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                                  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, 2008

                                       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                               (I.R.S. Employer
incorporation or organization)                               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  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    [_]                Smaller reporting company  [X]
     (Do not check if smaller reporting company)

         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  14,  2008 the issuer had  34,184,824  shares of common
stock, par value $.0001 per share, issued and outstanding.


<PAGE>


                                TABLE OF CONTENTS

PART I -  FINANCIAL INFORMATION

Item 1 -  Financial Statements (Unaudited).....................................2

          Condensed Consolidated Balance Sheets as of September 30,
             2008 and December 31, 2007........................................2
          Condensed Consolidated Statements of Operations for the
             Three Months and Nine Months Ended September 30, 2008
             and 2007..........................................................3
          Condensed Consolidated Statements of Cash Flows for the
             Nine Months Ended September 30, 2008 and 2007.....................4
          Notes to Condensed Consolidated Unaudited 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 6 -  Exhibits............................................................37


                                       1
<PAGE>


                          PART I: FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

<TABLE>
                               NATIONAL COAL CORP.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
<CAPTION>
                                                                  SEPTEMBER 30,     DECEMBER 31,
                                                                       2008             2007
                                                                  -------------    -------------
<S>                                                               <C>              <C>
ASSETS
Current Assets:
     Cash and cash equivalents ................................   $  11,235,574    $   9,854,351
     Accounts receivable ......................................       6,698,551        8,787,046
     Inventory ................................................       2,735,744        2,946,101
     Prepaid and other current assets .........................       1,175,431        1,951,827
                                                                  -------------    -------------
        Total current assets ..................................      21,845,300       23,539,325


Property, plant, equipment and mine development, net ..........     101,860,847      108,880,599
Deferred financing costs ......................................       4,610,950        6,669,703
Restricted cash ...............................................      22,895,327       29,115,383
Other non-current assets ......................................       1,228,576        1,049,991
                                                                  -------------    -------------
        Total Assets ..........................................   $ 152,441,000    $ 169,255,001
                                                                  =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Current maturities of long - term debt ...................   $   3,861,442    $  15,453,230
     Current installments of obligations under capital leases .         505,051          157,062
     Current portion of asset retirement obligation ...........       1,116,576        1,310,344
     Accounts payable and accrued  expenses ...................      17,908,377       12,759,593
                                                                  -------------    -------------
        Total current liabilities .............................      23,391,446       29,680,229

     Long - term debt, less current maturities, net of discount     103,545,838      114,350,348
     Obligations under capital leases, less current portion ...         512,961           74,688
     Asset retirement obligations, less current portion .......       8,051,641        8,954,343
     Deferred revenue .........................................       1,366,192        1,553,806
     Other non-current liabilities ............................       1,699,985        1,774,766
     Deferred tax liability ...................................       2,343,527        3,351,465
                                                                  -------------    -------------
        Total Liabilities .....................................     140,911,590      159,739,645
                                                                  -------------    -------------

Stockholders' Equity:
     Series A cumulative convertible preferred stock, $.0001
        par value; 8% coupon; 1,611 shares authorized;
        133.33 and 356.44 shares issued and outstanding at
        September 30, 2008 and December 31, 2007,
        respectively ..........................................            --               --
     Common Stock, $.0001 par value; 80 million shares
        authorized; 33,484,836 and 27,698,792 shares issued and
        outstanding at September 30, 2008 and December 31,
        2007, respectively ....................................           3,348            2,770
     Additional paid - in capital .............................     113,825,543       83,309,703
     Accumulated deficit ......................................    (102,299,481)     (73,797,117)
                                                                  -------------    -------------
        Total Stockholders' Equity ............................      11,529,410        9,515,356
                                                                  -------------    -------------
        Total Liabilities and Stockholders' Equity ............   $ 152,441,000    $ 169,255,001
                                                                  =============    =============
</TABLE>

THE  CONDENSED  CONSOLIDATED  BALANCE  SHEET AS OF DECEMBER 31, 2007 WAS DERIVED
FROM AUDITED FINANCIALS.

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                       2
<PAGE>


<TABLE>
                               NATIONAL COAL CORP.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<CAPTION>
                                                 FOR THE THREE MONTHS ENDED         FOR THE NINE MONTHS ENDED
                                                       SEPTEMBER 30,                      SEPTEMBER 30,
                                               ------------------------------    ------------------------------
                                                    2008             2007             2008             2007
                                               -------------    -------------    -------------    -------------
<S>                                            <C>              <C>              <C>              <C>
Revenues:
     Coal sales ............................   $  32,508,955    $  20,561,737    $  98,364,093    $  58,104,853
     Other revenues ........................         976,683          295,558        2,377,033          669,833
                                               -------------    -------------    -------------    -------------
        Total revenues .....................      33,485,638       20,857,295      100,741,126       58,774,686
                                               -------------    -------------    -------------    -------------

Operating expenses:
     Cost of sales .........................      30,816,401       20,502,468       96,438,882       56,406,293
     Depreciation, depletion, amortization
        and accretion ......................       3,898,285        4,047,671       11,766,339       11,340,326
     General and administrative ............       2,489,736        1,671,768        7,122,341        5,325,676
                                               -------------    -------------    -------------    -------------
        Total operating expenses ...........      37,204,422       26,221,907      115,327,562       73,072,295
                                               -------------    -------------    -------------    -------------

Loss from operations .......................      (3,718,784)      (5,364,612)     (14,586,436)     (14,297,609)
                                               -------------    -------------    -------------    -------------
Other income (expense):
     Interest expense ......................      (4,820,531)      (2,194,661)     (14,056,614)      (6,515,214)
     Interest income .......................         242,464          275,590          787,289          883,407
     Income from joint venture .............         108,594             --            333,723             --
     Other .................................          38,419          176,213       (1,708,538)         320,689
                                               -------------    -------------    -------------    -------------
        Other income (expense), net ........      (4,431,054)      (1,742,858)     (14,644,140)      (5,311,118)

                                               -------------    -------------    -------------    -------------
Loss before income taxes ...................      (8,149,838)      (7,107,470)     (29,230,576)     (19,608,727)

Income tax benefit .........................         237,221             --            728,214             --
                                               -------------    -------------    -------------    -------------

Net loss ...................................      (7,912,617)      (7,107,470)     (28,502,362)     (19,608,727)

Preferred stock dividend ...................         (40,328)         (42,894)        (120,107)        (342,737)
Preferred stock deemed dividend ............            --           (687,034)            --         (1,710,139)
                                               -------------    -------------    -------------    -------------

Net loss attributable to common shareholders   $  (7,952,945)   $  (7,837,398)   $ (28,622,469)   $ (21,661,603)
                                               =============    =============    =============    =============

Basic net loss per common share ............   $       (0.24)   $       (0.39)   $       (0.93)   $       (1.12)
                                               =============    =============    =============    =============

Diluted net loss per common share ..........   $       (0.24)   $       (0.39)   $       (0.93)   $       (1.12)
                                               =============    =============    =============    =============

Weighted average common shares outstanding .      33,139,355       20,246,652       30,688,851       19,263,128
                                               =============    =============    =============    =============
</TABLE>

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                       3
<PAGE>


<TABLE>
                               NATIONAL COAL CORP.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<CAPTION>
                                                                        FOR THE NINE MONTHS ENDED
                                                                              SEPTEMBER 30,
                                                                          2008            2007
                                                                      ------------    ------------
<S>                                                                   <C>             <C>
OPERATING ACTIVITIES
Net loss ..........................................................   $(28,502,362)   $(19,608,727)
Adjustments to reconcile net loss to net cash provided by (used in)
     operating activities:
        Depreciation, depletion, amortization and accretion .......     11,766,339      11,340,326
        Deferred income tax benefit ...............................       (728,214)           --
        Amortization of deferred financing costs ..................        575,759         527,526
        Amortization of debt discount .............................      2,415,154         502,743
        Loss/(gain) on disposal of assets .........................         20,868        (241,377)
        Loss on sale of Straight Creek properties .................        413,843            --
        Loss on extinguishment of debt ............................      1,676,840          50,720
        Income from joint venture .................................       (333,723)           --
        Settlement of asset retirement obligations ................       (686,990)       (336,680)
        Stock option expense ......................................      1,000,294         752,726
        Related party stock option expense ........................           --           434,493
        Changes in operating assets and liabilities:
           Accounts receivable ....................................      1,683,856         492,675
           Inventory ..............................................       (573,604)       (225,737)
           Prepaid and other current assets .......................      1,471,104        (478,390)
           Other non - current assets .............................        311,602          89,615
           Accounts payable and accrued expenses ..................      5,486,069      (1,376,802)
           Deferred revenue .......................................       (187,614)       (148,618)
           Other non - current liabilities ........................        (74,781)       (105,511)
                                                                      ------------    ------------
Net cash flows used in operating activities .......................     (4,265,560)     (8,331,018)
                                                                      ------------    ------------

INVESTING ACTIVITIES
Capital expenditures ..............................................     (8,034,987)     (3,174,585)
Proceeds from sale of Straight Creek properties ...................     10,711,399            --
Acquisition deposit ...............................................           --          (250,000)
Proceeds from sale of equipment ...................................           --           411,730
Restricted cash released to operations, net .......................      6,161,491         578,047
Additions to prepaid royalties ....................................       (680,644)       (229,198)
                                                                      ------------    ------------
Net cash provided by (used in) investing activities ...............      8,157,259      (2,664,006)
                                                                      ------------    ------------

FINANCING ACTIVITIES
Proceeds from issuance of common stock ............................     10,863,256      13,950,000
Proceeds from stock option exercises ..............................      1,037,125            --
Proceeds from issuance of notes payable ...........................           --           441,077
Proceeds from borrowings on Term Loan Credit Facility .............           --         2,000,000
Repayments of debt ................................................    (13,936,683)     (3,947,713)
Repayments of capital leases ......................................       (346,918)       (693,943)
Payments for deferred financing costs .............................        (13,040)       (533,465)
Dividends paid ....................................................       (114,216)       (371,317)
                                                                      ------------    ------------
Net cash flows (used in) provided by financing activities .........     (2,510,476)     10,844,639
                                                                      ------------    ------------
Net increase (decrease) in cash and cash equivalents ..............      1,381,223        (150,385)
Cash and cash equivalents at beginning of period ..................      9,854,351       2,180,885
                                                                      ------------    ------------
Cash and cash equivalents at end of period ........................   $ 11,235,574    $  2,030,500
                                                                      ============    ============

Supplemental Cash Flow Information
     Cash paid during the year for interest .......................   $ 12,440,580    $  4,061,696
     Non-cash investing and financing activities:
        Series A cumulative convertible preferred stock converted
           to common stock ........................................   $  3,346,650    $       --
        Series A cumulative convertible preferred stock effective
           dividends ..............................................           --         1,710,139
        Series A cumulative convertible preferred stock dividends
           converted to common stock ..............................        131,712         135,619
        Series A cumulative convertible preferred stock dividends          120,107         342,737
        10.5% Senior Secured Notes exchanged for common stock .....     12,735,848            --
        Equipment acquired through capital leases .................      1,133,181         248,900
        Financed equipment acquisitions ...........................      3,446,324       4,914,339
        Asset retirement obligations incurred .....................      1,979,217            --
        Common stock issued for mineral rights ....................      5,000,000            --
</TABLE>

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                       4
<PAGE>


                               NATIONAL COAL CORP.
         NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

1.       BASIS OF PRESENTATION

The  unaudited  condensed  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 and
should, therefore, be read in conjunction with the Annual Report on Form 10-K of
National Coal Corp.  (the  "Company")  for the year ended December 31, 2007. The
accompanying  unaudited condensed  consolidated financial statements reflect all
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, 2008 are not
necessarily indicative of the results that can be expected for the fiscal year.

The accompanying financial statements reflect the financial position and results
of  operations  of the  Company  and its  wholly-owned  subsidiaries,  including
National  Coal of Alabama,  Inc.  which was acquired on October 19,  2007,  on a
consolidated  basis.  All  intercompany  transactions  and  balances  have  been
eliminated in consolidation.  Through its wholly-owned subsidiary, National Coal
of Alabama, Inc. ("National Coal of Alabama"),  the Company also owns a minority
interest in Powhatan Dock, LLC, a barge loading facility in Birmingham, Alabama.
Investments in business  entities in which the Company and its  subsidiaries  do
not have control but have the ability to exercise significant influence over the
operating and financial policies, are accounted for under the equity method.

At  September  30,  2008,   the  Company  had  cash  and  cash   equivalents  of
approximately  $11.2 million and negative working capital of approximately  $1.5
million.  Cash flows  provided  by  operations  were $2.4  million for the three
months  ended  September  30, 2008 and cash flows used in  operations  were $4.3
million for the nine months ended September 30, 2008. Operations have not always
generated  positive  cash flows in the past and the  ability to do so during the
remainder  of 2008 is not  assured.  At  September  30,  2008,  the  Company had
shareholders'  equity of $11.5  million and incurred net losses of $28.5 million
(excluding preferred stock dividends) for the nine months then ended. Management
expects that the Company may  continue to incur net losses in the future,  which
would decrease  stockholders' equity and could lead to an eventual stockholders'
deficit.

The  Company  invested   approximately  $17.6  million  in  equipment  and  mine
development  during the nine months  ended  September  30, 2008  including  $4.6
million  purchased  through  equipment  financing  arrangements.  Of this total,
$500,000 was used to acquire a 524 acre mineral lease in eastern  Tennessee that
includes  approximately  1.4 million  tons of  recoverable  high  quality  coal.
Additionally,  the Company  acquired a 1,000 acre  mineral and surface  tract in
eastern  Tennessee that includes  approximately 2.3 million tons of high quality
coal. The purchase price was $7.0 million of which $2.0 million was paid in cash
and $5.0  million in the  issuance  of 756,430  shares of the  Company's  common
stock.  Management  intends to invest up to $2.6 million of  additional  capital
expenditures  during the remainder of 2008 to maintain planned  production goals
and approximately $450,000 to maintain existing assets.

