##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended September 30, 2010

or



| ̈ | Transition Report Under 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 of
incorporation or organization) |  | (I.R.S. Employer Identification No.)

8915 George Williams Road

Knoxville, TN 37923

(Address of principal executive offices, zip code)

(865) 690-6900

(Registrants telephone number, including area code)

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                |  |                           |  |  
|----------------------- |  | ---------------------------------------------- |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                              |  | Accelerated filer         |  |  ̈
|                        |  |                                                | 
|Non-accelerated filer   |  |  ̈  (Do not check if smaller reporting company) |  | Smaller reporting company |  | x

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

As of November 15, 2010 the issuer had 8,545,765 shares of common stock, par value $.0001 per share, issued and outstanding.









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##### Table of Contents



National Coal Corp.

Table of Contents



|                                                                                                                 |  |  |    | 
|---------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|PART I - FINANCIAL INFORMATION                                                                                   |  |  |    | 
|                                                                                                                 | 
|Item 1. Financial Statements (Unaudited)                                                                         |  |  | 2  | 
|                                                                                                                 | 
|Condensed Consolidated Balance Sheets at September 30, 2010 and December 31, 2009                                |  |  | 2  | 
|                                                                                                                 | 
|Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2010
 and 2009 |  |  | 3  | 
|                                                                                                                 | 
|Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009            |  |  | 4  | 
|                                                                                                                 | 
|Notes to Condensed Consolidated Financial Statements                                                             |  |  | 5  | 
|                                                                                                                 | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations                    |  |  | 21 | 
|                                                                                                                 | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                               |  |  | 36 | 
|                                                                                                                 | 
|Item 4T. Controls and Procedures                                                                                 |  |  | 36 | 
|                                                                                                                 | 
|PART II - OTHER INFORMATION                                                                                      |  |  |    | 
|                                                                                                                 | 
|Item 1. Legal Proceedings                                                                                        |  |  | 37 | 
|                                                                                                                 | 
|Item 1A. Risk Factors                                                                                            |  |  | 37 | 
|                                                                                                                 | 
|Item 5. Other Information                                                                                        |  |  | 38 | 
|                                                                                                                 | 
|Item 6. Exhibits                                                                                                 |  |  | 40 | 



1



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##### Table of Contents



PART I: FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

National Coal Corp.

Condensed Consolidated Balance Sheets

(Unaudited)



|                                                                                                                                                                               |  |                    |               |  |                   |   |               | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ------------- |  | ----------------- | - | ------------- | 
|                                                                                                                                                                               |  | September 30, 2010 |               |  | December 31, 2009 |  
|Assets                                                                                                                                                                         |  |                    |               |  |                   |   |               | 
|Current Assets:                                                                                                                                                                |  |                    |               |  |                   |   |               | 
|Cash and cash equivalents                                                                                                                                                      |  | $                  | 3,136,237     |  |                   | $ | 1,185,725     | 
|Accounts receivable, net                                                                                                                                                       |  |                    | 469,035       |  |                   |   | 366,680       | 
|Inventory                                                                                                                                                                      |  |                    | 2,119,656     |  |                   |   | 1,403,972     | 
|Prepaid and other current assets                                                                                                                                               |  |                    | 733,311       |  |                   |   | 1,550,919     | 
|                                                                                                                                                                               |  |                    |               |  |                   |   |               | 
|Total Current Assets                                                                                                                                                           |  |                    | 6,458,239     |  |                   |   | 4,507,296     | 
|Property, plant, equipment and mine development, net                                                                                                                           |  |                    | 23,006,694    |  |                   |   | 40,298,450    | 
|Deferred financing costs                                                                                                                                                       |  |                    | 107,130       |  |                   |   | 890,048       | 
|Restricted cash                                                                                                                                                                |  |                    | 3,707,059     |  |                   |   | 6,211,637     | 
|Other non-current assets                                                                                                                                                       |  |                    | 847,044       |  |                   |   | 906,097       | 
|                                                                                                                                                                               |  |                    |               |  |                   |   |               | 
|Total Assets                                                                                                                                                                   |  | $                  | 34,126,166    |  |                   | $ | 52,813,528    | 
|                                                                                                                                                                               |  |                    |               |  |                   |   |               | 
|                                                                                                                                                                               |  |                   
|Liabilities and Stockholders Deficit                                                                                                                                          |  |                    |               |  |                   |   |               | 
|Current Liabilities:                                                                                                                                                           |  |                    |               |  |                   |   |               | 
|Accounts payable                                                                                                                                                               |  | $                  | 4,539,504     |  |                   | $ | 11,551,663    | 
|Accrued expenses                                                                                                                                                               |  |                    | 2,189,591     |  |                   |   | 1,065,355     | 
|Borrowings under short-term line of credit                                                                                                                                     |  |                    |              |  |                   |   | 3,000,000     | 
|Current maturities of long - term debt                                                                                                                                         |  |                    | 42,398,865    |  |                   |   | 42,372,933    | 
|Current installments of obligations under capital leases                                                                                                                       |  |                    | 148,168       |  |                   |   | 1,237,358     | 
|Current portion of asset retirement obligations                                                                                                                                |  |                    | 98,528        |  |                   |   | 98,528        | 
|                                                                                                                                                                               |  |                    |               |  |                   |   |               | 
|Total Current Liabilities                                                                                                                                                      |  |                    | 49,374,656    |  |                   |   | 59,325,837    | 
|                                                                                                                                                                               |  |                   
|Long - term debt, less current maturities, net of discount                                                                                                                     |  |                    | 12,289        |  |                   |   | 270,291       | 
|Obligations under capital leases, less current installments                                                                                                                    |  |                    | 27,380        |  |                   |   | 140,958       | 
|Asset retirement obligations, less current portion                                                                                                                             |  |                    | 3,579,928     |  |                   |   | 3,790,212     | 
|Deferred revenue                                                                                                                                                               |  |                    | 1,000,000     |  |                   |   | 1,000,000     | 
|Other non-current liabilities                                                                                                                                                  |  |                    | 799,327       |  |                   |   | 589,139       | 
|                                                                                                                                                                               |  |                    |               |  |                   |   |               | 
|Total Liabilities                                                                                                                                                              |  |                    | 54,793,580    |  |                   |   | 65,116,437    | 
|                                                                                                                                                                               |  |                    |               |  |                   |   |               | 
|                                                                                                                                                                               |  |                   
|Stockholders Deficit:                                                                                                                                                         |  |                    |               |  |                   |   |               | 
|Preferred stock, $.0001 par value; 10 million shares authorized; no shares issued or outstanding                                                                               |  |                    |              |  |                   |   |              | 
|Common Stock, $.0001 par value; 120 million shares authorized; 8,545,765 and 8,578,473 shares issued and outstanding at
September 30, 2010 and December 31, 2009, respectively |  |                    | 855           |  |                   |   | 858           | 
|Additional paid - in capital                                                                                                                                                   |  |                    | 117,041,538   |  |                   |   | 116,194,411   | 
|Accumulated deficit                                                                                                                                                            |  |                    | (137,709,807) |  |                   |   | (128,498,178) | 
|Total Stockholders Deficit                                                                                                                                                    |  |                    | (20,667,414)  |  |                   |   | (12,302,909)  | 
|Total Liabilities and Stockholders Deficit                                                                                                                                    |  | $                  | 34,126,166    |  |                   | $ | 52,813,528    | 

The Condensed Consolidated Balance
Sheet as of December 31, 2009 was derived from Audited Financial Statements

See Accompanying Notes to Condensed Consolidated
Financial Statements.



2



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##### Table of Contents



National Coal Corp.

Condensed Consolidated Statements of Operations

(Unaudited)



|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |             |  
|------------------------------------------------------------------------------------- |  | --------------------------------------- | ---------- | - | -------------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ----------- | -
|                                                                                      |  | For the Three Months EndedSeptember 30, |            |   | For the Nine Months EndedSeptember 30, |  
|                                                                                      |  | 2010                                    |            |   | 2009                                   |   |            | 2010 |  |   | 2009       |  
|Revenues:                                                                             |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |             |  
|Coal sales                                                                            |  | $                                       | 8,820,390  |   |                                        | $ | 21,483,618 |      |  | $ | 35,077,102 |   |  | $ | 62,325,476  |  
|Other revenues                                                                        |  |                                         | 845,811    |   |                                        |   | 637,181    |      |  |   | 1,388,699  |   |  |   | 2,400,759   |  
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |             |  
|Total revenues                                                                        |  |                                         | 9,666,201  |   |                                        |   | 22,120,799 |      |  |   | 36,465,801 |   |  |   | 64,726,235  |  
|                                                                                      |  |                                         |            |  
|Operating expenses:                                                                   |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |             |  
|Cost of coal sales (exclusive of depreciation, depletion, amortization and accretion) |  |                                         | 8,960,772  |   |                                        |   | 20,028,882 |      |  |   | 33,388,620 |   |  |   | 58,295,500  |  
|Cost of services (exclusive of depreciation, depletion, amortization and accretion)   |  |                                         | 57,682     |   |                                        |   | 608,274    |      |  |   | 85,241     |   |  |   | 2,316,948   |  
|Depreciation, depletion, amortization and accretion                                   |  |                                         | 1,272,021  |   |                                        |   | 2,392,606  |      |  |   | 4,340,224  |   |  |   | 7,528,951   |  
|Gain on asset disposal, net                                                           |  |                                         | (77,983    | ) |                                        |   |           |      |  |   | (2,533,732 | ) |  |   |            |  
|General and administrative                                                            |  |                                         | 1,647,041  |   |                                        |   | 1,821,731  |      |  |   | 5,481,813  |   |  |   | 5,247,932   |  
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |             |  
|Total operating expenses                                                              |  |                                         | 11,859,533 |   |                                        |   | 24,851,493 |      |  |   | 40,762,166 |   |  |   | 73,389,331  |  
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |             |  
|Loss from continuing operations                                                       |  |                                         | (2,193,332 | ) |                                        |   | (2,730,694 | )    |  |   | (4,296,365 | ) |  |   | (8,663,096  | )
|                                                                                      |  |                                         |            |  
|Other income (expense):                                                               |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |             |  
|Interest expense                                                                      |  |                                         | (1,498,769 | ) |                                        |   | (1,910,496 | )    |  |   | (4,762,493 | ) |  |   | (5,037,908  | )
|Interest income                                                                       |  |                                         | 1,376      |   |                                        |   | 65,175     |      |  |   | 6,132      |   |  |   | 222,281     |  
|Other                                                                                 |  |                                         | (6,003     | ) |                                        |   | 39,324     |      |  |   | (158,904   | ) |  |   | 63,944      |  
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |             |  
|Other income (expense), net                                                           |  |                                         | (1,503,396 | ) |                                        |   | (1,805,997 | )    |  |   | (4,915,265 | ) |  |   | (4,751,683  | )
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |             |  
|Loss from continuing operations before income taxes                                   |  |                                         | (3,696,728 | ) |                                        |   | (4,536,691 | )    |  |   | (9,211,630 | ) |  |   | (13,414,779 | )
|                                                                                      |  |                                         |            |  
|Income tax benefit                                                                    |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |            |  
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |             |  
|Loss from continuing operations                                                       |  |                                         | (3,696,728 | ) |                                        |   | (4,536,691 | )    |  |   | (9,211,630 | ) |  |   | (13,414,779 | )
|                                                                                      |  |                                         |            |  
|Income (loss) from discontinued operations, net of taxes                              |  |                                         |           |   |                                        |   | 3,872,741  |      |  |   |           |   |  |   | (1,485,157  | )
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |             |  
|Net loss                                                                              |  | $                                       | (3,696,728 | ) |                                        | $ | (663,950   | )    |  | $ | (9,211,630 | ) |  | $ | (14,899,936 | )
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |             |  
|Loss per common share from continuing operations - basic and diluted                  |  | $                                       | (0.43      | ) |                                        | $ | (0.53      | )    |  | $ | (1.08      | ) |  | $ | (1.58       | )
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |             |  
|Earnings (loss) per common share from discontinued operations - basic and diluted     |  | $                                       |           |   |                                        | $ | 0.46       |      |  | $ |           |   |  | $ | (0.17       | )
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |             |  
|Loss per common share - basic and diluted                                             |  | $                                       | (0.43      | ) |                                        | $ | (0.07      | )    |  | $ | (1.08      | ) |  | $ | (1.75       | )
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |             |  
|Weighted average common shares outstanding                                            |  |                                         | 8,522,417  |   |                                        |   | 8,502,360  |      |  |   | 8,542,714  |   |  |   | 8,496,936   |  
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |             |  

See Accompanying Notes to Condensed Consolidated Financial Statements.



3



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##### Table of Contents



National Coal Corp.

