##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







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

For the quarterly period ended September 30, 2009

or



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

For the transition period from  to
.

Commission file number 0-26509





NATIONAL COAL CORP.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Florida                                                        |  | 65-0601272                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

8915 George Williams Road

Knoxville, TN 37923

(Address of principal executive offices, zip code)

(865) 690-6900

(Registrants telephone number, including area code)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No   ̈

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

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



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | 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 5, 2009 the issuer had 34,379,889 shares of common stock, par value $.0001 per share, issued and outstanding.









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##### Table of Contents

National Coal Corp.

Table of Contents



|                                                                                                                        |  |   
|----------------------------------------------------------------------------------------------------------------------- |  | --
|PART I - FINANCIAL INFORMATION                                                                                          |  |   
|                                                                                                                        | 
|Item 1 - Financial Statements (Unaudited)                                                                               |  | 2 
|                                                                                                                        | 
|Condensed Consolidated Balance Sheets at September 30, 2009 and December 31,
2008                                       |  | 2 
|                                                                                                                        | 
|Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended September 
30, 2009 and 2008 |  | 3 
|                                                                                                                        | 
|Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and
2008                   |  | 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                                                     |  | 37
|                                                                                                                        | 
|Item 4 - Controls and Procedures                                                                                        |  | 37
|                                                                                                                        | 
|PART II - OTHER INFORMATION                                                                                             |  |   
|                                                                                                                        | 
|Item 1A - Risk Factors                                                                                                  |  | 38
|                                                                                                                        | 
|Item 6 - Exhibits                                                                                                       |  | 38



1



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##### Table of Contents

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

National Coal Corp.

Condensed Consolidated
Balance Sheets

(Unaudited)



|                                                                                                                                                                                |  |                    |              |   |                   |   |              |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------------ | - | ----------------- | - | ------------ | -
|                                                                                                                                                                                |  | September 30, 2009 |              |   | December 31, 2008 |  
|Assets                                                                                                                                                                          |  |                    |              |   |                   |   |              |  
|Current Assets:                                                                                                                                                                 |  |                    |              |   |                   |   |              |  
|Cash and cash equivalents                                                                                                                                                       |  | $                  | 4,060,409    |   |                   | $ | 3,908,469    |  
|Restricted cash                                                                                                                                                                 |  |                    | 1,374,643    |   |                   |   |             |  
|Accounts receivable, net                                                                                                                                                        |  |                    | 1,227,488    |   |                   |   | 474,351      |  
|Inventory                                                                                                                                                                       |  |                    | 3,722,220    |   |                   |   | 2,957,654    |  
|Prepaid and other current assets                                                                                                                                                |  |                    | 1,312,315    |   |                   |   | 1,282,777    |  
|Current assets of discontinued operations                                                                                                                                       |  |                    |             |   |                   |   | 9,751,877    |  
|                                                                                                                                                                                |  |                    |              |   |                   |   |              |  
|Total Current Assets                                                                                                                                                            |  |                    | 11,697,075   |   |                   |   | 18,375,128   |  
|Property, plant, equipment and mine development, net                                                                                                                            |  |                    | 42,389,955   |   |                   |   | 43,674,758   |  
|Deferred financing costs                                                                                                                                                        |  |                    | 859,974      |   |                   |   | 1,238,267    |  
|Restricted cash                                                                                                                                                                 |  |                    | 7,543,608    |   |                   |   | 11,338,137   |  
|Other non-current assets                                                                                                                                                        |  |                    | 1,469,247    |   |                   |   | 1,562,901    |  
|Long-term assets of discontinued operations                                                                                                                                     |  |                    |             |   |                   |   | 71,620,026   |  
|                                                                                                                                                                                |  |                    |              |   |                   |   |              |  
|Total Assets                                                                                                                                                                    |  | $                  | 63,959,859   |   |                   | $ | 147,809,217  |  
|                                                                                                                                                                                |  |                    |              |   |                   |   |              |  
|                                                                                                                                                                                |  |                   
|Liabilities and Stockholders (Deficit) Equity                                                                                                                                  |  |                    |              |   |                   |   |              |  
|Current Liabilities:                                                                                                                                                            |  |                    |              |   |                   |   |              |  
|Accounts payable                                                                                                                                                                |  | $                  | 13,280,165   |   |                   | $ | 6,188,085    |  
|Accrued expenses                                                                                                                                                                |  |                    | 2,654,284    |   |                   |   | 880,632      |  
|Borrowings under short-term line of credit                                                                                                                                      |  |                    | 4,000,000    |   |                   |   |             |  
|Current maturities of long - term debt                                                                                                                                          |  |                    | 1,586,361    |   |                   |   | 2,336,191    |  
|Current installments of obligations under capital leases                                                                                                                        |  |                    | 1,676,217    |   |                   |   | 1,886,251    |  
|Current portion of asset retirement obligations                                                                                                                                 |  |                    | 145,282      |   |                   |   | 145,282      |  
|Deferred revenue                                                                                                                                                                |  |                    |             |   |                   |   | 1,241,840    |  
|Current liabilities of discontinued operations                                                                                                                                  |  |                    |             |   |                   |   | 11,735,695   |  
|                                                                                                                                                                                |  |                    |              |   |                   |   |              |  
|Total Current Liabilities                                                                                                                                                       |  |                    | 23,342,309   |   |                   |   | 24,413,976   |  
|                                                                                                                                                                                |  |                   
|Long - term debt, less current maturities, net of discount                                                                                                                      |  |                    | 41,538,006   |   |                   |   | 41,892,645   |  
|Obligations under capital leases, less current installments                                                                                                                     |  |                    | 175,549      |   |                   |   | 1,314,188    |  
|Asset retirement obligations, less current portion                                                                                                                              |  |                    | 4,087,145    |   |                   |   | 3,763,720    |  
|Deferred revenue                                                                                                                                                                |  |                    | 1,116,042    |   |                   |   | 1,303,655    |  
|Other non-current liabilities                                                                                                                                                   |  |                    | 1,942,037    |   |                   |   | 2,138,235    |  
|Long-term liabilities of discontinued operations                                                                                                                                |  |                    |             |   |                   |   | 67,492,063   |  
|                                                                                                                                                                                |  |                    |              |   |                   |   |              |  
|Total Liabilities                                                                                                                                                               |  |                    | 72,201,088   |   |                   |   | 142,318,482  |  
|                                                                                                                                                                                |  |                    |              |   |                   |   |              |  
|                                                                                                                                                                                |  |                   
|Stockholders (Deficit) Equity:                                                                                                                                                 |  |                    |              |   |                   |   |              |  
|Common Stock, $.0001 par value; 80 million shares authorized; 34,379,889 and 34,184,824 shares issued and outstanding at
September 30, 2009 and December 31, 2008, respectively |  |                    | 3,437        |   |                   |   | 3,418        |  
|Additional paid - in capital                                                                                                                                                    |  |                    | 115,938,899  |   |                   |   | 114,770,946  |  
|Accumulated deficit                                                                                                                                                             |  |                    | (124,183,565 | ) |                   |   | (109,283,629 | )
|                                                                                                                                                                                |  |                    |              |   |                   |   |              |  
|Total Stockholders (Deficit) Equity                                                                                                                                            |  |                    | (8,241,229   | ) |                   |   | 5,490,735    |  
|                                                                                                                                                                                |  |                    |              |   |                   |   |              |  
|Total Liabilities and Stockholders (Deficit) Equity                                                                                                                            |  | $                  | 63,959,859   |   |                   | $ | 147,809,217  |  
|                                                                                                                                                                                |  |                    |              |   |                   |   |              |  

The Condensed Consolidated Balance Sheet as of December 31, 2008 was derived from Audited
Financials.

See Accompanying Notes to Condensed Consolidated Financial Statements.



2



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##### Table of Contents

National Coal Corp.

Condensed Consolidated Statements of Operations

(Unaudited)



|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|------------------------------------------------------------------------------------- |  | --------------------------------------- | ---------- | - | -------------------------------------- | - | ---------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                                                                      |  | For the Three Months EndedSeptember 30, |            |   | For the Nine Months EndedSeptember 30, |  
|                                                                                      |  | 2009                                    |            |   | 2008                                   |   |            | 2009 |  |   | 2008        |  
|Revenues:                                                                             |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Coal sales                                                                            |  | $                                       | 21,483,618 |   |                                        | $ | 17,604,657 |      |  | $ | 62,325,476  |   |  | $ | 49,084,206  |  
|Other revenues                                                                        |  |                                         | 637,181    |   |                                        |   | 976,683    |      |  |   | 2,400,759   |   |  |   | 2,340,838   |  
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Total revenues                                                                        |  |                                         | 22,120,799 |   |                                        |   | 18,581,340 |      |  |   | 64,726,235  |   |  |   | 51,425,044  |  
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|                                                                                      |  |                                         |            |  
|Operating expenses:                                                                   |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Cost of coal sales (exclusive of depreciation, depletion, amortization and accretion) |  |                                         | 20,028,882 |   |                                        |   | 16,457,270 |      |  |   | 58,295,500  |   |  |   | 48,735,619  |  
|Cost of services (exclusive of depreciation, depletion, amortization and accretion)   |  |                                         | 608,274    |   |                                        |   | 840,599    |      |  |   | 2,316,948   |   |  |   | 1,985,087   |  
|Depreciation, depletion, amortization and accretion                                   |  |                                         | 2,392,606  |   |                                        |   | 2,141,220  |      |  |   | 7,528,951   |   |  |   | 7,035,844   |  
|General and administrative                                                            |  |                                         | 1,821,731  |   |                                        |   | 2,277,883  |      |  |   | 5,247,932   |   |  |   | 6,192,331   |  
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Total operating expenses                                                              |  |                                         | 24,851,493 |   |                                        |   | 21,716,972 |      |  |   | 73,389,331  |   |  |   | 63,948,881  |  
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Loss from continuing operations                                                       |  |                                         | (2,730,694 | ) |                                        |   | (3,135,632 | )    |  |   | (8,663,096  | ) |  |   | (12,523,837 | )
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|                                                                                      |  |                                         |            |  
|Other income (expense):                                                               |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Interest expense                                                                      |  |                                         | (1,910,496 | ) |                                        |   | (1,616,725 | )    |  |   | (5,037,908  | ) |  |   | (5,626,763  | )
|Interest income                                                                       |  |                                         | 65,175     |   |                                        |   | 180,143    |      |  |   | 222,281     |   |  |   | 572,460     |  
|Other                                                                                 |  |                                         | 39,324     |   |                                        |   | 23,653     |      |  |   | 63,944      |   |  |   | (1,831,526  | )
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Other income (expense), net                                                           |  |                                         | (1,805,997 | ) |                                        |   | (1,412,929 | )    |  |   | (4,751,683  | ) |  |   | (6,885,829  | )
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Loss from continuing operations before income taxes                                   |  |                                         | (4,536,691 | ) |                                        |   | (4,548,561 | )    |  |   | (13,414,779 | ) |  |   | (19,409,666 | )
|                                                                                      |  |                                         |            |  
|Income tax benefit                                                                    |  |                                         |           |   |                                        |   |           |      |  |   |            |   |  |   |            |  
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Loss from continuing operations                                                       |  |                                         | (4,536,691 | ) |                                        |   | (4,548,561 | )    |  |   | (13,414,779 | ) |  |   | (19,409,666 | )
|                                                                                      |  |                                         |            |  
|Income (loss) from discontinued operations, net of taxes                              |  |                                         | 3,872,741  |   |                                        |   | (3,841,312 | )    |  |   | (1,485,157  | ) |  |   | (8,153,317  | )
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Net loss                                                                              |  |                                         | (663,950   | ) |                                        |   | (8,389,873 | )    |  |   | (14,899,936 | ) |  |   | (27,562,983 | )
|                                                                                      |  |                                         |            |  
|Preferred stock dividend                                                              |  |                                         |           |   |                                        |   | (40,328    | )    |  |   |            |   |  |   | (120,106    | )
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Net loss attributable to common shareholders                                          |  | $                                       | (663,950   | ) |                                        | $ | (8,430,201 | )    |  | $ | (14,899,936 | ) |  | $ | (27,683,089 | )
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Earnings (loss) per common share from continuing operations - basic and diluted       |  | $                                       | (0.13      | ) |                                        | $ | (0.14      | )    |  | $ | (0.40       | ) |  | $ | (0.64       | )
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Earnings (loss) per common share from discontinued operations - basic and diluted     |  | $                                       | 0.11       |   |                                        | $ | (0.11      | )    |  | $ | (0.04       | ) |  | $ | (0.26       | )
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Earnings (loss) per common share - basic and diluted                                  |  | $                                       | (0.02      | ) |                                        | $ | (0.25      | )    |  | $ | (0.44       | ) |  | $ | (0.90       | )
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Weighted average common shares outstanding                                            |  |                                         | 34,009,439 |   |                                        |   | 33,139,355 |      |  |   | 33,987,742  |   |  |   | 30,688,851  |  
|                                                                                      |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  

See Accompanying Notes to Condensed Consolidated Financial Statements.



3



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##### Table of Contents

National Coal Corp.