In March  2008,  the  Company's  dragline  equipment  utilized  in its L. Massey
surface mine in Alabama suffered a major mechanical  failure.  The equipment has
since been repaired and was back in production on July 29, 2008.  This breakdown
resulted  in  estimated  lost  production  of 30,000 and  140,000  tons and lost
revenues  of $1.8  million  and $9.5  million  during the three  months and nine
months ended September 30, 2008, respectively.


                                       5
<PAGE>


                               NATIONAL COAL CORP.
    NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS, CONTINUED

Due primarily to the loss of production and  corresponding  revenues  associated
with the dragline  equipment  failure,  the  Company's  wholly-owned  subsidiary
National Coal of Alabama  violated its loan covenants  related to its 12% Senior
Secured  Notes due 2012 (Note 8) in the second and third  quarters  of 2008.  On
August 13,  2008  National  Coal of  Alabama  received  waivers of all  existing
defaults  for  covenant  violations  for the  quarter  ended  June 30,  2008 and
received  modified terms for covenants for the quarter ended September 30, 2008.
On  November  12,  2008  National  Coal of  Alabama  received  waivers  for loan
covenants  that were in default for the quarter ended  September  30, 2008,  and
obtained amended terms for certain covenants through June 30, 2009.

During 2008, the Company successfully  renegotiated several of its existing coal
supply agreements resulting in an increased selling price per ton and additional
revenues  from  those  contracts.  Resulting  from  these  new and  renegotiated
contracts,  the Company's  contracted selling price per ton is $70.40 and $77.35
on 2,000,000 and 710,000  contracted tons for 2009 and 2010,  respectively.  The
Company's  liquidity  plans include ongoing  negotiations  with existing and new
customers to obtain  additional sales for the metallurgical and steam coals from
recently acquired properties and permitted mines in Tennessee and Alabama.

Management  also  intends to continue  its  pursuit of a $10 million  First Lien
Credit Facility permitted within the provisions of the 10.5% Senior Secured Note
due 2010.  However,  if the Company is unable to execute its plans successfully,
it may not be able to meet its  liquidity  requirements  and will need to pursue
additional financing opportunities as needed.

The  Company  has not yet  priced a portion  of the coal it has goals to produce
over the next several years in order to take advantage of possible  future price
increases.  At September 30, 2008,  the Company has  un-priced  and  uncommitted
future production of approximately  300,000 to 400,000 tons in 2009, 1.7 million
to 2.0  million  tons in 2010.  If  National  Coal of Alabama  does not meet its
production goals and business plans, National Coal of Alabama may not be able to
remain in compliance with the loan covenants  relating to the 12% Senior Secured
Notes due 2012 for National Coal of Alabama.  If National Coal of Alabama is not
in compliance with the loan  covenants,  it could be necessary to pursue waivers
in  the  future  which  cannot  be  assured   considering   the  current  credit
environment.

2.       RECENT ACCOUNTING PRONOUNCEMENTS

In May 2008, the Financial  Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting Standards ("SFAS") No. 162, "THE HIERARCHY OF GENERALLY
ACCEPTED  ACCOUNTING  PRINCIPLES"  ("SFAS No. 162"). SFAS No. 162 identifies the
sources of accounting  principles and the framework for selecting the principles
to be  used  in the  preparation  of  financial  statements  of  nongovernmental
entities that are presented in conformity  with  generally  accepted  accounting
principles in the United States of America. SFAS No. 162 is effective sixty days
following  the SEC's  approval  of Public  Company  Accounting  Oversight  Board
("PCAOB")  amendments  to AU Section  411,  "THE  MEANING OF `PRESENT  FAIRLY IN
CONFORMITY  WITH  GENERALLY  ACCEPTED  ACCOUNTING  PRINCIPLES'".  The Company is
currently  evaluating the potential  impact, if any, of the adoption of SFAS No.
162 on its consolidated financial statements.

In March  2008,  the FASB issued SFAS No.  161,  "DISCLOSURES  ABOUT  DERIVATIVE
INSTRUMENTS  AND HEDGING  ACTIVITIES--AN  AMENDMENT OF FASB  STATEMENT  NO. 133"
("SFAS No.  161")  which  changes the  disclosure  requirements  for  derivative
instruments and hedging activities.  SFAS No. 161 requires enhanced  disclosures
about (a) how and why an entity uses derivative instruments,  (b) how derivative
instruments  and  related  hedged  items are  accounted  for under SFAS No. 133,
"ACCOUNTING FOR DERIVATIVE  INSTRUMENTS AND HEDGING  ACTIVITIES" and its related
interpretations,  and (c) how  derivative  instruments  and related hedged items
affect an entity's financial position,  financial  performance,  and cash flows.
SFAS No. 161 is effective for financial  statements  issued for fiscal years and
interim  periods  beginning  after  November 15, 2008.  The Company is currently
evaluating the potential  impact of adopting SFAS No. 161 on its  disclosures in
the consolidated financial statements.


                                       6
<PAGE>


                               NATIONAL COAL CORP.
    NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS, CONTINUED

In December  2007, the FASB issued SFAS No. 160,  "Non-controlling  Interests in
Consolidated Financial  Statements-An Amendment of ARB No. 51" ("SFAS No. 160").
SFAS  No.  160   establishes   accounting   and  reporting   standards  for  the
non-controlling  interest in a  subsidiary  (previously  referred to as minority
interests). SFAS No. 160 would have an impact on the presentation and disclosure
of the non-controlling  interests of any non wholly-owned businesses acquired in
the future.  SFAS No. 160 will be  effective  for fiscal years  beginning  after
December  15,  2008;  earlier  adoption  is  prohibited.  The  Company  is still
analyzing SFAS No. 160 to determine the impact of adoption.

SFAS No. 157, FAIR VALUE  MEASUREMENTS  ("SFAS No. 157"),  and SFAS No. 159, THE
FAIR VALUE  OPTION FOR  FINANCIAL  LIABILITIES  - INCLUDING AN AMENDMENT OF FASB
STATEMENT  NO. 115 ("SFAS No. 159")  establish a framework  for  measuring  fair
value in U.S. GAAP, and expand disclosures about fair value  measurements.  SFAS
No. 157 does not require any new fair value measurements,  but provides guidance
on how to  measure  fair  value by  providing  a fair  value  hierarchy  used to
classify the source of the information.  In February 2008, the FASB deferred the
effective date of SFAS No. 157 by one year for certain  non-financial assets and
non-financial liabilities, except those that are recognized or disclosed at fair
value in the financial  statements on a recurring basis (at least annually).  On
January 1, 2008, the Company adopted the provisions of SFAS No. 157 and SFAS No.
159,  except as it  applies  to those  non-financial  assets  and  non-financial
liabilities  for which the  effective  date has been  delayed  by one year.  The
adoptions of SFAS No. 157 and SFAS No. 159 did not have a material impact on the
Company's financial position or results of operations.

In December 2007, the FASB issued SFAS No. 141R,  BUSINESS  COMBINATIONS  ("SFAS
No. 141R") which becomes  effective  fiscal years  beginning  after December 15,
2008. SFAS No. 141R establishes  principles and requirements for determining how
an  enterprise  recognizes  and  measures  the fair value of certain  assets and
liabilities  acquired  in  a  business  combination,  including  non-controlling
interests,  contingent consideration,  and certain acquired contingencies.  SFAS
No.   141R  also   requires   acquisition-related   transaction   expenses   and
restructuring  costs be  expensed  as  incurred  rather  than  capitalized  as a
component of the business  combination.  The Company  expects that SFAS No. 141R
could  have an  impact  on  accounting  for any  businesses  acquired  after the
effective date of this  pronouncement.  Additionally,  SFAS No. 141R will affect
the prospective income tax accounting for certain historical  acquisitions.  The
Company has not yet analyzed the impact of adopting SFAS No. 141R.

3.       SALE OF STRAIGHT CREEK PROPERTIES

On  March  31,  2008,  the  Company's  wholly-owned  subsidiary,  National  Coal
Corporation,  completed the sale of the real and personal  property  assets that
comprise  its  Straight  Creek  mining  operations  in Bell,  Leslie  and Harlan
Counties,  Kentucky to Xinergy  Corp.  ("Xinergy")  for $11.0 million in cash in
accordance  with the terms and conditions of a Purchase  Agreement  entered into
among the parties on February 8, 2008.  The sale of the  Straight  Creek  mining
operations  relieved the Company of  approximately  $3.6 million in  reclamation
liabilities, and approximately $2.6 million of equipment related debt which were
assumed  by Xinergy  in the  transaction.  The sale  included  property,  plant,
equipment,  and mine development  with a net book value of  approximately  $16.1
million. After a negative working capital adjustment of approximately  $288,000,
the transaction resulted in a loss of approximately  $398,000 which is reflected
in  OTHER  within  OTHER  INCOME  (EXPENSE),  NET  on  the  Company's  condensed
consolidated  statement of  operations  for the nine months ended  September 30,
2008.  Additionally,  the  transaction  resulted  in the  subsequent  release of
approximately  $7.0 million in restricted  cash that was  previously  pledged to
secure reclamation bonds.

The  Company's  Straight  Creek mining  operations  recognized  revenues of $5.0
million and $9.6  million and  operating  losses of $2.3 million and $563,000 on
sales of 99,669 and 187,095 tons of coal during the three months ended March 31,
2008 and 2007,  respectively,  and  recognized  revenues  of $26.1  million  and
operating  losses of $1.7 million on the sale of 520,079 tons of coal during the
nine months ended September 30, 2007. Pursuant to a Contract Mining and Services
Agreement dated April 1, 2008, the Company will provide highwall mining services
to Xinergy at Straight Creek for a period of up to twenty-four  months.  Xinergy
was  founded  and is  controlled  by Jon Nix,  the former  founder,  officer and
director, as well as a shareholder of the Company.


                                       7
<PAGE>


                               NATIONAL COAL CORP.
    NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS, CONTINUED

4.       INVENTORY

Inventory consists of the following:

                                                   SEPTEMBER 30,    DECEMBER 31,
                                                       2008              2007
                                                   ------------     ------------
Coal inventory ...............................     $  2,704,669     $  2,830,926
Tire inventory ...............................           31,075          115,175
                                                   ------------     ------------
                                                   $  2,735,744     $  2,946,101
                                                   ============     ============


5.       PROPERTY, PLANT, EQUIPMENT AND MINE DEVELOPMENT, NET

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

<TABLE>
<CAPTION>
                                                             SEPTEMBER 30,     DECEMBER 31,
                                                                  2008             2007
                                                             -------------    -------------
<S>                                                          <C>              <C>
Furniture and office equipment ...........................   $     341,183    $     468,178
Mining equipment and vehicles ............................      74,747,641       77,625,779
Land and buildings .......................................       4,446,393        6,764,479
Mineral rights ...........................................      48,361,975       48,487,494
Mine development .........................................      11,281,866       12,955,114
Construction in progress .................................         635,429        1,268,512
                                                             -------------    -------------
                                                               139,814,487      147,569,556

Less accumulated depreciation, depletion and amortization      (37,953,640)     (38,688,957)
                                                             -------------    -------------

Total property, plant, equipment and mine development, net   $ 101,860,847    $ 108,880,599
                                                             =============    =============
</TABLE>

Included in mining  equipment  and vehicles for the period ended  September  30,
2008 and December 31, 2007 was  approximately  $1,241,200  and $541,200 of gross
assets under capital leases.

On  March  31,  2008,  the  Company's  wholly-owned  subsidiary,  National  Coal
Corporation,  completed  the sale of the Straight  Creek,  Kentucky  properties,
including property, plant, equipment, and mine development with a net book value
of approximately $16.1 million. See Note 3, SALE OF STRAIGHT CREEK PROPERTIES.

During the nine months ended September 30, 2008, the Company decreased property,
plant,  equipment  and mine  development,  net by  $279,724  and  decreased  the
deferred tax liability by a  corresponding  amount as a result of refinements to
the Company's  purchase  price  allocation  for its October 2007  acquisition of
National Coal of Alabama.


                                       8
<PAGE>


                               NATIONAL COAL CORP.
    NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS, CONTINUED

6.       OTHER NON-CURRENT ASSETS

                                                    SEPTEMBER 30,   DECEMBER 31,
                                                        2008            2007
                                                    ------------    ------------
Prepaid royalties ..............................    $    780,030    $    935,168
Investment in joint venture ....................         448,546         114,823
                                                    ------------    ------------
                                                    $  1,228,576    $  1,049,991
                                                    ============    ============

The  Company  uses the  equity  method  to  account  for its 49%  joint  venture
investment in Powhatan Dock, LLC ("Powhatan"), which began operations during the
fourth quarter of 2007.  Powhatan  recorded  revenues of $964,763 and $3,060,562
and net income of $221,620 and  $681,068  during the three and nine months ended
September 30, 2008, respectively.

