                |  |     |             |   |     |   |             |              |  |              |   |  |   |             |  
|Equipment acquired through capital lease                    |  |     | 248,900     |   |     |   |            |              |  |              |  |  |   | 248,900     |  
|Financed equipment acquisitions                             |  |     | 4,914,339   |   |     |   |            |              |  |              |  |  |   | 4,914,339   |  
|Asset retirement obligations incurred, acquired or recosted |  |     | 2,680,427   |   |     |   |            |              |  |              |  |  |   | 2,671,909   |  
|Issuance of warrants                                        |  |     | 1,374,676   |   |     |   |            |              |  |              |  |  |   | 1,374,676   |  



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|20. | Events Subsequent to December 31, 2008
|--- | --------------------------------------

The Company violated
its loan covenants related to its 12% Senior Secured Notes due 2012 in the fourth quarter of 2008 and a waiver was received of all existing defaults and covenant violations on March 26, 2009, respectively. Additionally, on March 26, 2009,
the credit facility was amended to modify or eliminate certain financial covenant requirements through December 31, 2009.



|21. | Summary Quarterly Financial Information (Unaudited)
|--- | ---------------------------------------------------

Quarterly
financial data for 2008 and 2007 is as follows:



|                                             |  |          |              |   |         |   |             |              |  |   |             |   |  |   |             |  
|-------------------------------------------- |  | -------- | ------------ | - | ------- | - | ----------- | ------------ |  | - | ----------- | - |  | - | ----------- | -
|                                             |  | 2008     |             
|                                             |  | March 31 |              |   | June 30 |   |             | September 30 |  |   | December 31 |  
|Total revenues                               |  | $        | 35,668,747   |   |         | $ | 31,586,740  |              |  | $ | 33,485,638  |   |  | $ | 31,907,987  |  
|Operating loss                               |  |          | (5,319,297   | ) |         |   | (4,205,583  | )            |  |   | (4,329,145  | ) |  |   | (3,192,103  | )
|Net loss attributable to common shareholders |  |          | (10,142,794) |   |         |   | (9,110,094) |              |  |   | (8,430,201) |   |  |   | (7,933,612) |  
|Loss per common share:                       |  |          |              |   |         |   |             |              |  |   |             |   |  |   |             |  
|Basic                                        |  | $        | (0.36        | ) |         | $ | (0.30       | )            |  | $ | (0.25       | ) |  | $ | (0.23       | )
|Diluted                                      |  | $        | (0.36        | ) |         | $ | (0.30       | )            |  | $ | (0.25       | ) |  | $ | (0.23       | )

Note: Straight Creek mining operations were disposed of on March 31, 2008.

The above information has been restated for the following errors:



|                                                         |  |               |   |  |               |   |  |               |  
|-------------------------------------------------------- |  | ------------- | - |  | ------------- | - |  | ------------- | -
|                                                         |  | 2008          |  
|                                                         |  | March 31      |   |  | June 30       |   |  | September 30  |  
|As reported operating loss                               |  | $(5,717,660)  |   |  | $ (5,140,748) |   |  | $ (3,718,784) |  
|Adjustments:                                             |  |               |   |  |               |   |  |               |  
|Cost of sales                                            |  | 277,954       |   |  | 577,798       |   |  | (230,670      | )
|Depreciation, depletion , amortization and accretion     |  | 120,409       |   |  | 357,367       |   |  | (379,691      | )
|                                                         |  |               |   |  |               |   |  |               |  
|Restated operating loss                                  |  | $(5,319,297)  |   |  | $ (4,205,583) |   |  | $ (4,329,145) |  
|                                                         |  |               |   |  |               |   |  |               |  
|                                                         |  |               |  
|As reported net loss attributable to common shareholders |  | $(10,778,588) |   |  | $ (9,890,927) |   |  | $ (7,952,945) |  
|Adjustments:                                             |  |               |   |  |               |   |  |               |  
|Cost of sales                                            |  | 277,954       |   |  | 577,798       |   |  | (230,670      | )
|Depreciation, depletion , amortization and accretion     |  | 120,409       |   |  | 357,367       |   |  | (379,691      | )
|Interest expense                                         |  | 281,222       |   |  | (101,297      | ) |  | 120,075       |  
|Income tax (expense) benefit                             |  | (43,791       | ) |  | (53,035       | ) |  | 13,030        |  
|                                                         |  |               |   |  |               |   |  |               |  
|Restated net loss attributable to common shareholders    |  | $(10,142,794) |   |  | $ (9,110,094) |   |  | $ (8,430,201) |  
|                                                         |  |               |   |  |               |   |  |               |  

The Company identified errors and inconsistencies in the application of accounting policies at its Alabama
subsidiary, particularly as it related to its accounting for asset retirement obligations and the capitalization of certain qualifying repairs such as rebuilds and overhauls to engines, undercarriages and transmissions. As a result of these
findings, the Company restated its quarterly results for the

aforementioned items, including respective adjustments to inventory and taxes, as well as
several immaterial adjustments that had been passed in previous quarters, principally interest expense.