Condensed Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                          |  |                                        |             |   |      |   |             |  
|----------------------------------------------------------------------------------------- |  | -------------------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                          |  | For the Nine Months EndedSeptember 30, |            
|                                                                                          |  | 2009                                   |             |   | 2008 |  
|Operating Activities                                                                      |  |                                        |             |   |      |   |             |  
|Net loss                                                                                  |  | $                                      | (14,899,936 | ) |      | $ | (27,562,983 | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                                        |             |   |      |   |             |  
|Loss from discontinued operations, net of tax                                             |  |                                        | 1,485,157   |   |      |   | 8,153,317   |  
|Depreciation, depletion, amortization and accretion                                       |  |                                        | 7,528,951   |   |      |   | 7,035,844   |  
|Amortization of deferred financing costs                                                  |  |                                        | 688,438     |   |      |   | 381,246     |  
|Amortization of debt discount                                                             |  |                                        | 500,323     |   |      |   | 523,942     |  
|Gain on disposal of assets                                                                |  |                                        | (74,789     | ) |      |   | (632        | )
|Loss on sale of Straight Creek properties                                                 |  |                                        |            |   |      |   | 413,843     |  
|Loss on extinguishment of debt                                                            |  |                                        |            |   |      |   | 1,676,840   |  
|Settlement of asset retirement obligations                                                |  |                                        | (41,469     | ) |      |   | (70,925     | )
|Stock option expense                                                                      |  |                                        | 1,126,961   |   |      |   | 980,654     |  
|Changes in operating assets and liabilities:                                              |  |                                        |             |   |      |   |             |  
|Accounts receivable                                                                       |  |                                        | (753,137    | ) |      |   | 647,650     |  
|Inventory                                                                                 |  |                                        | (940,665    | ) |      |   | (348,851    | )
|Prepaid and other current assets                                                          |  |                                        | 678,192     |   |      |   | (44,206     | )
|Other non - current assets                                                                |  |                                        | 158,155     |   |      |   | 825,000     |  
|Accounts payable and accrued expenses                                                     |  |                                        | 8,865,730   |   |      |   | 1,251,687   |  
|Deferred revenue                                                                          |  |                                        | (1,241,840  | ) |      |   | (187,614    | )
|Other non - current liabilities                                                           |  |                                        | (196,198    | ) |      |   | 115,219     |  
|                                                                                          |  |                                        |             |   |      |   |             |  
|Net cash flows provided by (used in) operating activities from continuing operations      |  |                                        | 2,883,873   |   |      |   | (6,209,969  | )
|Net cash flows provided by operating activities from discontinued operations              |  |                                        | 3,676,903   |   |      |   | 2,608,789   |  
|                                                                                          |  |                                        |             |   |      |   |             |  
|Net cash flows provided by (used in) operating activities                                 |  |                                        | 6,560,776   |   |      |   | (3,601,180  | )
|                                                                                          |  |                                       
|Investing Activities                                                                      |  |                                        |             |   |      |   |             |  
|Capital expenditures                                                                      |  |                                        | (5,445,127  | ) |      |   | (5,967,415  | )
|Proceeds from sale of Straight Creek properties                                           |  |                                        |            |   |      |   | 10,711,399  |  
|Decrease in restricted cash                                                               |  |                                        | 2,419,886   |   |      |   | 5,034,465   |  
|Additions to prepaid royalties                                                            |  |                                        | (64,500     | ) |      |   | (470,319    | )
|                                                                                          |  |                                        |             |   |      |   |             |  
|Net cash (used in) provided by investing activities from continuing operations            |  |                                        | (3,089,741  | ) |      |   | 9,308,130   |  
|Net cash used in investing activities from discontinued operations                        |  |                                        | (2,153,052  | ) |      |   | (1,815,251  | )
|                                                                                          |  |                                        |             |   |      |   |             |  
|Net cash (used in) provided by investing activities                                       |  |                                        | (5,242,793  | ) |      |   | 7,492,879   |  
|                                                                                          |  |                                       
|Financing Activities                                                                      |  |                                        |             |   |      |   |             |  
|Proceeds from issuance of common and preferred stock                                      |  |                                        |            |   |      |   | 10,863,256  |  
|Proceeds from stock option exercises                                                      |  |                                        |            |   |      |   | 1,037,125   |  
|Proceeds under short-term line of credit                                                  |  |                                        | 5,000,000   |   |      |   |            |  
|Repayments of short-term line of credit                                                   |  |                                        | (1,000,000  | ) |      |   |            |  
|Repayments of long-term debt                                                              |  |                                        | (2,347,374  | ) |      |   | (12,540,290 | )
|Repayments of obligations under capital leases                                            |  |                                        | (1,555,560  | ) |      |   | (342,351    | )
|Payments for deferred financing costs                                                     |  |                                        | (439,258    | ) |      |   | (13,040     | )
|Payment of deferred dividends                                                             |  |                                        |            |   |      |   | (114,216    | )
|                                                                                          |  |                                        |             |   |      |   |             |  
|Net cash flows used in financing activities from continuing operations                    |  |                                        | (342,192    | ) |      |   | (1,109,516  | )
|Net cash flows used in financing activities from discontinued operations                  |  |                                        | (823,851    | ) |      |   | (1,400,960  | )
|                                                                                          |  |                                        |             |   |      |   |             |  
|Net cash flows used in financing activities                                               |  |                                        | (1,166,043  | ) |      |   | (2,510,476  | )
|Net increase in cash and cash equivalents                                                 |  |                                        | 151,940     |   |      |   | 1,381,223   |  
|Cash and cash equivalents at beginning of period                                          |  |                                        | 3,908,469   |   |      |   | 9,854,351   |  
|                                                                                          |  |                                        |             |   |      |   |             |  
|Cash and cash equivalents at end of period                                                |  | $                                      | 4,060,409   |   |      | $ | 11,235,574  |  
|                                                                                          |  |                                        |             |   |      |   |             |  
|                                                                                          |  |                                       
|Supplemental Cash Flow Information                                                        |  |                                        |             |   |      |   |             |  
|Cash paid during the year for interest from continuing operations                         |  | $                                      | 2,810,643   |   |      | $ | 4,094,437   |  
|Cash paid during the year for interest from discontinued operations                       |  |                                        | 555,806     |   |      |   | 8,346,143   |  
|Non-cash investing and financing activities from continued operations:                    |  |                                        |             |   |      |   |             |  
|Series A cumulative convertible preferred stock converted to common stock                 |  | $                                      |            |   |      | $ | 3,346,650   |  
|Preferred stock effective dividends                                                       |  |                                        |            |   |      |   | 131,712     |  
|Preferred stock dividends converted to common stock                                       |  |                                        |            |   |      |   | 120,107     |  
|10.5% Senior Secured Notes exchanged for common stock                                     |  |                                        |            |   |      |   | 12,735,848  |  
|Financed equipment acquisitions                                                           |  |                                        | 34,852      |   |      |   | 1,579,938   |  
|Equipment acquired through obligations under capital leases                               |  |                                        | 336,000     |   |      |   | 952,131     |  
|Asset retirement obligations incurred, acquired or recosted                               |  |                                        |            |   |      |   | 158,300     |  
|Common stock issued for mineral rights                                                    |  |                                        |            |   |      |   | 5,000,000   |  
|Non-cash investing and financing activities from discontinued operations:                 |  |                                        |             |   |      |   |             |  
|Financed equipment acquisitions                                                           |  | $                                      | 42,848      |   |      | $ | 1,866,386   |  
|Asset retirement obligations incurred, acquired or recosted                               |  |                                        | 324,332     |   |      |   | 1,820,917   |  
|Interest and fees paid in-kind or financed                                                |  |                                        | 2,100,000   |   |      |   |            |  
|Equipment acquired through obligations under capital leases                               |  |                                        |            |   |      |   | 181,050     |  

See Accompanying Notes to Condensed Consolidated Financial Statements.



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Unaudited Financial Statements

1. Business Overview

National Coal Corp. (the Company) consists
primarily of its two wholly-owned subsidiaries: (i) National Coal Corporation and (ii) NCC Corp. and, until August 3, 2009, its wholly-owned subsidiary National Coal of Alabama, Inc. (NCA). The Company principally engages
in the business of mining high quality bituminous steam coal in East Tennessee and, until August 3, 2009 and March 31, 2008, North Alabama and Southeast Kentucky, respectively. Its customers are electric utilities and industrial concerns
in the Southeastern United States.

In Tennessee, the Company owns the coal mineral rights to approximately 65,000 acres of land and leases
the rights to approximately 14,000 additional acres. As of September 30, 2009, the Companys mining complexes included two active and three inactive underground mines, one inactive and two active surface mines, and one inactive highwall
mine. In addition, the Company has two preparation plants and two unit train loading facilities in Tennessee served by the Norfolk Southern (NS) railroad. The Company holds seven permits that allow it to open new or re-open existing
mines in Tennessee close to current operations. As of September 30, 2009, the Company controlled approximately 33.4 million estimated recoverable tons of coal reserves in Tennessee as defined by the SEC Industry Guide 7 as that part of a
mineral deposit which could be economically and legally extracted at the time of the reserve determination.

On August 3, 2009, the
holders of the Companys 12% Notes due 2012 foreclosed on the outstanding capital stock of NCA, the collateral for the 12% Notes due 2012, and acquired NCA. As a result, NCA is no longer a subsidiary of the Company as of such date. Upon the
foreclosure, the Companys remaining operations are all located in Tennessee. The Company acquired its Alabama operations in October 2007, financed principally through the issuance of $60 million in 12% Notes due 2012. On June 26, 2009,
NCA was obligated to pay to its debt holders approximately $1.9 million of accrued interest on its 12% Notes due 2012. The date for making the interest payment was extended by the holders of the 12% Notes due 2012 to July 17, 2009, and on
July 21, 2009 NCA defaulted on the 12% Notes due 2012 as the interest payment had not been made. Additionally, the credit agreement provides that upon the acceleration of the entire unpaid balance of the indebtedness, the holders of the 12%
Notes due 2012 are entitled to receive the Make-Whole Amount, which amount is the present value of all future interest payments with respect to the principal amount of the indebtedness under the agreement. The Make-Whole Amount was
approximately $19.8 million and was accrued as part of the loss from discontinued operations during the three and nine months ended September 30, 2009. The liability for this amount was included in the balance sheet of NCA when NCA was
foreclosed upon. As a result of the transaction, the Company recorded a gain on disposal of discontinued operations for the three and nine months ended September 30, 2009 of approximately $23.5 million. No creditor of NCC Corp. or NCA,
including the holders of the 12% Notes due 2012, has any recourse to National Coal Corp. or its other subsidiaries for any liabilities of NCC Corp. or NCA, including liabilities arising under the credit agreement.

At September 30, 2009, the Company had cash and cash equivalents of approximately $4.1 million and negative working capital of approximately $11.6
million. Cash flows provided by (used in) continuing operations were $2.9 million and $(6.2) million for the nine months ended September 30, 2009 and 2008, respectively.

On April 9, 2009 the Company entered into a Revolving Credit Agreement with Next View Partners, LLC (Next View), as administrative agent and collateral agent for certain lenders. This
credit facility provides for borrowings of up to $10 million, and is permitted indebtedness under the indenture for the Companys 10.5% Notes due 2010. The agreement allows the Company the right to borrow up to an



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Unaudited Financial Statements, Continued



aggregate of $5 million on or before June 30, 2009 and an aggregate of $10 million after June 30, 2009. All amounts under the revolving loans become due and payable on December 15,
2009, unless the Company obtains the consent of holders of two-thirds of the outstanding principal amount of the Companys 10.5% Notes due 2010 to extend the maturity date until April 9, 2010. The Company is in discussions to extend the
maturity date of the revolving credit facility with the single holder of two-thirds of the principal amount of the 10.5% Notes due 2010. Interest under this facility is payable at an annual rate of 13% for amounts outstanding up to $5,000,000 and
15% for amounts outstanding in excess of $5,000,000. Interest is payable monthly in arrears. The Companys obligations under this credit facility are secured by a lien on substantially all the assets of National Coal Corp. and its subsidiaries
that own and operate its Tennessee mining operations. The credit facility contains several performance covenants, including minimum production and shipment amounts of coal and limitations on additional indebtedness. The facility includes customary
default provisions, and all outstanding obligations may become immediately due and payable in the event of the Companys default. As of September 30, 2009, the Company was in compliance with all relevant debt covenants. As of the date of
this filing, the Company has borrowed $5.0 million and repaid $1.5 million in principal against this line of credit. The outstanding balance at September 30, 2009 was $4.0 million and an additional $0.5 million in principal was paid on
October 7, 2009.

During the quarter ended September 30, 2009, the Company re-collateralized the surety bonds securing its
reclamation liabilities. This action resulted in the release of approximately $3.0 million in previously restricted cash during the quarter and an additional $1.4 million in previously restricted cash in October 2009. The total $4.4 million is
available for the Companys operating activities.

Management believes that the Company has sufficient resources to fund its Tennessee
operations throughout the remainder of 2009. However, this belief is predicated on certain assumptions as to: (i) sales volumes, related pricing and customers continuing to take deliveries of our coal as contracted; (ii) production levels;
(iii) the availability of coal to be purchased at a reasonable price; (iv) budgeted capital expenditures; (v) cost per ton level decreases at existing mines and newly opened mines; (vi) no rail service disruption and
(vii) the ability to extend its short term line of credit beyond maturity. Significant deviation from any one of these assumptions could have a material adverse effect on the Companys operating cash flows.

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

During the nine months ended September 30, 2009, the Companys
continuing operations generated total revenues of $64.7 million and sold approximately 0.9 million tons of coal. Revenues are derived primarily from the sale of coal to electric utility companies in the Southeastern United States pursuant to
long-term contracts or open purchase order arrangements with long-time customers. Georgia Power Company represented approximately 97% of the Companys coal revenues from continuing operations for the nine months ended September 30, 2009.



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Unaudited Financial Statements, Continued



The Company typically sells its coal for a specified per ton amount and at a negotiated price pursuant to both short-term contracts and contracts of twelve
months or greater. The weighted average selling price per ton in Tennessee is $74.38, $79.56, and $76.47 on 0.3 million, 0.9 million, and 0.9 million tons contracted for the remainder of 2009, and fiscal years 2010 and 2011,
respectively. Price adjustment, price reopener and other similar provisions in long-term supply agreements may reduce the protection from short-term coal price volatility traditionally provided by such contracts. Any adjustment or
renegotiation leading to a significantly lower contract price would result in decreased revenues and lower gross margins, which could have a material adverse effect on the Companys operating cash flows. Additionally, the Companys
customers may have the ability to delay the timing of their purchases, which could negatively impact operating cash flows. Finally, coal supply agreements also typically contain force majeure provisions allowing temporary suspension of performance
by the Company or its customers during the duration of specified events beyond the control of the affected party.