7.       ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

                                                     SEPTEMBER 30,  DECEMBER 31,
                                                         2008           2007
                                                     ------------   ------------
Accounts payable .................................   $ 11,939,446   $ 10,579,615
Accrued payroll and related taxes ................        853,502        528,868
Accrued interest .................................      1,206,250        326,979
Accrued dividends ................................         40,328        114,216
Royalty obligations ..............................      1,214,952        774,887
Security deposits received .......................      1,550,493           --
Accrued federal, state and local taxes ...........        445,440        205,799
Accrued legal and accounting .....................        532,901           --
Other accrued expenses ...........................        125,065        229,229
                                                     ------------   ------------
                                                     $ 17,908,377   $ 12,759,593
                                                     ============   ============


                                       9
<PAGE>


                               NATIONAL COAL CORP.
    NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS, CONTINUED

8.       DEBT AND FINANCING ARRANGEMENTS

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

<TABLE>
<CAPTION>
                                                       SEPTEMBER 30,     DECEMBER 31,
                                                            2008             2007
                                                       -------------    -------------
<C>                                                    <C>              <C>
12.0% Senior Secured Notes, due 2012 ...............   $  60,000,000    $  60,000,000
10.5% Senior Secured Notes, due 2010 ...............      42,000,000       55,000,000
Term Loan Credit Facility, due 2008 ................            --         10,000,000
Overriding Royalty Interest obligation, due 2023 ...       9,443,834        9,177,273
Equipment loans and installment purchase obligations       5,292,272        6,839,462
Insurance premium financing, due 2008 ..............         326,287           51,817
                                                       -------------    -------------
                                                         117,062,394      141,068,552

Unamortized discounts ..............................      (9,655,113)     (11,264,974)

Current portion of long-term debt ..................      (3,861,442)     (15,453,230)
                                                       -------------    -------------

Total long-term debt ...............................   $ 103,545,838    $ 114,350,348
                                                       =============    =============
</TABLE>

12.0% SENIOR SECURED NOTES DUE 2012

During  the  second  and third  quarters  of 2008,  the  Company's  wholly-owned
subsidiary  National Coal of Alabama was in violation of the loan  covenants set
forth in its 12% Senior Secured Notes due 2012. The Company received a waiver of
all existing  defaults and covenant  violations  and obtained  amended terms for
certain  covenants,  through  June  30,  2009.  Management  believes  that it is
probable that  National  Coal of Alabama will be in compliance  with the amended
covenants through September 30, 2009. Therefore,  the Company has classified the
12% Senior Secured Notes as long-term debt at September 30, 2008.

During the three and nine months ended September 30, 2008, the Company  recorded
an additional  $0.8 million of interest  associated with a change in estimate of
the Company's future overriding royalty obligation.

10.5% SENIOR SECURED NOTES DUE 2010

During  the nine  months  ended  September  30,  2008,  certain  holders  of the
Company's 10.5% Senior Secured Notes exchanged $13,000,000 in notes and $158,958
in accrued interest for 1,855,935 shares of the Company's common stock resulting
in a $504,392 loss on extinguishment of debt included as a component of other in
OTHER  within  OTHER  INCOME  (EXPENSE),   NET  in  the  accompanying  condensed
consolidated statements of operations.

TERM LOAN CREDIT FACILITY

On March 31, 2008 the Company  used a portion of the  proceeds  from the sale of
its Straight  Creek,  Kentucky  properties  (see Note 3, SALE OF STRAIGHT  CREEK
PROPERTIES) to repay $5.0 million of the $10.0 million Term Loan Credit Facility
entered  into in October  2006 with  Guggenheim  Corporate  Funding,  L.L.C.  as
administrative  agent and accrued  interest of  $50,000.  On April 2, 2008,  the
Company repaid the remaining $5.0 million and accrued  interest of $51,667 which
indebtedness  otherwise  would have  matured in December  2008.  The  repayments
resulted in a loss on  extinguishment  of debt of $1,171,817 for the nine months
ended September 30, 2008, included as a component of other in OTHER within OTHER
INCOME (EXPENSE),  NET in the accompanying condensed consolidated  statements of
operations.


                                       10
<PAGE>


                               NATIONAL COAL CORP.
    NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS, CONTINUED

INSTALLMENT PURCHASE OBLIGATIONS AND EQUIPMENT NOTES

In August 2008, the Company  entered into new equipment  notes pursuant to which
the Company  purchased  vehicles with an aggregate  principal value of $129,104.
The notes require  payments over 36 months with a fixed  interest rate of 6.99%.
The obligations under the notes are secured by the vehicles purchased.

In June 2008, the Company acquired  $1,175,000 of used equipment in exchange for
$100,000  cash,  a $244,000  note  payable  and the  assumption  of  $831,000 in
equipment loans. The $244,000 note payable requires  repayment in one year at 8%
interest.  The assumed  equipment loans require payments over 55 months at fixed
interest rates ranging from 7.45% to 8.0%. The  obligations  under the notes are
secured by the purchased equipment.

In April 2008, the Company entered into a new installment sales contract and new
equipment  notes with  equipment  manufacturers  pursuant  to which the  Company
acquired equipment with an aggregate principal value of approximately $1,179,451
and $681,040. The installment sales contract requires payments over 36 months at
a fixed interest rate of 6.25% and the equipment notes require  payments over 36
months with a fixed interest rate of 4.75%.  The  obligations are secured by the
equipment purchased.

In February,  March and June 2008, the Company  entered into new equipment notes
with  a bank  and an  equipment  manufacturer  pursuant  to  which  the  Company
purchased vehicles with an aggregate principal value of approximately  $103,000.
These equipment notes require payments over 36 months at fixed interest rates of
7.75%.  The  obligations  under the equipment  notes are secured by the vehicles
purchased.

Approximately $2.6 million of installment  purchase  obligations were assumed by
Xinergy as a result of the March 31, 2008 sale of the Company's  Straight Creek,
Kentucky properties. See Note 3, SALE OF STRAIGHT CREEK PROPERTIES.

9.       LEASES

The Company leases mining and certain other equipment under  noncancelable lease
agreements  with terms up to five  years.  Rental  expense for  equipment  under
operating  lease  agreements with initial lease terms of one year or greater was
approximately  $515,000  and  $1,533,000  for the  three and nine  months  ended
September 30, 2008, respectively,  and $515,000 and $1,628,000 for the three and
nine months ended September 30, 2007, respectively.

10.      ASSET RETIREMENT OBLIGATIONS

Asset  retirement  obligation  activity for the nine months ending September 30,
2008 follows:

Obligation at December 31, 2007 ...........................        $ 10,264,687
     Accretion expense ....................................           1,220,561
     Obligations incurred .................................           1,979,217
     Obligations settled ..................................            (686,990)
     Obligations disposed .................................          (3,609,258)
                                                                   ------------
Obligation at September 30, 2008 ..........................           9,168,217
Current portion ...........................................          (1,116,576)
                                                                   ------------
Long-term liability at September 30, 2008 .................        $  8,051,641
                                                                   ============


                                       11
<PAGE>


                               NATIONAL COAL CORP.
    NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS, CONTINUED

11.      STOCKHOLDERS' EQUITY

During the nine months ended September 30, 2008 and 2007,  holders of 223.11 and
278.66  shares  of  Series  A  cumulative   convertible   preferred  stock  with
liquidation preferences totaling approximately  $3,346,650 and $4,179,894,  plus
accrued  dividends of $131,712 and $81,370,  converted their shares into 600,753
and 801,886 shares of common stock, respectively.

During the nine months ended September 30, 2008, the Company  completed the sale
of  2,332,000  shares of common stock at a price of $4.65 per share in a private
placement for gross proceeds of  $10,843,800.  Three  executive  officers of the
Company  participated in the offering and acquired an aggregate of 55,000 of the
shares.  Management  intends to use the net proceeds  received  from the sale to
facilitate new mine development including equipment acquisitions and for general
working capital purposes.

The  Company's  comprehensive  losses  as  defined  by SFAS No.  130,  REPORTING
COMPREHENSIVE INCOME, are the same as the net losses reported.

12.      EARNINGS (LOSS) PER SHARE

Basic  earnings or loss per share are 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 are computed  similarly to basic earnings or
loss per share except that they reflect the potential  dilution that could occur
if dilutive securities or other obligations to issue common stock were exercised
or converted  into common  stock.  Diluted  earnings or loss per share  includes
dilutive common stock equivalents,  using the treasury stock method, and assumes
that the potentially  dilutive  instruments  were converted into common stock at
the beginning of the year or upon issuance.  Stock options with exercise  prices
greater than the average  fair market  price for a period,  which are defined as
anti-dilutive,  are not  included  in the  diluted  earnings  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.

For the three months ended September 30, 2008 and 2007, 2,484,275 and 1,058,569,
respectively,   potentially  dilutive  shares  of  the  Company  from  warrants,
convertible  preferred  stock  and  stock  options  were  not  included  in  the
computation  of diluted loss per share because to do so would be  anti-dilutive.
For the nine months ended September 30, 2008 and 2007,  2,466,311 and 1,160,240,
respectively,  potentially  dilutive  shares  of  the  Company,  from  warrants,
convertible  preferred  stock  and  stock  options  were  not  included  in  the
computation of diluted loss per share because to do so would be anti-dilutive.


                                       12
<PAGE>


                               NATIONAL COAL CORP.
    NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS, CONTINUED

The  computations  for  basic  and  diluted  earnings  or loss  per  share  from
continuing operations are as follows:

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED              NINE MONTHS ENDED
                                                     SEPTEMBER 30,                  SEPTEMBER 30,
                                             ----------------------------    ----------------------------
                                                 2008            2007            2008            2007
                                             ------------    ------------    ------------    ------------
<S>                                          <C>             <C>             <C>             <C>
NUMERATOR:
Net loss .................................   $ (7,912,617)   $ (7,107,470)   $(28,502,362)   $(19,608,727)
Preferred dividends ......................        (40,328)        (42,894)       (120,107)       (342,737)
Preferred stock deemed dividends .........           --          (687,034)           --        (1,710,139)
                                             ------------    ------------    ------------    ------------

Numerator for basic and diluted ..........   $ (7,952,945)   $ (7,837,398)   $(28,622,469)   $(21,661,603)
                                             ============    ============    ============    ============

DENOMINATOR:
Weighted average shares - basic ..........     33,139,355      20,246,652      30,688,851      19,263,128
Effect of warrants .......................      1,396,664            --         1,396,664            --
Effect of convertible preferred shares ...        386,838       1,027,047         419,725       1,062,117
Effect of stock options ..................        700,773          31,522         649,922          98,123
                                             ------------    ------------    ------------    ------------

Adjusted weighted average shares - diluted     35,623,630      21,305,221      33,155,162      20,423,368
                                             ============    ============    ============    ============

Net loss per share - basic ...............   $      (0.24)   $      (0.39)   $      (0.93)   $      (1.12)
                                             ============    ============    ============    ============

Net loss per share - diluted .............   $      (0.24)   $      (0.39)   $      (0.93)   $      (1.12)
                                             ============    ============    ============    ============
</TABLE>

13.      STOCK - BASED COMPENSATION PLANS

The  Company's  2004 Option Plan (the  "Plan")  was  authorized  by the Board of
Directors of the Company in March 2004,  and amended in January 2005.  Under the
terms  of the  Plan,  stock  options  may be  granted  to  officers,  directors,
employees,  and others. At September 30, 2008,  4,450,000 shares of common stock
were  authorized  for  issuance  under the Plan.  Shares  subject to awards that
expire  unexercised  or are  otherwise  terminated,  again become  available for
awards.  Upon exercise,  stock is issued from unissued or treasury  shares.  The
grant  price of an option  under  the Plan 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.

During  the  three  months  ended  September  30,  2008 and  2007,  the  Company
recognized  $546,361 and $284,593,  respectively,  in  stock-based  compensation
expense, respectively. During the nine months ended September 30, 2008 and 2007,
the Company  recognized  $1,000,294 and $752,726,  respectively,  in stock-based
compensation, respectively.


                                       13
<PAGE>


                               NATIONAL COAL CORP.
    NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS, CONTINUED

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 ENDED      NINE MONTHS ENDED
                                        SEPTEMBER 30,           SEPTEMBER 30,
                                     ------------------      ------------------
                                      2008        2007        2008        2007
                                     ------      ------      ------      ------
Expected term (years) ..........        *          6.25        6.25        6.25
Risk-free interest rates .......        *           4.4%       3.37%        4.5%
Expected dividend yield ........        *           0.0%        0.0%        0.0%
Expected volatility ............        *          51.1%      65.57%       52.1%

* No options granted during the three months ended September 30, 2008.

The risk-free  interest rate is based on the U.S. Treasury rate for the expected
life at the time of grant,  volatility is based on the average long-term implied
volatilities of peer companies as the Company's trading history is limited,  and
the expected term is determined  using the  SIMPLIFIED  method as accepted under
Securities and Exchange  Commission Staff Accounting Bulletin No. 110 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 nine months
ended  September  30,  2008 was  $3.79.  The total  intrinsic  value of  options
exercised  during the nine months  ended  September  30, 2008 was  approximately
$571,918.  There were no options exercised during the three or nine month period
ended September 30, 2007.


Stock option activity for the nine months ended September 30, 2008 follows:

<TABLE>
<CAPTION>
                                                                     WEIGHTED
                                                                     AVERAGE
                                                        WEIGHTED    REMAINING     AGGREGATE
                                                        AVERAGE    CONTRACTUAL    INTRINSIC
                                          OPTIONS       EXERCISE       TERM         VALUE
                                        OUTSTANDING      PRICE      (IN YEARS)     ($000)
                                         ----------    ----------   ----------   ----------
<S>                                       <C>          <C>                <C>    <C>
Outstanding at December 31, 2007 .....    1,565,625    $     6.22         8.19   $1,053,320
Granted ..............................      181,500          5.12
Exercised ............................         --              --
Forfeited ............................      (38,500)         6.82
Expirations ..........................         --              --
                                         ----------
Outstanding at March 31, 2008 ........    1,708,625    $     6.13         8.09   $  881,680
Granted ..............................      110,000          7.16
Exercised ............................     (211,750)         4.87
Forfeited ............................      (48,750)         3.39
Expirations ..........................         --              --
                                         ----------
Outstanding at June 30, 2008 .........    1,558,125    $     6.47         7.71   $3,782,509
Granted ..............................         --              --
Exercised ............................         --              --
Forfeited ............................      (21,000)         5.22
Expirations ..........................         --              --
                                         ----------
Outstanding at September 30, 2008 ....    1,537,125          6.09         7.52   $  571,918
                                         ==========
Vested or expected to vest
  at September 30, 2008 ..............    2,582,976    $     4.56
Exercisable ..........................      863,375    $     5.71
</TABLE>


                                       14
<PAGE>


                               NATIONAL COAL CORP.
    NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS, CONTINUED

As  of  September  30,  2008,   there  was  $1,234,754  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 3.6
years.  The total  fair value of shares  vested  during  the nine  months  ended
September 30, 2008 and 2007 was $2,427,075 and $2,307,969, respectively.