Condensed Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                          |  |                                        |            |   |      |   |             |  
|----------------------------------------------------------------------------------------- |  | -------------------------------------- | ---------- | - | ---- | - | ----------- | -
|                                                                                          |  | For the Nine Months EndedSeptember 30, |           
|                                                                                          |  | 2010                                   |            |   | 2009 |  
|Operating Activities                                                                      |  |                                        |            |   |      |   |             |  
|Net loss                                                                                  |  | $                                      | (9,211,630 | ) |      | $ | (14,899,936 | )
|Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |  |                                        |            |   |      |   |             |  
|Loss from discontinued operations, net of taxes                                           |  |                                        |           |   |      |   | 1,485,157   |  
|Depreciation, depletion, amortization and accretion                                       |  |                                        | 4,340,224  |   |      |   | 7,528,951   |  
|Amortization of deferred financing costs                                                  |  |                                        | 882,899    |   |      |   | 688,438     |  
|Amortization of debt discount                                                             |  |                                        | 571,875    |   |      |   | 500,323     |  
|Gain on asset disposals, net                                                              |  |                                        | (2,527,729 | ) |      |   | (74,789     | )
|Settlement of asset retirement obligations                                                |  |                                        | (537,364   | ) |      |   | (41,469     | )
|Loss on extinguishment of debt                                                            |  |                                        | 153,060    |   |      |   |            |  
|Stock option expense                                                                      |  |                                        | 785,123    |   |      |   | 1,126,961   |  
|Stock issuance in exchange for services                                                   |  |                                        | 62,000     |   |      |   |            |  
|Changes in operating assets and liabilities:                                              |  |                                        |            |   |      |   |             |  
|Accounts receivable                                                                       |  |                                        | (102,355   | ) |      |   | (753,137    | )
|Inventory                                                                                 |  |                                        | (2,426,231 | ) |      |   | (940,665    | )
|Prepaid and other current assets                                                          |  |                                        | 991,102    |   |      |   | 678,192     |  
|Other non - current assets                                                                |  |                                        | 133,673    |   |      |   | 158,155     |  
|Accounts payable and accrued expenses                                                     |  |                                        | 724,684    |   |      |   | 8,865,730   |  
|Deferred revenue                                                                          |  |                                        |           |   |      |   | (1,241,840  | )
|Other non - current liabilities                                                           |  |                                        | 210,188    |   |      |   | (196,198    | )
|                                                                                          |  |                                        |            |   |      |   |             |  
|Net cash flows (used in) provided by operating activities from continuing operations      |  |                                        | (5,950,481 | ) |      |   | 2,883,873   |  
|Net cash flows provided by operating activities from discontinued operations              |  |                                        |           |   |      |   | 3,676,903   |  
|                                                                                          |  |                                        |            |   |      |   |             |  
|Net cash flows (used in) provided by operating activities                                 |  |                                        | (5,950,481 | ) |      |   | 6,560,776   |  
|                                                                                          |  |                                       
|Investing Activities                                                                      |  |                                        |            |   |      |   |             |  
|Capital expenditures                                                                      |  |                                        | (1,227,979 | ) |      |   | (5,445,127  | )
|Proceeds from sale of assets                                                              |  |                                        | 14,029,512 |   |      |   |            |  
|Change in restricted cash                                                                 |  |                                        | 607,328    |   |      |   | 2,419,886   |  
|Additions to prepaid royalties                                                            |  |                                        | (74,620    | ) |      |   | (64,500     | )
|                                                                                          |  |                                        |            |   |      |   |             |  
|Net cash provided by (used in) investing activities from continuing operations            |  |                                        | 13,334,241 |   |      |   | (3,089,741  | )
|Net cash used in investing activities from discontinued operations                        |  |                                        |           |   |      |   | (2,153,052  | )
|                                                                                          |  |                                        |            |   |      |   |             |  
|Net cash provided by (used in) investing activities                                       |  |                                        | 13,334,241 |   |      |   | (5,242,793  | )
|                                                                                          |  |                                       
|Financing Activities                                                                      |  |                                        |            |   |      |   |             |  
|Proceeds under short-term line of credit                                                  |  |                                        | 1,500,000  |   |      |   | 5,000,000   |  
|Repayment of short term line of credit                                                    |  |                                        | (4,500,000 | ) |      |   | (1,000,000  | )
|Repayments of long-term debt                                                              |  |                                        | (977,439   | ) |      |   | (2,347,374  | )
|Repayments of obligations under capital leases                                            |  |                                        | (1,202,768 | ) |      |   | (1,555,560  | )
|Payments for deferred financing costs                                                     |  |                                        | (253,041   | ) |      |   | (439,258    | )
|                                                                                          |  |                                        |            |   |      |   |             |  
|Net cash flows used in financing activities from continuing operations                    |  |                                        | (5,433,248 | ) |      |   | (342,192    | )
|Net cash flows used in financing activities from discontinued operations                  |  |                                        |           |   |      |   | (823,851    | )
|                                                                                          |  |                                        |            |   |      |   |             |  
|Net cash flows used in financing activities                                               |  |                                        | (5,433,248 | ) |      |   | (1,166,043  | )
|Net increase in cash and cash equivalents                                                 |  |                                        | 1,950,512  |   |      |   | 151,940     |  
|Cash and cash equivalents at beginning of period                                          |  |                                        | 1,185,725  |   |      |   | 3,908,469   |  
|                                                                                          |  |                                        |            |   |      |   |             |  
|Cash and cash equivalents at end of period                                                |  | $                                      | 3,136,237  |   |      | $ | 4,060,409   |  
|                                                                                          |  |                                        |            |   |      |   |             |  
|                                                                                          |  |                                       
|Supplemental Cash Flow Information                                                        |  |                                        |            |   |      |   |             |  
|Cash paid during the period for interest from continuing operations                       |  | $                                      | 2,550,016  |   |      | $ | 2,810,643   |  
|Cash paid during the period for interest from discontinued operations                     |  |                                        |           |   |      |   | 555,806     |  
|Non-cash investing and financing activities from continuing operations:                   |  |                                        |            |   |      |   |             |  
|Financed equipment acquisitions                                                           |  | $                                      |           |   |      | $ | 34,852      |  
|Equipment acquired through capital leases                                                 |  |                                        |           |   |      |   | 336,000     |  
|Non-cash investing and financing activities from discontinued operations:                 |  |                                        |            |   |      |   |             |  
|Financed equipment acquisitions                                                           |  | $                                      |           |   |      | $ | 42,848      |  
|Asset retirement obligations incurred, acquired or recosted                               |  |                                        |           |   |      |   | 324,332     |  
|Interest and fees paid in-kind or financed at National Coal of Alabama, Inc.              |  |                                        |           |   |      |   | 2,100,000   |  
|Accounts payable assumed in asset sale transactions                                       |  |                                        | 6,612,605  |   |      |   |            |  

See Accompanying
Notes to Condensed Consolidated Financial Statements.



4



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##### Table of Contents



National Coal Corp.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Business Overview

National Coal Corp. (the Company) consists primarily of its two wholly-owned subsidiaries: (i) National Coal Corporation and (ii) NCC Corp. and, until August 3, 2009, its
wholly-owned subsidiary National Coal of Alabama, Inc. (NCA). The Company principally engages in the business of mining high quality bituminous steam coal in East Tennessee and, until August 3, 2009, North Alabama. Its customers are
primarily electric utilities in the Southeastern United States.

On September 27, 2010, the Company entered into an agreement and plan of
merger with Ranger Energy Investments, LLC (Ranger Energy) and Ranger Coal Holdings, LLC, a wholly owned subsidiary of Ranger Energy (Merger Sub), pursuant to which the Company will merge with and into Merger Sub and each
outstanding share of the Companys common stock will be converted into the right to receive $1.00 in cash. If the merger is consummated, the Company will cease to exist and Merger Sub will remain a wholly-owned subsidiary of Ranger Energy. A
special meeting of shareholders will be held on December 2, 2010, at which time shareholders will vote on whether to approve the merger.

At September 30, 2010, the Company owned the coal mineral rights to approximately 65,000 acres of land and leased the rights to approximately 14,000
additional acres. The Companys mining complexes included one active underground mine, one active surface mine, and one preparation plant and unit train loading facility served by the Norfolk Southern (NS) railroad. In addition, the
Company began construction in July 2010 on a new underground mine near current active operations. As of September 30, 2010, the Company controlled approximately 38.8 million estimated recoverable tons of coal reserves in Tennessee 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.

On April 20, 2010, the Company completed an asset sale to Ranger Energy, which included a preparation plant and rail loadout facility located in Devonia, Tennessee, an active underground mine, two
inactive mines, related property, plant and equipment used in and located on the Companys New River Tract operations, coal inventories located on the properties, associated permits and a coal supply agreement, for an aggregate sales price of
$11.8 million (the Ranger Transaction). Ranger Energy also assumed reclamation liabilities related to the acquired permits and paid the Company $1.9 million in cash which was previously pledged to secure reclamation bonds and other
liabilities associated with the permits sold. The $1.9 million of pledged cash will be repaid directly to Ranger Energy by the surety company that issued the Companys reclamation bonds when the regulatory process of transferring the related
mining permits to Ranger Energy is completed.

Additionally, the Company entered into a lease agreement with Ranger Energy to lease mineral
rights on approximately 22,000 acres of the New River Tract, with royalties ranging from 6% to 8% of applicable revenues. The Company receives an overriding royalty for each ton of coal sold by Ranger Energy through the coal supply agreement it
acquired in the asset sale. As a result of the Ranger Transaction, the Company recorded a loss of $1.3 million during the nine months ended September 30, 2010.

On May 19, 2010, the Company sold the short line railroad owned by the Companys wholly-owned subsidiary NC Railroad, Inc. for $3.0 million less accounts payable of $0.1 million. The property
and equipment sold had a net book value of $3.2 million and resulted in a loss of approximately $0.2 million, which is included in the consolidated statements of operations for the nine months ended September 30, 2010.

On June 30, 2010, the Companys wholly-owned subsidiary, National Coal Corporation sold a Superior Highwall Mining System for $4.1
million. The assets sold had an immaterial net book value resulting in a gain on the sale of $4.1 million which is included in the consolidated statements of operations for the nine months ended September 30, 2010.



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)





During the nine months ended
September 30, 2010, the Companys continuing operations generated total revenues of $36.5 million on the sale of approximately 0.4 million tons of coal. Revenues are derived primarily from the sale of coal to electric utility
companies in the Southeastern United States pursuant to long-term contracts or open purchase order arrangements with long-time customers. Georgia Power Company represented approximately 97% of the Companys continuing operations coal
revenues for the nine months ended September 30, 2010.

The Company typically sells 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. The weighted average selling price per ton is $87.94 and $85.32 on 0.1 million and 0.5 million tons contracted for the remainder of 2010 and
fiscal year 2011, respectively. 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. A customer declared a force majeure during the first quarter of 2010 resulting in the suspension of shipments. (See Note
2).

Management assumes the Company will meet its contract commitments through a combination of produced tons and purchased coal. Production
can be negatively impacted by weather, labor shortages or equipment break-downs. In addition, geological and mining conditions may not be fully identified by available exploration data or may differ from experience in current operations. Further,
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 materially adverse effect on the Companys operating
cash flows.

During the remainder of 2010, management expects to incur approximately $0.6 million in new capital expenditures for the
construction of a new underground mine near its current active operations and $0.2 million to maintain existing assets. The proceeds received from the sale of assets during June 2010 will be the primary source of funding for the new capital
expenditures. In prior years, the Company has experienced the unanticipated loss of the use of key equipment, 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. Going Concern

At September 30, 2010, the Company had cash and cash equivalents of approximately $3.1 million, negative working capital of approximately $42.9 million and a stockholders deficit of $20.7
million. The Company has a history of substantial net losses. During the nine months ended September 30, 2010 and 2009, the Company generated net losses from continuing operations of $9.2 million and $13.4 million, respectively. Net cash flow
(used in) provided by operating activities from continuing operations was approximately $(6.0) million and $6.6 million during the nine months ended September 30, 2010 and 2009, respectively.



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)





During the first quarter of 2010,
the Companys largest customer exercised its rights of force majeure under the Companys coal supply contract due to freezing weather in the Southeastern United States, which resulted in the suspension of the Companys shipment of
approximately 40,000 tons of coal. While the customer is obligated under its contract to purchase this coal within twelve months after the end of the event, the suspension of these shipments resulted in an immediate reduction in cash receipts of
approximately $3.0 million during January and February 2010.

In 2009, the Company concluded that cash generated from operations would not be
sufficient to pay interest or principal on its 10.5% Notes due 2010, and the Company began exploring strategic alternatives to improve its liquidity and reduce its debt obligations. The Company engaged the services of a financial advisory firm to
evaluate possible strategic and financing transactions. Among these alternatives, the Company has been pursuing a restructuring of its debt, the issuance of common stock in exchange for the purchase and cancellation of its debt, the sale of a
portion of the Companys operating assets, transactions in which the Company would issue preferred or additional common stock for cash, and merger transactions with other coal producers. On September 27, 2010, the Company entered into the
agreement and plan of merger with Ranger Energy and Merger Sub, pursuant to which the Company will merge with and into Merger Sub and each outstanding share of the Companys common stock will be converted into the right to receive $1.00 in
cash. The merger must be approved by holders of a majority of the Companys outstanding shares of common stock at a meeting presently scheduled for December 2, 2010, and the transactions contemplated by the merger agreement are subject to
other customary closing conditions. The merger is expected to close prior to December 15, 2010, the maturity date of the Companys 10.5% Notes due 2010. If the merger does not close prior to such date, the Company will default on its 10.5%
Notes due 2010 and most likely need to seek protection from creditors under federal bankruptcy laws.

On April 20, 2010, the Company
completed the Ranger Transaction. (See Note 1). Prior to the closing of the Ranger Transaction, Ranger Investments, LLC, a Ranger affiliate, purchased from Centaurus Energy Master Fund, LP $30.3 million of the Companys 10.5% Notes due 2010 and
the Companys $5.0 million short-term revolving line of credit, of which $4.5 million had been drawn. The Company was in default under the $5.0 million short-term revolving line of credit on the date the Company published its annual financial
statements, which was reported on with a going concern qualification from the Companys independent registered public accounting firm. The Company used a portion of the proceeds from the Ranger Transaction on April 20, 2010 to
pay the $4.5 million outstanding balance on the revolving line of credit and the line of credit was terminated. As a result of the transaction, the Company recorded a loss on extinguishment of debt of $0.2 million during the second quarter of 2010.

On January 5, 2010, the Company received a deficiency notice from The NASDAQ Stock Market stating that the Company had not met the $1.00
minimum closing bid price requirement for thirty consecutive trading days as required under NASDAQ listing rules. The Company failed to regain compliance with the minimum bid price requirement, and on July 8, 2010 the Company received a
notice from The NASDAQ Stock Market indicating that the Companys common stock would be delisted. On July 13, 2010, the Company requested a hearing with the NASDAQ Listing Qualifications Panel (Panel) to review the
delisting determination, which oral hearing took place August 5, 2010. On September 29, 2010, the Panel agreed to grant the Company a conditional listing (exemption) for an additional period of time not to exceed 180 days from the date of
the delisting notification, or until January 4, 2011, to allow the Company time to complete the merger with Ranger Energy.

On
June 16, 2010, the Company was notified by The NASDAQ Stock Market that it was not in compliance with an additional Nasdaq listing requirement because the market value of the Companys publicly held shares of common stock was less than $15
million for 30 consecutive business days. The Company has 180 calendar days, or until December 13, 2010, to regain compliance with this listing rule.



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)





To regain compliance with the
minimum value of publicly held shares rule, the market value of the Companys publicly held shares, based on the closing bid price of its common stock, must equal at least $15 million for a minimum of ten consecutive business days. If the
Company does not regain compliance by December 13, 2010, the Nasdaq staff will notify the Company that its common stock will be delisted. In that event and at that time, the Company may appeal Nasdaqs delisting determination to a Nasdaq
Hearings Panel.

These factors, among others, may indicate that the Company will be unable to continue as a going concern. The accompanying
financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Companys assets and satisfaction of liabilities in the normal course of business. The
financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

3. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed 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., Jacksboro Coal Company, Inc. and, until
August 3, 2009, NCA. NCA is presented as discontinued operations as discussed in Note 4. The statements of operations include NCA through August 3, 2009, the date of foreclosure. All intercompany transactions have been eliminated in
consolidation.

The unaudited consolidated financial statements do not include footnotes and certain financial information normally presented
annually under accounting principles generally accepted in the United States of America (U.S. GAAP) and should, therefore, be read in conjunction with the Annual Report on Form 10-K of National Coal Corp. for the year ended December 31, 2009.
The accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) that, in the opinion of management, are considered necessary for a fair presentation of the financial position, results
of operations, and cash flows for the periods presented. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three and nine months ended September 30,
2010 and 2009 are not necessarily indicative of results that can be expected for the fiscal year.