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

The
Company invested approximately $5.5 million in equipment and mine development in its continuing operations during the nine months ended September 30, 2009. During the remainder of 2009, management expects to incur approximately $0.6 million to
maintain existing assets in Tennessee. In prior years, the Company experienced the unanticipated loss of the use of key equipment, which resulted in lost production and lost revenues. The Company may experience similar mechanical failures in the
future, which could have a material adverse effect on its operating cash flows.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of National Coal Corp. and those of its two wholly-owned operating subsidiaries, National Coal Corporation and NCC Corp. and their
respective wholly-owned subsidiaries, NC Railroad, Inc. Jacksboro Coal Company, Inc. and, until August 3, 2009, National Coal of Alabama, Inc (NCA). NCA is included in the accompanying financial statement as a discontinued operation (See Note
3). Additionally, operations for the nine months ended September 30, 2008 include those of the Companys former Straight Creek Kentucky operations, which were sold on March 31, 2008. Revenues and net losses attributable to the
Straight Creek operations included in continuing operations were $5.0 million and $(2.4) million, respectively, for the nine months ended September 30, 2008.

All intercompany transactions and balances have been eliminated in consolidation. Investments in business entities in which National Coal Corp. and its subsidiaries do not have control, but have the
ability to exercise significant influence over the operating and financial policies, are accounted for under the equity method.



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Unaudited Financial Statements, Continued



The unaudited consolidated financial statements do not include footnotes and certain financial information normally presented annually under accounting
principles generally accepted in the United States of America (U.S. GAAP) and should, therefore, be read in conjunction with the Annual Report on Form 10-K of National Coal Corp. for the year ended December 31, 2008. The accompanying unaudited
consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) that, in the opinion of management, are considered necessary for a fair presentation of the financial position, results of operations, and cash
flows for the periods presented. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three and nine months ended September 30, 2009 and 2008 are not
necessarily indicative of results that can be expected for the fiscal year. Any material subsequent events have been evaluated for disclosure through November 5, 2009, the date of the filing of this Form 10-Q.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts and related disclosures of assets, liabilities, revenues, and expenses
at the date of the financial statements and for the periods then ended. On an on-going basis, management evaluates the estimates used, including those related to workers compensation, reclamation and mine closure obligations, coal reserve
values, income taxes, and contingencies. Estimates are based on historical experience, actuarial estimates, current conditions, and various other assumptions that management believes to be reasonable under the circumstances. Actual results may
differ from these estimates.

Cash and Cash Equivalents

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

Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Customers are primarily utilities and industrial companies. At September 30, 2009, approximately 75.2% of
accounts receivable was due from one customer. Balances are stated net of an allowance for doubtful accounts. The allowance was $0 at September 30, 2009 and December 31, 2008. Bad debts expense, net of recoveries, was $0 and $(29,298),
during the three and nine months ended September 30, 2009, respectively, and $67,158 and $247,017 net of recoveries of $7,842 during the three and nine months ended September 30, 2008, respectively.

Inventory

Inventory
includes all mined coal, purchased coal and tires. Mined coal is classified as inventory at the point it is extracted, and is valued at the lower of average cost or net realizable value. As of September 30, 2009 and December 31, 2008 the
Company reduced the carrying value of its inventories by $77,829 and $1,170,221, respectively, to state mined coal inventories at net realizable value. Mined coal inventory costs include labor, fuel, equipment costs, and operating overhead.
Purchased coal inventory is valued at the lower of average cost or net realizable value. Tires are classified as inventory when purchased and recorded at the lower of average cost or market.



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Unaudited Financial Statements, Continued



Property, Plant, Equipment and Mine Development

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

Leasing is used for certain capital
additions when considered cost effective relative to other capital sources, and is classified as either capital or operating as appropriate. Leased equipment meeting the capital lease criteria of FASB Accounting Standards Codification (ASC) 840,
Accounting for Leasesis capitalized and the present value of the related lease minimum payments is recorded as a corresponding asset and liability. Amortization of capitalized leased assets is computed using the straight-line method over the
shorter of the estimated useful life or the initial lease term.

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

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

Deferred Financing Costs

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

Restricted Cash

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

Prepaid Mining Royalties

Certain coal leases require minimum or advance payments
which are deferred and charged to cost of sales as coal is extracted and sold. The Company had prepaid royalties of approximately $446,000 and $382,000 at September 30, 2009 and December 31, 2008, respectively, included in other
non-current assets in the accompanying balance sheets.



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National Coal Corp.

Notes to Condensed Consolidated Unaudited Financial Statements, Continued



Reclamation and Asset Retirement Obligations

The Surface Mining Control and Reclamation Act of 1977 and similar state statutes require mine properties to be restored in accordance with specified standards. FASB ASC 410, Accounting for Asset
Retirement Obligations requires recognition of an asset retirement obligation (ARO) for eventual reclamation of disturbed acreage remaining after mining has been completed. The Company records its reclamation obligations on a
permit-by-permit basis using requirements as determined by the Office of Surface Mining of the U.S. Department of the Interior (OSM). The liability is calculated based upon the reclamation activities remaining after coal removal ceases,
assuming that reclamation activities have been contemporaneous within state and federal guidelines during mining. A liability is recorded for the estimated future cost that a third party would incur to perform the required reclamation and mine
closure discounted at the Companys credit-adjusted risk-free rate. A corresponding increase in the asset carrying value of mineral rights is also recorded. The ARO asset is amortized on the units-of-production method over the proven and
probable reserves associated with that permit, and the ARO liability is accreted to the expected reclamation date at the Companys credit-adjusted risk-free rate. These expenses are included in depreciation, depletion, amortization, and
accretion in the operating expenses section of the statement of operations.

Stock-based Compensation

The Companys 2004 Option Plan (the Plan) was authorized by the Board of Directors of the Company in March 2004, and
amended in January 2005. Under the terms of the Plan, stock options may be granted to officers, directors, employees, and others. At September 30, 2009, 4,450,000 shares of common stock were authorized for issuance under the Plan. Shares
subject to awards that expire unexercised or are otherwise terminated, again become available for awards. Upon exercise, stock is issued from unissued or treasury shares. The grant price of an option under the Plan generally may not be less than the
fair market value of the common stock subject to such option on the date of grant. Options have a maximum life of ten years and generally vest 25% per year over a four year period. Options granted during the three months ended
September 30, 2009 to purchase 451,138 shares in exchange for a one year salary reduction by certain officers, employees, and directors vest over a one year period. Currently, all stock options issued under the plan are non-statutory.

Effective January 1, 2006, the Company adopted FASB ASC 718, Share-Based Payment using the modified-prospective transition
method. It requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense in the consolidated financial statements based on their fair values. Under the modified-prospective
transition method, the Company recognizes compensation expense for the unvested portion of all share-based payments granted on or prior to December 31, 2005 over the remaining service period based on the grant date fair value and recognizes
compensation cost for all share-based payments granted on or subsequent to January 1, 2006 over the service period based on grant date fair value.



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National Coal Corp.

Notes to Condensed Consolidated Unaudited Financial Statements, Continued



Workers Compensation

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

Revenue Recognition

The Company recognizes revenue when title or risk of loss
passes to the common carrier or customer. This generally occurs when coal is loaded onto trains, barges or trucks at one of our loading facilities or at third party facilities. In most cases, the Company negotiates a specific sales contract with
each customer, which specifies a fixed price per ton, premiums and penalties for quality variances, a delivery schedule, and payment terms. Contracts range in duration from one to three years.

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

Freight Revenue and Costs

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

Income Taxes

The
Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases in accordance with
FASB ASC 740, Accounting for Income Taxes. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends on the
generation of future taxable income during the period in which related temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in
this assessment. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of such change.

Comprehensive Loss

The Companys comprehensive losses as defined by FASB ASC 220, Reporting Comprehensive
Income, are the same as the net losses reported.

Recent Accounting Pronouncements

In April 2009, the FASB issued ASC 320-10-65, Recognition and Presentation of Other-Than-Temporary Impairments. This amends the
other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial
statements. It does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. It is effective for interim and annual periods ending after June 15, 2009. The adoption did not have a
material impact on the Companys consolidated financial position or results of operations.



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National Coal Corp.

Notes to Condensed Consolidated Unaudited Financial Statements, Continued



In April 2009, the FASB issued ASC 820-10-65, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly. It provides additional guidance for estimating fair value in accordance with ASC 820 when the volume and level of activity for the asset or liability have significantly
decreased and includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP does not change the definition of fair value under ASC 820. The FSP is effective for interim and annual periods ending after
June 15, 2009. The adoption did not have a material impact on the Companys consolidated financial position or results of operations.

In May 2009, the FASB issued ASC 855, Subsequent Events. It establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are
available to be issued. It is effective for interim and annual periods ending after June 15, 2009. The adoption did not have a material impact on the Companys consolidated financial position or results of operations.

In June 2009, the FASB issued The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (the Codification).
The Codification became the single official source of authoritative, non-governmental U.S. GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under federal securities laws are also sources of authoritative U.S.
GAAP for SEC registrants. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption did not have a material impact on the Companys consolidated financial
position or results of operations.

3. Discontinued Operations

The Company acquired its Alabama operations in October 2007, financed principally through the issuance of $60 million in 12% Notes due 2012. On June 26, 2009, NCA was obligated to pay to its debt
holders approximately $1.9 million of accrued interest on its 12% Notes due 2012. The date for making the interest payment was extended by the holders of the 12% Notes due 2012 to July 17, 2009, and on July 21, 2009, NCA defaulted on the
12% Notes due 2012 as the interest payment had not been made. On August 3, 2009, the holders of the Companys 12% Notes due 2012 foreclosed on the outstanding capital stock of NCA, the collateral for the 12% Notes due 2012, and acquired
NCA. As a result, NCA is no longer a subsidiary of the Company as of such date. Additionally, the credit agreement provides that upon the acceleration of the entire unpaid balance of the indebtedness, the holders of the 12% Notes due 2012 are
entitled to receive the Make-Whole Amount, which amount is the present value of all future interest payments with respect to the principal amount of the indebtedness under the agreement. The Make-Whole Amount was approximately $19.8
million and was accrued as part of the loss from discontinued operations during the three and nine months ended September 30, 2009. The liability for this amount was included in the balance sheet of NCA when NCA was foreclosed upon. As a result
of the transaction, the Company recognized a gain on discontinued operations of $23.5 million during the three and nine months ended September 30, 2009.



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Unaudited Financial Statements, Continued



The major categories of assets and liabilities associated with the Companys discontinued operations recorded in the balance sheet as of
December 31, 2008 are as follows:



|                                                            |  |                   |           
|----------------------------------------------------------- |  | ----------------- | ----------
|                                                            |  | December 31, 2008
|Assets                                                      |  |                   |           
|Current Assets:                                             |  |                   |           
|Cash and cash equivalents                                   |  | $                 | 716,042   
|Restricted cash                                             |  |                   | 2,771,445 
|Accounts receivable, net                                    |  |                   | 5,263,786 
|Inventory                                                   |  |                   | 732,508   
|Prepaid and other current assets                            |  |                   | 268,096   
|                                                            |  |                   |           
|Total current assets                                        |  |                   | 9,751,877 
|                                                            | 
|Property, plant, equipment and mine development, net        |  |                   | 58,771,938
|Deferred financing costs                                    |  |                   | 3,541,172 
|Restricted cash                                             |  |                   | 8,578,183 
|Other non-current assets                                    |  |                   | 728,733   
|                                                            |  |                   |           
|Total long-term assets                                      |  |                   | 71,620,026
|                                                            |  |                   |           
|Total assets                                                |  | $                 | 81,371,903
|                                                            |  |                   |           
|                                                            | 
|Liabilities                                                 |  |                   |           
|Current Liabilities:                                        |  |                   |           
|Accounts payable                                            |  | $                 | 7,594,786 
|Accrued expenses                                            |  |                   | 1,705,680 
|Current maturities of long-term debt                        |  |                   | 1,280,147 
|Current installments of obligations under capital leases    |  |                   | 57,717    
|Current portion of asset retirement obligations             |  |                   | 114,325   
|Deferred revenue                                            |  |                   | 983,040   
|                                                            |  |                   |           
|Total current liabilities                                   |  |                   | 11,735,695
|                                                            | 
|Long - term debt, less current maturities, net of discount  |  |                   | 61,607,254
|Obligations under capital leases, less current installments |  |                   | 104,911   
|Asset retirement obligations, less current portion          |  |                   | 3,386,371 
|Deferred tax liability                                      |  |                   | 2,393,527 
|                                                            |  |                   |           
|Total long-term liabilities                                 |  |                   | 67,492,063
|                                                            |  |                   |           
|Total liabilities                                           |  | $                 | 79,227,758
|                                                            |  |                   |           



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Unaudited Financial Statements, Continued