During  the  first  quarter  of  2007,  the  Board  of  Directors  agreed  to  a
modification of stock option agreements as they apply to independent  directors.
Previously,  at such  time as an  independent  director  ceased  to serve on the
Board, his vested options outstanding at that time were exercisable for a period
of 90 days.  As a result of this  modification,  this  exercise  period has been
extended to 18 months.

In March 2007, Jon Nix, the former Chairman of the Company's Board of Directors,
who is also the former President and CEO, sold to the current President and CEO,
Daniel  Roling,  for $10 the fully vested option to purchase  400,000  shares of
National Coal Corp. common stock at $7.00 per share until December 31, 2008. The
transaction  resulted  in  $434,493 of  additional  compensation  expense to the
Company in the nine months ended September 30, 2007.

14.      COMMITMENTS AND CONTINGENCIES

The Company is party to legal actions,  claims,  arbitration and  administrative
proceedings  from time to time in the ordinary  course of  business.  Management
does not expect the outcome of these or other pending or threatened  proceedings
to have a material impact on the Company's cash flows,  results of operations or
financial condition.

15.      SUPPLEMENTAL GUARANTOR AND NON - GUARANTOR INFORMATION

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

The  following  condensed  consolidating  financial  information  sets forth the
financial position as of September 30, 2008 and December 31, 2007 and results of
operations for the three and nine months ended September 30, 2008 and cash flows
for the nine months ended  September 30, 2008 of the National  Coal  Corporation
(NCC) and National  Coal of Alabama,  Inc.  (NCA).  National Coal of Alabama was
acquired on October 19, 2007.


                                       15
<PAGE>


                               NATIONAL COAL CORP.
    NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS, CONTINUED

<TABLE>
                               NATIONAL COAL CORP.
               SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS
                               SEPTEMBER 30, 2008
                                   (Unaudited)
<CAPTION>
                                                          NCC              NCA          ELIMINATIONS     CONSOLIDATED
                                                     -------------    -------------    -------------    -------------
<S>                                                  <C>              <C>              <C>              <C>
ASSETS
Current Assets:
     Cash and cash equivalents ...................   $  11,235,574    $        --      $        --      $  11,235,574
     Accounts receivable .........................       1,571,939        5,348,584         (221,972)       6,698,551
     Inventory ...................................       1,720,493        1,015,251             --          2,735,744
     Prepaid and other current assets ............         766,698          408,733             --          1,175,431
                                                     -------------    -------------    -------------    -------------
        Total current assets .....................      15,294,704        6,772,568         (221,972)      21,845,300

Property, plant, equipment and mine
   development, net ..............................      42,416,504       59,444,343             --        101,860,847
Deferred financing costs .........................       1,231,744        3,379,206             --          4,610,950
Restricted cash ..................................      11,418,779       11,476,548             --         22,895,327
Other non-current assets .........................      13,457,932          870,569      (13,099,925)       1,228,576
                                                     -------------    -------------    -------------    -------------
        Total Assets .............................   $  83,819,663    $  81,943,234    $ (13,321,897)   $ 152,441,000
                                                     =============    =============    =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Current maturities of long-term debt ........   $   2,328,457    $   1,532,985             --      $   3,861,442
     Current installments of obligations under
        capital leases ...........................         448,262           56,789             --            505,051
     Current portion of asset retirement
        obligation ...............................         456,180          660,396             --          1,116,576
     Accounts payable and accrued  expenses ......      10,230,662        7,899,687         (221,972)      17,908,377
                                                     -------------    -------------    -------------    -------------
        Total current liabilities ................      13,463,561       10,149,857         (221,972)      23,391,446

     Long - term debt, less current maturities,
        net of discount ..........................      41,974,793       61,571,045             --        103,545,838
     Obligations under capital leases, less
        current portion ..........................         393,268          119,693             --            512,961
     Asset retirement obligations, less current
        portion ..................................       4,077,139        3,974,502             --          8,051,641
     Deferred revenue ............................       1,366,192             --               --          1,366,192
     Other non - current liabilities .............         369,985        1,330,000             --          1,699,985
     Deferred tax liability ......................            --          2,343,527             --          2,343,527
                                                     -------------    -------------    -------------    -------------
        Total Liabilities ........................      61,644,938       79,488,624         (221,972)     140,911,590
                                                     -------------    -------------    -------------    -------------

Stockholders' Equity:
     Preferred Stock .............................            --               --               --               --
     Common stock ................................           3,348              104             (104)           3,348
     Additional paid - in capital ................     113,805,900       13,119,462      (13,099,821)     113,825,541
     Accumulated deficit .........................     (91,634,523)     (10,664,956)            --       (102,299,479)
                                                     -------------    -------------    -------------    -------------
        Total Stockholders' Equity ...............      22,174,725        2,454,610      (13,099,925)      11,529,410
                                                     -------------    -------------    -------------    -------------
        Total Liabilities and Stockholders' Equity   $  83,819,663    $  81,943,234    $ (13,321,897)   $ 152,441,000
                                                     =============    =============    =============    =============
</TABLE>


                                       16
<PAGE>


                               NATIONAL COAL CORP.
    NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS, CONTINUED

<TABLE>
                               NATIONAL COAL CORP.
               SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS
                                DECEMBER 31, 2007
                                   (Unaudited)
<CAPTION>
                                                          NCC              NCA          ELIMINATIONS     CONSOLIDATED
                                                     -------------    -------------    -------------    -------------
<S>                                                  <C>              <C>              <C>              <C>
ASSETS
Current Assets:
     Cash and cash equivalents ...................   $   8,823,016    $   1,031,335    $        --      $   9,854,351
     Accounts receivable .........................       2,402,256        6,384,790             --          8,787,046
     Inventory ...................................       2,155,603          790,498             --          2,946,101
     Prepaid and other current assets ............         239,381        1,712,446             --          1,951,827
                                                     -------------    -------------    -------------    -------------
        Total current assets .....................      13,620,256        9,919,069             --         23,539,325

Property, plant, equipment and mine development,
   net ...........................................      50,828,149       58,052,450             --        108,880,599
Deferred financing costs .........................       3,170,984        3,498,719             --          6,669,703
Restricted cash ..................................      16,511,809       12,603,574             --         29,115,383
Other non-current assets .........................      13,785,705          713,123      (13,448,837)       1,049,991
                                                     -------------    -------------    -------------    -------------
        Total Assets .............................   $  97,916,903    $  84,786,935    $ (13,448,837)   $ 169,255,001
                                                     =============    =============    =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Current maturities of long-term debt ........   $  13,053,230    $   2,400,000    $        --      $  15,453,230
     Current installments of obligations under
        capital leases ...........................         157,062             --               --            157,062
     Current portion of asset retirement
        obligation ...............................       1,095,029          215,315             --          1,310,344

     Accounts payable and accrued expenses .......       9,094,288        3,665,305             --         12,759,593
                                                     -------------    -------------    -------------    -------------
        Total current liabilities ................      23,399,609        6,280,620             --         29,680,229

     Long - term debt, less current maturities,
        net of discount ..........................      56,219,120       58,131,228             --        114,350,348
     Obligations under capital leases, less
        current portion ..........................          74,688             --               --             74,688
     Asset retirement obligations, less current
        portion ..................................       6,493,296        2,461,047             --          8,954,343
     Deferred revenue ............................       1,553,805             --               --          1,553,805
     Other non - current liabilities .............         254,767        1,520,000             --          1,774,767
     Deferred tax liability ......................            --          3,351,465             --          3,351,465
                                                     -------------    -------------    -------------    -------------
        Total Liabilities ........................      87,995,285       71,744,360             --        159,739,645
                                                     -------------    -------------    -------------    -------------

Stockholders' Equity:
     Preferred Stock
     Common stock ................................           2,770              104             (104)           2,770
     Additional paid - in capital ................      83,309,703       13,448,733      (13,448,733)      83,309,703
     Accumulated deficit .........................     (73,390,855)        (406,262)            --        (73,797,117)
                                                     -------------    -------------    -------------    -------------
        Total Stockholders' Equity ...............       9,921,618       13,042,575      (13,448,837)       9,515,356
                                                     -------------    -------------    -------------    -------------
        Total Liabilities and Stockholders' Equity   $  97,916,903    $  84,786,935    $ (13,448,837)   $ 169,255,001
                                                     =============    =============    =============    =============

</TABLE>


                                       17
<PAGE>


                               NATIONAL COAL CORP.
    NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS, CONTINUED

<TABLE>
                               NATIONAL COAL CORP.
          SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008
                                   (Unaudited)

<CAPTION>
                                                  NCC             NCA        ELIMINATIONS    CONSOLIDATED
                                             ------------    ------------    ------------    ------------
<S>                                          <C>             <C>             <C>             <C>
Revenues:
    Coal sales ...........................   $ 17,604,658    $ 14,904,297    $       --      $ 32,508,955
    Other revenues .......................      1,276,683            --          (300,000)        976,683
                                             ------------    ------------    ------------    ------------
        Total revenues ...................     18,881,341      14,904,297        (300,000)     33,485,638
                                             ------------    ------------    ------------    ------------

Operating expenses:
     Cost of sales .......................     17,293,218      13,523,183            --        30,816,401
     Depreciation, depletion, amortization
        and accretion ....................      1,856,046       2,042,239            --         3,898,285
     General and administrative ..........      2,277,884         511,852        (300,000)      2,489,736
                                             ------------    ------------    ------------    ------------
        Total operating expenses .........     21,427,148      16,077,274        (300,000)     37,204,422
                                             ------------    ------------    ------------    ------------

Loss from operations .....................     (2,545,807)     (1,172,977)           --        (3,718,784)
                                             ------------    ------------    ------------    ------------

Other income (expense):
     Interest expense ....................     (1,616,725)     (3,203,806)           --        (4,820,531)
     Interest income .....................        180,142          62,322            --           242,464
     Income from joint venture ...........           --           108,594            --           108,594
     Other ...............................         23,653          14,766            --            38,419
                                             ------------    ------------    ------------    ------------
        Other income (expense), net ......     (1,412,930)     (3,018,124)           --        (4,431,054)
                                             ------------    ------------    ------------    ------------

Loss before income taxes .................     (3,958,737)     (4,191,101)           --        (8,149,838)


Income tax benefit .......................           --           237,221            --           237,221
                                             ------------    ------------    ------------    ------------

Net loss .................................   $ (3,958,737)   $ (3,953,880)   $       --      $ (7,912,617)
                                             ============    ============    ============    ============
</TABLE>


<TABLE>
          SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
                                   (Unaudited)

<CAPTION>
                                                   NCC             NCA          ELIMINATIONS     CONSOLIDATED
                                             -------------    -------------    -------------    -------------
<S>                                          <C>              <C>              <C>              <C>
Revenues:
     Coal sales ..........................   $  49,084,206    $  49,279,887    $        --      $  98,364,093
     Other revenues ......................       3,240,838           36,195         (900,000)       2,377,033
                                             -------------    -------------    -------------    -------------
        Total revenues ...................      52,325,044       49,316,082         (900,000)     100,741,126
                                             -------------    -------------    -------------    -------------

Operating expenses:
     Cost of sales .......................      50,561,776       45,877,106             --         96,438,882
     Depreciation, depletion, amortization
        and accretion ....................       6,928,779        4,837,560             --         11,766,339
     General and administrative ..........       6,192,343        1,829,998         (900,000)       7,122,341
                                             -------------    -------------    -------------    -------------
        Total operating expenses .........      63,682,898       52,544,664         (900,000)     115,327,562
                                             -------------    -------------    -------------    -------------

Loss from operations .....................     (11,357,854)      (3,228,582)            --        (14,586,436)
                                             -------------    -------------    -------------    -------------

Other income (expense):
     Interest expense ....................      (5,626,763)      (8,429,851)            --        (14,056,614)
     Interest income .....................         572,475          214,814             --            787,289
     Income from joint venture ...........            --            333,723             --            333,723
     Other ...............................      (1,831,527)         122,989             --         (1,708,538)
                                             -------------    -------------    -------------    -------------
        Other income (expense), net ......      (6,885,815)      (7,758,325)            --        (14,644,140)

                                             -------------    -------------    -------------    -------------
Loss before income taxes .................     (18,243,669)     (10,986,907)            --        (29,230,576)

Income tax benefit .......................            --            728,214             --            728,214
                                             -------------    -------------    -------------    -------------

Net loss .................................   $ (18,243,669)   $ (10,258,693)   $        --      $ (28,502,362)
                                             =============    =============    =============    =============
</TABLE>


                                       18
<PAGE>


                               NATIONAL COAL CORP.
    NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS, CONTINUED

<TABLE>
                               NATIONAL COAL CORP.
          SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
                                   (Unaudited)

<CAPTION>
                                                                 NCC            NCA         ELIMINATIONS    CONSOLIDATED
                                                            ------------    ------------    ------------    ------------
<S>                                                         <C>             <C>             <C>             <C>
OPERATING ACTIVITIES
Net cash flows provided by (used in) operating activities   $ (6,051,037)   $  1,785,477    $       --      $ (4,265,560)

