================================================================================

                                  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, 2007

                                       or

[_]      Transition  Report  Pursuant  Section  13 or  15(d)  of the  Securities
         Exchange Act of 1934

         For the transition period from _____________ to ______________.

                         Commission file number 0-26509

                               NATIONAL COAL CORP.
             (Exact name of Registrant as Specified in its Charter)

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

                            8915 GEORGE WILLIAMS ROAD
                               KNOXVILLE, TN 37923
               (Address of principal executive offices, zip code)

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

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

         Indicate by check mark whether the  registrant  is a large  accelerated
filer,  an  accelerated  filer or a  non-accelerated  filer.  See  definition of
"accelerated  filer and large  accelerated  filer" in Rule 12b-2 of the Exchange
Act.

 Large accelerated filer [_]   Accelerated filer [_]  Non-accelerated filer [X]

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

         As of November 12,  2007,  the issuer had  25,698,792  shares of common
stock, par value $.0001 per share, issued and outstanding.

================================================================================


<PAGE>


                               NATIONAL COAL CORP.

                               INDEX TO FORM 10-Q

                                                                            PAGE
                                                                            ----

PART I     FINANCIAL INFORMATION...............................................3

Item 1.    Financial Statements................................................3

Item 2.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations................................23

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.........41

Item 4.    Controls and Procedures............................................41

PART II    OTHER INFORMATION..................................................42

Item 1.    Legal Proceedings..................................................42

Item 1A.   Risk Factors.......................................................42

Item 6.    Exhibits...........................................................43


                                       2
<PAGE>


                          PART I: FINANCIAL INFORMATION
ITEM 1.     FINANCIAL STATEMENTS

<TABLE>
                               NATIONAL COAL CORP.
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                   (UNAUDITED)
<CAPTION>
                                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                                  2007            2006
                                                                              ------------    ------------
<S>                                                                           <C>             <C>
ASSETS
Current assets
   Cash and cash equivalents ..............................................   $  2,030,500    $  2,180,885
   Accounts receivable ....................................................      3,220,104       3,712,779
   Inventory ..............................................................      2,447,479       2,221,742
   Prepaid and other current assets .......................................      1,345,637         867,247
                                                                              ------------    ------------
     Total current assets .................................................      9,043,720       8,982,653

   Assets held for sale ...................................................           --           640,649
   Property, plant, equipment and mine development, net ...................     54,047,385      55,837,627
   Deferred financing costs ...............................................      3,112,473       2,856,534
   Restricted cash ........................................................     16,668,704      17,246,751
   Other non-current assets ...............................................        567,099         427,516
                                                                              ------------    ------------
     Total assets .........................................................   $ 83,439,381    $ 85,991,730
                                                                              ============    ============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
   Current maturities of long-term debt ...................................   $  3,989,038    $  4,720,671
   Current installments of obligations under capital leases ...............        177,081         351,668
   Current portion of asset retirement obligations ........................        514,048       1,378,967
   Accounts payable and accrued expenses ..................................     10,630,098      11,981,495
                                                                              ------------    ------------
     Total current liabilities ............................................     15,310,265      18,432,801

   Long-term debt, less current maturities, net of discount ...............     66,735,213      62,093,134
   Obligations under capital leases, less current installments ............        101,336         321,071
   Asset retirement obligations, less current portion .....................      7,106,130       5,835,927
   Deferred revenue .......................................................        713,662       1,032,426
   Other non-current liabilities ..........................................        264,066         199,430
                                                                              ------------    ------------
     Total liabilities ....................................................     90,230,672      87,914,789
                                                                              ------------    ------------

Commitments and contingencies (Note 13)