Revenues and net losses attributable to discontinued operations for the three and nine months ended September 30, 2009 and 2008 are as follows:



|                                                                                      |  |                                         |             |   |                                        |   |            |      |  |   |             |   |  |   |            |  
|------------------------------------------------------------------------------------- |  | --------------------------------------- | ----------- | - | -------------------------------------- | - | ---------- | ---- |  | - | ----------- | - |  | - | ---------- | -
|                                                                                      |  | For the Three Months EndedSeptember 30, |             |   | For the Nine Months EndedSeptember 30, |  
|                                                                                      |  | 2009                                    |             |   | 2008                                   |   |            | 2009 |  |   | 2008        |  
|Revenues:                                                                             |  |                                         |             |   |                                        |   |            |      |  |   |             |   |  |   |            |  
|Coal sales                                                                            |  | $                                       | 3,711,748   |   |                                        | $ | 14,904,298 |      |  | $ | 31,308,684  |   |  | $ | 49,279,887 |  
|Other revenues                                                                        |  |                                         | 35,501      |   |                                        |   |           |      |  |   | 182,310     |   |  |   | 36,194     |  
|                                                                                      |  |                                         |             |   |                                        |   |            |      |  |   |             |   |  |   |            |  
|Total revenues of discontinued operations                                             |  |                                         | 3,747,249   |   |                                        |   | 14,904,298 |      |  |   | 31,490,994  |   |  |   | 49,316,081 |  
|                                                                                      |  |                                         |             |   |                                        |   |            |      |  |   |             |   |  |   |            |  
|                                                                                      |  |                                         |             |  
|Operating expenses:                                                                   |  |                                         |             |   |                                        |   |            |      |  |   |             |   |  |   |            |  
|Cost of coal sales (exclusive of depreciation, depletion, amortization and accretion) |  |                                         | 3,142,701   |   |                                        |   | 13,749,202 |      |  |   | 26,552,576  |   |  |   | 45,093,000 |  
|Depreciation, depletion, amortization and accretion                                   |  |                                         | 714,683     |   |                                        |   | 2,136,756  |      |  |   | 4,539,236   |   |  |   | 4,632,496  |  
|General and administrative                                                            |  |                                         | 149,661     |   |                                        |   | 211,853    |      |  |   | 1,327,193   |   |  |   | 920,773    |  
|                                                                                      |  |                                         |             |   |                                        |   |            |      |  |   |             |   |  |   |            |  
|Total operating expenses of discontinued operations                                   |  |                                         | 4,007,045   |   |                                        |   | 16,097,811 |      |  |   | 32,419,005  |   |  |   | 50,646,269 |  
|                                                                                      |  |                                         |             |   |                                        |   |            |      |  |   |             |   |  |   |            |  
|Loss from operations from discontinued operations                                     |  |                                         | (259,796    | ) |                                        |   | (1,193,513 | )    |  |   | (928,011    | ) |  |   | (1,330,188 | )
|                                                                                      |  |                                         |             |   |                                        |   |            |      |  |   |             |   |  |   |            |  
|                                                                                      |  |                                         |             |  
|Other income (expense):                                                               |  |                                         |             |   |                                        |   |            |      |  |   |             |   |  |   |            |  
|Interest expense                                                                      |  |                                         | (20,800,209 | ) |                                        |   | (3,083,731 | )    |  |   | (26,316,924 | ) |  |   | (8,129,852 | )
|Interest income                                                                       |  |                                         | 521         |   |                                        |   | 62,321     |      |  |   | 26,337      |   |  |   | 214,814    |  
|Income from joint venture                                                             |  |                                         | 22,408      |   |                                        |   | 108,594    |      |  |   | 173,007     |   |  |   | 333,723    |  
|Other                                                                                 |  |                                         |            |   |                                        |   | 14,766     |      |  |   | (51,381     | ) |  |   | 113,768    |  
|                                                                                      |  |                                         |             |   |                                        |   |            |      |  |   |             |   |  |   |            |  
|Other income (expense), net from discontinued operations                              |  |                                         | (20,777,280 | ) |                                        |   | (2,898,050 | )    |  |   | (26,168,961 | ) |  |   | (7,467,547 | )
|                                                                                      |  |                                         |             |   |                                        |   |            |      |  |   |             |   |  |   |            |  
|Loss from discontinued operations before income taxes                                 |  |                                         | (21,037,076 | ) |                                        |   | (4,091,563 | )    |  |   | (27,096,972 | ) |  |   | (8,797,735 | )
|Income tax benefit                                                                    |  |                                         | 1,369,388   |   |                                        |   | 250,251    |      |  |   | 2,071,386   |   |  |   | 644,418    |  
|                                                                                      |  |                                         |             |   |                                        |   |            |      |  |   |             |   |  |   |            |  
|Loss from discontinued operations, net of taxes                                       |  |                                         | (19,667,688 | ) |                                        | $ | (3,841,312 | )    |  |   | (25,025,586 | ) |  | $ | (8,153,317 | )
|Gain on disposal of discontinued operations, net of taxes of $0                       |  |                                         | 23,540,429  |   |                                        |   |           |      |  |   | 23,540,429  |   |  |   |           |  
|                                                                                      |  |                                         |             |   |                                        |   |            |      |  |   |             |   |  |   |            |  
|Income (loss) from discontinued operations, net of taxes                              |  | $                                       | 3,872,741   |   |                                        | $ | (3,841,312 | )    |  | $ | (1,485,157  | ) |  | $ | (8,153,317 | )
|                                                                                      |  |                                         |             |   |                                        |   |            |      |  |   |             |   |  |   |            |  

Interest expense during the three and nine months ended September 30, 2009 includes the
Make-Whole Amount of approximately $19.8 million.



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Unaudited Financial Statements, Continued



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

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



|                                                           |  |                   |             |   |                  |   |             |  
|---------------------------------------------------------- |  | ----------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                           |  | September 30,2009 |             |   | December 31,2008 |  
|Mining equipment and vehicles                              |  | $                 | 57,130,878  |   |                  | $ | 51,020,642  |  
|Land and buildings                                         |  |                   | 5,057,455   |   |                  |   | 5,071,544   |  
|Furniture and office equipment                             |  |                   | 318,386     |   |                  |   | 303,577     |  
|Mineral rights                                             |  |                   | 11,125,319  |   |                  |   | 11,125,319  |  
|Mine development                                           |  |                   | 8,400,952   |   |                  |   | 7,299,798   |  
|Construction in progress                                   |  |                   | 870,556     |   |                  |   | 3,484,666   |  
|                                                           |  |                   |             |   |                  |   |             |  
|                                                           |  |                   | 82,903,546  |   |                  |   | 78,305,546  |  
|                                                           |  |                  
|Less accumulated depreciation, depletion and amortization  |  |                   | (40,513,591 | ) |                  |   | (34,630,788 | )
|                                                           |  |                   |             |   |                  |   |             |  
|Total property, plant, equipment and mine development, net |  | $                 | 42,389,955  |   |                  | $ | 43,674,758  |  
|                                                           |  |                   |             |   |                  |   |             |  

5. Other Non-Current Assets

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



|                                    |  |                   |           |                  |   |          
|----------------------------------- |  | ----------------- | --------- | ---------------- | - | ---------
|                                    |  | September 30,2009 |           | December 31,2008
|Prepaid mining royalties            |  | $                 | 446,006   |                  | $ | 381,506  
|Long-term portion of prepaid assets |  |                   | 194,856   |                  |   | 332,147  
|Deposits                            |  |                   | 568,385   |                  |   | 589,248  
|Franchise tax receivable            |  |                   | 260,000   |                  |   | 260,000  
|                                    |  |                   |           |                  |   |          
|Total other non-current assets      |  | $                 | 1,469,247 |                  | $ | 1,562,901
|                                    |  |                   |           |                  |   |          

6. Accrued Expenses

Accrued expenses from continuing operations consist of the following:



|                                       |  |                   |           |                  |   |        
|-------------------------------------- |  | ----------------- | --------- | ---------------- | - | -------
|                                       |  | September 30,2009 |           | December 31,2008
|Legal settlement reserve               |  | $                 |          |                  | $ | 250,000
|Accrued expenses                       |  |                   | 659,519   |                  |   | 210,865
|Accrued payroll and related taxes      |  |                   | 380,607   |                  |   | 154,766
|Accrued interest                       |  |                   | 1,298,500 |                  |   | 183,750
|Accrued federal, state and local taxes |  |                   | 315,658   |                  |   | 81,251 
|                                       |  |                   |           |                  |   |        
|Total accrued expenses                 |  | $                 | 2,654,284 |                  | $ | 880,632
|                                       |  |                   |           |                  |   |        

In January 2009, the Company settled a legal case for $250,000.



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National Coal Corp.

Notes to Condensed Consolidated Unaudited Financial Statements, Continued



7. Debt and Financing Arrangements

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



|                                                     |  |                   |            |   |                  |   |            |  
|---------------------------------------------------- |  | ----------------- | ---------- | - | ---------------- | - | ---------- | -
|                                                     |  | September 30,2009 |            |   | December 31,2008 |  
|10.5% Senior Secured Notes, due 2010                 |  | $                 | 42,000,000 |   |                  | $ | 42,000,000 |  
|Equipment loans and installment purchase obligations |  |                   | 1,620,308  |   |                  |   | 3,137,897  |  
|Insurance premium financing                          |  |                   | 390,545    |   |                  |   | 477,749    |  
|                                                     |  |                   |            |   |                  |   |            |  
|                                                     |  |                   | 44,010,853 |   |                  |   | 45,615,646 |  
|                                                     |  |                  
|Unamortized discounts                                |  |                   | (886,486   | ) |                  |   | (1,386,810 | )
|                                                     |  |                  
|Current portion of long-term debt                    |  |                   | (1,586,361 | ) |                  |   | (2,336,191 | )
|                                                     |  |                   |            |   |                  |   |            |  
|Total long-term debt                                 |  | $                 | 41,538,006 |   |                  | $ | 41,892,645 |  
|                                                     |  |                   |            |   |                  |   |            |  

Short Term Line of Credit

On April 9, 2009 the Company entered into a Revolving Credit Agreement with Next View Partners, LLC (Next View), as administrative agent and
collateral agent for certain lenders. This credit facility provides for borrowings of up to $10 million, and is permitted indebtedness under the indenture for the Companys 10.5% Notes due 2010. The agreement allows the Company the right to
borrow up to an aggregate of $5 million on or before June 30, 2009 and an aggregate of $10 million after June 30, 2009. All amounts under the revolving loans become due and payable on December 15, 2009, unless the Company obtains the
consent of two-thirds of the outstanding principal amount of the Companys 10.5% Notes due 2010 to extend the maturity date until April 9, 2010. The Company is in discussions to extend the maturity date of the revolving credit facility
with the single holders of two-thirds of the principal amount of the 10.5% Notes due 2010. Interest under this facility is payable at an annual rate of 13% for amounts outstanding up to $5,000,000 and 15% for amounts outstanding in excess of
$5,000,000. Interest is payable monthly in arrears. The Companys obligations under this credit facility are secured by a lien on substantially all the assets of National Coal Corp. and its subsidiaries that own and operate our Tennessee mining
operations. The credit facility contains several performance covenants, including minimum production and shipment amounts of coal and limitations on additional indebtedness. The facility includes customary default provisions, and all outstanding
obligations may become immediately due and payable in the event of the Companys default. As of September 30, 2009, the Company was in compliance with all relevant debt covenants. As of the date of this filing, the Company has borrowed
$5.0 million and repaid $1.5 million in principal against this line of credit. The outstanding balance at September 30, 2009 was $4.0 million and an additional $0.5 million in principal was paid on October 7, 2009.



16



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Unaudited Financial Statements, Continued



8. Asset Retirement Obligations

Asset
retirement obligation activity for continuing operations for the nine months ending September 30, 2009 follows:



|                                          |  |   |           |  
|----------------------------------------- |  | - | --------- | -
|Obligation at December 31, 2008           |  | $ | 3,909,002 |  
|Accretion expense                         |  |   | 364,894   |  
|Obligations incurred                      |  |   |          |  
|Obligations settled                       |  |   | (41,469   | )
|                                          |  |   |           |  
|Obligation at September 30, 2009          |  |   | 4,232,427 |  
|Current portion                           |  |   | (145,282  | )
|                                          |  |   |           |  
|Long-term liability at September 30, 2009 |  | $ | 4,087,145 |  
|                                          |  |   |           |  

9. StockBased Compensation Plan

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, 2009, 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. Options granted during the three months ended September 30, 2009 to purchase 451,138
shares in exchange for a one year salary reduction by certain officers, employees, and directors vest over a one year period.

During the
three months ended September 30, 2009 and 2008, the Company recognized $421,661 and $535,353, respectively, in stock-based compensation expense, respectively. During the nine months ended September 30, 2009 and 2008, the Company recognized
$1,126,961 and $980,654, respectively, in stock-based compensation expense, respectively.

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



|                         |  |                                 |   |                                |      |  |       |   |  |       |  
|------------------------ |  | ------------------------------- | - | ------------------------------ | ---- |  | ----- | - |  | ----- | -
|                         |  | Three Months EndedSeptember 30, |   | Nine Months EndedSeptember 30, |     
|                         |  | 2009                            |   |                                | 2008 |  | 2009  |   |  | 2008  |  
|Expected term (years)    |  | 6.00                            |   |                                | *    |  | 6.00  |   |  | 6.25  |  
|Risk-free interest rates |  | 2.69                            | % |                                | *    |  | 2.54  | % |  | 3.37  | %
|Expected dividend yield  |  | 0.0                             | % |                                | *    |  | 0.0   | % |  | 0.0   | %
|Expected volatility      |  | 94.74                           | % |                                | *    |  | 93.29 | % |  | 65.57 | %



|* | The Company did not grant options 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 assuming a ten-year original contract term and graded vesting over four years (one year for options granted during the three months
ended September 30, 2009). The weighted-average grant-date fair value of options issued during the three months ended September 30, 2009 was $0.75. The weighted-average grant-date fair value of options issued during the nine months ended
September 30, 2009 and 2008 were $0.79 and $3.79, respectively. The total intrinsic value of options exercised during the nine months ended September 30, 2008 was approximately $555,398. There were no options exercised during the nine
months ended September 30, 2009.