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 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.

Reclassifications

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



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)





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.

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. The allowance was $0 at September 30, 2010 and December 31, 2009. Bad debts expense, net of recoveries, was $0 during the three and nine months ended September 30, 2010 and 2009.

Inventory

Inventory includes all 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. As of September 30, 2010 and December 31, 2009 the Company reduced the carrying value of its inventories by $336,703 and $39,814, 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 average cost or net realizable value. Tires are classified as inventory when purchased and
recorded at the lower of average cost or market.

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. Upon sale or retirement, asset cost
and related accumulated depreciation are removed from the accounts and any related gain or loss is reflected in the statement of operations.

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 Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 840, Accounting for Leasesis capitalized and the
present value of the related lease minimum payments is 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.



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National Coal Corp.

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)





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.

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 money market accounts and certificates of deposit securing surety bonds and letters
of credit which collateralize mine reclamation obligations with various federal and state regulatory authorities.

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 $544,000 and
$470,000 at September 30, 2010 and December 31, 2009, 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. FASB ASC 410, Accounting for Asset Retirement Obligations 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 statement of operations.

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 and June 2010. Under the terms of the Plan,
stock options may be granted to officers, directors, employees, and others. At September 30, 2010, 1,500,000 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.



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National Coal Corp.

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)





Workers Compensation

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. 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.

Revenue is also earned from contract mining services 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.

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 ASC 740, Accounting for Income Taxes. A valuation allowance is provided when it is 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 FASB ASC
220, Reporting Comprehensive Income, are the same as the net losses reported.



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National Coal Corp.

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)





4. Divestitures

New River Tract Divestiture

On April 20, 2010, the Company completed the Ranger Transaction. (See Note 1). The purchase price for the Ranger Transaction was $11.8 million, plus royalty lease payments of 6% to 8% of applicable
revenues generated by Ranger Energy for the leased mineral reserves and an overriding royalty for each ton of coal sold by Ranger Energy through the coal supply agreement it acquired in the asset sale. Of the purchase price, $6.6 million was paid by
Ranger Energy assuming $6.6 million of accounts payable the Company owed to an affiliate of Ranger Energy. The Company was also required to pay from the sale proceeds at closing the $4.5 million short-term revolving credit facility and the revolving
credit agreement was terminated. The Company also received $1.9 million in cash that was previously pledged to secure reclamation bonds and other liabilities associated with the permits sold. The $1.9 million of pledged cash will be repaid directly
to Ranger Energy by the surety company that issued the Companys reclamation bonds when the regulatory process of transferring the related mining permits to Ranger Energy is completed. Net cash proceeds available to the Company as a result of
the asset sale and related transactions were $1.4 million.

As a result of the Ranger Transaction on April 20, 2010, the Company recorded
a loss of $1.3 million during the nine months ended September 30, 2010.

Alabama Discontinued Operations

The Company acquired its Alabama operations in October 2007, financed principally through the issuance of $60 million of 12% Notes due
2012. On June 26, 2009, NCA was obligated to pay to its debt holders approximately $1.9 million of accrued interest on its 12% Notes due 2012. The date for making the interest payment was extended by the holders of the 12% Notes due 2012 to
July 17, 2009, and on July 21, 2009, NCA defaulted on the 12% Notes due 2012 as the interest payment had not been made. On August 3, 2009, the holders of the Companys 12% Notes due 2012 foreclosed on the outstanding capital
stock of NCA, the collateral for the 12% Notes due 2012, and acquired NCA. As a result, NCA is no longer a subsidiary of the Company as of such date. Additionally, the credit agreement provided that upon the acceleration of the entire unpaid balance
of the indebtedness, the holders of the 12% Notes due 2012 were entitled to receive the Make-Whole Amount, which amount was the present value of all future interest payments with respect to the principal amount of the indebtedness under
the agreement. The Make-Whole Amount was approximately $19.8 million. As a result of the transaction, the Company recognized a gain on discontinued operations of $23.5 million during the third quarter of 2009.



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)





Revenues and net losses
attributable to discontinued operations for the three and nine months ended September 30, 2009 are as follows:



|                                                                                      |  |                                             |             |   |                                            |   |             |  
|------------------------------------------------------------------------------------- |  | ------------------------------------------- | ----------- | - | ------------------------------------------ | - | ----------- | -
|                                                                                      |  | For the Three MonthsEndedSeptember 30, 2009 |             |   | For the Nine MonthsEndedSeptember 30, 2009 |  
|Revenues:                                                                             |  |                                             |             |   |                                            |   |             |  
|Coal sales                                                                            |  | $                                           | 3,711,748   |   |                                            | $ | 31,308,684  |  
|Other revenues                                                                        |  |                                             | 35,501      |   |                                            |   | 182,310     |  
|                                                                                      |  |                                             |             |   |                                            |   |             |  
|Total revenues of discontinued operations                                             |  |                                             | 3,747,249   |   |                                            |   | 31,490,994  |  
|                                                                                      |  |                                            
|Operating expenses:                                                                   |  |                                             |             |   |                                            |   |             |  
|Cost of coal sales (exclusive of depreciation, depletion, amortization and accretion) |  |                                             | 3,142,701   |   |                                            |   | 26,552,576  |  
|Depreciation, depletion, amortization and accretion                                   |  |                                             | 714,683     |   |                                            |   | 4,539,236   |  
|General and administrative                                                            |  |                                             | 149,661     |   |                                            |   | 1,327,193   |  
|                                                                                      |  |                                             |             |   |                                            |   |             |  
|Total operating expenses of discontinued operations                                   |  |                                             | 4,007,045   |   |                                            |   | 32,419,005  |  
|                                                                                      |  |                                             |             |   |                                            |   |             |  
|Loss from operations from discontinued operations                                     |  |                                             | (259,796    | ) |                                            |   | (928,011    | )
|                                                                                      |  |                                            
|Other income (expense):                                                               |  |                                             |             |   |                                            |   |             |  
|Interest expense                                                                      |  |                                             | (20,800,209 | ) |                                            |   | (26,316,924 | )
|Interest income                                                                       |  |                                             | 521         |   |                                            |   | 26,337      |  
|Income from joint venture                                                             |  |                                             | 22,408      |   |                                            |   | 173,007     |  
|Other                                                                                 |  |                                             |            |   |                                            |   | (51,381     | )
|                                                                                      |  |                                             |             |   |                                            |   |             |  
|Other income (expense), net from discontinued operations                              |  |                                             | (20,777,280 | ) |                                            |   | (26,168,961 | )
|                                                                                      |  |                                             |             |   |                                            |   |             |  
|Loss from discontinued operations before income taxes                                 |  |                                             | (21,037,076 | ) |                                            |   | (27,096,972 | )
|Income tax benefit                                                                    |  |                                             | 1,369,388   |   |                                            |   | 2,071,386   |  
|                                                                                      |  |                                             |             |   |                                            |   |             |  
|Loss from discontinued operations, net of taxes                                       |  |                                             | (19,667,688 | ) |                                            |   | (25,025,586 | )
|Gain on disposal of discontinued operations, net of taxes of $0                       |  |                                             | 23,540,429  |   |                                            |   | 23,540,429  |  
|                                                                                      |  |                                             |             |   |                                            |   |             |  
|Income (loss) from discontinued operations, net of taxes                              |  | $                                           | 3,872,741   |   |                                            | $ | (1,485,157  | )
|                                                                                      |  |                                             |             |   |                                            |   |             |  

5. Inventory

Inventory attributable to continuing operations consists of the following:



|                |  |                   |           |  |                  |   |           | 
|--------------- |  | ----------------- | --------- |  | ---------------- | - | --------- | 
|                |  | September 30,2010 |           |  | December 31,2009 |  
|Coal inventory  |  | $                 | 2,049,511 |  |                  | $ | 1,357,632 | 
|Tire inventory  |  |                   | 70,145    |  |                  |   | 46,340    | 
|                |  |                   |           |  |                  |   |           | 
|Total Inventory |  | $                 | 2,119,656 |  |                  | $ | 1,403,972 | 
|                |  |                   |           |  |                  |   |           | 



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)





6. Property, Plant, Equipment
and Mine Development, Net

Property, plant, equipment and mine development from continuing operations consist of the following:



|                                                           |  |                   |             |   |                  |   |             |  
|---------------------------------------------------------- |  | ----------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                           |  | September 30,2010 |             |   | December 31,2009 |  
|Mining equipment and vehicles                              |  | $                 | 37,402,660  |   |                  | $ | 57,138,852  |  
|Land and buildings                                         |  |                   | 3,789,817   |   |                  |   | 5,297,155   |  
|Furniture and office equipment                             |  |                   | 268,220     |   |                  |   | 323,656     |  
|Mineral rights                                             |  |                   | 11,125,319  |   |                  |   | 11,125,319  |  
|Mine development                                           |  |                   | 4,181,354   |   |                  |   | 8,116,033   |  
|Construction in progress                                   |  |                   | 372,180     |   |                  |   | 628,623     |  
|                                                           |  |                   |             |   |                  |   |             |  
|                                                           |  |                   | 57,139,550  |   |                  |   | 82,629,638  |  
|                                                           |  |                  
|Less accumulated depreciation, depletion and amortization  |  |                   | (34,132,856 | ) |                  |   | (42,331,188 | )
|                                                           |  |                   |             |   |                  |   |             |  
|Total property, plant, equipment and mine development, net |  | $                 | 23,006,694  |   |                  | $ | 40,298,450  |  
|                                                           |  |                   |             |   |                  |   |             |  

On April 20, 2010, the Company sold certain property, plant, equipment and mine development from the Companys New
River tract operations (see Note 4).

On May 19, 2010, the Company sold the short line railroad owned by the Companys wholly-owned
subsidiary NC Railroad, Inc for $3.0 million less accounts payable of $0.1 million. The property and equipment sold had a net book value of $3.2 million and resulted in a loss of approximately $0.2 million, which is included in the consolidated
statements of operations for the nine months ended September 30, 2010.

On June 30, 2010, the Companys wholly-owned
subsidiary, National Coal Corporation sold a Superior Highwall Mining System for $4.1 million. The assets sold had an immaterial net book value resulting in a gain on the sale of $4.1 million which is included in the consolidated statements of
operations for the nine months ended September 30, 2010.

7. Other Non-Current Assets

Other non-current assets from continuing operations are as follows:



|                                    |  |                   |         |  |                  |   |         | 
|----------------------------------- |  | ----------------- | ------- |  | ---------------- | - | ------- | 
|                                    |  | September 30,2010 |         |  | December 31,2009 |  
|Prepaid mining royalties            |  | $                 | 544,126 |  |                  | $ | 469,506 | 
|Long-term portion of prepaid assets |  |                   | 7,046   |  |                  |   | 130,718 | 
|Franchise tax receivable            |  |                   | 295,872 |  |                  |   | 305,873 | 
|                                    |  |                   |         |  |                  |   |         | 
|Total other non-current assets      |  | $                 | 847,044 |  |                  | $ | 906,097 | 
|                                    |  |                   |         |  |                  |   |         | 



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)





8. Accrued Expenses

Accrued expenses from continuing operations consist of the following:



|                                       |  |                   |           |  |                  |   |           | 
|-------------------------------------- |  | ----------------- | --------- |  | ---------------- | - | --------- | 
|                                       |  | September 30,2010 |           |  | December 31,2009 |  
|Accrued interest                       |  | $                 | 1,274,000 |  |                  | $ | 196,000   | 
|Accrued payroll and related taxes      |  |                   | 214,042   |  |                  |   | 204,140   | 
|Accrued federal, state and local taxes |  |                   | 227,933   |  |                  |   | 318,431   | 
|Accrued other                          |  |                   | 473,616   |  |                  |   | 346,784   | 
|                                       |  |                   |           |  |                  |   |           | 
|Total accrued expenses                 |  | $                 | 2,189,591 |  |                  | $ | 1,065,355 | 
|                                       |  |                   |           |  |                  |   |           | 

9. Debt and Financing Arrangements

Long-term debt obligations of the Company, excluding capital leases, from continuing operations consist of the following:



|                                                     |  |                   |             |   |                  |   |             |  
|---------------------------------------------------- |  | ----------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                     |  | September 30,2010 |             |   | December 31,2009 |  
|10.5% Senior Secured Notes due 2010                  |  | $                 | 42,000,000  |   |                  | $ | 42,000,000  |  
|Equipment loans and installment purchase obligations |  |                   | 545,266     |   |                  |   | 1,284,210   |  
|Insurance premium financing                          |  |                   |            |   |                  |   | 65,000      |  
|                                                     |  |                   |             |   |                  |   |             |  
|                                                     |  |                   | 42,545,266  |   |                  |   | 43,349,210  |  
|                                                     |  |                   |             |   |                  |   |             |  
|Unamortized discounts                                |  |                   | (134,112    | ) |                  |   | (705,986    | )
|                                                     |  |                  
|Less current portion of long term debt               |  |                   | (42,398,865 | ) |                  |   | (42,372,933 | )
|                                                     |  |                   |             |   |                  |   |             |  
|Total long-term debt                                 |  | $                 | 12,289      |   |                  | $ | 270,291     |  
|                                                     |  |                   |             |   |                  |   |             |  

Short Term Line of Credit

On April 9, 2009 the Company entered into a Term Note Credit Agreement with Next View Partners, LLC (Next View), as administrative agent and collateral agent for certain lenders. This
credit facility provided for borrowings of up to $10.0 million, and was permitted indebtedness under the indenture for the Companys 10.5% Senior Secured Notes due 2010. The agreement allowed the Company the right to borrow up to an aggregate
of $5.0 million on or before June 30, 2009 and an aggregate of $10.0 million after June 30, 2009. All amounts under the revolving loans were scheduled to mature on December 15, 2009, unless the Company obtained the consent of holders
of two-thirds of the principal amount of its 10.5% Senior Secured Notes due 2010 to extend the maturity date until April 9, 2010.

On
December 10, 2009, Centaurus Energy Master Fund, LP (Centaurus) assumed and modified the Term Note Credit Agreement with Next View. Centaurus held more than two-thirds of the principal amount of the Companys 10.5% Notes due
2010. The loan modification agreement reduced the face amount of the note issued from $10.0 million to $5.0 million, extended the maturity date of the loan from December 15, 2009 to December 15, 2010 and amended the minimum coal production
and shipment amounts.