INVESTING ACTIVITIES
Capital expenditures ....................................     (6,126,347)     (1,908,640)           --        (8,034,987)
Proceeds from sale of Straight Creek properties .........     10,711,399            --              --        10,711,399
Restricted cash releaesd to operations ..................      5,034,465       1,127,026            --         6,161,491
Return of capital from subsidiary .......................        423,913            --          (423,913)           --
Additions to prepaid royalties ..........................       (470,319)       (210,325)           --          (680,644)
                                                            ------------    ------------    ------------    ------------
Net cash provided by (used in) investing activities .....      9,573,111        (991,939)       (423,913)      8,157,259
                                                            ------------    ------------    ------------    ------------

FINANCING ACTIVITIES
Proceeds from issuance of common and preferred stock ....     10,863,256            --              --        10,863,256
Proceeds from stock option exercises ....................      1,037,125            --              --         1,037,125
Repayments of debt ......................................    (12,540,290)     (1,396,393)           --       (13,936,683)
Repayments of capital leases ............................       (342,351)         (4,567)           --          (346,918)
Payments for deferred financing costs ...................        (13,040)           --              --           (13,040)
Payment of preferred dividend ...........................       (114,216)           --              --          (114,216)
Distribution to parent ..................................           --          (423,913)        423,913            --
                                                            ------------    ------------    ------------    ------------
Net cash flows provided by (used in) financing activities     (1,109,516)     (1,824,873)        423,913      (2,510,476)
                                                            ------------    ------------    ------------    ------------
Net increase (decrease) in cash and cash equivalents ....      2,412,558      (1,031,335)           --         1,381,223

Cash and cash equivalents at beginning of period ........      8,823,016       1,031,335            --         9,854,351
                                                            ------------    ------------    ------------    ------------
Cash and cash equivalents at end of period ..............   $ 11,235,574    $       --      $       --      $ 11,235,574
                                                            ============    ============    ============    ============

Supplemental Cash Flow Information
   Cash paid during the year for interest ...............   $  4,094,437    $  8,346,143    $       --      $ 12,440,580
   Non-cash investing and financing activities:
      Series A preferred stock converted to common stock    $  3,346,650    $       --      $       --      $  3,346,650
      Preferred stock effective dividends ...............           --              --              --              --
      Preferred stock dividends converted to to
         common stock ...................................        131,712            --              --           131,712
      10.5% Senior Secured Notes exchanged for
         common stock ...................................     12,735,848            --              --        12,735,848
      Equipment acquired through capital leases .........        952,131         181,050            --         1,133,181
      Financed equipment acquisitions ...................      1,579,938       1,866,386            --         3,446,324
      Asset retirement obligations incurred .............        158,300       1,820,917            --         1,979,217
      Common stock issued for mineral rights ............      5,000,000            --              --         5,000,000
</TABLE>


                                       19
<PAGE>


                               NATIONAL COAL CORP.
    NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS, CONTINUED

6.       SUBSEQUENT EVENTS

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

In addition to the  agreements  noted  above,  the  Company  provided  incentive
agreements  to  certain  field  employees  in the form of cash  bonuses  payable
one-half at execution and one-half at December 31, 2011 in the aggregate  amount
of $310,000 as well as the option to purchase  140,000  shares of the  Company's
common stock under a three year vesting schedule.

On  October  24,  2008,  the  holder  of 133.33  shares  of series A  cumulative
convertible preferred stock representing all of the remaining shares of series A
preferred  stock  then  outstanding,  with  a  liquidation  preference  totaling
approximately  $1,999,950,  exchanged their shares into 499,988 shares of common
stock.


                                       20
<PAGE>


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, 2007 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  this section  entitled  "Management's  Discussion  and
Analysis  of  Financial   Condition  and  Results  of  Operation"   may  contain
"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:

         o        the worldwide demand for coal;

         o        the price of coal;

         o        the supply of coal and other competitive factors;

         o        the costs to mine and transport coal;

         o        the ability to obtain new mining permits;

         o        the costs of reclamation of previously mined properties;

         o        the risks of expanding coal production;

         o        industry competition;

         o        our ability to comply with covenants of our credit facility or
                  obtain waivers in the event of future noncompliance.

         o        our  ability to  continue  to finance  and  execute our growth
                  strategies;

         o        the   availability  of  financing   amidst   tightened  credit
                  standards;

         o        general economic conditions; and

         o        other  factors  discussed  in  "Management's   Discussion  and
                  Analysis of Financial Condition and Results of Operations".


                                       21
<PAGE>


Forward-looking  statements speak only as of the date of this quarterly  report.
You should not put undue reliance on any forward-looking statements. We strongly
encourage investors to carefully read the factors described in our Annual Report
on Form 10-K for the year ended December 31, 2007 in the section  entitled "Risk
Factors" for a  description  of certain  risks that could,  among other  things,
cause actual results to differ from these forward-looking  statements. We assume
no responsibility  to update the  forward-looking  statements  contained in this
quarterly report on Form 10-Q.

OVERVIEW

We mine,  process and sell high quality bituminous steam coal from mines located
in East  Tennessee  and North  Alabama and,  until March 31, 2008,  in Southeast
Kentucky.  We own the coal mineral rights to approximately  65,000 acres of land
and lease the rights to  approximately  16,663  additional  acres  excluding the
Southeast Kentucky properties,  known as Straight Creek, sold on March 31, 2008.
As of September 30, 2008,  our mining  complexes  included  three active and two
inactive underground mines, one underground mine in the development stage, seven
active and two inactive  surface mines,  and one highwall mine. In addition,  we
have two preparation  plants and two unit train loading facilities served by the
Norfolk Southern ("NS")  railroad.  We are a minority joint venture partner in a
barge loading  facility on the Warrior River in North  Alabama.  We hold permits
that  allow  us to  open  or  re-open  seven  new  mines  close  to our  current
operations.  During the nine months ended  September 30, 2008, we acquired a 524
acre  mineral  lease and a 1,000  acre  mineral  and  surface  tract in  eastern
Tennessee  that  includes  approximately  1.4 million  and 2.3  million  tons of
recoverable  high  quality  coal.  As  of  September  30,  2008,  we  controlled
approximately  32.4 million  estimated  recoverable tons. During the nine months
ended September 30, 2008, we generated  total revenues of $100.7 million,  a net
loss  of  $28.5  million,   an  Adjusted   Earnings  Before   Interest,   Taxes,
Depreciation,  Depletion and Amortization ("Adjusted EBITDA") loss (See Adjusted
EBITDA NOTE below) of $1.8  million and sold  approximately  1.6 million tons of
coal.

We plan to  acquire  additional  mines and  increase  production  from  existing
controlled properties and reserves as market conditions allow.

Our revenues  are derived  primarily  from the sale of coal to electric  utility
companies and industrial customers in the Southeastern United States.  According
to the  U.S.  Department  of  Energy,  Energy  Information  Administration,  the
long-term  outlook  for  coal  demand  is  favorable,  as  domestic  electricity
consumption  is  expected  to grow at an  average  annual  rate of 0.7% per year
through 2030 with 48% to 49% of that growth provided by coal. International coal
consumption  is expected to grow by 2.0%  through  2030.  During the nine months
ended  September 30, 2008,  approximately  65% of our revenue was generated from
coal sales to electric utility companies in the Southeastern  United States. Our
largest  customers  were  Georgia  Power,  Alabama  Power,  and  Solutia,  Inc.,
representing approximately 32.6%, 21.3% and 14.2% of our revenues, respectively.

During  the  nine  months  ended   September  30,  2008,   our  mines   produced
approximately  1.4 million tons of coal.  Approximately  20.3% of our production
for the nine months ended  September 30, 2008 was produced at underground  mines
and 79.7% was produced at our surface and highwall mining operations.  We sell a
majority of our coal  pursuant to  long-term  contracts or open  purchase  order
arrangements with long time customers. During 2008, we successfully renegotiated
several of our existing coal supply agreements resulting in an increased selling
price  per ton  and  additional  revenues  from  those  contracts.  The  average
contracted  selling  price per ton is $70.40 and $77.35 on 2,000,000 and 710,000
contracted  tons for 2009 and 2010,  respectively.  Our liquidity  plans include
ongoing  negotiations with existing and new customers to obtain additional sales
for the  metallurgical  and steam coals from recently  acquired  properties  and
permitted mines in Tennessee and Alabama.

We have not yet priced a portion  of the coal we have goals to produce  over the
next  several  years  in  order  to take  advantage  of  possible  future  price
increases.   At  September  30,  2008,  our  un-priced  and  uncommitted  future
production was approximately  300,000 to 400,000 tons in 2009 and 1.7 million to
2.0 million tons in 2010.


                                       22
<PAGE>


In March 2008, our dragline  equipment utilized on our L. Massey surface mine in
Alabama  suffered a major  mechanical  failure.  The  equipment was repaired and
placed back in production on July 29, 2008. This breakdown resulted in estimated
lost production of 30,000 and 140,000 tons and lost revenues of $1.8 million and
$9.5 million  during the three months and nine months ended  September 30, 2008,
respectively.  Production levels and  corresponding  revenues are increasing now
that the dragline is fully operational.

ADJUSTED EBITDA DISCLOSURES

Adjusted  EBITDA is defined as net loss plus (i) other  (income)  expense,  net,
(ii) interest expense, (iii) depreciation, depletion, accretion and amortization
minus (iv)  interest  income,  (v) income tax  benefits,  (vi) income from joint
ventures and (vii) stock  compensation  expense.  We present  Adjusted EBITDA to
enhance understanding of our operating performance.  We use Adjusted EBITDA as a
criterion  for  evaluating  our  performance  relative  to  that  of our  peers,
including measuring our cost effectiveness and return on capital,  assessing our
allocations of resources and  production  efficiencies  and making  compensation
decisions.  We believe that Adjusted EBITDA is an operating  performance measure
that provides investors and analysts with a measure of our operating performance
and permits them to evaluate our cost effectiveness and production  efficiencies
relative to  competitors.  In addition,  our management  uses Adjusted EBITDA to
monitor and evaluate our business operations.  However, Adjusted EBITDA is not a
measurement  of financial  performance  under  accounting  principles  generally
accepted in the United  States of America  ("GAAP") and may not be comparable to
other similarly titled measures of other  companies.  Adjusted EBITDA should not
be  considered  as an  alternative  to cash  flows  from  operating  activities,
determined in accordance  with GAAP, as indicators of cash flows.  The following
reconciles our net loss to Adjusted EBITDA:

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED              NINE MONTHS ENDED
                                            ----------------------------    ----------------------------
                                            SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30,
                                                2008            2007            2008            2007
                                            ------------    ------------    ------------    ------------
<S>                                         <C>             <C>             <C>             <C>
Net loss ................................   $ (7,912,617)   $ (7,107,470)   $(28,502,362)   $(19,608,727)
Income tax benefit ......................       (237,221)           --          (728,214)           --
Other (income) expense, net .............        (38,419)       (176,213)      1,708,538        (320,689)
Income from joint venture ...............       (108,594)           --          (333,723)           --
Interest income .........................       (242,464)       (275,590)       (787,289)       (883,407)
Interest expense ........................      4,820,531       2,194,661      14,056,614       6,515,214
Depreciation, depletion, amortization and
   accretion ............................      3,898,285       4,047,671      11,766,339      11,340,326
                                            ------------    ------------    ------------    ------------
EBITDA ..................................        179,501      (1,316,941)     (2,820,097)     (2,957,283)
Stock compensation expense ..............        546,361         284,593       1,000,294       1,192,219
                                            ------------    ------------    ------------    ------------
Adjusted EBITDA .........................   $    725,862    $ (1,032,348)   $ (1,819,803)   $ (1,765,064)
                                            ============    ============    ============    ============
</TABLE>

SALE OF STRAIGHT CREEK MINING OPERATIONS

On March 31, 2008,  our  wholly-owned  subsidiary,  National  Coal  Corporation,
completed  the sale of the real and personal  property  assets that comprise its
Straight Creek mining operations in Bell,  Leslie and Harlan Counties,  Kentucky
to Xinergy Corp.  ("Xinergy")  for $11.0 million in cash in accordance  with the
terms and conditions of a Purchase  Agreement  entered into among the parties on
February 8, 2008. As a result of the transaction, we relieved approximately $3.6


                                       23
<PAGE>


million in reclamation liabilities,  and approximately $2.6 million of equipment
related debt which were assumed by Xinergy in the transaction. The sale included
property,  plant,  equipment,  and mine  development  with a net  book  value of
approximately  $16.1 million.  After a negative  working  capital  adjustment of
approximately  $288,000,  the  transaction  resulted in a loss of  approximately
$398,000 which is reflected in OTHER within OTHER INCOME  (EXPENSE),  NET on our
condensed  consolidated  statement  of  operations  for the  nine  months  ended
September 30, 2008.  Additionally,  the  transaction  resulted in the subsequent
release of  approximately  $7.0 million in restricted  cash that was  previously
pledged to secure  reclamation bonds and other  liabilities  associated with the
Straight Creek mining operations.

Our Straight  Creek mining  operations  recognized  revenues of $5.0 million and
$9.6  million and  operating  losses of $2.3  million  and  $563,000 on sales of
99,669 and 187,095 tons of coal during the three months ended March 31, 2008 and
2007,  respectively,  and  recognized  revenues of $26.1  million and  operating
losses of $1.7  million  on the sale of  520,079  tons of coal  during  the nine
months  ended  September  30, 2007.  Pursuant to a Contract  Mining and Services
Agreement  dated April 1, 2008,  we will  provide  highwall  mining  services to
Xinergy at our former  properties  in  Southeast  Kentucky for a period of up to
twenty-four months.