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Unaudited Financial Statements, Continued



Stock option activity for the nine months ended September 30, 2009 follows:



|                                                 |  |                    |   |  |                               |      |                                                   |      |                                |   |        
|------------------------------------------------ |  | ------------------ | - |  | ----------------------------- | ---- | ------------------------------------------------- | ---- | ------------------------------ | - | -------
|                                                 |  | OptionsOutstanding |   |  | WeightedAverageExercise Price |      | WeightedAverageRemainingContractualTerm(in years) |      | AggregateIntrinsic Value($000)
|Outstanding at December 31, 2008                 |  | 1,755,875          |   |  | $                             | 6.24 |                                                   | 6.24 |                                | $ |       
|Granted                                          |  | 125,000            |   |  |                               | 0.94 |                                                   |      |                                |   |        
|Exercised                                        |  |                   |   |  |                               |     |                                                   |      |                                |   |        
|Forfeited                                        |  |                   |   |  |                               |     |                                                   |      |                                |   |        
|Expirations                                      |  | (18,750            | ) |  |                               | 4.72 |                                                   |      |                                |   |        
|                                                 |  |                    |   |  |                               |      |                                                   |      |                                |   |        
|Outstanding at March 31, 2009                    |  | 1,862,125          |   |  | $                             | 5.90 |                                                   | 7.55 |                                | $ | 52,250 
|Granted                                          |  | 55,000             |   |  |                               | 1.80 |                                                   |      |                                |   |        
|Exercised                                        |  |                   |   |  |                               |     |                                                   |      |                                |   |        
|Forfeited                                        |  | (33,750            | ) |  |                               | 4.54 |                                                   |      |                                |   |        
|Expirations                                      |  |                   |   |  |                               |     |                                                   |      |                                |   |        
|                                                 |  |                    |   |  |                               |      |                                                   |      |                                |   |        
|Outstanding at June 30, 2009                     |  | 1,883,375          |   |  | $                             | 5.80 |                                                   | 7.34 |                                | $ | 31,000 
|                                                 |  |                    |   |  |                               |      |                                                   |      |                                |   |        
|Granted                                          |  | 451,138            |   |  |                               | 0.97 |                                                   |      |                                |   |        
|Exercised                                        |  |                   |   |  |                               |     |                                                   |      |                                |   |        
|Forfeited                                        |  | (125,000           | ) |  |                               | 3.28 |                                                   |      |                                |   |        
|Expirations                                      |  | (63,125            | ) |  |                               | 1.56 |                                                   |      |                                |   |        
|                                                 |  |                    |   |  |                               |      |                                                   |      |                                |   |        
|Balance at September 30, 2009                    |  | 2,146,388          |   |  | $                             | 4.95 |                                                   | 7.71 |                                | $ | 137,699
|                                                 |  |                    |   |  |                               |      |                                                   |      |                                |   |        
|Vested or expected to vest at September 30, 2009 |  | 3,306,580          |   |  | $                             | 4.20 |                                                   |      |                                |   |        
|Exercisable                                      |  | 1,022,625          |   |  | $                             | 6.75 |                                                   |      |                                |   |        

As of September 30, 2009, there was $1,079,422 of total unrecognized compensation cost related
to non-vested stock options granted under the Plan. The total fair value of shares vested during the nine months ended September 30, 2009 and 2008, was $1,418,724, and $2,428,162, respectively.

The Company from time to time issues restricted stock awards to key employees and directors. During the three months ended September 30, 2009 and 2008,
the Company granted zero restricted shares, and recognized $104,583 and $37,497, respectively, in stock-based compensation expense. During the nine months ended September 30, 2009 and 2008, the Company granted 170,450 and 15,000 restricted
shares, respectively, and recognized $340,493 and $37,497, respectively, in stock-based compensation expense.

10. Equity

During May 2009, the holder of (i) a common stock purchase warrant dated March 10, 2005 to purchase 159,342 shares of the Companys common
stock at a current exercise price of $3.00 per share and (ii) 2,000 warrants dated December 29, 2005 to purchase 63,005 shares of the Companys common stock at a current exercise price of $8.50 per share exchanged their respective
warrants for 24,615 shares of the Companys common stock.



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Unaudited Financial Statements, Continued



11. Earnings (Loss) Per Share

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

For the three months ended September 30, 2009
and 2008, 320,184 and 2,484,275, 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, 2009 and 2008, 134,108 and 2,466,311, respectively, potentially dilutive shares of the Company from warrants, convertible preferred stock and stock options were not included in the
computation of diluted loss per share because to do so would be anti-dilutive.

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



|                                                                  |  |                                 |            |   |                                |   |            |      |  |   |             |   |  |   |             |  
|----------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ------------------------------ | - | ---------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                                                  |  | Three months endedSeptember 30, |            |   | Nine months endedSeptember 30, |  
|                                                                  |  | 2009                            |            |   | 2008                           |   |            | 2009 |  |   | 2008        |  
|Numerator:                                                        |  |                                 |            |   |                                |   |            |      |  |   |             |  
|Net loss from continuing operations                               |  | $                               | (4,536,691 | ) |                                | $ | (4,548,561 | )    |  | $ | (13,414,779 | ) |  | $ | (19,409,666 | )
|Preferred dividends                                               |  |                                 |           |   |                                |   | (40,328    | )    |  |   |            |   |  |   | (120,106    | )
|                                                                  |  |                                 |            |   |                                |   |            |      |  |   |             |   |  |   |             |  
|Numerator for basic and diluted from continuing operations        |  | $                               | (4,536,691 | ) |                                | $ | (4,588,889 | )    |  | $ | (13,414,779 | ) |  | $ | (19,529,772 | )
|                                                                  |  |                                 |            |   |                                |   |            |      |  |   |             |   |  |   |             |  
|                                                                  |  |                                 |           
|Denominator:                                                      |  |                                 |            |   |                                |   |            |      |  |   |             |  
|                                                                  |  |                                 |            |  
|Weighted average shares - basic                                   |  |                                 | 34,009,439 |   |                                |   | 33,139,355 |      |  |   | 33,987,742  |   |  |   | 30,688,851  |  
|                                                                  |  |                                 |            |   |                                |   |            |      |  |   |             |   |  |   |             |  
|                                                                  |  |                                 |            |  
|Net loss per share from continuing operations - basic and diluted |  | $                               | (0.13      | ) |                                | $ | (0.14      | )    |  | $ | (0.40       | ) |  | $ | (0.64       | )
|                                                                  |  |                                 |            |   |                                |   |            |      |  |   |             |   |  |   |             |  

12. Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments at September 30, 2009
and December 31, 2008:

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



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##### Table of Contents

National Coal Corp.

Notes to Condensed Consolidated Unaudited Financial Statements, Continued



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

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



|                          |  |                    |            |                   |   |                |  |           |            |  |   |           
|------------------------- |  | ------------------ | ---------- | ----------------- | - | -------------- |  | --------- | ---------- |  | - | ----------
|                          |  | September 30, 2009 |            | December 31, 2008
|                          |  | CarryingAmount     |            | FairValue         |   | CarryingAmount |  | FairValue
|Financial Assets:         |  |                    |            |                   |   |                |  |           |            |  |   |           
|Cash and cash equivalents |  | $                  | 4,060,409  |                   | $ | 4,060,409      |  | $         | 3,908,469  |  | $ | 3,908,469 
|Accounts receivable       |  |                    | 1,227,488  |                   |   | 1,227,488      |  |           | 474,351    |  |   | 474,351   
|Restricted cash           |  |                    | 8,918,251  |                   |   | 8,918,251      |  |           | 11,338,137 |  |   | 11,338,137
|                          |  |                    |            |                  
|Financial liabilities:    |  |                    |            |                   |   |                |  |           |            |  |   |           
|Debt                      |  |                    | 47,124,367 |                   |   | 39,564,367     |  |           | 44,228,836 |  |   | 35,828,836

13. Commitments and Contingencies

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

On January 9, 2009, the Companys independent railroad operator experienced a train derailment on the Companys short-line railroad. As a result of the derailment, the Company lost
approximately 750 tons of coal, or revenues of approximately $50,000, and seven third-party rail cars were destroyed, with an estimated value of approximately $680,000. The Companys independent railroad operator incurred $290,000 in clean up
costs. However, the Company suffered no disruption of service. While the Company and its insurance carrier continue to investigate this matter, the Company believes it is not liable with respect to this incident and, accordingly, has not accrued any
corresponding obligation as of September 30, 2009.



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##### Table of Contents

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

Forward Looking Statements or Information

The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2008 and presumes that readers have access to, and will have read, the
Managements Discussion and Analysis of Financial Condition and Results of Operations and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our condensed
consolidated financial statements and the notes to the condensed consolidated financial statements included elsewhere in this Form 10-Q.

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

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



| |  |  | general deteriorating US and worldwide economic conditions;
| | - |  | -----------------------------------------------------------



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



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



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



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



| |  |  | disruption of rail, truck or barge transportation systems that transport our coal;
| | - |  | ----------------------------------------------------------------------------------



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



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



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



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



21



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##### Table of Contents

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



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



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



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



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



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



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



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



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



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



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

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

Corporate Overview

National Coal Corp
consists primarily of two wholly-owned subsidiaries: (i) National Coal Corporation and (ii) NCC Corp. and, until August 3, 2009, its wholly-owned subsidiary National Coal of Alabama, Inc., or NCA. We principally engage in the business
of mining high quality bituminous steam coal in East Tennessee and, until August 3, 2009 and March 31, 2008, North Alabama and Southeast Kentucky, respectively. Our customers are electric utilities and industrial concerns in the
Southeastern United States.

In Tennessee, we own the coal mineral rights to approximately 65,000 acres of land and lease the rights to
approximately 14,000 additional acres. As of September 30, 2009, our mining complexes included two active and three inactive underground mines, one inactive and two active surface mines, and one inactive highwall mine. In addition, we have two
preparation plants and two unit train loading facilities in Tennessee served by the Norfolk Southern (NS) railroad. We hold seven permits that allow us to open new or re-open existing mines in Tennessee close to current operations. As of
September 30, 2009, we controlled approximately 33.4 million estimated recoverable tons of coal reserves in Tennessee as defined by the SEC Industry Guide 7 as that part of a mineral deposit which could be economically and legally
extracted at the time of the reserve determination. At September 30, 2009, we had cash and cash equivalents of approximately $4.1 million and negative working capital of approximately $11.6 million. Cash flows provided by (used in) continuing
operations were $2.9 million and $(6.2) million for the nine months ended September 30, 2009 and 2008, respectively.



22



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##### Table of Contents

On August 3, 2009, the holders of the 12% Notes due 2012 foreclosed on the outstanding capital stock of
NCA, the collateral for the 12% Notes due 2012, and acquired NCA. NCA is no longer a subsidiary of ours as of such date. We acquired our Alabama operations in October 2007, financed principally through the issuance of $60 million in 12% Notes due
2012. On June 26, 2009, NCA was obligated to pay to its debt holders approximately $1.9 million of accrued interest on its 12% Notes due 2012. The date for making the interest payment was extended by the holders of the 12% Notes due 2012 to
July 17, 2009, and on July 21, 2009, NCA defaulted on the 12% Notes due 2012 as the interest payment had not been made. Additionally, the credit agreement provides that upon the acceleration of the entire unpaid balance of the
indebtedness, the holders of the 12% Notes due 2012 are entitled to receive the Make-Whole Amount, which amount is the present value of all future interest payments with respect to the principal amount of the indebtedness under the agreement. The
Make-Whole Amount was approximately $19.8 million and was accrued as part of the loss from discontinued operations during the three and nine months ended September 30, 2009. The liability for this amount was included in the balance sheet of NCA
when NCA was foreclosed upon. As a result of the transaction, we recorded a gain on disposal of discontinued operations for the three and nine months ended September 30, 2009 of approximately $23.5 million. Upon the foreclosure, our remaining
operations are all located in Tennessee. No creditor of NCC Corp. or NCA, including the holders of the 12% Notes due 2012, has any recourse to National Coal Corp. or its other subsidiaries for any liabilities of NCC Corp. or NCA, including
liabilities arising under the credit agreement.

On April 9, 2009 we entered into a Revolving Credit Agreement with Next View Partners,
LLC (Next View), as administrative agent and collateral agent for certain lenders. This credit facility provides for borrowings of up to $10 million, and is permitted indebtedness under the indenture for our 10.5% Notes due 2010. The
agreement allowed us the right to borrow up to an aggregate of $5 million on or before June 30, 2009 and an aggregate of $10 million after June 30, 2009. All amounts under the revolving loans become due and payable on December 15,
2009, unless we obtain the consent of holders of two-thirds of the outstanding principal amount of our 10.5% Notes due 2010 to extend the maturity date until April 9, 2010. We are in discussions to extend the maturity date of the revolving
credit facility with the single holder of two-thirds of the principal amount of the 10.5% Notes due 2010. . Interest under this facility is payable at an annual rate of 13% for amounts outstanding up to $5,000,000 and 15% for amounts outstanding in
excess of $5,000,000. Interest is payable monthly in arrears. Our obligations under this credit facility are secured by a lien on substantially all the assets of National Coal Corp. and its subsidiaries that own and operate its Tennessee mining
operations. The credit facility contains several performance covenants, including minimum production and shipment amounts of coal and limitations on additional indebtedness. The facility includes customary default provisions, and all outstanding
obligations may become immediately due and payable in the event of our default. As of September 30, 2009, we were in compliance with all relevant debt covenants. As of the date of this filing, we have borrowed $5.0 million and repaid $1.5
million in principal against this line of credit. The outstanding balance at September 30, 2009 was $4.0 million and an additional $0.5 million in principal was paid on October 7, 2009.