15



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)





In April 2010, Ranger Investments
LLC, a Ranger affiliate, purchased from Centarus Energy Master Fund, LP $30.3 million of the Companys $42.0 million 10.5% Notes due 2010 and also purchased the Companys $5.0 million short-term revolving credit facility. The Company used
a portion of the proceeds from the Ranger Transaction to repay the $4.5 million outstanding balance on the short term revolving credit facility and the revolving credit agreement was terminated.

10. Asset Retirement Obligations

Asset
retirement obligation activity for continuing operations for the nine months ended September 30, 2010 follows:



|                                          |  |   |           |  
|----------------------------------------- |  | - | --------- | -
|Obligation at December 31, 2009           |  | $ | 3,888,740 |  
|Accretion expense                         |  |   | 327,080   |  
|Obligation included in asset sale         |  |   | (476,059  | )
|Obligations settled                       |  |   | (61,305   | )
|                                          |  |   |           |  
|Obligation at September 30, 2010          |  |   | 3,678,456 |  
|Current portion                           |  |   | (98,528   | )
|                                          |  |   |           |  
|Long-term liability at September 30, 2010 |  | $ | 3,579,928 |  
|                                          |  |   |           |  

11. Stockholders Equity

On June 21, 2010, the Companys shareholders approved amendments to the Companys Articles of Incorporation giving the Companys Board of Directors approval to execute a reverse split
of the Companys common shares at a ratio within a range of 1- for- 1.5 to 1- for- 4, and increase from 80,000,000 to 120,000,000 the number of authorized common shares. The Companys Board of Directors approved a reverse 1- for- 4 stock
split effective June 22, 2010. Share and per share amounts shown in the condensed consolidated financial statements and related notes reflect the split as though it occurred on January 1, 2009.

12. Stock  Based Compensation Plan

On January 8, 2010, the Companys Board of Directors authorized the amendment of certain stock option agreements previously issued to the
Companys employees, officers and members of the Board of Directors pursuant to the Companys Amended and Restated 2004 National Coal Corp. Option Plan. All of the Companys outstanding options, as well as the Companys form
of Stock Option Agreement for future grants, were amended to provide for acceleration of vesting upon a change in control of the Company. Additionally, all options granted prior to January 1, 2009 were amended to reduce the exercise price to
$4.56.

Prior to the repricing, many of the options had exercise prices well above the recent market prices of the Companys common stock
as quoted on the NASDAQ Global Market. The Board of Directors amended these options for, and to realign the value of the issued options with, their intended purpose, which is to retain and motivate the Companys employees, officers and
directors.



16



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)





The Company recorded $55,423 and
$421,661 in stock-based compensation during the three months ended September 30, 2010 and 2009 including a reduction of $122,348 in restricted stock expense as a result of an executive departure during September 2010. During the nine months
ended September 30, 2010, the Company recognized $785,123 in stock-based compensation expense from continuing operations, including $335,708 in stock-based compensation expense as a result of the 2010 option repricing and $74,278 in restricted
stock expense. The Company recorded $1,126,961 in stock-based compensation expense including $104,583 in restricted stock expense during the nine months ended September 30, 2009.

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:



|                         |  |                                  |   |  |                                 |  |       |      |  |  |       |   |  |  |       |  
|------------------------ |  | -------------------------------- | - |  | ------------------------------- |  | ----- | ---- |  |  | ----- | - |  |  | ----- | -
|                         |  | Three Months 
EndedSeptember 30, |   |  | Nine Months 
EndedSeptember 30, | 
|                         |  | 2010                             |   |  | 2009                            |  |       | 2010 |  |  | 2009  |  
|Expected term (years)    |  |                                  | * |  |                                 |  | 6.00  |      |  |  | 6.00  |   |  |  | 6.00  |  
|Risk-free interest rates |  |                                  | * |  |                                 |  | 2.69  | %    |  |  | 3.18  | % |  |  | 3.37  | %
|Expected dividend yield  |  |                                  | * |  |                                 |  | 0.0   | %    |  |  | 0.0   | % |  |  | 0.0   | %
|Expected volatility      |  |                                  | * |  |                                 |  | 94.74 | %    |  |  | 95.78 | % |  |  | 65.57 | %



|* | No grants issued during the three months ended September 30, 2010
|- | -----------------------------------------------------------------

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 until
December 31, 2007, as the Companys trading history was limited. Effective January 1, 2008, the Company began using its own historical volatility. 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 three months ended
September 30, 2009 was $3.00. There were no options exercised during the three or nine months ended September 30, 2010 or 2009.



17



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)





Stock option activity for the nine
months ended September 30, 2010 follows:



|                                                 |  |                    |         |   |                               |   |       |                                                   |  |  |                          |  |  |   |       | 
|------------------------------------------------ |  | ------------------ | ------- | - | ----------------------------- | - | ----- | ------------------------------------------------- |  |  | ------------------------ |  |  | - | ----- | 
|                                                 |  | OptionsOutstanding |         |   | WeightedAverageExercise Price |   |       | WeightedAverageRemainingContractualTerm(in years) |  |  | AggregateIntrinsic Value | 
|Outstanding at December 31, 2009                 |  |                    | 513,731 |   |                               | $ | 19.88 |                                                   |  |  | 7.40                     |  |  | $ | 750   | 
|Granted                                          |  |                    | 118,688 |   |                               |   | 4.09  |                                                   |  |  |                          |  |  |   |       | 
|Exercised                                        |  |                    |        |   |                               |   |      |                                                   |  |  |                          |  |  |   |       | 
|Forfeited                                        |  |                    | (44,130 | ) |                               |   | 11.14 |                                                   |  |  |                          |  |  |   |       | 
|Expirations                                      |  |                    | (40,188 | ) |                               |   | 19.39 |                                                   |  |  |                          |  |  |   |       | 
|                                                 |  |                    |         |   |                               |   |       |                                                   |  |  |                          |  |  |   |       | 
|Outstanding at March 31, 2010                    |  |                    | 548,101 |   |                               |   | 4.97  |                                                   |  |  | 7.90                     |  |  |   |      | 
|                                                 |  |                    |         |   |                               |   |       |                                                   |  |  |                          |  |  |   |       | 
|Granted                                          |  |                    | 22,500  |   |                               |   | 0.66  |                                                   |  |  |                          |  |  |   |       | 
|Exercised                                        |  |                    |        |   |                               |   |       |                                                   |  |  |                          |  |  |   |       | 
|Forfeited                                        |  |                    | (23,344 | ) |                               |   | 14.51 |                                                   |  |  |                          |  |  |   |       | 
|Expirations                                      |  |                    | (7,000  | ) |                               |   | 4.16  |                                                   |  |  |                          |  |  |   |       | 
|                                                 |  |                    |         |   |                               |   |       |                                                   |  |  |                          |  |  |   |       | 
|Outstanding at June 30, 2010                     |  |                    | 540,257 |   |                               |   | 4.39  |                                                   |  |  | 7.73                     |  |  |   |      | 
|                                                 |  |                    |         |   |                               |   |       |                                                   |  |  |                          |  |  |   |       | 
|Granted                                          |  |                    |        |   |                               |   |       |                                                   |  |  |                          |  |  |   |       | 
|Exercised                                        |  |                    |        |   |                               |   |       |                                                   |  |  |                          |  |  |   |       | 
|Forfeited                                        |  |                    | (36,189 | ) |                               |   | 4.22  |                                                   |  |  |                          |  |  |   |       | 
|Expirations                                      |  |                    | (3,000  | ) |                               |   | 4.16  |                                                   |  |  |                          |  |  |   |       | 
|                                                 |  |                    |         |   |                               |   |       |                                                   |  |  |                          |  |  |   |       | 
|Outstanding at September 30, 2010                |  |                    | 501,068 |   |                               | $ | 4.40  |                                                   |  |  | 7.37                     |  |  | $ | 6,975 | 
|                                                 |  |                    |         |   |                               |   |       |                                                   |  |  |                          |  |  |   |       | 
|Vested or expected to vest at September 30, 2010 |  |                    | 466,250 |   |                               | $ | 3.61  |                                                   |  |  |                          |  |  |   |       | 
|Exercisable                                      |  |                    | 354,174 |   |                               | $ | 4.73  |                                                   |  |  |                          |  |  |   |       | 

As of September 30, 2010, there was $182,295 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 3.37 years. The weighted average remaining contractual term of exercisable options at September 30, 2010 was 2.73 years. The total
fair value of shares vested during the nine months ended September 30, 2010 and 2009, was $801,272, and $1,418,724, respectively. As discussed in Note 1, if approved and upon close, the proposed merger with Ranger Energy will trigger the
immediate vesting and recognition of all remaining unrecognized compensation cost.

13. Earnings (Loss) Per Share

Basic earnings or loss per share is computed by dividing net income or loss by the weighted average number of common shares outstanding during the year.
Diluted earnings or loss per share is computed similarly to basic earnings or loss per share except that it reflects 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 or 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.



18



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)





At September 30, 2010 and
2009, 1,171,185 and 1,332,309, respectively, potentially dilutive shares of the Company from warrants, stock options and restricted stock 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 earnings or loss per share from continuing operations are as follows:



|                                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |             |  
|---------------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ------------------------------ | - | ---------- | ---- |  | - | ---------- | - |  | - | ----------- | -
|                                                                             |  | Three Months
EndedSeptember 30, |            |   | Nine Months
EndedSeptember 30, |  
|                                                                             |  | 2010                            |            |   | 2009                           |   |            | 2010 |  |   | 2009       |  
|Numerator:                                                                   |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |             |  
|Net income (loss) from continuing operations                                 |  | $                               | (3,696,728 | ) |                                | $ | (4,536,691 | )    |  | $ | (9,211,630 | ) |  | $ | (13,414,779 | )
|                                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |             |  
|                                                                             |  |                                 |            |  
|Denominator:                                                                 |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |             |  
|                                                                             |  |                                 |            |  
|Weighted average shares - basic and diluted                                  |  |                                 | 8,522,417  |   |                                |   | 8,502,360  |      |  |   | 8,542,714  |   |  |   | 8,496,936   |  
|                                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |             |  
|Net earnings (loss) per share from continuing operations - basic and diluted |  | $                               | (0.43      | ) |                                | $ | (0.53      | )    |  | $ | (1.08      | ) |  | $ | (1.58       | )
|                                                                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |             |  

For all periods presented, earnings (loss) per share from continuing operations has been retroactively adjusted as a result
of the Companys 1- for- 4 reverse stock split effective June 22, 2010.

14. 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 September 30,
2010 and December 31, 2009:

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 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.

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



|                          |  |                    |            |  |                   |   |            |                |  |   |            |  |  |   |            | 
|------------------------- |  | ------------------ | ---------- |  | ----------------- | - | ---------- | -------------- |  | - | ---------- |  |  | - | ---------- | 
|                          |  | September 30, 2010 |            |  | December 31, 2009 |  
|                          |  | CarryingAmount     |            |  | FairValue         |   |            | CarryingAmount |  |   | FairValue  | 
|Financial Assets:         |  |                    |            |  |                   |   |            |                |  |   |            |  |  |   |            | 
|Cash and cash equivalents |  | $                  | 3,136,237  |  |                   | $ | 3,136,237  |                |  | $ | 1,185,725  |  |  | $ | 1,185,725  | 
|Accounts receivable       |  |                    | 469,035    |  |                   |   | 469,035    |                |  |   | 366,680    |  |  |   | 366,680    | 
|Restricted cash           |  |                    | 3,707,059  |  |                   |   | 3,707,059  |                |  |   | 6,211,637  |  |  |   | 6,211,637  | 
|                          |  |                    |            | 
|Financial Liabilities:    |  |                    |            |  |                   |   |            |                |  |   |            |  |  |   |            | 
|Debt                      |  |                    | 42,411,154 |  |                   |   | 28,131,154 |                |  |   | 45,643,224 |  |  |   | 38,083,224 | 



19



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)





15. 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, except as noted below, of any pending or threatened proceedings that might have a material impact on its cash flows, results of operations or financial condition.

The Company is a defendant in a lawsuit in the Circuit Court of Anderson County, Tennessee, alleging that National Coal Corporation was negligent in the
case of a vehicular accident which resulted in the death of an independent contract truck driver. The plaintiffs are seeking $7.0 million in compensable damages and $10.0 million in punitive damages. The Company believes it has meritorious defenses
to all of the claims asserted in this action and will continue to vigorously defend its position; however, the Company cannot predict the outcome of this proceeding at this time, and cannot predict whether the outcome will have a material adverse
effect on its financial condition.

On November 2, 2010, a putative class action complaint was filed by Harold Sofie against the Company
and each of its directors in the Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County, Florida, purportedly on behalf of the public stockholders of the Company. The complaint alleges, among other things, that our directors
breached their fiduciary duties to our public stockholders by, among other things, failing to disclose material information in the preliminary proxy statement the Company filed on October 13, 2010 relating to the solicitation of proxies for the
special meeting of stockholders to be held for the purpose of considering the approval and adoption of the merger and the merger agreement. Among other things, the complaint seeks class action status, a court order enjoining the completion of the
transaction, a court order directing the Company disclose additional information regarding the merger and merger agreement, and the payment of attorneys fees and expenses. The Company believes it has meritorious defenses to all of the claims
asserted in this action and will continue to vigorously defend its position; however, the Company cannot predict the outcome of this proceeding at this time, and cannot predict whether the outcome will have a material adverse effect on its financial
condition.



20



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##### Table of Contents



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Forward Looking Statements or Information

The information contained in this Form 10-Q is
intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2009 and presumes that readers have access to, and will have read, the Managements Discussion and Analysis of Financial
Condition and Results of Operations and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our condensed consolidated financial statements and the notes to the condensed
consolidated financial statements included elsewhere in this Form 10-Q.