On  March  31,  2008 we used a  portion  of the  proceeds  from  the sale of the
Straight Creek,  Kentucky  properties to repay $5.0 million of the $10.0 million
Term Loan Credit Facility entered into in October 2006 with Guggenheim Corporate
Funding,  L.L.C. as  administrative  agent and accrued  interest of $50,000.  On
April 2, 2008,  we repaid the  remaining  $5.0  million and accrued  interest of
$51,667 which  indebtedness  otherwise  would have matured in December 2008. The
repayments  resulted in additional  interest  expense of $1,168,923 for the nine
months ended  September 30, 2008 from the write-off of deferred  financing costs
associated with the Term Loan Credit facility.

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

Along with the November 2007 sale and option of our properties at Pine Mountain,
Kentucky, the sale of our Straight Creek properties  substantially completes our
exit of mining  operations  in  Kentucky.  Management  believes  this will allow
National Coal to focus  resources on our assets in Tennessee and Alabama as well
as on potential acquisitions in the region.

RESULTS OF OPERATIONS

The following table presents consolidated  statement of operations data for each
of the periods indicated as a percentage of revenues.


                                       24
<PAGE>


                                             THREE MONTHS        NINE MONTHS
                                                 ENDED               ENDED
(in percentages)                             SEPTEMBER 30,       SEPTEMBER 30,
                                           ----------------    ----------------
                                            2008      2007      2008      2007
                                           ------    ------    ------    ------
Revenues ................................   100.0     100.0     100.0     100.0
                                           ------    ------    ------    ------
Operating expenses:
    Cost of sales .......................    92.0      98.3      95.7      96.0
    Depreciation, depletion, amortization
       and accretion ....................    11.7      19.4      11.7      19.3
    General and administrative ..........     7.4       8.0       7.1       9.1
                                           ------    ------    ------    ------
    Total operating expenses ............   111.1     125.7     114.5     124.4
                                           ------    ------    ------    ------
Loss from operations ....................   (11.1)    (25.7)    (14.5)    (24.3)
Other income (expense):
    Interest expense ....................   (14.3)    (10.5)    (14.0)    (11.1)
    Interest income .....................     0.7       1.3       0.8       1.5
    Income from joint venture ...........     0.3       0.0       0.3       0.0
    Other income (expense), net .........     0.1       0.8      (1.6)      0.5
                                           ------    ------    ------    ------
Loss before income taxes ................   (24.3)    (34.1)    (29.0)    (33.4)
Income tax benefit ......................     0.7       0.0       0.7       0.0
                                           ------    ------    ------    ------
Net loss ................................   (23.6)    (34.1)    (28.3)    (33.4)
                                           ======    ======    ======    ======

COMPARISON  OF THREE  MONTHS  ENDED  SEPTEMBER  30, 2008 AND THREE  MONTHS ENDED
SEPTEMBER 30, 2007

PRODUCTION

During the three months ended  September 30, 2008 and 2007,  our mines  produced
493,944 and 288,179 tons of coal, respectively, as follows:

                                                  THREE MONTHS ENDED
                                          SEPTEMBER 30,         SEPTEMBER 30,
                                              2008                  2007
                                       -------------------   -------------------
                                         Tons         %        Tons         %
                                       --------   --------   --------   --------
Production:
     Surface mines .................    344,925       68.3     99,074       25.6
     Highwall mines ................     46,085        9.1     41,187       10.6
     Underground mines .............    104,686       20.7    147,918       38.5
                                       --------   --------   --------   --------
Total tons produced ................    495,696       98.1    288,179       74.7
Purchased coal .....................      8,996        1.9     97,912       25.3
                                       --------   --------   --------   --------
Total tons available ...............    504,692      100.0    386,091      100.0
                                       ========   ========   ========   ========

Tons produced by contract
     miners (included above) .......     48,391        9.5     99,896       25.9
                                       ========   ========   ========   ========


The 2008 figures above include  230,749 tons from National Coal of Alabama.  The
2007  figures  above  include   74,088  tons  from  our  Straight  Creek  mining
operations.


                                       25
<PAGE>


REVENUE

During the three months ended September 30, 2008 and 2007,  approximately  94.9%
and  90.0%  of coal  sales  were  made to four  utilities  and  four  industrial
customers  under  contracts and open purchase order  arrangements  with original
terms of twelve months or longer.  The remaining  coal sales for the three month
period were made under short term  contracts or purchase  orders.  Tons sold and
the associated revenue for the three month period ended follows:

<TABLE>
<CAPTION>
                                     THREE MONTHS ENDED
                                        SEPTEMBER 30,            INCREASE/DECREASE
                                 -------------------------   -------------------------
                                     2008          2007           $             %
                                 -----------   -----------   -----------   -----------
<S>                              <C>           <C>           <C>                 <C>
Coal sales ...................   $32,508,955   $20,561,737   $11,947,218          58.1
Tons sold ....................       492,410       405,685        86,725          21.4
Average price per ton sold ...   $     66.02   $     50.68   $     15.34          30.3

Other revenues ...............   $   976,683   $   295,558   $   681,125         230.5
                                 -----------   -----------   -----------   -----------
</TABLE>

The increase in revenue from coal sales for the three months ended September 30,
2008 as  compared  to the same  period in 2007 was  primarily  the result of the
average price per ton sold  increasing from $50.68 during the three month period
in 2007 to $66.02  during the three month period in 2008,  based on the addition
of National Coal of Alabama which sold 221,895 tons of coal during the period at
an average  price of $67.17 per ton,  reduced by the sale of the Straight  Creek
operations, which sold 178,654 tons at an average price of $49.62 per ton during
the same period in 2007.  Additionally,  the average selling price for coal sold
from the  Company's  Tennessee  operations  increased  from  $51.52 per ton sold
during  the  three-month  period  in 2007 to  $61.08  per ton  sold  during  the
three-month period in 2008.

The  increase  in other  revenues  of  $681,125  resulted  primarily  from a new
contract  mining and  services  agreement  between  Xinergy  and  National  Coal
Corporation  to extract  coal from a highwall  mine  previously  sold to Xinergy
under the Straight Creek sale on March 31, 2008.

COST OF SALES

<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED
                                         SEPTEMBER 30,            INCREASE/DECREASE
                                  -------------------------   -------------------------
                                      2008          2007           $             %
                                  -----------   -----------   -----------   -----------
<S>                               <C>           <C>           <C>                  <C>
Cost of sales .................   $30,816,401   $20,502,468   $10,313,933          50.3
Tons sold .....................       492,410       405,685        86,725          21.4
Average cost per ton sold .....   $     62.58   $     50.54   $     12.04          23.8
                                  -----------   -----------   -----------   -----------
</TABLE>

Total cost of sales  increased 50.3% during the three months ended September 30,
2008 as compared to the same three month  period in 2007  primarily  as a result
of:

   (i)   The addition of National  Coal of Alabama,  selling  221,895 tons at an
         average cost of $60.94 per ton during the 2008 period as compared to no
         production during the 2007 period.

   (ii)  The sale of the Straight  Creek mining  operations,  which sold 178,654
         tons at an average  cost of $49.32  per ton  during the 2007  period as
         compared to no production during the 2008 period.

Additionally,  the cost per ton sold in the Tennessee  operations increased from
$51.50 per ton on 227,031 tons sold for the three month period in 2007 to $63.93
per ton on 270,515 tons sold for the three month period in 2008,  principally as
follows: (i) costs associated with the aforementioned  contract mining agreement
with  Xinergy  of $0.9  million  or $3.42 per ton;  (ii)  increases  in fuel and
transportation  costs of $1.3  million,  or $3.03 per ton;  (iii)  increases  in
payroll  costs of $1.4  million or $3.87 per ton;  and (iv)  increases in parts,
supplies and purchased coal of $1.2 million or $4.08 per ton.


                                       26
<PAGE>



DEPRECIATION, DEPLETION, AMORTIZATION AND ACCRETION

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED
                                              SEPTEMBER 30,           INCREASE/DECREASE
                                        ------------------------  -------------------------
                                            2008         2007          $             %
                                        -----------  -----------  -----------   -----------
<S>                                     <C>          <C>          <C>                  <C>
Depreciation, depletion, amortization
   and accretion ....................   $ 3,898,285  $ 4,047,671  $  (149,386)         (3.7)
Tons sold ...........................       492,410      405,685       86,725          21.4
Average cost per ton sold ...........   $      7.92  $      9.98  $     (2.06)        (20.6)
                                        -----------  -----------  -----------   -----------
</TABLE>

The 3.7%  decrease  in  depreciation,  depletion,  amortization,  and  accretion
expense for the three  months ended  September  30, 2008 as compared to the same
period  in  2007,  is  principally  due to:  (i) the sale of  $16.1  million  in
property,  plant, equipment,  and mine development,  and a resulting decrease of
$0.9 million of related expense,  associated with the sale of the Straight Creek
properties  on March 31,  2008;  (ii) $0.9  million  for assets  that were fully
depreciated;  offset by (iii) the  addition of National  Coal of Alabama,  which
sold  221,895  tons of coal with an  associated  average  cost of  depreciation,
depletion,  amortization,  and  accretion  per ton of $9.20,  or $2.0 million of
related expense.

GENERAL AND ADMINISTRATIVE

                                 THREE MONTHS ENDED
                                   SEPTEMBER 30,          INCREASE/DECREASE
                             ------------------------  ------------------------
                                 2008         2007          $            %
                             -----------  -----------  -----------  -----------
General and administrative
   expense ...............   $ 2,489,736  $ 1,671,768  $   817,968         48.9
Tons sold ................       492,410      405,685       86,725         21.4
Average cost per ton sold    $      5.06  $      4.12  $      0.94         22.8
                             -----------  -----------  -----------  -----------

The 48.9% increase in general and  administrative  expenses for the three months
ended  September 30, 2008 as compared to the same period in the previous year is
primarily  attributable  to increased  professional  fees of $0.2 million,  $0.3
million of additional share based compensation  expense and the addition of $0.2
million of general and administrative expenses for National Coal of Alabama.


                                       27
<PAGE>


OTHER INCOME (EXPENSE)

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED
                                              SEPTEMBER 30,             INCREASE/DECREASE
                                       -------------------------   --------------------------
                                           2008          2007           $              %
                                       -----------   -----------   -----------    -----------
<C>                                    <C>           <C>           <C>                  <C>
12.0% senior secured notes, due 2012   $ 3,170,429   $      --     $ 3,170,429          100.0
10.5% senior secured notes, due 2010     1,375,696     1,711,482      (335,786)         (19.6)
Term loan credit facility ..........          --         338,660      (338,660)        (100.0)
Installment obligations and notes ..       232,740        55,892       176,848          316.4
Capital lease obligations ..........        30,864        81,127       (50,263)         (62.0)
Other ..............................        10,802         7,500         3,302           44.0
                                       -----------   -----------   -----------    -----------
Total interest expense .............   $ 4,820,531   $ 2,194,661   $ 2,625,870          119.6
                                       ===========   ===========   ===========    ===========
</TABLE>

The 119.6% increase in interest expense for the three months ended September 30,
2008 as compared to the same three month  period in 2007 was  primarily  due to:
(i) the  October  19,  2007  issuance of our 12.0%  Senior  Secured  Notes,  the
proceeds of which were used to purchase  Mann Steel  Products,  Inc.;  less (ii)
repayment of our term loan credit  facility and a reduction in interest  expense
on our 10.5% senior  secured  discount notes due to a reduction in debt of $10.0
million.

COMPARISON  OF NINE  MONTHS  ENDED  SEPTEMBER  30,  2008 AND NINE  MONTHS  ENDED
SEPTEMBER 30, 2007

PRODUCTION

During the nine months ended  September  30, 2008 and 2007,  our mines  produced
1,433,996 and 831,987 tons of coal, respectively, as follows:

<TABLE>
<CAPTION>
                                                     NINE MONTHS ENDED
                                            SEPTEMBER 30,           SEPTEMBER 30,
                                                2008                    2007
                                       ---------------------   ---------------------
                                          Tons         %          Tons         %
                                       ---------   ---------   ---------   ---------
<S>                                    <C>             <C>     <C>             <C>
Production:
     Surface mines .................     998,912        63.7     282,646        24.0
     Highwall mines ................     135,598         8.7     110,463         9.5
     Underground mines .............     290,869        18.5     438,878        37.7
                                       ---------   ---------   ---------   ---------
Total tons produced ................   1,425,379        90.9     831,987        71.2
Purchased coal .....................     143,479         9.1     336,839        28.8
                                                   ---------   ---------   ---------
Total tons available ...............   1,568,858       100.0   1,168,826       100.0
                                       =========   =========   =========   =========

Tons produced by contract
   miners (included above) .........     178,244        11.3     278,709        23.8
                                       =========   =========   =========   =========
</TABLE>

The 2008 figures  above  include  653,162 tons from National Coal of Alabama and
59,181 tons from our Straight Creek mining operations.  The 2007 figures include
191,746 tons from our Straight Creek mining operations.