We believe that we have sufficient resources to fund our Tennessee operations throughout the remainder of 2009. However, this belief is predicated on
certain assumptions as to: (i) sales volumes, related pricing and customers continuing to take deliveries of our coal as contracted; (ii) production levels; (iii) the availability of coal to be purchased at a reasonable price;
(iv) budgeted capital expenditures; (v) cost per ton level decreases at existing mines and newly opened mines (vi) no rail service disruption; and (vii) the ability to extend our short term line of credit beyond maturity.
Significant deviation from any one of these assumptions could have a material adverse effect on our operating cash flows.



23



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##### Table of Contents

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

During the nine months ended September 30, 2009, our continuing operations generated total revenues of
$64.7 million and sold approximately 0.9 million tons of coal. Revenues are derived primarily from the sale of coal to electric utility companies in the Southeastern United States pursuant to long-term contracts or open purchase order
arrangements with long-time customers. Georgia Power Company represented approximately 97% of coal revenues from continuing operations for the nine months ended September 30, 2009.

We typically sell our coal for a specified per ton amount and at a negotiated price pursuant to both short-term contracts and contracts of twelve months or greater. The weighted average selling price per
ton in Tennessee is $74.38, $79.56, and $76.47 on 0.3 million, 0.9 million, and 0.9 million tons contracted for the remainder of 2009, and fiscal years 2010 and 2011, respectively. Price adjustment, price reopener and
other similar provisions in long-term supply agreements may reduce the protection from short-term coal price volatility traditionally provided by such contracts. Any adjustment or renegotiation leading to a significantly lower contract price would
result in decreased revenues and lower gross margins, which could have a material adverse effect on the Companys operating cash flows. Additionally, our customers may have the ability to delay the timing of their purchases, which could
negatively impact operating cash flows. Finally, coal supply agreements also typically contain force majeure provisions allowing temporary suspension of performance by us or our customers during the duration of specified events beyond the control of
the affected party.

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

We invested approximately $5.5 million in equipment and mine development in our Tennessee operations during the nine months ended September 30, 2009.
During the remainder of 2009, management expects to incur approximately $0.6 million to maintain existing assets in Tennessee. In prior years, we experienced the unanticipated loss of the use of key equipment, which resulted in lost production and
lost revenues. We may experience similar mechanical failures in the future, which could have a material adverse effect on our operating cash flows.



24



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##### Table of Contents

On January 9, 2009, our independent railroad operator experienced a train derailment on our short-line
railroad. As a result of the derailment, we lost approximately 750 tons of coal, or revenues of approximately $50,000, and seven third-party rail cars were destroyed, with an estimated value of approximately $680,000. Our independent railroad
operator incurred $290,000 in clean up costs. However, we suffered no disruption of service. While we and our insurance carrier continue to investigate this matter, we do not believe we are liable with respect to this incident and, accordingly, have
not accrued any corresponding obligation as of September 30, 2009.

Results of Operations

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



|                                                       |  |                    |   |  |                   |   |  |       |   |  |       |  
|------------------------------------------------------ |  | ------------------ | - |  | ----------------- | - |  | ----- | - |  | ----- | -
|                                                       |  | Three Months Ended |   |  | Nine Months Ended |  
|(in percentages)                                       |  | September 30,      |   |  | September 30,     |  
|                                                       |  | 2009               |   |  | 2008              |   |  | 2009  |   |  | 2008  |  
|Revenues                                               |  | 100.0              |   |  | 100.0             |   |  | 100.0 |   |  | 100.0 |  
|Operating expenses:                                    |  |                    |   |  |                   |   |  |       |   |  |       |  
|Cost of sales                                          |  | 90.5               |   |  | 88.6              |   |  | 90.1  |   |  | 94.8  |  
|Cost of services                                       |  | 2.7                |   |  | 4.5               |   |  | 3.6   |   |  | 3.9   |  
|Depreciation, depletion, amortization and accretion    |  | 10.8               |   |  | 11.5              |   |  | 11.6  |   |  | 13.7  |  
|General and administrative                             |  | 8.3                |   |  | 12.3              |   |  | 8.1   |   |  | 12.0  |  
|                                                       |  |                    |   |  |                   |   |  |       |   |  |       |  
|Total operating expenses                               |  | 112.3              |   |  | 116.9             |   |  | 113.4 |   |  | 124.4 |  
|                                                       |  |                    |   |  |                   |   |  |       |   |  |       |  
|Loss from operations                                   |  | (12.3              | ) |  | (16.9             | ) |  | (13.4 | ) |  | (24.4 | )
|Other income (expense):                                |  |                    |   |  |                   |   |  |       |   |  |       |  
|Interest expense                                       |  | (8.6               | ) |  | (8.7              | ) |  | (7.8  | ) |  | (10.9 | )
|Interest income                                        |  | 0.2                |   |  | 1.0               |   |  | 0.3   |   |  | 1.1   |  
|Other income (expense), net                            |  | 0.2                |   |  | (0.1              | ) |  | 0.1   |   |  | (3.6  | )
|                                                       |  |                    |   |  |                   |   |  |       |   |  |       |  
|Loss from continuing operations before income taxes    |  | (20.5              | ) |  | (24.5             | ) |  | (20.7 | ) |  | (37.7 | )
|Income tax benefit                                     |  |                   |   |  |                  |   |  |      |   |  |      |  
|                                                       |  |                    |   |  |                   |   |  |       |   |  |       |  
|Net loss from continuing operations, net of tax        |  | (20.5              | ) |  | (24.5             | ) |  | (20.7 | ) |  | (37.7 | )
|                                                       |  |                    |   |  |                   |   |  |       |   |  |       |  
|Income (loss) from discontinued operations, net of tax |  | 17.5               |   |  | (20.7             | ) |  | (2.3  | ) |  | (15.9 | )
|                                                       |  |                    |   |  |                   |   |  |       |   |  |       |  
|Net income (loss)                                      |  | (3.0               | ) |  | (45.2             | ) |  | (23.0 | ) |  | (53.6 | )
|                                                       |  |                    |   |  |                   |   |  |       |   |  |       |  



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##### Table of Contents

Comparison of Three Months Ended September 30, 2009 and Three Months Ended September 30, 2008

Production

During the three months ended September 30, 2009 and 2008, our Tennessee mines produced 201,121 and 264,947 tons of coal, respectively, as follows:



|                     |  |                                 |  |       |  |         |  |      
|-------------------- |  | ------------------------------- |  | ----- |  | ------- |  | -----
|                     |  | Three Months EndedSeptember 30,
|                     |  | 2009                            |  | 2008 
|                     |  | Tons                            |  | %     |  | Tons    |  | %    
|Production:          |  |                                 |  |       |  |         |  |      
|Surface mines        |  | 100,496                         |  | 34.9  |  | 114,176 |  | 41.8 
|Highwall mines       |  | 20,280                          |  | 7.0   |  | 46,085  |  | 16.8 
|Underground mines    |  | 80,345                          |  | 27.9  |  | 104,686 |  | 38.3 
|                     |  |                                 |  |       |  |         |  |      
|Total tons produced  |  | 201,121                         |  | 69.8  |  | 264,947 |  | 96.9 
|Purchased coal       |  | 87,137                          |  | 30.2  |  | 8,593   |  | 3.1  
|                     |  |                                 |  |       |  |         |  |      
|Total tons available |  | 288,258                         |  | 100.0 |  | 273,540 |  | 100.0
|                     |  |                                 |  |       |  |         |  |      

Our discontinued operations, which are not included in the figures above, produced 46,741 tons and
221,895 tons during the three months ended September 30, 2009 and 2008, respectively.

We purchased more coal during the three months
ended September 30, 2009 as compared to the same period 2008 because coal from small producers became available at much lower prices than was previously available. Being able to purchase coal at reasonable prices also allowed us to idle a
higher cost underground mine earlier in the year and concentrate production in more productive, lower cost mines.

Revenue

During the three months ended September 30, 2009, we generated all of our coal sales revenue from electric
utilities under contracts of twelve months or greater.

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



|                           |  |                                 |            |                     |   |            |  |           |   |  |       |  
|-------------------------- |  | ------------------------------- | ---------- | ------------------- | - | ---------- |  | --------- | - |  | ----- | -
|                           |  | Three Months EndedSeptember 30, |            | Increase/(decrease) |  
|                           |  | 2009                            |            | 2008                |   | $          |  |           | % | 
|Coal sales                 |  | $                               | 21,483,618 |                     | $ | 17,604,657 |  | 3,878,961 |   |  | 22.0  |  
|Tons sold                  |  |                                 | 286,447    |                     |   | 270,515    |  | 15,932    |   |  | 5.9   |  
|Average price per ton sold |  | $                               | 75.00      |                     | $ | 65.08      |  | 9.92      |   |  | 15.2  |  
|                           |  |                                 |            |                    
|Other revenues             |  | $                               | 637,181    |                     | $ | 976,683    |  | (339,502  | ) |  | (34.8 | )

The 22.0% increase in revenue from coal sales for the three months ended September 30, 2009 as
compared to the same period in 2008 was primarily the result of the average selling price for coal sold from our Tennessee operations increasing 15.2% from $65.08 per ton sold during the 2008 period to $75.00 per ton sold during the 2009 period,
while tons sold also increasing 5.9% from 270,515 tons in 2008 to 286,447 tons in 2009. 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 in our Tennessee operations.

The decrease in other revenues of $0.3 million is primarily due to fluctuations in
production volume relating to revenue from a contract mining services agreement between Xinergy Corp. and National Coal Corporation to mine coal from a highwall mine previously sold to Xinergy Corp. as part of the Straight Creek sale on
March 31, 2008.



26



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##### Table of Contents

Cost of Sales



|                          |  |                                 |            |                     |   |            |  |           |   |  |       |  
|------------------------- |  | ------------------------------- | ---------- | ------------------- | - | ---------- |  | --------- | - |  | ----- | -
|                          |  | Three Months EndedSeptember 30, |            | Increase/(decrease) |  
|                          |  | 2009                            |            | 2008                |   | $          |  |           | % | 
|Cost of sales             |  | $                               | 20,028,882 |                     | $ | 16,457,270 |  | 3,571,612 |   |  | 21.7  |  
|Tons sold                 |  |                                 | 286,447    |                     |   | 270,515    |  | 15,932    |   |  | 5.9   |  
|Average cost per ton sold |  | $                               | 69.92      |                     | $ | 60.84      |  | 9.08      |   |  | 14.9  |  
|                          |  |                                 |            |                    
|Cost of services          |  | $                               | 608,274    |                     | $ | 840,599    |  | (232,325  | ) |  | (27.6 | )

Total cost of sales increased 21.7% during the three months ended September 30, 2009 as compared
to the same three month period in 2008 primarily as a result of our Tennessee mines selling 286,447 tons during the three months ended September 30, 2009 compared to 270,515 tons during the three months ended September 30, 2008, which
increased cost per ton sold by $9.08 due primarily to an $11.80 per ton sold increase in purchased coal and an increase in labor, explosives and repairs of $2.24 per ton partially offset by a reduction in freight and fuel costs of $4.14 per ton sold
and consulting fees of $1.97 per ton sold. During the three months ended September 30, 2009, we purchased and sold 87,137 tons of coal at an average price of $59.80 as compared to 8,593 tons at an average price per ton of $48.00 in the same
prior year period.

Depreciation, Depletion, Amortization and Accretion



|                                                    |  |                                 |           |                     |   |           |  |         |  |     
|--------------------------------------------------- |  | ------------------------------- | --------- | ------------------- | - | --------- |  | ------- |  | ----
|                                                    |  | Three Months EndedSeptember 30, |           | Increase/(decrease)
|                                                    |  | 2009                            |           | 2008                |   | $         |  | %      
|Depreciation, depletion, amortization and accretion |  | $                               | 2,392,606 |                     | $ | 2,141,220 |  | 251,386 |  | 11.7
|Tons sold                                           |  |                                 | 286,447   |                     |   | 270,515   |  | 15,932  |  | 5.9 
|Average cost per ton sold                           |  | $                               | 8.35      |                     | $ | 7.92      |  | 0.44    |  | 5.5 

The 11.7% increase in depreciation, depletion, amortization, and accretion expense for the three
months ended September 30, 2009 as compared to the same three month period in 2008 was primarily the result of:



| | (i) | A $0.6 million increase in our Tennessee operations attributable to an increase in mine development resulting from the opening of new mines near the end of 2008; offset
by
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | A $0.3 million decrease in expense attributable to the closing of mines during the second quarter of 2009.
| | ---- | ----------------------------------------------------------------------------------------------------------



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##### Table of Contents

General and Administrative Expenses



|                                   |  |                                 |           |                     |   |           |  |          |   |  |       |  
|---------------------------------- |  | ------------------------------- | --------- | ------------------- | - | --------- |  | -------- | - |  | ----- | -
|                                   |  | Three Months EndedSeptember 30, |           | Increase/(decrease) |  
|                                   |  | 2009                            |           | 2008                |   | $         |  |          | % | 
|General and administrative expense |  | $                               | 1,821,731 |                     | $ | 2,277,883 |  | (456,152 | ) |  | (20.0 | )
|Tons sold                          |  |                                 | 286,447   |                     |   | 270,515   |  | 15,932   |   |  | 5.9   |  
|Average cost per ton sold          |  | $                               | 6.36      |                     | $ | 8.42      |  | (2.06    | ) |  | (24.5 | )

The 20.0% decrease in general and administrative expenses for the three months ended
September 30, 2009 as compared to the same period in the previous year is primarily attributable to the reduction in bad debt expense of $0.1 million, professional and consulting fees of $0.2 million, and payroll and stock compensation expense
of $0.1 million.