This report, including the section entitled, Managements
Discussion and Analysis of Financial Condition and Results of Operation, contains forward-looking statements that include information relating to future events, future financial performance, strategies, expectations, competitive
environment, regulation and availability of resources. These forward-looking statements include, without limitation, statements regarding: proposed new services; our expectations concerning litigation, regulatory developments or other matters;
statements concerning projections, predictions, expectations, estimates or forecasts for our business, financial and operating results and future economic performance; statements of managements goals and objectives; and other similar
expressions concerning matters that are not historical facts. Words such as may, will, should, could, would, predicts, potential, continue,
expects, anticipates, future, intends, plans, believes and estimates, and similar expressions, as well as statements in future tense, identify forward-looking
statements.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be
accurate indications of the times at, or by which, that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or managements good faith belief as of that time
with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause
these differences include, but are not limited to:



| |  |  | continued weakness in US and worldwide economic conditions;
| | - |  | -----------------------------------------------------------



| |  |  | demand for coal, electricity and competing energy sources;
| | - |  | ----------------------------------------------------------



| |  |  | changes in environmental standards related to coal combustion causing coal users to switch to other fuels;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | difficulties in implementing our business strategies;
| | - |  | -----------------------------------------------------



| |  |  | reliance on customers honoring existing contracts and entering into new contracts;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | dependence on one customer for a substantial portion of our sales;
| | - |  | ------------------------------------------------------------------



| |  |  | unexpected disruption of rail or truck systems that transport our coal;
| | - |  | -----------------------------------------------------------------------



| |  |  | our ability to attract and retain skilled labor to meet our needs;
| | - |  | ------------------------------------------------------------------



| |  |  | our ability to purchase coal from various third party sources;
| | - |  | --------------------------------------------------------------



| |  |  | inherent risks in surface and underground coal mining being subject to unexpected disruptions in our ability to produce coal including geological
conditions, equipment failure, accidents and weather;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents



| |  |  | the effects of governmental regulation including obtaining permits and the increasingly stringent federal and state proposals to regulate greenhouse
gas emissions and to comply with various environmental standards for us and our customers;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increases in the price of certain products and commodities used in our mining operations that could impact our production and transportation costs;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the costs of reclamation associated with re-mining previously mined properties;
| | - |  | -------------------------------------------------------------------------------



| |  |  | our assumptions regarding economically recoverable coal reserve estimates;
| | - |  | --------------------------------------------------------------------------



| |  |  | our ability to continue to provide cash collateral for reclamation surety bonds;
| | - |  | --------------------------------------------------------------------------------



| |  |  | industry competition and various factors that cause fluctuations in the demand for coal and the price of coal;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | our ability to continue to be able to provide capital necessary to finance our growth strategies amidst tightened credit standards and markets;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to continue as a going concern;
| | - |  | -------------------------------------------



| |  |  | our ability to refinance our $42.0 million 10.5% Notes due December 2010;
| | - |  | -------------------------------------------------------------------------



| |  |  | our ability to raise funds in debt or equity markets at terms acceptable to us, or if at all;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | our ability to comply with restrictions imposed by our existing credit facilities;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | our ability to obtain waivers from lenders if we do not comply with various financial covenants required under existing credit facilities;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to complete the proposed merger transaction with Ranger Energy; and,
| | - |  | --------------------------------------------------------------------------------



| |  |  | other factors discussed under the headings Risk Factors, Managements Discussion and Analysis of Financial Condition and Results
of Operations and Business.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

Forward-looking statements speak only as of the date they are made. You
should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except
to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

Corporate Overview

We mine, process and
sell high quality bituminous steam coal from mines located in East Tennessee. From October 2007 until August 2009, we had mining operations in North Alabama. Our subsidiary, National Coal of Alabama, Inc., which operated our Alabama mining
operations, defaulted on its senior secured debt, resulting in the lenders foreclosure on our subsidiarys outstanding capital stock. As a result, National Coal of Alabama, Inc. ceased to be our subsidiary in August 2009. Continuing
operations consist of our Tennessee operations. Discontinued operations consist of the operating results of our Alabama operations from October 2007 through August 2009.

On September 27, 2010, we entered into the agreement and plan of merger with Ranger Energy and Merger Sub, pursuant to which we will merge with and into Merger Sub and each outstanding share of our
common stock will be converted into the right to receive $1.00 in cash. The merger must be approved by holders of a majority of our outstanding shares of common stock at a meeting presently scheduled for



22



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##### Table of Contents

December 2, 2010, and the transactions contemplated by the merger agreement are subject to other customary closing conditions. If the merger is consummated, National Coal Corp. will cease to
exist and Merger Sub will remain a wholly-owned subsidiary of Ranger Energy. The merger is expected to close prior to December 15, 2010, the maturity date of our 10.5% Notes due 2010. If the merger does not close prior to such date, we will
default on the 10.5% Notes due 2010 and most likely need to seek protection from creditors under federal bankruptcy laws.

We have filed a
definitive proxy statement and other documents concerning the proposed merger with the Securities and Exchange Commission. Shareholders are urged to read the definitive proxy statement and any other relevant documents filed with the SEC because they
contain important information about the proposed transaction.

At September 30, 2010, our continuing operations owned the coal mineral
rights to approximately 65,000 acres of land and leased the rights to approximately 14,000 additional acres. As of September 30, 2010, our mining complexes included one active underground mine, one active surface mine, one preparation plant and
one unit train loading facility served by the Norfolk Southern railroad. In addition, we began construction in July 2010 on a new underground mine near our current active operations. As of September 30, 2010, we controlled approximately
38.8 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 September 30, 2010, we had cash and cash equivalents of approximately $3.1 million and negative working capital of approximately $42.9 million.
Included in working capital is $41.9 million of secured indebtedness, net of discounts, that matures on December 15, 2010. Cash flows (used in) provided by continuing operations were approximately $(6.0) million and $6.6 million for the nine
months ended September 30, 2010 and 2009, respectively.

During the remainder of 2010, we expect to incur approximately $0.6 million in
new capital expenditures for the construction of a new underground mine near our current active operations and $0.2 million to maintain existing assets. The proceeds received from the sale of assets during June 2010 will be the primary source of
funding for the new capital expenditures. In prior years, we have experienced the unanticipated loss of the use of key equipment, which resulted in lost production and lost revenues. We may experience similar mechanical failures in the future, which
could have a material adverse effect on our operating cash flows.

During the nine months ended September 30, 2010, our continuing
operations generated total revenues of $36.5 million and sold approximately 0.4 million tons of coal. Revenues are derived primarily from the sale of coal to electric utility companies in the Southeastern United States pursuant to long-term
contracts or open purchase order arrangements with long-time customers. Georgia Power Company represented approximately 97% of our continuing operations coal revenues for the nine months ended September 30, 2010.

We typically sell our 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. The weighted average selling price per ton for continuing operations is $87.94 and $85.32 on 0.1 million and 0.5 million tons contracted for the remainder of 2010 and fiscal year 2011, respectively. 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 our operating cash flows. Additionally, our 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 us or our customers during the duration of specified
events beyond the control of the affected party.



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We have experienced net operating
losses and net negative cash flows since our inception in 2003. Our 10.5% senior notes mature on December 15, 2010. In January 2010, our largest customer exercised its rights of force majeure under our coal supply contract due to freezing
weather in the Southeast United States, which resulted in their suspension of our shipment of approximately 40,000 tons of coal. While our customer is obligated under our contract to purchase this coal within twelve months after the end of the
event, the suspension of these shipments resulted in an immediate reduction in cash receipts of approximately $3.0 million during January and February 2010.

On April 20, 2010, we completed the sale to Ranger Energy Investments, LLC of our preparation plant and rail loadout facility located in Devonia, Tennessee, an active underground mine, two inactive
mines, and related property, plant and equipment used in and located at our New River Tract operations, coal inventories located on the properties, associated permits and a coal supply agreement for an aggregate sales price of $11.8 million (the
Ranger Transaction). Ranger Energy also assumed reclamation liabilities related to the acquired properties and paid us $1.9 million in cash which was previously pledged to secure reclamation bonds and other liabilities associated with
the permits sold. The $1.9 million of pledged cash will be repaid directly to Ranger Energy by the surety company that issued the Companys reclamation bonds when the regulatory process of transferring the related mining permits to Ranger
Energy is completed. Additionally, we entered into a lease agreement with Ranger Energy to lease mineral rights on approximately 22,000 acres of the New River Tract, with royalties ranging from 6% to 8% of applicable revenues, and Ranger Energy
agreed to pay us an overriding royalty for each ton of coal sold by Ranger Energy pursuant to the coal supply agreement it acquired in the asset sale. Of the purchase price, $6.6 million was paid by Ranger Energy assuming $6.6 million of accounts
payable we owed to an affiliate of Ranger Energy. Prior to the closing of the asset sale, Ranger Investments, LLC, a Ranger affiliate, purchased from Centarus Energy Master Fund, LP $30.3 million of our $42.0 million in principal amount of 10.5%
Notes due 2010 and also purchased our $5.0 million short-term revolving credit facility, of which $4.5 million had been drawn. We were required to pay off the revolving credit facility from the Ranger Transaction sale proceeds and the revolving
credit agreement was terminated. We received $1.4 million in net cash proceeds from the asset sale and related transactions.



24



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Results of Operations

The following table presents consolidated statement of operations data for each of the three and nine months ended September 30 as a
percentage of revenues.



|                                                         |  |                                 |        |   |                                |  |        |      |  |  |        |   |  |  |        |  
|-------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ |  | ------ | ---- |  |  | ------ | - |  |  | ------ | -
|(in percentages)                                         |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, | 
|                                                         |  | 2010                            |        |   | 2009                           |  |        | 2010 |  |  | 2009   |  
|Revenues                                                 |  |                                 | 100.0  |   |                                |  | 100.0  |      |  |  | 100.0  |   |  |  | 100.0  |  
|Operating expenses:                                      |  |                                 |        |   |                                |  |        |      |  |  |        |   |  |  |        |  
|Cost of sales                                            |  |                                 | 92.7   |   |                                |  | 90.5   |      |  |  | 91.6   |   |  |  | 90.1   |  
|Cost of services                                         |  |                                 | 0.6    |   |                                |  | 2.7    |      |  |  | 0.2    |   |  |  | 3.6    |  
|Depreciation, depletion, amortization and accretion      |  |                                 | 13.2   |   |                                |  | 10.8   |      |  |  | 11.9   |   |  |  | 11.6   |  
|Gain on asset disposals, net                             |  |                                 | (0.8   | ) |                                |  |       |      |  |  | (6.9   | ) |  |  |       |  
|General and administrative                               |  |                                 | 17.0   |   |                                |  | 8.3    |      |  |  | 15.0   |   |  |  | 8.1    |  
|Total operating expenses                                 |  |                                 | 122.7  |   |                                |  | 112.3  |      |  |  | 111.8  |   |  |  | 113.4  |  
|                                                         |  |                                 |        |   |                                |  |        |      |  |  |        |   |  |  |        |  
|Loss from continuing operations                          |  |                                 | (22.7  | ) |                                |  | (12.3  | )    |  |  | (11.8  | ) |  |  | (13.4  | )
|Other income (expense):                                  |  |                                 |        |   |                                |  |        |      |  |  |        |   |  |  |        |  
|Interest expense                                         |  |                                 | (15.5  | ) |                                |  | (8.6   | )    |  |  | (13.1  | ) |  |  | (7.8   | )
|Interest income                                          |  |                                 |       |   |                                |  | 0.2    |      |  |  |       |   |  |  | 0.3    |  
|Other                                                    |  |                                 | (0.1)  |   |                                |  | 0.2    |      |  |  | (0.4)  |   |  |  | 0.0    |  
|                                                         |  |                                 |        |   |                                |  |        |      |  |  |        |   |  |  |        |  
|Loss from continuing operations before income taxes      |  |                                 | (38.3  | ) |                                |  | (20.5  | )    |  |  | (25.3  | ) |  |  | (20.9  | )
|Income tax benefit                                       |  |                                 |       |   |                                |  |       |      |  |  |       |   |  |  |       |  
|Loss from continuing operations                          |  |                                 | (38.3) |   |                                |  | (20.5) |      |  |  | (25.3) |   |  |  | (20.9) |  
|Income (loss) from discontinued operations, net of taxes |  |                                 |       |   |                                |  | 17.5   |      |  |  |       |   |  |  | (2.3   | )
|                                                         |  |                                 |        |   |                                |  |        |      |  |  |        |   |  |  |        |  
|Net loss                                                 |  |                                 | (38.3  | ) |                                |  | (3.0   | )    |  |  | (25.3  | ) |  |  | (23.2  | )
|                                                         |  |                                 |        |   |                                |  |        |      |  |  |        |   |  |  |        |  

Comparison of Three Months Ended September 30, 2010 and Three Months Ended September 30, 2009

Production

During
the three months ended September 30, 2010 and 2009, our Tennessee mines produced 79,834 and 201,121 tons of coal, respectively, as follows:



|                     |  |                                 |         |  |      |  |       |      |  |  |         |  |  |  |       | 
|-------------------- |  | ------------------------------- | ------- |  | ---- |  | ----- | ---- |  |  | ------- |  |  |  | ----- | 
|                     |  | Three Months EndedSeptember 30, |        
|                     |  | 2010                            |         |  | 2009 | 
|                     |  | Tons                            |         |  | %    |  |       | Tons |  |  | %       | 
|Production:          |  |                                 |         |  |      |  |       |      |  |  |         |  |  |  |       | 
|Surface mines        |  |                                 | 41,467  |  |      |  | 40.0  |      |  |  | 100,496 |  |  |  | 34.9  | 
|Highwall mines       |  |                                 |        |  |      |  |      |      |  |  | 20,280  |  |  |  | 7.0   | 
|Underground mines    |  |                                 | 38,367  |  |      |  | 37.1  |      |  |  | 80,345  |  |  |  | 27.9  | 
|                     |  |                                 |         |  |      |  |       |      |  |  |         |  |  |  |       | 
|Total tons produced  |  |                                 | 79,834  |  |      |  | 77.1  |      |  |  | 201,121 |  |  |  | 69.8  | 
|Purchased coal       |  |                                 | 23,626  |  |      |  | 22.9  |      |  |  | 87,137  |  |  |  | 30.2  | 
|                     |  |                                 |         |  |      |  |       |      |  |  |         |  |  |  |       | 
|Total tons available |  |                                 | 103,460 |  |      |  | 100.0 |      |  |  | 288,258 |  |  |  | 100.0 | 
|                     |  |                                 |         |  |      |  |       |      |  |  |         |  |  |  |       | 



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The 121,287 ton decrease in tons
produced in 2010 compared to 2009 was the result of the idling of one of our higher cost underground mines and the closing of an underground mine in order to take advantage of purchased coal prices that were lower than our mining costs at these two
mines, as well as the sale of one active underground mine in April 2010 to Ranger Energy. The 63,511 decrease in tons of purchased coal in 2010 compared to 2009 was primarily due to the assignment of a coal supply agreement to Ranger Energy on
April 20, 2010 as part of the Ranger Transaction.

Revenue

During the three months ended September 30, 2010, we generated substantially all of our coal sales revenue from one electric utility customer.