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|                                             |  |          |            |   |         |   |            |              |  |   |             |   |  |   |            |  
|-------------------------------------------- |  | -------- | ---------- | - | ------- | - | ---------- | ------------ |  | - | ----------- | - |  | - | ---------- | -
|                                             |  | 2007     |           
|                                             |  | March 31 |            |   | June 30 |   |            | September 30 |  |   | December 31 |  
|Total revenues                               |  | $        | 19,034,945 |   |         | $ | 18,882,445 |              |  | $ | 20,857,295  |   |  | $ | 34,005,343 |  
|Operating loss                               |  |          | (4,266,461 | ) |         |   | (4,666,536 | )            |  |   | (5,364,612  | ) |  |   | (3,050,924 | )
|Net loss attributable to common shareholders |  |          | (6,169,393 | ) |         |   | (7,654,813 | )            |  |   | (7,837,398  | ) |  |   | (8,560,008 | )
|Loss per common share:                       |  |          |            |   |         |   |            |              |  |   |             |   |  |   |            |  
|Basic                                        |  | $        | (0.35      | ) |         | $ | (0.38      | )            |  | $ | (0.39       | ) |  | $ | (0.34      | )
|Diluted                                      |  | $        | (0.35      | ) |         | $ | (0.38      | )            |  | $ | (0.39       | ) |  | $ | (0.34      | )

Note: National Coal of Alabama was acquired on October 19, 2007.



43



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PART IV



|Item 15. | Exhibits, Financial Statement Schedules.
|-------- | ----------------------------------------

(a) The following
documents are filed as part of this report:



| | 1. | Consolidated Financial Statements
| | -- | ---------------------------------

See Index
to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K/A.



| | 2. | Financial Statement Schedules
| | -- | -----------------------------

All financial
schedules are not required under the related instructions, or are inapplicable and therefore have been omitted.



| | 3. | Exhibits. See Item 15(b) below.
| | -- | -------------------------------

(b) Exhibits. We have
filed, or incorporated into this Form 10-K/A by reference, the exhibits listed on the accompanying Index to Exhibits immediately following the signature page of this Form 10-K/A.

(c) Financial Statement Schedule. See Item 15(a) above.



44



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.



| |  |                     |  |                     |  |      |  |                                             
| |  | ------------------- |  | ------------------- |  | ---- |  | --------------------------------------------
| |  |                     |  | NATIONAL COAL CORP.
| |  |                     |  |                    
| |  | Date: April 6, 2009 |  |                     |  |      |  | /s/ Michael R. Castle                       
| |  |                     |  |                     |  | By:  |  | Michael R. Castle                           
| |  |                     |  |                     |  | Its: |  | Chief Financial Officer                     
| |  |                     |  |                     |  |      |  | (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



|                                        |  |                                                                                |  |              
|--------------------------------------- |  | ------------------------------------------------------------------------------ |  | -------------
|Name                                    |  | Title                                                                          |  | Date         
|                                        |  |                                                                               
|/s/ Daniel A. Roling Daniel A. Roling   |  | Chief Executive Officer, President, and Director (Principal Executive Officer) |  | April 6, 2009
|                                        |  |                                                                               
|/s/ Michael R. Castle Michael R. Castle |  | Chief Financial Officer (Principal Financial and Accounting officer)           |  | April 6, 2009
|                                        |  |                                                                               
|* Kenneth
Scott                         |  | Chairman of the Board                                                          |  | April 6, 2009
|                                        |  |                                                                               
|* Robert
Heinlein                       |  | Director                                                                       |  | April 6, 2009
|                                        |  |                                                                               
|* Gerald
Malys                          |  | Director                                                                       |  | April 6, 2009
|                                        |  |                                                                               
|* Marc
Solochek                         |  | Director                                                                       |  | April 6, 2009

|     |  |                                  
|---- |  | ---------------------------------
|    
|     | 
|*By: |  | /s/ Daniel Roling                
|     |  | Daniel Roling As
Attorney-In-Fact



---

##### Table of Contents

INDEX TO EXHIBITS



|              |  |                                                                                                                                                                                       
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Title                                                                                                                                                                         
|23.1          |  | Consent of Ernst & Young LLP.                                                                                                                                                         
|              | 
|31.1          |  | Certification of Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
2002.  
|              | 
|31.2          |  | Certification of Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
2002.  
|              | 
|32.1          |  | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.