Other (Income) Expense



|                             |  |                                 |           |   |                     |   |           |   |  |   |         |   |  |       |  
|---------------------------- |  | ------------------------------- | --------- | - | ------------------- | - | --------- | - |  | - | ------- | - |  | ----- | -
|                             |  | Three Months EndedSeptember 30, |           |   | Increase/(decrease) |  
|                             |  | 2009                            |           |   | 2008                |   |           | $ |  |   | %       |  
|Interest expense             |  | $                               | 1,910,496 |   |                     | $ | 1,616,725 |   |  | $ | 293,771 |   |  | 18.2  |  
|Interest income              |  |                                 | (65,175   | ) |                     |   | (180,143  | ) |  |   | 114,968 |   |  | (63.8 | )
|Other                        |  |                                 | (39,324   | ) |                     |   | (23,653   | ) |  |   | (15,671 | ) |  | 66.3  |  
|                             |  |                                 |           |   |                     |   |           |   |  |   |         |   |  |       |  
|Total other (income) expense |  | $                               | 1,805,997 |   |                     | $ | 1,412,929 |   |  | $ | 393,068 |   |  | 27.8  |  
|                             |  |                                 |           |   |                     |   |           |   |  |   |         |   |  |       |  

The 18.2% increase in interest expense for the three months ended September 30, 2009 as compared
to the same period in 2008, is primarily related to interest expense on our short term line of credit obtained during April 2009. Interest income decreased by 63.8% the three months ended September 30, 2009 compared to the same period in 2008
due to lower average cash balances in 2009 compared to 2008.

Income (loss) from Discontinued Operations



|                                           |  |                                 |           |      |                     |            |   |  |           |  |  
|------------------------------------------ |  | ------------------------------- | --------- | ---- | ------------------- | ---------- | - |  | --------- |  | -
|                                           |  | Three Months EndedSeptember 30, |           |      | Increase/(decrease)
|                                           |  | 2009                            |           | 2008 |                     |            | $ |  | %        
|Income (loss) from Discontinued Operations |  | $                               | 3,872,741 |      | $                   | (3,841,312 | ) |  | 7,714,053 |  | *



|* | Not meaningful.
|- | ---------------

During the three months ended
September 30, 2009 our discontinued operations sold 46,741 tons at an average sales price of $79.41 for total sales revenue of $3.7 million compared to 221,895 tons sold at an average sales price of $67.17 for total sales revenue of $14.9
million during the same period in 2008.

Total cost of sales from discontinued operations during the 2009 period was $3.1 million at an
average cost per ton sold of $67.24 compared to $13.7 million at an average cost per ton sold of $61.96 during the three month period in 2008.



28



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##### Table of Contents

The decrease in sales revenue and cost of sales during the 2009 period compared to 2008 is directly
attributable to the default on August 3, 2009 of our 12% Notes due 2012. As a result of the transaction, we recorded a gain on the disposal of discontinued operations of $23.5 million offset by the Make Whole Amount of $19.8 million
included in interest expense during the three months ended September 30, 2009.

Comparison of Nine Months Ended September 30,
2009 and Nine Months Ended September 30, 2008

Production

During the nine months ended September 30, 2009 and 2008, our Tennessee mines produced 631,756 and 772,217 tons of coal, respectively, as follows:



|                     |  |                                |  |       |  |         |  |      
|-------------------- |  | ------------------------------ |  | ----- |  | ------- |  | -----
|                     |  | Nine Months EndedSeptember 30,
|                     |  | 2009                           |  | 2008 
|                     |  | Tons                           |  | %     |  | Tons    |  | %    
|Production:          |  |                                |  |       |  |         |  |      
|Surface mines        |  | 283,799                        |  | 32.7  |  | 345,750 |  | 41.4 
|Highwall mines       |  | 80,891                         |  | 9.3   |  | 135,598 |  | 16.3 
|Underground mines    |  | 267,066                        |  | 30.7  |  | 290,869 |  | 34.9 
|                     |  |                                |  |       |  |         |  |      
|Total tons produced  |  | 631,756                        |  | 72.7  |  | 772,217 |  | 92.6 
|Purchased coal       |  | 237,828                        |  | 27.3  |  | 61,453  |  | 7.4  
|                     |  |                                |  |       |  |         |  |      
|Total tons available |  | 869,584                        |  | 100.0 |  | 833,670 |  | 100.0
|                     |  |                                |  |       |  |         |  |      

The 2008 figures above include 59,181 tons produced by our Straight Creek operations that were sold
in the first quarter of 2008. Our discontinued operations, which are not included in the figures above, produced 392,108 and 653,162 tons during the nine months ended September 30, 2009 and 2008, respectively.

We purchased more coal during the nine months ended September 30, 2009 as compared to the same period 2008 because coal from small producers became
available at much lower prices than was previously available. Being able to purchase coal at reasonable prices also allowed us to idle a higher cost underground mine earlier in the year and concentrate production in more productive, lower cost
mines.

Revenue

During the nine months ended September 30, 2009, we generated coal sales revenue primarily from three electric utilities (99.1%) pursuant to coal sales contracts of twelve months or greater.



29



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##### Table of Contents

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



|                           |  |                                |            |                     |   |            |  |            |  |     
|-------------------------- |  | ------------------------------ | ---------- | ------------------- | - | ---------- |  | ---------- |  | ----
|                           |  | Nine Months EndedSeptember 30, |            | Increase/(decrease)
|                           |  | 2009                           |            | 2008                |   | $          |  | %         
|Coal sales                 |  | $                              | 62,325,476 |                     | $ | 49,084,206 |  | 13,241,270 |  | 27.0
|Tons sold                  |  |                                | 855,036    |                     |   | 827,519    |  | 27,517     |  | 3.3 
|Average price per ton sold |  | $                              | 72.89      |                     | $ | 59.31      |  | 13.58      |  | 22.9
|                           |  |                                |            |                    
|Other revenues             |  | $                              | 2,400,759  |                     | $ | 2,340,838  |  | 59,921     |  | 2.6 

The 27.0% increase in revenue from coal sales for the nine months ended September 30, 2009 as
compared to the same period in 2008 was primarily the result of:



| | (i) | The average selling price for coal sold from our Tennessee operations increased from $60.87 per ton sold during the 2008 period to $72.89 per ton sold during the 2009
period, while tons sold increased from 726,641 tons in 2008 to 855,036 tons in 2009; offset by
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | The sale on March 31, 2008 of our Straight Creek mining operations in Kentucky, which sold 100,878 tons at an average price of $48.12 during the 2008 period.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

The increase in other revenues of 2.6% is primarily due to fluctuations in production volume relating to revenue from a
contract mining services agreement between Xinergy and National Coal Corporation to mine coal from a highwall mine previously sold to Xinergy as part of the Straight Creek sale on March 31, 2008.

Cost of Sales



|                          |  |                                |            |                     |   |            |  |           |  |     
|------------------------- |  | ------------------------------ | ---------- | ------------------- | - | ---------- |  | --------- |  | ----
|                          |  | Nine Months EndedSeptember 30, |            | Increase/(decrease)
|                          |  | 2009                           |            | 2008                |   | $          |  | %        
|Cost of sales             |  | $                              | 58,295,500 |                     | $ | 48,735,619 |  | 9,559,881 |  | 19.6
|Tons sold                 |  |                                | 855,036    |                     |   | 827,519    |  | 27,517    |  | 3.3 
|Average cost per ton sold |  | $                              | 68.18      |                     | $ | 58.89      |  | 9.29      |  | 15.8
|                          |  |                                |            |                    
|Cost of services          |  | $                              | 2,316,948  |                     | $ | 1,985,087  |  | 331,861   |  | 16.7

Total cost of sales increased 19.6% during the nine months ended September 30, 2009 as compared
to the same nine month period in 2008 primarily as a result of:



| | (i) | Our Tennessee mines sold 726,641 tons during the nine months ended September 30, 2008 compared to 855,036 tons during the nine months ended September 30,
2009, and the cost per ton sold increased by $10.15 due primarily to increases in purchased coal and labor. During the nine months ended September 30, 2009, we purchased 237,828 tons of coal at an average price of $62.78 as compared to only
25,257 tons at an average price per ton of $47.26 in the same prior year period; offset by
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | The sale of our Straight Creek mining operations, which sold 100,878 tons at a cost of $75.97 per ton during 2008.
| | ---- | ------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Depreciation, Depletion, Amortization and Accretion



|                                                    |  |                                |           |                     |   |           |  |   |         |  |    
|--------------------------------------------------- |  | ------------------------------ | --------- | ------------------- | - | --------- |  | - | ------- |  | ---
|                                                    |  | Nine Months EndedSeptember 30, |           | Increase/(decrease)
|                                                    |  | 2009                           |           | 2008                |   | $         |  | %
|Depreciation, depletion, amortization and accretion |  | $                              | 7,528,951 |                     | $ | 7,035,844 |  | $ | 493,107 |  | 7.0
|Tons sold                                           |  |                                | 855,036   |                     |   | 827,519   |  |   | 27,517  |  | 3.3
|Average cost per ton sold                           |  | $                              | 8.81      |                     | $ | 8.50      |  | $ | 0.31    |  | 3.6

The 7.0% increase in depreciation, depletion, amortization, and accretion expense for the nine months
ended September 30, 2009 as compared to the same nine month period in 2008 was primarily the result of:



| | (i) | A $1.5 million increase in expense at our Tennessee operations primarily attributable to new mine development in 2008 and 2009; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------



| | (ii) | A $0.2 million increase in expense related to the reopening of one of our train loading facilities during the third quarter of 2008; offset by
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | A reduction of $0.2 million in depreciation expense in our Tennessee operations attributable to approximately $13 million of equipment becoming fully depreciated during
2008; and
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | The sale of approximately $16.1 million in property, plant, equipment, and mine development, and a resulting decrease of $0.9 million of corresponding expense,
associated with the sale of our Straight Creek properties on March 31, 2008.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

General and
Administrative Expenses



|                                   |  |                                |           |                     |   |           |  |          |   |  |       |  
|---------------------------------- |  | ------------------------------ | --------- | ------------------- | - | --------- |  | -------- | - |  | ----- | -
|                                   |  | Nine Months EndedSeptember 30, |           | Increase/(decrease) |  
|                                   |  | 2009                           |           | 2008                |   | $         |  |          | % | 
|General and administrative expense |  | $                              | 5,247,932 |                     | $ | 6,192,331 |  | (944,399 | ) |  | (15.3 | )
|Tons sold                          |  |                                | 855,036   |                     |   | 827,519   |  | 27,517   |   |  | 3.3   |  
|Average cost per ton sold          |  | $                              | 6.14      |                     | $ | 7.48      |  | (1.35    | ) |  | (18.0 | )

The 15.3% decrease in general and administrative expenses for the nine months ended
September 30, 2009 as compared to the same period in the previous year is primarily attributable to the reduction in bad debt expense of $0.3 million, professional fees of $0.3 million, insurance expense of $0.2 million and legal fees of $0.3
million; offset by an increase in payroll and stock compensation expense of $0.2 million.



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##### Table of Contents

Other (Income) Expense



|                             |  |                                |           |   |                     |   |           |   |  |   |            |   |  |        |  
|---------------------------- |  | ------------------------------ | --------- | - | ------------------- | - | --------- | - |  | - | ---------- | - |  | ------ | -
|                             |  | Nine Months EndedSeptember 30, |           |   | Increase/(decrease) |  
|                             |  | 2009                           |           |   | 2008                |   |           | $ |  |   | %          |  
|Interest expense             |  | $                              | 5,037,908 |   |                     | $ | 5,626,763 |   |  | $ | (588,855   | ) |  | (10.5  | )
|Interest income              |  |                                | (222,281  | ) |                     |   | (572,460  | ) |  |   | 350,179    |   |  | (61.2  | )
|Other                        |  |                                | (63,944   | ) |                     |   | 1,831,526 |   |  |   | (1,895,470 | ) |  | (103.5 | )
|                             |  |                                |           |   |                     |   |           |   |  |   |            |   |  |        |  
|Total other (income) expense |  | $                              | 4,751,683 |   |                     | $ | 6,885,829 |   |  | $ | (2,134,146 | ) |  | (31.0  | )
|                             |  |                                |           |   |                     |   |           |   |  |   |            |   |  |        |  

The 10.5% decrease in interest expense for the nine months ended September 30, 2009 as compared
to the same period in 2008, was primarily the result of:



| | (i) | A reduction in interest expense on our 10.5% senior secured notes attributable to the exchange of $13.0 million in notes and $158,958 in accrued interest for 1,855,935
shares of our common stock during 2008; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | A reduction in interest expense attributable to the repayment of a $10.0 million term loan credit facility during 2008 offset by
| | ---- | --------------------------------------------------------------------------------------------------------------------------------



| | (iii) | An increase in interest expense related to our short-term credit facility obtained during April 2009.
| | ----- | -----------------------------------------------------------------------------------------------------

Interest income decreased by 61.2% for the nine months ended September 30, 2009 compared to the same period in 2008 due to lower average cash balances
in 2009 compared to 2008.

Other (income) expense decreased $1.9 million for the nine months ended September 30, 2009 compared to the
nine months ended September 30, 2008 primarily due to:



| | (i) | The loss on extinguishment of debt of approximately $1.7 million resulting from the $13.0 million reduction in debt on our 10.5% senior secured notes and the loss
resulting from the repayment of a $10.0 million term loan credit facility; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | The loss on sale of assets of $0.3 million primarily related to the sale of our Straight Creek operations on March 31, 2008.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------

Income (loss) from Discontinued Operations, Net of Taxes



|                                                         |  |                                |            |   |                     |   |            |   |  |           |  |  
|-------------------------------------------------------- |  | ------------------------------ | ---------- | - | ------------------- | - | ---------- | - |  | --------- |  | -
|                                                         |  | Nine Months EndedSeptember 30, |            |   | Increase/(decrease)
|                                                         |  | 2009                           |            |   | 2008                |   |            | $ |  | %        
|Income (loss) from discontinued operations, net of taxes |  | $                              | (1,485,157 | ) |                     | $ | (8,153,317 | ) |  | 6,668,160 |  | *



|* | Not meaningful.
|- | ---------------

During the nine months ended
September 30, 2009 our discontinued operations sold 404,245 tons at an average sales price of $77.45 for total sales revenue of $31.3 million compared to 749,266 tons sold at an average sales price of $65.77 for total sales revenue of $49.3
million during the same period in 2008.