Tons sold and the associated revenue for the three month periods follows:



|                           |  |                                 |           |  |                     |   |            |   |  |   |             |   |  |  |       |  
|-------------------------- |  | ------------------------------- | --------- |  | ------------------- | - | ---------- | - |  | - | ----------- | - |  |  | ----- | -
|                           |  | Three Months
EndedSeptember 30, |           |  | Increase/(decrease) |  
|                           |  | 2010                            |           |  | 2009                |   |            | $ |  |   | %           |  
|Coal sales                 |  | $                               | 8,820,390 |  |                     | $ | 21,483,618 |   |  | $ | (12,663,228 | ) |  |  | (58.9 | )
|Tons sold                  |  |                                 | 102,175   |  |                     |   | 286,447    |   |  |   | (184,272    | ) |  |  | (64.3 | )
|Average price per ton sold |  | $                               | 86.33     |  |                     | $ | 75.00      |   |  | $ | 11.33       |   |  |  | 15.1  |  
|                           |  |                                 |           | 
|Other revenues             |  | $                               | 845,811   |  |                     | $ | 637,181    |   |  | $ | 208,630     |   |  |  | 32.7  |  

The 58.9% decrease in revenue from
coal sales for the three months ended September 30, 2010 as compared to the same period in 2009 was primarily due to the assignment of a coal supply agreement to Ranger Energy on April 20, 2010 as part of the Ranger Transaction.

The increase in other revenue of $0.2 million was the result of royalties received, offset by a decrease in contract mining revenue.

Cost of Sales



|                          |  |                                 |           |  |                     |   |            |   |  |   |             |   |  |  |       |  
|------------------------- |  | ------------------------------- | --------- |  | ------------------- | - | ---------- | - |  | - | ----------- | - |  |  | ----- | -
|                          |  | Three Months
EndedSeptember 30, |           |  | Increase/(decrease) |  
|                          |  | 2010                            |           |  | 2009                |   |            | $ |  |   | %           |  
|Cost of sales             |  | $                               | 8,960,772 |  |                     | $ | 20,028,882 |   |  | $ | (11,068,110 | ) |  |  | (55.3 | )
|Tons sold                 |  |                                 | 102,175   |  |                     |   | 286,447    |   |  |   | (184,272    | ) |  |  | (64.3 | )
|Average cost per ton sold |  | $                               | 87.70     |  |                     | $ | 69.92      |   |  | $ | 17.78       |   |  |  | 25.4  |  
|                          |  |                                 |           | 
|Cost of services          |  | $                               | 57,682    |  |                     | $ | 608,274    |   |  | $ | (550,592    | ) |  |  | (90.5 | )

Total cost of sales decreased 55.3% on a
58.9% decrease in coal sales revenue during the three months ended September 30, 2010 as compared to the same three month period in 2009 due primarily to the sale on April 20, 2010 of a portion of our properties and operations in the
Ranger Transaction. Cost per ton sold during 2010 compared to 2009 from our continuing operations increased by $17.78 due primarily to increases in labor of $6.03 per ton sold, maintenance and supplies of $3.62 per ton sold, workers compensation of
$5.32 per ton sold, royalties of $2.15 per ton sold and hauling and fuel costs of $0.84 per ton sold.



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Cost of services decreased $0.6
million due to the termination of a contract mining services agreement during November 2009 between Xinergy Corp. and National Coal Corporation to mine coal from a highwall mine previously sold to Xinergy Corp. as part of the Straight Creek sale on
March 31, 2008.

Depreciation, Depletion, Amortization and Accretion



|                                                    |  |                                 |           |  |                     |   |           |   |  |   |            |   |  |  |       |  
|--------------------------------------------------- |  | ------------------------------- | --------- |  | ------------------- | - | --------- | - |  | - | ---------- | - |  |  | ----- | -
|                                                    |  | Three Months
EndedSeptember 30, |           |  | Increase/(decrease) |  
|                                                    |  | 2010                            |           |  | 2009                |   |           | $ |  |   | %          |  
|Depreciation, depletion, amortization and accretion |  | $                               | 1,272,021 |  |                     | $ | 2,392,606 |   |  | $ | (1,120,585 | ) |  |  | (46.8 | )
|Tons sold                                           |  |                                 | 102,175   |  |                     |   | 286,447   |   |  |   | (184,272   | ) |  |  | (64.3 | )
|Average cost per ton sold                           |  | $                               | 12.45     |  |                     | $ | 8.35      |   |  | $ | 4.10       |   |  |  | 49.0  |  

The 46.8% decrease in depreciation,
depletion, amortization, and accretion expense for the three months ended September 30, 2010 as compared to the same three month period in 2009 was primarily the result of:



| | (i) | A $0.5 million decrease in depreciation, amortization and accretion expense as a result of the disposition on April 20, 2010 of a portion of our properties and
related operations in the Ranger Transaction;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | A $0.3 million decrease in depreciation expense attributable to a Superior Highwall Mining System becoming fully depreciated in March 2010 and was subsequently sold in
June 2010;
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | A $0.2 million decrease in expense attributable to an idled highwall mine during 2009; and
| | ----- | ------------------------------------------------------------------------------------------



| | (iv) | A $0.1 million decrease in expense as a result of certain equipment becoming fully depreciated in 2009.
| | ---- | -------------------------------------------------------------------------------------------------------

General and Administrative Expenses



|                                   |  |                                 |           |  |                     |   |           |   |  |   |          |   |  |  |       |  
|---------------------------------- |  | ------------------------------- | --------- |  | ------------------- | - | --------- | - |  | - | -------- | - |  |  | ----- | -
|                                   |  | Three Months
EndedSeptember 30, |           |  | Increase/(decrease) |  
|                                   |  | 2010                            |           |  | 2009                |   |           | $ |  |   | %        |  
|General and administrative expense |  | $                               | 1,647,041 |  |                     | $ | 1,821,731 |   |  | $ | (174,690 | ) |  |  | (9.6  | )
|Tons sold                          |  |                                 | 102,175   |  |                     |   | 286,447   |   |  |   | (184,272 | ) |  |  | (64.3 | )
|Average cost per ton sold          |  | $                               | 16.12     |  |                     | $ | 6.36      |   |  | $ | 9.76     |   |  |  | 153.5 |  

The 9.6% decrease in general and
administrative expenses for the three months ended September 30, 2010 as compared to the same period in the previous year is primarily attributable to the increase in professional and consulting fees, primarily related to the Ranger Transaction
on April 20, 2010, of $0.4 million offset by a decrease in payroll expense of $0.2 million and stock compensation expense of $0.4 million.



27



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##### Table of Contents



Other (Income)
Expense



|                             |  |                                 |           |   |                     |   |           |   |  |   |          |   |  |  |        |  
|---------------------------- |  | ------------------------------- | --------- | - | ------------------- | - | --------- | - |  | - | -------- | - |  |  | ------ | -
|                             |  | Three Months
EndedSeptember 30, |           |   | Increase/(decrease) |  
|                             |  | 2010                            |           |   | 2009                |   |           | $ |  |   | %        |  
|Interest expense             |  | $                               | 1,498,769 |   |                     | $ | 1,910,496 |   |  | $ | (411,727 | ) |  |  | (21.6  | )
|Interest income              |  |                                 | (1,376    | ) |                     |   | (65,175   | ) |  |   | 63,799   |   |  |  | (97.9  | )
|Other                        |  |                                 | 6,003     |   |                     |   | (39,324   | ) |  |   | 45,327   |   |  |  | (115.3 | )
|                             |  |                                 |           |   |                     |   |           |   |  |   |          |   |  |  |        |  
|Total other (income) expense |  | $                               | 1,503,396 |   |                     | $ | 1,805,997 |   |  | $ | (302,601 | ) |  |  | (16.8  | )
|                             |  |                                 |           |   |                     |   |           |   |  |   |          |   |  |  |        |  

The 21.6% decrease in interest expense for the three months ended September 30, 2010 as compared to the same
period in 2009, is primarily related to the repayment of a capital lease obligation and our short term line of credit with the proceeds from the Ranger Transaction on April 20, 2010.

Interest incomedecreased by 97.9% during the three months ended September 30, 2010 compared to the same period in 2009 due to lower average restricted cash balances in 2010 compared to 2009.

Income from Discontinued Operations, Net of Taxes

The income from discontinued operations of $3.9 million during the three months ended September 30, 2009 represents the operating results of our Alabama operations. Our Alabama operations were
disposed of in August 2009.

During the three months ended September 30, 2009 our discontinued operations sold 46,741 tons at an average
sales price of $79.41 for total sales revenue of $3.7 million.



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##### Table of Contents



Comparison of Nine Months Ended
September 30, 2010 and Nine Months Ended September 30, 2009

Production

During the nine months ended September 30, 2010 and 2009, our Tennessee mines produced 308,133 and 631,756 tons of coal, respectively, as follows:



|                     |  |                                |         |  |      |  |       |      |  |  |         |  |  |  |       | 
|-------------------- |  | ------------------------------ | ------- |  | ---- |  | ----- | ---- |  |  | ------- |  |  |  | ----- | 
|                     |  | Nine Months EndedSeptember 30, |        
|                     |  | 2010                           |         |  | 2009 | 
|                     |  | Tons                           |         |  | %    |  |       | Tons |  |  | %       | 
|Production:          |  |                                |         |  |      |  |       |      |  |  |         |  |  |  |       | 
|Surface mines        |  |                                | 136,411 |  |      |  | 29.9  |      |  |  | 283,799 |  |  |  | 32.7  | 
|Highwall mines       |  |                                |        |  |      |  |      |      |  |  | 80,891  |  |  |  | 9.3   | 
|Underground mines    |  |                                | 171,722 |  |      |  | 37.6  |      |  |  | 267,066 |  |  |  | 30.7  | 
|                     |  |                                |         |  |      |  |       |      |  |  |         |  |  |  |       | 
|Total tons produced  |  |                                | 308,133 |  |      |  | 67.5  |      |  |  | 631,756 |  |  |  | 72.7  | 
|Purchased coal       |  |                                | 148,648 |  |      |  | 32.5  |      |  |  | 237,828 |  |  |  | 27.3  | 
|                     |  |                                |         |  |      |  |       |      |  |  |         |  |  |  |       | 
|Total tons available |  |                                | 456,781 |  |      |  | 100.0 |      |  |  | 869,584 |  |  |  | 100.0 | 
|                     |  |                                |         |  |      |  |       |      |  |  |         |  |  |  |       | 

The 323,623 ton decrease in tons produced in 2010 compared to 2009 was the result of the idling of one of our higher cost
underground mines and the closing of an underground mine in order to take advantage of purchased coal prices that were lower than our mining costs at these two mines, as well as the sale of one active underground mine in April 2010 to Ranger Energy.
The 89,180 decrease in tons of purchased coal in 2010 compared to 2009 was primarily due to the assignment of a coal supply agreement to Ranger Energy on April 20, 2010 as part of the Ranger Transaction.

Revenue

During
the nine months ended September 30, 2010, we generated substantially all of our coal sales revenue from one electric utility customer.

Tons sold and the associated revenue for the nine month periods follows:



|                           |  |                                |            |  |                     |   |            |   |  |   |             |   |  |  |       |  
|-------------------------- |  | ------------------------------ | ---------- |  | ------------------- | - | ---------- | - |  | - | ----------- | - |  |  | ----- | -
|                           |  | Nine Months
EndedSeptember 30, |            |  | Increase/(decrease) |  
|                           |  | 2010                           |            |  | 2009                |   |            | $ |  |   | %           |  
|Coal sales                 |  | $                              | 35,077,102 |  |                     | $ | 62,325,476 |   |  | $ | (27,248,374 | ) |  |  | (43.7 | )
|Tons sold                  |  |                                | 420,876    |  |                     |   | 855,036    |   |  |   | (434,160    | ) |  |  | (50.8 | )
|Average price per ton sold |  | $                              | 83.34      |  |                     | $ | 72.89      |   |  | $ | 10.45       |   |  |  | 14.3  |  
|                           |  |                                |            | 
|Other revenues             |  | $                              | 1,388,699  |  |                     | $ | 2,400,759  |   |  | $ | (1,012,060  | ) |  |  | (42.2 | )

The 43.7% decrease in revenue from coal
sales for the nine months ended September 30, 2010 as compared to the same period in 2009 was primarily due to reduced sales to our largest customer and the sale of a coal supply agreement to Ranger Energy on April 20, 2010 as part of the
Ranger Transaction.

In January 2010, our largest customer exercised its rights of force majeure under our coal supply contract due to
freezing weather in the Southeast United States, which resulted in its suspension of our shipment of approximately 40,000 tons of coal. While the customer is obligated under our contract to purchase this coal within twelve months after the end of
the event, the suspension of these shipments resulted in a reduction in coal sales of approximately $3.0 million during January and February 2010.



29



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##### Table of Contents



The decrease in other revenues of $1.0
million is due to a reduction in revenue from a contract mining services agreement between Xinergy Corp. and National Coal Corporation to mine coal from a highwall mine previously sold to Xinergy Corp. as part of an asset sale on March 31,
2008. The contract mining agreement with Xinergy Corp. was terminated during November 2009. The decrease in other revenue was partially offset by royalty payments received from Ranger Energy as part of the Ranger Transaction on April 20, 2010.

Cost of Sales



|                          |  |                                |            |  |                     |   |            |   |  |   |             |   |  |  |       |  
|------------------------- |  | ------------------------------ | ---------- |  | ------------------- | - | ---------- | - |  | - | ----------- | - |  |  | ----- | -
|                          |  | Nine Months
EndedSeptember 30, |            |  | Increase/(decrease) |  
|                          |  | 2010                           |            |  | 2009                |   |            | $ |  |   | %           |  
|Cost of sales             |  | $                              | 33,388,620 |  |                     | $ | 58,295,500 |   |  | $ | (24,906,880 | ) |  |  | (42.7 | )
|Tons sold                 |  |                                | 420,876    |  |                     |   | 855,036    |   |  |   | (434,160    | ) |  |  | (50.8 | )
|Average cost per ton sold |  | $                              | 79.33      |  |                     | $ | 68.18      |   |  | $ | 11.15       |   |  |  | 16.4  |  
|                          |  |                                |            | 
|Cost of services          |  | $                              | 85,241     |  |                     | $ | 2,316,948  |   |  | $ | (2,231,707  | ) |  |  | (96.3 | )

Total cost of sales decreased 42.7% on a
43.7% decrease in coal sales revenue during the nine months ended September 30, 2010 as compared to the same nine month period in 2009.

During 2009, we idled one of our higher cost underground mines and closed an underground mine in order to take advantage of purchased coal prices that
were lower than our mining costs at these two mines. As a result of the mine closures and the 50.8% decrease in tons sold, attributable to the Ranger Transaction in April 2010, our cost per ton sold during 2010 compared to 2009 from our continuing
operations increased by $11.15 due primarily to increases in labor of $3.80 per ton sold, maintenance and supplies of $2.38 per ton sold, royalties of $1.56 per ton sold, and workers compensation of $2.65 per ton sold.

Cost of services decreased $2.2 million due to the termination of a contract mining services agreement during November 2009 between Xinergy Corp. and
National Coal Corporation to mine coal from a highwall mine previously sold to Xinergy Corp. as part of the Straight Creek sale on March 31, 2008.