                                       28
<PAGE>


REVENUE

During the nine months ended  September 30, 2008 and 2007,  approximately  88.6%
and  89.0%  of coal  sales  were  made to four  utilities  and  four  industrial
customers  under  contracts and open purchase order  arrangements  with original
terms of twelve months or longer.  The remaining  coal sales for the nine months
period were made under short term  contracts or purchase  orders.  Tons sold and
the associated revenue for the nine month period ended follows:

<TABLE>
<CAPTION>
                                 NINE MONTHS ENDED
                                   SEPTEMBER 30              INCREASE/DECREASE
                             -------------------------   -------------------------
                                 2008          2007           $              %
                             -----------   -----------   -----------   -----------
<S>                          <C>           <C>           <C>                 <C>
Coal sales ...............   $98,364,093   $58,104,853   $40,259,240          69.3
Tons sold ................     1,576,785     1,145,477       431,308          37.6
Average price per ton sold   $     62.38   $     50.73   $     11.65          23.0

Other revenues ...........   $ 2,377,033   $   669,833   $ 1,707,200         254.9
                             -----------   -----------   -----------   -----------
</TABLE>

The increase in revenue from coal sales for the nine months ended  September 30,
2008 as  compared  to the same  period in 2007 was  primarily  the result of the
addition of National Coal of Alabama, which sold 749,266 tons of coal during the
2008 period at an average price of $65.77 per ton as compared to no sales during
the 2007 period,  reduced by the sale of the Straight  Creek mining  operations,
which sold 520,079 tons at an average  price of $49.32 during the 2007 period as
compared to 100,878 tons at an average  price of $48.55  during the 2008 period.
Additionally,  the  average  selling  price  for coal  sold  from the  Company's
Tennessee  operations  increased from $51.90 per ton sold during the 2007 period
to $60.81 per ton sold during the 2008 period.

The increase in other  revenues of  $1,707,200  consisted  primarily of (i) fees
charged to another coal  producer  for use of our train  loading  facilities  in
Southeast  Kentucky,  which were sold on March 31, 2008; and (ii) revenue from a
new  contract  mining  services  agreement  between  Xinergy and  National  Coal
Corporation to extract coal from a highwall mine  previously  sold to Xinergy as
part of the Straight Creek sale on March 31, 2008.

COST OF SALES

<TABLE>
<CAPTION>
                                NINE MONTHS ENDED
                                  SEPTEMBER 30              INCREASE/DECREASE
                            -------------------------   -------------------------
                                2008          2007           $              %
                            -----------   -----------   -----------   -----------
<S>                         <C>           <C>           <C>                  <C>
Cost of sales ...........   $96,438,882   $56,406,293   $40,032,589          71.0
Tons sold ...............     1,576,785     1,145,477       431,308          37.6
Average cost per ton sold   $     61.16   $     49.24   $     11.92          24.2
                            -----------   -----------   -----------   -----------
</TABLE>

Total cost of sales  increased  71.0% during the nine months ended September 30,
2008 as compared to the same nine month period in 2007 due primarily to:

         (i)      The addition of National  Coal of Alabama,  which sold 749,266
                  tons of coal  at an  average  cost  per  ton  sold of  $61.23.
                  Additionally,   the  March  2008  mechanical  failure  of  our
                  dragline   equipment   resulted   in   lost   production   and
                  corresponding  revenues  of  approximately  $9.5  million  and
                  140,000  tons,  respectively,  during  the nine  months  ended
                  September 30, 2008.

         (ii)     The sale of our Kentucky  operations,  which sold 100,878 tons
                  at a cost  of  $62.57  per  ton  for  the  nine  months  ended
                  September  30,  2008  compared  to  520,079  tons at a cost of
                  $48.88 per ton for the nine months ended September 30, 2007.

         (iii)    Our  Tennessee  mines sold 726,641 tons at an average cost per
                  ton sold of $60.90 per ton for the nine months ended September
                  30, 2008  compared to 625,398  tons at an average cost per ton
                  sold of $49.55 for the nine months ended  September  30, 2007.
                  This   increase  is  due  to:  (i)   increases   in  fuel  and
                  transportation  costs of $3.0  million  or $2.30 per ton sold;
                  (ii) increase due to the  aforementioned  Xinergy  contract of
                  $2.1 million or $2.93 per ton sold; (iii) increases in payroll
                  costs of $2.8 million or $2.20 per ton sold;  (iv) increase in
                  contract labor costs of $1.3 million or $1.60 per ton sold and
                  (v) increase in equipment maintenance of $0.8 million or $1.00
                  per ton sold.


                                       29
<PAGE>


DEPRECIATION, DEPLETION, AMORTIZATION AND ACCRETION

<TABLE>
<CAPTION>
                                NINE MONTHS ENDED
                                  SEPTEMBER 30              INCREASE/DECREASE
                            -------------------------   -------------------------
                                2008          2007           $              %
                            -----------   -----------   -----------   -----------
<S>                         <C>           <C>           <C>                 <C>
Depreciation, depletion,
   amortization and
   accretion ............   $11,766,339   $11,340,326   $   426,013           3.8
Tons sold ...............     1,576,785     1,145,477       431,308          37.6
Average cost per ton sold   $      7.46   $      9.90   $     (2.44)        (24.6)
                            -----------   -----------   -----------   -----------
</TABLE>

The 3.8%  decrease  in  depreciation,  depletion,  amortization,  and  accretion
expense for the nine  months  ended  September  30, 2008 as compared to the same
period in 2007, is attributable to: (i) the sale of approximately  $16.1 million
in property, plant, equipment, and mine development, and a resulting decrease of
$1.8 million of corresponding expense,  associated with the sale of the Straight
Creek properties on March 31, 2008; (ii) $2.4 million for assets that were fully
depreciated;  offset by (iii) the  addition of National  Coal of Alabama,  which
sold 749,266 tons of coal during the 2008 period with an associated average cost
of  depreciation,  depletion,  amortization,  and accretion per ton of $6.46, or
$4.9 million of corresponding expense.

GENERAL AND ADMINISTRATIVE

<TABLE>
<CAPTION>
                                NINE MONTHS ENDED
                                  SEPTEMBER 30              INCREASE/DECREASE
                            -------------------------   -------------------------
                                2008          2007           $              %
                            -----------   -----------   -----------   -----------
<S>                         <C>           <C>           <C>                  <C>
General and administrative
   expense ..............   $ 7,122,341   $ 5,325,676   $ 1,796,665          33.7
Tons sold ...............     1,576,785     1,145,477       431,308          37.6
Average cost per ton sold   $      4.52   $      4.65   $     (0.13)         (2.8)
                            -----------   -----------   -----------   -----------
</TABLE>

The 33.7%  increase in general and  administrative  expenses for the nine months
ended  September 30, 2008 as compared to the same period in the previous year is
primarily  attributable  to the addition of $1.8 million of expenses  associated
with  National  Coal of Alabama less $0.6 million of general and  administrative
expenses allocated to the Straight Creek operations, offset by increases of $0.3
million in professional fees and $0.3 million in legal contingencies.


                                       30
<PAGE>


OTHER INCOME (EXPENSE)

<TABLE>
<CAPTION>
                                            NINE MONTHS ENDED
                                              SEPTEMBER 30,             INCREASE/DECREASE
                                       -------------------------   --------------------------
                                           2008          2007           $              %
                                       -----------   -----------   -----------    -----------
<C>                                    <C>           <C>           <C>                  <C>
12.0% senior secured notes, due 2012   $ 8,375,849   $      --     $ 8,375,849          100.0
10.5% senior secured notes, due 2010     4,709,506     5,225,165      (515,659)          (9.9)
Term loan credit facility ..........       411,517       840,589      (429,072)         (51.0)
Installment obligations and notes ..       426,432       103,723       322,709          311.1
Capital lease obligations ..........       102,045       299,809      (197,764)         (66.0)
Other ..............................        31,266        45,928       (14,662)         (31.9)
                                       -----------   -----------   -----------    -----------
Total interest expense .............   $14,056,614   $ 6,515,214   $ 7,541,400          115.8
                                       ===========   ===========   ===========    ===========
</TABLE>

The 115.8% increase in interest  expense for the nine months ended September 30,
2008 as compared to the same nine month period in 2007, was primarily the result
of (i) the October 19, 2007  issuance of our 12.0%  senior  secured  notes,  the
proceeds of which were used to purchase  Mann Steel  Products,  Inc; (ii) less a
reduction  in  interest  expense  on our  10.5%  senior  secured  notes due to a
reduction in debt of $13.0 million.

Interest  income  declined  from  $883,407  during 2007 to $787,289 in 2008 as a
result of lower average cash balances and lower  average  interest  rates during
the nine month period.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2008, we had cash and cash equivalents of  approximately  $11.2
million and negative working capital of approximately  $1.5 million.  Cash flows
provided by  operations  were $2.4 million for the three months ended  September
30, 2008 and cash flows used in operations were $4.3 million for the nine months
ended  September 30, 2008.  Operations have not always  generated  positive cash
flows in the past and the ability to do so during the  remainder  of 2008 is not
assured. At September 30, 2008, we had shareholders' equity of $11.5 million and
incurred net losses of $28.5 million  (excluding  preferred stock dividends) for
the nine months then ended. Management expects that we may continue to incur net
losses into the foreseeable future,  which would decrease  stockholders'  equity
and could lead to an eventual shareholders' deficit.

We invested approximately $17.6 million in equipment and mine development during
the nine months  ended  September  30, 2008  including  $4.6  million  purchased
through equipment financing  arrangements.  Of this total,  $500,000 was used to
acquire  a  524  acre  mineral   lease  in  eastern   Tennessee   that  includes
approximately  1.4 million tons of  recoverable  high quality coal. On August 8,
2008,  we acquired a 1,000 acre mineral and surface  tract in eastern  Tennessee
that includes  approximately  2.3 million tons of recoverable high quality coal.
The  purchase  price was $7.0 million of which $2.0 million was paid in cash and
$5.0 million in the issuance of 756,430 shares of the Company's common stock. We
intend to make up to $2.6 million of additional capital  expenditures during the
remainder of 2008 to expand  operations and  approximately  $450,000 to maintain
existing assets.

In March 2008, our dragline  equipment utilized in our L. Massey surface mine in
Alabama  suffered  a major  mechanical  failure.  The  equipment  has since been
repaired and was back in production on July 29, 2008. This breakdown resulted in
estimated  lost  production of 30,000 and 140,000 tons and lost revenues of $1.8
million and $9.5 million during the three months and nine months ended September
30, 2008, respectively.


                                       31
<PAGE>


During 2008, we  successfully  renegotiated  several of our existing coal supply
agreements  resulting  in an  increased  selling  price  per ton and  additional
revenues from those contracts.  The contracted  average selling price per ton is
$70.40 and $77.35 on 2,000,000  and 710,000  contracted  tons for 2009 and 2010,
respectively. Our liquidity plans include ongoing negotiations with existing and
new customers to obtain  additional sales for the  metallurgical and steam coals
from recently acquired properties and permitted mines in Tennessee and Alabama.

We also  intend to  continue  the  pursuit of a $10  million  First Lien  Credit
Facility  permitted  within the  provisions of the 10.5% Senior Secured Note due
2010. However, if we are unable to execute our plans successfully, we may not be
able to meet our  liquidity  requirements  and will  need to  pursue  additional
financing opportunities as needed.

We have not yet priced a portion  of the coal we have goals to produce  over the
next  several  years  in  order  to take  advantage  of  possible  future  price
increases.   At  September  30,  2008,  our  un-priced  and  uncommitted  future
production was approximately 300,000 to 400,000 tons in 2009, 1.7 million to 2.0
million tons in 2010.

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

<TABLE>
<CAPTION>
                                                       SEPTEMBER 30,     DECEMBER 31,
                                                            2008             2007
                                                       -------------    -------------
<C>                                                    <C>              <C>
12.0% Senior Secured Notes, due 2012 ...............   $  60,000,000    $  60,000,000
10.5% Senior Secured Notes, due 2010 ...............      42,000,000       55,000,000
Term Loan Credit Facility, due 2008 ................            --         10,000,000
Overriding Royalty Interest obligation, due 2023 ...       9,443,834        9,177,273
Equipment loans and installment purchase obligations       5,292,272        6,839,462
Insurance premium financing, due 2008 ..............         326,287           51,817
                                                       -------------    -------------
                                                         117,062,393      141,068,552

Unamortized discounts ..............................      (9,655,113)     (11,264,974)

Current portion of long-term debt ..................      (3,861,442)     (15,453,230)
                                                       -------------    -------------

Total long-term debt ...............................   $ 103,545,838    $ 114,350,348
                                                       =============    =============
</TABLE>

12.0% SENIOR SECURED NOTES DUE 2012

National Coal of Alabama,  Inc. is restricted in its ability to distribute  cash
to our other consolidated  companies for use in their operations under the terms
of our 12% Senior  Secured Notes due 2012. On an annual basis,  National Coal of
Alabama can  distribute  cash for use in our other  operations  only if it meets
certain EBITDA-based operating requirements for the immediately preceding fiscal
year. Additionally, our subsidiary,  National Coal Corporation, has entered into
a  management  services  agreement  with  National  Coal of Alabama,  Inc.  that
compensates  National Coal Corporation for services that it provides to National
Coal of Alabama,  and a tax sharing  agreement  that  requires  National Coal of
Alabama  to  make  payments  to us in  respect  of its  tax  liability.  For the
remainder of fiscal 2008, we anticipate National Coal of Alabama's operations to
provide no cash for use in our other operations.


                                       32
<PAGE>


Due primarily to the loss of production and  corresponding  revenues  associated
with the dragline equipment  failure,  we violated our loan covenants related to
our 12% Senior  Secured Notes due 2012 (Note 8) in the second and third quarters
of 2008.  On August 13, 2008, we received  waivers of all existing  defaults and
covenant  violations  for the quarter ended June 30, 2008 and received  modified
terms for  covenants  for  September 30, 2008. On November 12, 2008, we received
waivers for loan covenants that were in default for the quarter ended  September
30, 2008,  and obtained  amended  terms for certain  covenants  through June 30,
2009.

10.5% SENIOR SECURED NOTES DUE 2010

During the nine months ended  September 30, 2008,  certain  holders of our 10.5%
Senior  Secured  Notes  exchanged  $13,000,000  in notes and $158,958 in accrued
interest for 1,855,935  shares of our common stock  resulting in a $504,393 loss
on  extinguishment  of debt included as a component of OTHER within OTHER INCOME
(EXPENSE),   NET  in  the  accompanying   condensed  consolidated  statement  of
operations.