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##### Table of Contents

Total cost of sales from discontinued operations during the 2009 period was $26.6 million at an average cost
per ton sold of $65.68 compared to $45.1 million at an average cost per ton sold of $60.18 during the nine month period in 2008.

The decrease
in sales revenue and cost of sales during the 2009 period compared to 2008 is directly attributable to the default on August 3, 2009 of our 12% Notes due 2012. As a result of the transaction, we recorded a gain on the disposal of discontinued
operations of $23.5 million offset by the Make Whole Amount of $19.8 million included in interest expense during the nine months ended September 30, 2009.

Liquidity and Capital Resources

On August 3, 2009, the holders of the 12% Notes due 2012 foreclosed on the outstanding capital stock of NCA, the collateral for the 12% Notes due 2012, and acquired NCA. As a result, NCA is no longer
our subsidiary as of that date. We acquired our Alabama operations in October 2007, financed principally through the issuance of $60 million in 12% Notes due 2012. On June 26, 2009, NCA was obligated to pay to its debt holders approximately
$1.9 million of accrued interest on its 12% Notes due 2012. The date for making the interest payment was extended by the holders of the 12% Notes due 2012 to July 17, 2009, and on July 21, 2009, NCA defaulted on the 12% Notes due 2012 as
the interest payment had not been made. Additionally, the credit agreement provides that upon the acceleration of the entire unpaid balance of the indebtedness, the holders of the 12% Notes due 2012 are entitled to receive the Make-Whole Amount,
which amount is the present value of all future interest payments with respect to the principal amount of the indebtedness under the agreement. The Make-Whole Amount was approximately $19.8 million and was accrued as part of the loss
from discontinued operations during the three and nine months ended September 30, 2009. The liability for this amount was included in the balance sheet of NCA when NCA was foreclosed upon. As a result of the transaction, we recorded a gain on
disposal of discontinued operations for the three and nine months ended September 30, 2009 of approximately $23.5 million. Upon the foreclosure, our remaining operations are all located in Tennessee. No creditor of NCC Corp. or NCA, including
the holders of the 12% Notes due 2012, has any recourse to National Coal Corp. or its other subsidiaries for any liabilities of NCC Corp. or NCA, including liabilities arising under the credit agreement.

At September 30, 2009, we had cash and cash equivalents of approximately $4.1 million and negative working capital of approximately $11.6 million. Cash
flows provided by (used in) continuing operations were $2.9 million and $(6.2) million for the nine months ended September 30, 2009 and 2008, respectively.

On April 9, 2009 we entered into a Revolving Credit Agreement with Next View Partners, LLC (Next View), as administrative agent and collateral agent for certain lenders. This credit
facility provides for borrowings of up to $10 million, and is permitted indebtedness under the indenture for our 10.5% Notes due 2010. The agreement allows us the right to borrow up to an aggregate of $5 million on or before June 30, 2009 and
an aggregate of $10 million after June 30, 2009. All amounts under the revolving loans become due and payable on December 15, 2009, unless we obtain the consent of holders of two-thirds of the outstanding principal amount of our 10.5%
Notes due 2010 to extend the maturity date until April 9, 2010. We are in discussions to extend the maturity date of the revolving credit facility with the single holder of two-thirds of the principal amount of the 10.5% Notes due 2010.
..Interest under this facility is payable at an annual rate of 13% for amounts outstanding up to $5,000,000 and 15% for amounts outstanding in excess of $5,000,000. Interest is payable monthly in arrears. Our obligations under this credit facility
are secured by a lien on substantially all the assets of National Coal Corp. and its subsidiaries that own and operate our Tennessee mining operations. The credit facility contains several performance covenants, including that we produce and ship
minimum amounts of coal, and limitations on



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additional indebtedness. The facility includes customary default provisions, and all outstanding obligations may become immediately due and payable in the event of our default. As of
September 30, 2009, we were in compliance with all relevant debt covenants. As of the date of this filing, we have borrowed $5.0 million and repaid $1.5 million in principal against this line of credit. The outstanding balance at
September 30, 2009 was $4.0 million and an additional $.5 million in principal was paid on October 7, 2009.

During the quarter
ended September 30, 2009, we re-collateralized the surety bonds securing our reclamation liabilities. This action resulted in the release of approximately $3.0 million in previously restricted cash during the quarter and an additional $1.4
million in previously restricted cash in October 2009. The total $4.4 million is available for our working capital needs.

We believe that we
have sufficient resources to fund our Tennessee operations throughout the remainder of 2009. However, this belief is predicated on certain assumptions as to: (i) sales volumes, related pricing and customers continuing to take deliveries of our
coal as contracted; (ii) production levels; (iii) the availability of coal to be purchased at a reasonable price; (iv) budgeted capital expenditures; (v) cost per ton level decreases at existing mines and newly opened mines
(vi) no rail service disruption; and (vii) the ability to extend our short term line of credit beyond maturity. Significant deviation from any one of these assumptions could have a material adverse effect on our operating cash flows.

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

During the nine months ended September 30, 2009, our continuing operations generated total revenues of $64.7 million and
sold approximately 0.9 million tons of coal. Revenues are derived primarily from the sale of coal to electric utility companies in the Southeastern United States pursuant to long-term contracts or open purchase order arrangements with long-time
customers. Georgia Power Company represented approximately 97% of our coal revenues from continuing operations for the nine months ended September 30, 2009.

We typically sell our coal for a specified per ton amount and at a negotiated price pursuant to both short-term contracts and contracts of twelve months or greater. The weighted average selling price per
ton in Tennessee is $74.38, $79.56, and $76.47 on 0.3 million, 0.9 million, and 0.9 million tons contracted for the remainder of 2009, and fiscal years 2010 and 2011, respectively. Price adjustment, price reopener and
other similar provisions in long-term supply agreements may reduce the protection from short-term coal price volatility traditionally provided by such contracts. Any adjustment or renegotiation leading to a significantly lower contract price would
result in decreased revenues and lower gross margins, which could have a material adverse effect on our operating cash flows. Additionally, our customers may have the ability to delay the timing of their purchases, which could negatively impact
operating cash flows. Finally, coal supply agreements also typically contain force majeure provisions allowing temporary suspension of performance by us or our customers during the duration of specified events beyond the control of the affected
party.



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##### Table of Contents

We assume we will meet our contract commitments through a combination of produced tons and purchased coal.
Our production can be negatively impacted by weather, labor shortages or equipment break-downs. Additionally, geological and mining conditions may not be fully identified by available exploration data or may differ from experience in current
operations. During 2008, we experienced severe increases in diesel fuel and costs associated with all petroleum related products and also encountered additional regulatory examination, as did most of our competitors that weakened productivity.
Additionally, coal for purchase may not be available, or available only at unfavorable prices. The occurrence of such events can adversely affect production, the cost of sales or both, and could have a materially adverse effect on our operating cash
flows.

We invested approximately $5.5 million in equipment and mine development in our continuing operations during the nine months ended
September 30, 2009. During the remainder of 2009, management expects to incur approximately $0.6 million to maintain existing assets in Tennessee. In prior years, we experienced the unanticipated loss of the use of key equipment, which resulted
in lost production and lost revenues. We may experience similar mechanical failures in the future, which could have a material adverse effect on our operating cash flows.

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



|                                                     |  |                   |            |   |                  |   |            |  
|---------------------------------------------------- |  | ----------------- | ---------- | - | ---------------- | - | ---------- | -
|                                                     |  | September 30,2009 |            |   | December 31,2008 |  
|10.5% Senior Secured Notes, due 2010                 |  | $                 | 42,000,000 |   |                  | $ | 42,000,000 |  
|Equipment loans and installment purchase obligations |  |                   | 1,620,308  |   |                  |   | 3,137,897  |  
|Insurance premium financing                          |  |                   | 390,545    |   |                  |   | 477,749    |  
|                                                     |  |                   |            |   |                  |   |            |  
|                                                     |  |                   | 44,010,853 |   |                  |   | 45,615,646 |  
|                                                     |  |                  
|Unamortized discounts                                |  |                   | (886,486   | ) |                  |   | (1,386,810 | )
|                                                     |  |                  
|Current portion of long-term debt                    |  |                   | (1,586,361 | ) |                  |   | (2,336,191 | )
|                                                     |  |                   |            |   |                  |   |            |  
|Total long-term debt                                 |  | $                 | 41,538,006 |   |                  | $ | 41,892,645 |  
|                                                     |  |                   |            |   |                  |   |            |  

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, 2009, we
had a net increase in cash of approximately $0.2 million. Cash flows from operating, financing and investing activities for the nine months ended September 30, 2009 and 2008 are summarized in the following table:



|                                          |  |                   |            |   |                   |   |            |  
|----------------------------------------- |  | ----------------- | ---------- | - | ----------------- | - | ---------- | -
|                                          |  | September 30,2009 |            |   | September 30,2008 |  
|Activity:                                 |  |                   |            |   |                   |   |            |  
|Operating activities                      |  | $                 | 6,560,776  |   |                   | $ | (3,601,180 | )
|Investing activities                      |  |                   | (5,242,793 | ) |                   |   | 7,492,879  |  
|Financing activities                      |  |                   | (1,166,043 | ) |                   |   | (2,510,476 | )
|                                          |  |                   |            |   |                   |   |            |  
|Net increase in cash and cash equivalents |  | $                 | 151,940    |   |                   | $ | 1,381,223  |  
|                                          |  |                   |            |   |                   |   |            |  



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##### Table of Contents

Operating Activities

The net cash provided by operating activities of $6.6 million during the nine months ended September 30, 2009 compared with prior year cash used in
operations of $3.6 million was primarily attributable to an improvement of $9.1 million of cash flows provided by our continuing operations (which includes $2.4 million of non-recurring Straight Creek operating losses during 2008) and the increase
in accounts payable and accrued expenses of $8.8 million

Investing Activities

The change in cash provided by investing activities from $7.5 million for the nine months ended September 30, 2008 to cash used in investing activities
of $5.2 million for the nine months ended September 30, 2009 was primarily due to (i) $10.7 million of proceeds received from the sale of our Straight Creek, Kentucky properties in March 2008 (ii) an increase in capital expenditures
of $1.3 million in 2009 and (iii) a decrease in restricted cash released to operations of $3.9 million in 2009 compared to 2008.

Financing Activities

The change in net cash used in financing activities of $1.2 million during the nine months ended
September 30, 2009 compared to the net cash used in financing activities of $2.5 million for the nine months ended September 30, 2008 was primarily due to the proceeds received from borrowings on our revolving credit facility entered into
on April 9, 2009 offset by the repayment of outstanding debts associated with the sale of our Straight Creek operations in 2008.

Off-Balance Sheet Arrangements

At September 30, 2009, 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.

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 nine months ended September 30, 2009 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, 2008 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 April 2009, the FASB issued ASC 320-10-65, Recognition and Presentation of Other-Than-Temporary Impairments. It amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more
operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. It does not amend existing recognition and measurement guidance related to other-than-temporary
impairments of equity securities. It is effective for interim and annual reporting periods ending after June 15, 2009. The adoption did not have a material impact on our consolidated financial statements.



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In April 2009, the FASB issued ASC 820-10-65, Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. It provides additional guidance for estimating fair value in accordance with ASC 820 when the volume and level of activity for
the asset or liability have significantly decreased and includes guidance on identifying circumstances that indicate a transaction is not orderly. It does not change the definition of fair value under ASC 820. The FSP is effective for interim and
annual reporting periods ending after June 15, 2009. The adoption did not have a material impact on our consolidated financial statements.

In May 2009, the FASB issued ASC 855, Subsequent Events. It establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are
available to be issued. It is effective for interim and annual periods ending after June 15, 2009. The adoption did not have a material impact on our financial position or results of operations.

In June 2009, the FASB issued The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (the Codification).
The Codification became the single official source of authoritative, non-governmental U.S. GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under federal securities laws are also sources of authoritative U.S.
GAAP for SEC registrants. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption did not have a material impact on our consolidated financial position or
results of operations.



|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, 2008.



|Item 4. | 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 R. 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, 2009, 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, 2009.

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, 2009 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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##### Table of Contents

PART II  OTHER INFORMATION



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

This Quarterly Report on
Form 10-Q contains forward-looking statements, which are subject to a variety of risks and uncertainties. Other actual results could differ materially from those anticipated in those forward-looking statements as a result of various factors,
including those set forth in the risk factors relating to our business and common stock contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008. There have been no material changes to such risk factors
during the nine months ended September 30, 2009.



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

The following exhibits are
filed as part of this report:



|              |  |                                                                                                                             
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Title                                                                                                               
|              | 
|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.      



38



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##### Table of Contents

SIGNATURES

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



|                       |  |  |  |                     |  |                                             
|---------------------- |  |  |  | ------------------- |  | --------------------------------------------
|                       |  |  |  | NATIONAL COAL CORP.
|                       |  |  | 
|Date: November 5, 2009 |  |  |  |                     |  | /s/    MICHAEL R.
CASTLE                    
|                       |  |  |  | By:                 |  | Michael R. Castle                           
|                       |  |  |  | Its:                |  | Chief Financial Officer                     
|                       |  |  |  |                     |  | (Principal Financial and Accounting Officer)



39