Depreciation, Depletion, Amortization and Accretion



|                                                    |  |                                |           |  |                     |   |           |   |  |   |            |   |  |  |       |  
|--------------------------------------------------- |  | ------------------------------ | --------- |  | ------------------- | - | --------- | - |  | - | ---------- | - |  |  | ----- | -
|                                                    |  | Nine Months
EndedSeptember 30, |           |  | Increase/(decrease) |  
|                                                    |  | 2010                           |           |  | 2009                |   |           | $ |  |   | %          |  
|Depreciation, depletion, amortization and accretion |  | $                              | 4,340,224 |  |                     | $ | 7,528,951 |   |  | $ | (3,188,727 | ) |  |  | (42.4 | )
|Tons sold                                           |  |                                | 420,876   |  |                     |   | 855,036   |   |  |   | (434,160   | ) |  |  | (50.8 | )
|Average cost per ton sold                           |  | $                              | 10.31     |  |                     | $ | 8.81      |   |  | $ | 1.50       |   |  |  | 17.1  |  

The 42.4% decrease in depreciation,
depletion, amortization, and accretion expense for the nine months ended September 30, 2010 as compared to the same period in 2009 was primarily the result of:



| | (i) | A $0.9 million decrease in depreciation, amortization and accretion expense as a result of the disposition on April 20, 2010 of a portion of our properties and
operations in the Ranger Transaction;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | (ii) | A $0.6 million decrease in depreciation expense attributable to a Superior Highwall Mining System becoming fully depreciated in March 2010;
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | A $0.6 million decrease in expense attributable to an idled highwall mine during 2009;
| | ----- | --------------------------------------------------------------------------------------



| | (iv) | A $0.8 million decrease in expense as a result of certain equipment becoming fully depreciated in 2009; and
| | ---- | -----------------------------------------------------------------------------------------------------------



| | (v) | A $0.3 million decrease in expense attributable to increased capitalization of expense in inventory as a result of the increase in inventory levels in 2010 compared to
2009.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Gain on asset disposals, net

The (gain) loss on asset disposal increased $2.5 million during the nine months ended September 30, 2010 compared to the same period in 2009 as a result of the following:



| | (i) | On April 20, 2010, we sold certain property, plant, equipment and mine development from our New River tract operations. The property, plant, equipment and mine
development sold resulted in a loss of approximately $1.3 million.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | On May 19, 2010, we sold the short line railroad owned by our wholly-owned subsidiary NC Railroad, Inc for $3.0 million less $0.1 million in accounts payable. The
property and equipment sold had a net book value of $3.2 million and resulted in a loss of approximately $0.2 million.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | On June 30, 2010, our wholly-owned subsidiary, National Coal Corporation sold a Superior Highwall Mining System for $4.1 million. The assets sold had an
immaterial net book value resulting in a gain on the sale of $4.1 million.
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

General and Administrative
Expenses



|                                   |  |                                |           |  |                     |   |           |   |  |   |          |   |  |  |       |  
|---------------------------------- |  | ------------------------------ | --------- |  | ------------------- | - | --------- | - |  | - | -------- | - |  |  | ----- | -
|                                   |  | Nine Months
EndedSeptember 30, |           |  | Increase/(decrease) |  
|                                   |  | 2010                           |           |  | 2009                |   |           | $ |  |   | %        |  
|General and administrative expense |  | $                              | 5,481,813 |  |                     | $ | 5,247,932 |   |  | $ | 233,881  |   |  |  | 4.5   |  
|Tons sold                          |  |                                | 420,876   |  |                     |   | 855,036   |   |  |   | (434,160 | ) |  |  | (50.8 | )
|Average cost per ton sold          |  | $                              | 13.02     |  |                     | $ | 6.14      |   |  | $ | 6.88     |   |  |  | 112.1 |  

The 4.5% increase in general and
administrative expenses for the nine months ended September 30, 2010 as compared to the same period in the previous year is primarily attributable to an increase in professional and consulting fees of $1 million primarily related to the Ranger
Transaction on April 20, 2010, offset by a decrease in payroll and stock compensation expense of $0.8 million.



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Other (Income)
Expense



|                             |  |                                |           |   |                     |   |           |   |  |   |          |   |  |  |        |  
|---------------------------- |  | ------------------------------ | --------- | - | ------------------- | - | --------- | - |  | - | -------- | - |  |  | ------ | -
|                             |  | Nine Months
EndedSeptember 30, |           |   | Increase/(decrease) |  
|                             |  | 2010                           |           |   | 2009                |   |           | $ |  |   | %        |  
|Interest expense             |  | $                              | 4,762,493 |   |                     | $ | 5,037,908 |   |  | $ | (275,415 | ) |  |  | (5.5   | )
|Interest income              |  |                                | (6,132    | ) |                     |   | (222,281  | ) |  |   | 216,149  |   |  |  | (97.2  | )
|Other                        |  |                                | 158,904   |   |                     |   | (63,944   | ) |  |   | 222,848  |   |  |  | (348.5 | )
|                             |  |                                |           |   |                     |   |           |   |  |   |          |   |  |  |        |  
|Total other (income) expense |  | $                              | 4,915,265 |   |                     | $ | 4,751,683 |   |  | $ | 163,582  |   |  |  | 3.4    |  
|                             |  |                                |           |   |                     |   |           |   |  |   |          |   |  |  |        |  

Interest incomedecreased by 97.2% during the nine months ended September 30, 2010 compared to the
same period in 2009 due to lower average restricted cash balances in 2010 compared to 2009.

Otherincreased by $0.2 million primarily
due to the loss on extinguishment of debt of $0.2 million resulting from the repayment of our revolving line of credit with a portion of the proceeds from the Ranger Transaction.

Loss from Discontinued Operations, Net of Taxes

The loss from discontinued operations of $1.5 million during the nine months ended September 30, 2009 represents the operating results of our Alabama operations. Our Alabama operations were disposed
of in August 2009.

During the nine months ended September 30, 2009 our discontinued operations sold 404,245 tons at an average sales
price of $77.45 for total sales revenue of $31.3 million.

Liquidity and Capital Resources

At September 30, 2010, we had cash and cash equivalents of approximately $3.1 million and negative working capital of approximately $42.9 million.
Cash flows (used in) provided by continuing operations were approximately $(6.0) million and $6.6 million for the nine months ended September 30, 2010 and 2009, respectively. At September 30, 2010, we had a stockholders deficit of
$20.7 million and incurred net losses from continuing operations of $9.2 million for the period then ended. Management expects that we will continue to incur net losses for the foreseeable future.

During the first quarter of 2010, our liquidity was adversely affected further when our largest customer exercised its rights of force majeure under our
coal supply contract due to freezing weather in the Southeastern United States, which resulted in their suspension of our shipment of approximately 40,000 tons of coal. While the customer is obligated under our contract to purchase this coal within
twelve months after the end of the event, the suspension of these shipments resulted in an immediate reduction in cash receipts of approximately $3.0 million during January and February 2010.

In 2009, we concluded that cash generated from operations would not be sufficient to pay interest or principal on our 10.5% Notes due 2010, and we began exploring strategic alternatives to improve our
liquidity and reduce our debt obligations. We engaged the services of a financial advisory firm to evaluate possible strategic and financing transactions.

On September 27, 2010, we entered into the agreement and plan of merger with Ranger Energy and Merger Sub, pursuant to which we will merge with and into Merger Sub and each outstanding share of our
common stock will be converted into the right to receive $1.00 in cash. The merger must be approved



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by holders of a majority of our outstanding shares of common stock at a meeting presently scheduled for December 2, 2010, and the transactions contemplated by the merger agreement are
subject to other customary closing conditions. If the merger is consummated, National Coal Corp. will cease to exist and Merger Sub will remain a wholly-owned subsidiary of Ranger Energy. The merger is expected to close prior to December 15,
2010, the maturity date of the Companys 10.5% Notes due 2010. If the merger does not close prior to such date, we will default on the 10.5% Notes due 2010 and most likely need to seek protection from creditors under federal bankruptcy laws.

On January 5, 2010, we received a deficiency notice from The NASDAQ Stock Market stating that we had not met the $1.00 minimum closing
bid price requirement for thirty consecutive trading days as required under NASDAQ listing rules. We failed to regain compliance with the minimum bid price requirement, and on July 8, 2010 we received a notice from The NASDAQ Stock Market
indicating that our common stock would be delisted. On July 13, 2010, we requested a hearing with the NASDAQ Listing Qualifications Panel (Panel) to review the delisting determination, which oral hearing took place
August 5, 2010. On September 29, 2010, the Panel agreed to grant us a conditional listing (exemption) for an additional period of time not to exceed 180 days from the date of the delisting notification or until January 4,
2011, to allow us time to complete the merger with Ranger.

On June 16, 2010, we were notified by The NASDAQ Stock Market that we were not
in compliance with an additional NASDAQ listing requirement because the market value of our publicly held shares of common stock was less than $15 million for 30 consecutive business days. We have 180 calendar days, or until December 13, 2010,
to regain compliance with this listing rule. To regain compliance with the minimum value of publicly held shares rule, the market value of our publicly held shares, based on the closing bid price of our common stock, must equal at least $15 million
for a minimum of ten consecutive business days. If we do not regain compliance by December 13, 2010, the NASDAQ staff will notify us that our common stock will be delisted. In that event and at that time, we may appeal Nasdaqs delisting
determination to a NASDAQ Hearings Panel.

On April 20, 2010, we completed the Ranger Transaction. Prior to the closing of the Ranger
Transaction, Ranger Investments, LLC, a Ranger affiliate, purchased from Centaurus Energy Master Fund, LP $30.3 million of our 10.5% Notes due 2010 and our $5.0 million short-term revolving line of credit, of which $4.5 million had been drawn. We
were in default under the $5.0 million short-term revolving line of credit on the date we published our annual financial statements, which was reported on with a going concern qualification from our independent certified public
accountants. We used a portion of the proceeds from the Ranger Transaction on April 20, 2010 to pay the $4.5 million outstanding balance on the revolving line of credit and the line of credit was terminated.

The accompanying financial statements have been prepared assuming that we will continue as a going concern, which contemplates our realization of assets
and satisfaction of liabilities in the normal course of business, and our auditors have included a going concern qualification in their report on our financial statements. We have $42.0 million in senior secured notes that are due on
December 15, 2010. We expect that our operations during 2010 will require $0.5 million to $0.6 million of cash on a monthly basis. Additionally, we must raise additional equity and/or refinance our senior secured debt before it matures on
December 15, 2010. These factors, among others, may indicate that we will be unable to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of assets and
liabilities that might be necessary should we be unable to continue as a going concern.

During 2008, we successfully renegotiated several of
our existing coal supply agreements resulting in an increased selling price per ton during 2009. The weighted average selling price per ton is $87.94 and $85.32 on 0.1 million and 0.5 million tons contracted for the remainder of 2010 and
fiscal year 2011, respectively. We typically sell our coal for a specified per ton amount and at a negotiated price pursuant



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to both short-term contracts and 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 our operating cash flows. Additionally, our 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 us or our customers during the duration of specified events beyond the control of the affected party.

We expect we will meet our contract commitments through a combination of produced tons and purchased coal. Our production can be negatively impacted by weather, labor shortages or equipment break-downs.
In addition, geological and mining conditions may not be fully identified by available exploration data or may differ from experience in current operations. Further, 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 materially adverse effect on our operating cash flows.

During the remainder of 2010, management expects to incur approximately $0.6 million in new capital expenditures for the construction of a new underground mine near our current active operations and $0.2
million to maintain existing assets. The proceeds received from the sale of assets during June 2010 will be the primary source of funding for the new capital expenditures. In prior years, we experienced the unanticipated loss of the use of key
equipment, which resulted in lost production and lost revenues. We may experience similar mechanical failures in the future, which could have a material adverse effect on our operating cash flows.

The following table summarizes our long-term debt obligations, excluding capital leases from continuing operations:



|                                                     |  |                   |             |   |                  |   |             |  
|---------------------------------------------------- |  | ----------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                     |  | September 30,2010 |             |   | December 31,2009 |  
|10.5% Senior Secured Notes, due 2010                 |  | $                 | 42,000,000  |   |                  | $ | 42,000,000  |  
|Equipment loans and installment purchase obligations |  |                   | 545,266     |   |                  |   | 1,284,210   |  
|Insurance premium financing                          |  |                   |            |   |                  |   | 65,000      |  
|                                                     |  |                   |             |   |                  |   |             |  
|                                                     |  |                   | 42,545,266  |   |                  |   | 43,349,210  |  
|                                                     |  |                   |             |   |                  |   |             |  
|Unamortized discounts                                |  |                   | (134,112    | ) |                  |   | (705,986    | )
|Less current portion of long term debt               |  |                   | (42,398,865 | ) |                  |   | (42,372,933 | )
|                                                     |  |                   |             |   |                  |   |             |  
|Total long-term debt                                 |  | $                 | 12,289      |   |                  | $ | 270,291     |  
|                                                     |  |                   |             |   |                  |   |             |  



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Cash Flows

We currently satisfy our working capital requirements primarily through cash flows generated from operations and sales of debt and equity securities.
During the nine months ended September 30, 2010 additional working capital was generated from the sale of certain assets. For the nine months ended September 30, 2010, we had a net increase in cash of approximately $1.9 million. Cash flows
from operating, financing and investing activities for the nine months ended September 30, 2010 and 2009 are summarized in the following table:



|                                                     |  |                   |            |   |                   |   |            |  
|---------------------------------------------------- |  | ----------------- | ---------- | - | ----------------- | - | ---------- | -
|                                                     |  | September 30,2010 |            |   | September 30,2009 |  
|Activity:                                            |  |                   |            |   |                   |   |            |  
|Operating activities                                 |  | $                 | (5,950,481 | ) |                   | $ | 6,560,776  |  
|Investing activities                                 |  |                   | 13,334,241 |   |                   |   | (5,242,793 | )
|Financing activities                                 |  |                   | (5,433,248 | ) |                   |   | (1,166,043 | )
|                                                     |  |                   |            |   |                   |   |            |  
|Net increase (decrease) in cash and cash equivalents |  | $                 | 1,950,512  |   |                   | $ | 151,940    |  
|                                                     |  |                   |            |   |                   |   |            |  

Operating Activities

The net cash used in operating activities of $6.0 million during the nine months ended September 30, 2010 compared with prior year cash provided by operations of $6.6 million, a $12.6 million
reduction from 2009, was primarily attributable to the prior period including the operating results for National Coal of Alabama, Inc. A portion of the change in cash flows from continuing operating activities was the result of a decrease in
accounts payable and accrued expenses of $8.0 million primarily due to the repayment of accounts payable as a result of the Ranger Transaction, offset by an increase in inventory of $1.5 million as compared to the same period in 2009.