TERM LOAN CREDIT FACILITY

On March  31,  2008,  we used a  portion  of the  proceeds  from the sale of our
Straight  Creek,  Kentucky  properties  (see  Note  3,  SALE OF  STRAIGHT  CREEK
PROPERTIES) to repay $5.0 million of the $10.0 million Term Loan Credit Facility
entered  into in October  2006 with  Guggenheim  Corporate  Funding,  L.L.C.  as
administrative  agent and  accrued  interest of  $50,000.  On April 2, 2008,  we
repaid the  remaining  $5.0  million  and  accrued  interest  of  $51,667  which
indebtedness  otherwise  would have  matured in December  2008.  The  repayments
resulted  in a $1.2  million  loss  on  extinguishment  of  debt  included  as a
component of OTHER within OTHER INCOME (EXPENSE),  NET for the nine months ended
September 30, 2008.

INSTALLMENT PURCHASE OBLIGATIONS AND EQUIPMENT NOTES

In August  2008,  we  entered  into new  equipment  notes  pursuant  to which we
purchased  vehicles  with an aggregate  principal  value of $129,104.  The notes
require  payments  over 36  months  with a fixed  interest  rate of  6.99%.  The
obligations under the notes are secured by the vehicles purchased.

In June 2008, we acquired  $1,175,000 of used equipment in exchange for $100,000
cash, a $244,000 note payable and the assumption of $831,000 in equipment loans.
The $244,000  note payable  requires  repayment in one year at 8% interest.  The
assumed  equipment loans require payments over 55 months at fixed interest rates
ranging from 7.45% to 8.0%. The  obligations  under the notes are secured by the
purchased equipment.

In  April  2008,  we  entered  into a new  installment  sales  contract  and new
equipment  notes with  equipment  manufacturers  pursuant  to which we  acquired
equipment  with an aggregate  principal  value of  approximately  $1,179,451 and
$681,040, respectively. The installment sales contract requires payments over 36
months  at a fixed  interest  rate of  6.25%  and the  equipment  notes  require
payments over 36 months with a fixed interest rate of 4.75%. The obligations are
secured by the equipment purchased.

In February,  March and June 2008,  we entered into new  equipment  notes with a
bank and an equipment  manufacturer pursuant to which we purchased vehicles with
an aggregate  principal value of approximately  $103,000.  These equipment notes
require  payments  over  36  months  at  fixed  interest  rates  of  7.75%.  The
obligations under the equipment notes are secured by the vehicles purchased.

Approximately $2.6 million of installment  purchase  obligations were assumed by
Xinergy as a result of the March 31, 2008 sale of our Straight  Creek,  Kentucky
properties.  See Note 3, SALE OF  STRAIGHT  CREEK  PROPERTIES  to the  Condensed
Consolidated Unaudited Financial Statements.


                                       33
<PAGE>


CASH FLOWS

We currently  satisfy our working capital  requirements  primarily  through cash
flows generated from operations and sales of debt and equity securities. For the
nine  months  ended  September  30,  2008,  we had a net  increase  in  cash  of
approximately $1.4 million.  Cash flows from operating,  financing and investing
activities for the nine months ended  September 30, 2008 and 2007 are summarized
in the following table:

                                                 SEPTEMBER 30,     SEPTEMBER 30,
                                                     2008              2007
                                                 ------------      -----------
Activity:
Operating activities .......................     $ (4,265,560)     $ (8,331,018)
Investing activities .......................        8,157,259        (2,664,006)
Financing activities .......................       (2,510,476)       10,844,639
                                                 ------------      ------------
     Net increase (decrease) in cash .......     $  1,381,223      $   (150,385)
                                                 ============      ============

OPERATING ACTIVITIES

The net cash used in operating  activities of approximately  $4.3 million during
the nine months ended  September  30, 2008 compared with prior year cash used in
operations  of $8.3 million was  primarily  attributable  to the current  period
activity  including a full nine months of operating results for National Coal of
Alabama while only being offset by three months of operating  losses  associated
with the Straight Creek mining  operations.  The comparable  period in the prior
year  includes  nine  months of Straight  Creek  operating  losses and  excludes
National  Coal of  Alabama.  We  expect  improvement  in the cash  flow  used in
operations  as National Coal of Alabama is expected to be more  profitable  than
our  Straight  Creek  operations  were.  However,  in March 2008,  our  dragline
equipment  utilized in our L. Massey  surface  mine in Alabama  suffered a major
mechanical  failure.  The  equipment  has since  been  repaired  and was back in
production  on  July  29,  2008.  This  breakdown  resulted  in  estimated  lost
production  of 140,000 tons and lost  revenues of $9.5  million  during the nine
months ended September 30, 2008, respectively.

INVESTING ACTIVITIES

The increase in cash  provided by investing  activities  of $8.2 million for the
nine  months  ended  September  30,  2008  compared  to cash  used in  investing
activities  of $2.7  million for the nine months  ended  September  30, 2007 was
primarily  due to: (i) the sale of our Straight  Creek,  Kentucky  properties in
March 2008 for $10.7  million;  (ii) the release of $7.0 million of  reclamation
bonds  associated with the Straight Creek mining  operations  restricted cash to
operations,  less $0.4 million of other changes in  restricted  cash and (iii) a
reduction  of  cash  provided  by  investing  activities  due to a $4.9  million
increase in capital expenditures over the same period last year.

FINANCING ACTIVITIES

The change in net cash used in financing  activities of $2.5 million  during the
nine  months  ended  September  30, 2008  compared  to the net cash  provided by
financing  activities of $10.8  million for the nine months ended  September 30,
2007 was primarily  due to: (i) the  repayment of our Term Loan Credit  Facility
and repayments of notes and equipment  related  financing in 2008 totaling $13.9
million;  (ii) a decrease of $3.1 million raised in equity  financings  over the
respective periods;  and (iii) less proceeds from stock option exercises of $1.0
million in 2008.


                                       34
<PAGE>


OFF-BALANCE SHEET ARRANGEMENTS

At September 30, 2008,  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.

At  September  30, 2008 and  December  31,  2007,  we,  through our  subsidiary,
National  Coal of  Alabama,  Inc.,  held an  investment  totaling  $448,546  and
$114,823,  respectively,  representing  a 49%  interest  in Powhatan  Dock,  LLC
("Powhatan")  which  operates a barge  load-out  in  Alabama.  We use the equity
method to  account  for the joint  venture  investment  in  Powhatan,  which was
acquired  during  the fourth  quarter of 2007.  Powhatan  recorded  revenues  of
$964,763 and $3,060,562 and net income of $221,620 and $681,068 during the three
and nine months ended September 30, 2008, respectively.

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,  2008 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, 2007 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

In May 2008, the Financial  Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting Standards ("SFAS") No. 162, "THE HIERARCHY OF GENERALLY
ACCEPTED  ACCOUNTING  PRINCIPLES"  ("SFAS No. 162"). SFAS No. 162 identifies the
sources of accounting  principles and the framework for selecting the principles
to be  used  in the  preparation  of  financial  statements  of  nongovernmental
entities that are presented in conformity  with  generally  accepted  accounting
principles in the United States of America. SFAS No. 162 is effective sixty days
following  the SEC's  approval  of Public  Company  Accounting  Oversight  Board
("PCAOB")  amendments  to AU Section  411,  "THE  MEANING OF `PRESENT  FAIRLY IN
CONFORMITY  WITH  GENERALLY  ACCEPTED  ACCOUNTING  PRINCIPLES'".  The Company is
currently  evaluating the potential  impact, if any, of the adoption of SFAS No.
162 on its consolidated financial statements.

In March  2008,  the FASB issued SFAS No.  161,  "DISCLOSURES  ABOUT  DERIVATIVE
INSTRUMENTS  AND HEDGING  ACTIVITIES--AN  AMENDMENT OF FASB  STATEMENT  NO. 133"
("SFAS No.  161")  which  changes the  disclosure  requirements  for  derivative
instruments and hedging activities.  SFAS No. 161 requires enhanced  disclosures
about (a) how and why an entity uses derivative instruments,  (b) how derivative
instruments  and  related  hedged  items are  accounted  for under SFAS No. 133,
"ACCOUNTING FOR DERIVATIVE  INSTRUMENTS AND HEDGING  ACTIVITIES" and its related
interpretations,  and (c) how  derivative  instruments  and related hedged items
affect an entity's financial position,  financial  performance,  and cash flows.
SFAS No. 161 is effective for financial  statements  issued for fiscal years and
interim  periods  beginning  after  November 15, 2008.  The Company is currently
evaluating the potential  impact of adopting SFAS No. 161 on its  disclosures in
the consolidated financial statements.


                                       35
<PAGE>


In December  2007, the FASB issued SFAS No. 160,  "Non-controlling  Interests in
Consolidated Financial  Statements-An Amendment of ARB No. 51" ("SFAS No. 160").
SFAS  No.  160   establishes   accounting   and  reporting   standards  for  the
non-controlling  interest in a  subsidiary  (previously  referred to as minority
interests). SFAS No. 160 would have an impact on the presentation and disclosure
of the non-controlling  interests of any non wholly-owned businesses acquired in
the future.  SFAS No. 160 will be  effective  for fiscal years  beginning  after
December  15,  2008;  earlier  adoption  is  prohibited.  The  Company  is still
analyzing SFAS No. 160 to determine the impact of adoption.

SFAS No. 157, FAIR VALUE  MEASUREMENTS  ("SFAS No. 157"),  and SFAS No. 159, THE
FAIR VALUE  OPTION FOR  FINANCIAL  LIABILITIES  - INCLUDING AN AMENDMENT OF FASB
STATEMENT  NO. 115 ("SFAS No. 159")  establish a framework  for  measuring  fair
value in U.S. GAAP, and expand disclosures about fair value  measurements.  SFAS
No. 157 does not require any new fair value measurements,  but provides guidance
on how to  measure  fair  value by  providing  a fair  value  hierarchy  used to
classify the source of the information.  In February 2008, the FASB deferred the
effective date of SFAS No. 157 by one year for certain  non-financial assets and
non-financial liabilities, except those that are recognized or disclosed at fair
value in the financial  statements on a recurring basis (at least annually).  On
January 1, 2008,  we adopted  the  provisions  of SFAS No. 157 and SFAS No. 159,
except as it applies to those non-financial assets and non-financial liabilities
for which the effective date has been delayed by one year. The adoptions of SFAS
No.  157 and  SFAS No.  159 did not  have a  material  impact  on our  financial
position or results of operations.

In December 2007, the FASB issued SFAS No. 141R,  BUSINESS  COMBINATIONS  ("SFAS
No. 141R") which becomes  effective  fiscal years  beginning  after December 15,
2008. SFAS No. 141R establishes  principles and requirements for determining how
an  enterprise  recognizes  and  measures  the fair value of certain  assets and
liabilities  acquired  in  a  business  combination,  including  non-controlling
interests,  contingent consideration,  and certain acquired contingencies.  SFAS
No.   141R  also   requires   acquisition-related   transaction   expenses   and
restructuring  costs be  expensed  as  incurred  rather  than  capitalized  as a
component of the business  combination.  The Company  expects that SFAS No. 141R
could  have an  impact  on  accounting  for any  businesses  acquired  after the
effective date of this  pronouncement.  Additionally,  SFAS No. 141R will affect
the prospective income tax accounting for certain historical  acquisitions.  The
Company has not yet analyzed the impact of adopting SFAS No. 141R.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in market rates and
prices, such as interest rates,  commodity prices, and foreign currency exchange
rates.  There have been no material  changes to the quantitative and qualitative
disclosures  included in Item 7A of the Company's Annual Report on Form 10-K for
the year ended December 31, 2007.

ITEM 4T.  CONTROLS AND PROCEDURES

CONTROLS AND PROCEDURES

Members of our management,  including our President and Chief Executive Officer,
Daniel A. Roling,  and Chief Financial Officer,  Michael Castle,  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, 2008,
the end of the  period  covered  by this  report.  Based  upon that  evaluation,
Messrs.  Roling and Castle concluded that our disclosure controls and procedures
were effective as of September 30, 2008.

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, 2008 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.

Section 404 of the  Sarbanes-Oxley  Act of 2002 requires us to document and test
the effectiveness of our internal control over financial reporting in accordance
with an established  internal control  framework and to report our conclusion as
to the  effectiveness  of our  internal  controls.  For the fiscal  year  ending
December 31, 2008 and  subsequent  years,  we will also  require an  independent
registered  public  accounting firm to test our internal  control over financial
reporting and report on the  effectiveness  of such  controls.  Because we are a
smaller  public company with limited  resources,  we are at greater risk for not
being able to satisfy the Section 404 requirements.


                                       36
<PAGE>


ITEM 6.   EXHIBITS

The following exhibits are filed as part of this report:

EXHIBIT
NUMBER                                  EXHIBIT TITLE
-------      -------------------------------------------------------------------

10.1         Amendment  No. 2 And Waiver  dated as of  November  12,  2008 among
             National Coal of Alabama,  Inc., the Holders named therein, and TCW
             Asset Management Company

10.2         Separation  Agreement among Charles Kite and National Coal Corp and
             all of its subsidiaries, effective July 15, 2008. (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.


(1)      Incorporated by reference to Exhibit 10.1 to our Current Report on Form
         8-K, as filed on July 21, 2008.


                                       37
<PAGE>


                                   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 17, 2008                 /S/ MICHAEL R. CASTLE
                                        -------------------------------
                                        By:   Michael R. Castle
                                        Its:  Chief Financial Officer
                                              (Principal Financial and
                                              Accounting Officer)


                                       38