Investing Activities

The change in net cash used in investing activities from $5.2 million for the nine months ended September 30, 2009 to net cash provided by investing activities of $13.3 million for the nine months
ended September 30, 2010 was primarily due to the prior period including $2.2 million of cash used in investing activities from National Coal of Alabama, Inc., a decrease in capital expenditures in our continuing operations of $4.2 million
during 2010, and proceeds of $14.0 million from the sale of assets during the second quarter of 2010.

Financing
Activities

The change in net cash used in financing activities of $5.4 million during the nine months ended September 30, 2010
compared to the net cash used in financing activities of $1.2 million for the nine months ended September 30, 2009 was primarily due to the $1.5 million in proceeds received from borrowings on our revolving credit facility entered into on
April 9, 2009 offset by deferred financing costs and the repayment of the revolving credit facility outstanding balance of $4.5 million with a portion of the proceeds from the Ranger Transaction on April 20, 2010.

Off-Balance Sheet Arrangements

At
September 30, 2010, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, variable interest or special purpose entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such
relationships.



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Critical Accounting Policies,
Judgments and Estimates

Accounting measurements at interim dates inherently involve greater reliance on estimates than those made at
year-end. The results for the three and nine months ended September 30, 2010 are not necessarily indicative of results to be expected for the full year. Please refer to the section entitled Critical Accounting Policies, Judgments and
Estimates included in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation of our Annual Report on Form 10-K for the year ended December 31, 2009 for a discussion of our critical
accounting policies, judgments and estimates. There have been no material changes to the previously reported information concerning our Critical Accounting Policies, Judgments and Estimates.

Recent Accounting Pronouncements

During the nine months ended September 30, 2010,
there were no accounting pronouncements that became effective that impacted our financial statements.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Intentionally omitted.



|Item 4T. | Controls and Procedures
|-------- | -----------------------

Controls and
Procedures

Members of our management, including our President and Chief Executive Officer, Daniel A. Roling, and Acting Chief Financial
Officer, Les H. Wagner, have evaluated the effectiveness of our disclosure controls and procedures, as defined by paragraph (e) of Exchange Act Rules 13a-15 or 15d-15, as of September 30, 2010, the end of the period covered by this report.
Based upon that evaluation, Messrs. Roling and Wagner concluded that our disclosure controls and procedures were effective as of September 30, 2010.

Internal Control over Financial Reporting

There were no changes in our internal control
over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended September 30, 2010 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings.
|------- | ------------------

On November 2,
2010, a putative class action complaint was filed by Harold Sofie against the Company and each of its directors in the Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County, Florida, purportedly on behalf of the public
stockholders of the Company. The complaint alleges, among other things, that our directors breached their fiduciary duties to our public stockholders by, among other things, failing to disclose material information in the preliminary proxy statement
we filed on October 13, 2010 relating to the solicitation of proxies for the special meeting of stockholders to be held for the purpose of considering the approval and adoption of the merger and the merger agreement. Among other things, the
complaint seeks class action status, a court order enjoining the completion of the transaction, a court order directing the Company disclose additional information regarding the merger and merger agreement, and the payment of attorneys fees
and expenses. We have not yet answered or otherwise responded to the complaint. We believe that this lawsuit is without merit and intend to defend against these claims.



|Item 1A. | Risk Factors
|-------- | ------------

This Quarterly Report on
Form 10-Q contains forward-looking statements, which are subject to a variety of risks and uncertainties. Other actual results could differ materially from those anticipated in those forward-looking statements as a result of various factors,
including those set forth in the risk factors relating to our business and common stock contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2009.

The following risk factor updates, and should be considered in addition to, the risk factors previously disclosed by us in Part 1, Item 1A of our Annual Report for the fiscal year ended
December 31, 2009.

We are subject to litigation related to the pending merger with Ranger Energy.

We are defending a putative class action lawsuit initiated by Harold Sofie against the Company and each of our directors in the Circuit Court of the
Thirteenth Judicial Circuit in and for Hillsborough County, Florida, purportedly on behalf of our public stockholders. The complaint alleges, among other things, that our directors breached their fiduciary duties to our public stockholders by, among
other things, failing to disclose material information in the preliminary proxy statement we filed on October 13, 2010 relating to the solicitation of proxies for the special meeting of stockholders to be held for the purpose of considering the
approval and adoption of the merger and the merger agreement. Among other things, the complaint seeks class action status, a court order enjoining the completion of the transaction, a court order directing us to disclose additional information
regarding the merger and merger agreement, and the payment of attorneys fees and expenses. The absence of an injunction prohibiting the consummation of the proposed merger is a condition to the closing of the transaction.

While we believe that the claims made in this litigation are without merit and intend to defend such claims, there can be no assurance that we will
prevail in our defense. Further, it is possible that additional claims beyond those that have already been filed will be brought by the current plaintiff or by others in an effort to enjoin the proposed acquisition or seek monetary relief from us.
An unfavorable resolution of any such litigation surrounding the proposed acquisition could delay or prevent the consummation of the transaction. In addition, the cost to us of defending the litigation, even if resolved in our favor, could be
substantial. Such litigation could also substantially divert the attention of our management and our resources in general. If the lawsuit prevents us from consummating the merger prior to December 15, 2010, we will default on our 10.5% Notes
due 2010 and most likely need to seek protection from creditors under federal bankruptcy laws.



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If we are unable to consummate the
pending merger with Ranger Energy prior to December 15, 2010, we will default on our 10.5% Notes due 2010 and most likely need to seek protection from creditors under federal bankruptcy laws.

Our 10.5% Notes due 2010 mature on December 15, 2010. If we are unable to consummate the pending merger with Ranger Energy prior to such date, we
will default on the 10.5% Notes due 2010 due to our failure to pay the principal amount of and accrued interest on such indebtedness, and we will most likely need to seek protection from creditors under federal bankruptcy laws.

The liquidity of our common stock will be adversely affected if our common stock is delisted from The Nasdaq Global Market.

Our common stock is presently traded on The Nasdaq Global Market. To maintain inclusion on The Nasdaq Global Market, we must continue to meet
certain listing requirements.

We received a deficiency notice from The NASDAQ Stock Market on January 5, 2010, stating that we had not
met the $1.00 minimum closing bid price requirement for thirty consecutive trading days as required under NASDAQ listing rules. We failed to regain compliance with the minimum bid price requirement, and on July 8, 2010 we received a notice
from The NASDAQ Stock Market indicating that our common stock would be delisted. On July 13, 2010, we requested a hearing with the NASDAQ Listing Qualifications Panel (Panel) to review the delisting determination, which oral
hearing took place August 5, 2010. On September 29, 2010, the Panel agreed to grant us a conditional listing (exemption) for an additional period of time not to exceed 180 days from the date of the delisting notification or until
January 4, 2011, to allow us time to complete the merger with Ranger.

On June 16, 2010, we were notified by The NASDAQ Stock Market
that we were not in compliance with an additional NASDAQ listing requirement because the market value of our publicly held shares of common stock was less than $15 million for 30 consecutive business days. We have 180 calendar days, or until
December 13, 2010, to regain compliance with this listing rule. To regain compliance with the minimum value of publicly held shares rule, the market value of our publicly held shares, based on the closing bid price of our common stock, must
equal at least $15 million for a minimum of ten consecutive business days. If we do not regain compliance by December 13, 2010, the NASDAQ staff will notify us that our common stock will be delisted. In that event and at that time, we may
appeal Nasdaqs delisting determination to a NASDAQ Hearings Panel.

The market price of our common stock has generally been highly
volatile and we cannot guarantee that we will be able to regain compliance with the minimum closing bid price or minimum value of publicly held shares requirements within any compliance periods. If we are delisted from The NASDAQ Stock Market,
the market value of our common stock could fall and holders of common stock would likely find it more difficult to dispose of the common stock.



|Item 5. | Other Items
|------- | -----------

Dodd-Frank Act Disclosure
of Mine Safety and Health Administration Safety Data

We are committed to providing a safe workplace for all of our employees. Our
company has in place health and safety programs that include extensive employee training, accident prevention, workplace inspection, emergency response, accident investigation, regulatory compliance and program auditing. The objectives of our health
and safety programs are to eliminate workplace incidents, comply with all mining-related regulations and provide support for both regulators and the industry to improve mine safety. We believe our Company has a well-developed process of
training, mentoring, monitoring, reduction of risk through safety innovation, and recognition of safety excellence.



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The operation of our mines is subject
to regulation by The Federal Mine Safety and Health Administration (MSHA) under the Federal Mine Safety and Health Act of 1977 (the FMSH Act). MSHA inspects our mines on a regular basis and issues various citations and orders
when it believes a violation has occurred under the FMSH Act. We present information below regarding certain mining safety and health citations which MSHA has issued with respect to our coal mining operations. In evaluating this information,
consideration should be given to factors such as: (i) the number of citations and orders will vary depending on the size of the coal mine, (ii) the number of citations issued will vary from inspector to inspector and mine to mine, and
(iii) citations and orders can be contested and appealed, and in that process, are often reduced in severity and amount, and are sometimes dismissed.

As required by the reporting requirements regarding coal mine safety included in §1503(a)(1) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), the
table below presents the following information for the three months ended September 30, 2010, except for pending legal actions, which are as of September 30, 2010, for each coal mining facilities of which the Company is an operator:



| | (a) | The total number of FMSH Act section 104 significant and substantial citations (i.e. there exists a reasonable likelihood that the hazard contributed to will result in
an injury or illness of a reasonably serious nature) received, which are for alleged violations of a mining safety standard or regulation where there exists a reasonable likelihood that the hazard could result in an injury or illness of a reasonably
serious nature;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | The total number of FMSH Act section 104(b) orders received, which are for an alleged failure to totally abate (i.e. orders issued when conditions cited pursuant to
section 104(a) have not been totally abated within the period of time set by MSHA) the subject matter of a FMSH Act section 104(a) citation within the period specified in the citation;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | The total number of FMSH Act section 104(d) citations and orders received, which are for an alleged unwarrantable failure (i.e. aggravated conduct constituting more
than ordinary negligence) to comply with a mining safety standard or regulation;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | The total number of flagrant violations (i.e. reckless or repeated failure to make reasonable efforts to eliminate a known violation of a mandatory health or safety
standard that substantially and proximately caused, or reasonably could have been expected to cause, death or serious bodily injury) under §110(b)(2) of the FMSH Act received;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (e) | The total number of imminent danger orders (i.e. the existence of any condition or practice in a coal or other mine which could reasonably be expected to cause death or
serious physical harm before such condition or practice can be abated) issued under §107(a) of the FMSH Act;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (f) | The total dollar value of proposed assessments from MSHA under the FMSH Act;
| | --- | ----------------------------------------------------------------------------



| | (g) | The total number of mining-related fatalities; and
| | --- | --------------------------------------------------



| | (h) | The total number of pending legal actions before the Federal Mine Safety and Health Review Commission as required by §1503(a)(3) of the Dodd-Frank Act; see Exhibit
99.1 for a complete listing of pending legal actions for each coal mine of which we or a subsidiary of ours is an operator.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|                           |  |       |    |  |       |  |   |       |  |  |       |  |  |       |   |  |         |  |   |       |  |   |         |  |  |  |   |  |  |  |   | 
|-------------------------- |  | ----- | -- |  | ----- |  | - | ----- |  |  | ----- |  |  | ----- | - |  | ------- |  | - | ----- |  | - | ------- |  |  |  | - |  |  |  | - | 
|Mine                       |  | (a) # |    |  | (b) # |  |   | (c) # |  |  | (d) # |  |  | (e) # |   |  | ( f ) $ |  |   | (g) # |  |   | (h) #   | 
|Mine #7                    |  |       | 9  |  |       |  |  |       |  |  |      |  |  |       |  |  |         |  |  |       |  | $ | 7,069   |  |  |  |  |  |  |  |  | 
|Mine #5 (previously owned) |  |       |   |  |       |  |  |       |  |  |      |  |  |       |  |  |         |  |  |       |  | $ | 140,000 |  |  |  |  |  |  |  | 2 | 
|Mine #14                   |  |       | 25 |  |       |  |  |       |  |  | 4     |  |  |       |  |  |         |  |  |       |  | $ | 26,953  |  |  |  |  |  |  |  | 3 | 

In addition, as required by the
reporting requirements regarding coal mine safety included in §1503(a)(2) of the Dodd-Frank Act, for the three months ended September 30, 2010, none of our coal mines of which we are an operator, has received written notice from MSHA of:



| | (a) | a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and
effect of coal or other mine health or safety hazards under §104(e) of the FMSH Act; or
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | the potential to have such a pattern.
| | --- | -------------------------------------



|Item 6. | Exhibits
|------- | --------

The following exhibits are
filed as part of this report:



|              |  |                                                                                                                                                                                                                                      
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Title                                                                                                                                                                                                                        
|              | 
|2.1           |  | Agreement and Plan of Merger, dated September 27, 2010, by and among National Coal Corp., Ranger Energy Investments, LLC and Ranger Coal Holdings, LLC (1)                                                                           
|              | 
|10.1          |  | Separation Agreement among William R. Snodgrass, National Coal Corp. and National Coal Corporation, effective September 10, 2010. (2)                                                                                                
|              | 
|10.2          |  | Amendment to Employment Agreement, dated September 27, 2010, by and among National Coal Corp., National Coal Corporation and Daniel A. Roling. (1)                                                                                   
|              | 
|31.1          |  | Certificate of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as amended.                                                                                                         
|              | 
|31.2          |  | Certificate of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as amended.                                                                                                         
|              | 
|32.1          |  | Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                               
|              | 
|99.1          |  | Pending legal actions before the Federal Mine Safety and Health Review Commission for each coal mine of which the Company is an operator as required by §1503(a)(3) of the
Dodd-Frank Wall Street Reform and Consumer Protection Act.



|(1) | Incorporated by reference to our Current Report on Form 8-K, filed on September 29, 2010.
|--- | -----------------------------------------------------------------------------------------

|(2) | Incorporated by reference to our Current Report on Form 8-K, filed on September 16, 2010.
|--- | -----------------------------------------------------------------------------------------



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                        |  |  |  |                     |  |                                             
|----------------------- |  |  |  | ------------------- |  | --------------------------------------------
|                        |  |  |  | NATIONAL COAL CORP.
|                        |  |  | 
|Date: November 15, 2010 |  |  |  |                     |  | /S/    LES H.
WAGNER                        
|                        |  |  |  | By:                 |  | Les H. Wagner                               
|                        |  |  |  | Its:                |  | Acting Chief Financial Officer              
|                        |  |  |  |                     |  | (Principal Financial and Accounting Officer)



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