Stockholders' deficit
   Series A convertible preferred stock, $.0001 par value; 8% coupon; 1,611
     shares authorized; 396.44 and 782.54 shares issued and outstanding at
     September 30, 2007 and December 31, 2006, respectively ...............           --              --
   Common stock, $.0001 per value; 80 million shares authorized; 20,688,277
     and 16,340,744 shares issued and outstanding at September 30, 2007 and
     December 31, 2006, respectively ......................................          2,069           1,634
   Additional paid-in capital .............................................     58,499,904      42,049,703
   Accumulated deficit ....................................................    (65,293,264)    (43,974,396)
                                                                              ------------    ------------
     Total stockholders' deficit ..........................................     (6,791,291)     (1,923,059)
                                                                              ------------    ------------
     Total liabilities and stockholders' deficit ..........................   $ 83,439,381    $ 85,991,730
                                                                              ============    ============
</TABLE>

         The  accompanying  notes  are  an  integral  part  of  these  condensed
consolidated financial statements.


                                       3
<PAGE>


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

<CAPTION>
                                                       THREE MONTHS                    NINE MONTHS
                                                    ENDED SEPTEMBER 30,             ENDED SEPTEMBER 30,
                                               ----------------------------    ----------------------------
                                                   2007            2006            2007            2006
                                               ------------    ------------    ------------    ------------
<S>                                            <C>             <C>             <C>             <C>
Revenues
  Coal sales ...............................   $ 20,561,737    $ 21,383,820    $ 58,104,853    $ 65,498,659
  Other revenues ...........................        295,558          45,061         669,833         524,109
                                               ------------    ------------    ------------    ------------
   Total revenues ..........................     20,857,295      21,428,881      58,774,686      66,022,768
                                               ------------    ------------    ------------    ------------

Expenses
  Cost of sales ............................     20,502,468      16,050,268      56,406,293      58,268,468
  Depreciation, depletion, amortization
    and accretion ..........................      4,047,671       3,812,736      11,340,326      11,726,482
  General and administrative ...............      1,671,768       3,173,000       5,325,676       7,331,035
                                               ------------    ------------    ------------    ------------
   Total operating expenses ................     26,221,907      23,036,004      73,072,295      77,325,985
                                               ------------    ------------    ------------    ------------

Operating loss .............................     (5,364,612)     (1,607,123)    (14,297,609)    (11,303,217)
                                               ------------    ------------    ------------    ------------

Other income (expense)
  Interest expense .........................     (2,194,661)     (1,673,464)     (6,515,214)     (5,401,498)
  Other income (expense), net ..............        451,803         (46,459)      1,204,096         801,194
                                               ------------    ------------    ------------    ------------
   Total other income (expense) ............     (1,742,858)     (1,719,923)     (5,311,118)     (4,600,304)
                                               ------------    ------------    ------------    ------------

Net loss ...................................   $ (7,107,470)   $ (3,327,046)   $(19,608,727)   $(15,903,521)

Preferred stock dividend ...................        (42,894)       (377,105)       (342,737)       (739,991)

Preferred stock deemed dividend ............       (687,034)           --        (1,710,139)           --
                                               ------------    ------------    ------------    ------------

Net loss attributable to common shareholders   $ (7,837,398)   $ (3,704,151)   $(21,661,603)   $(16,643,512)
                                               ============    ============    ============    ============

Basic net loss per common share ............   $      (0.39)   $      (0.23)   $      (1.12)   $      (1.11)
                                               ============    ============    ============    ============

Diluted net loss per common share ..........   $      (0.39)   $      (0.23)   $      (1.12)   $      (1.11)
                                               ============    ============    ============    ============

Weighted average common shares .............     20,246,652      15,778,005      19,263,128      15,029,335
                                               ============    ============    ============    ============
</TABLE>


         The  accompanying  notes  are  an  integral  part  of  these  condensed
consolidated financial statements.


                                       4
<PAGE>


<TABLE>
                               NATIONAL COAL CORP.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<CAPTION>
                                                                                 NINE MONTHS
                                                                             ENDED SEPTEMBER 30,
                                                                        ----------------------------
                                                                            2007            2006
                                                                        ------------    ------------
<S>                                                                     <C>             <C>
Cash Flows from Operating Activities:
  Net loss ..........................................................   $(19,608,727)   $(15,903,521)
  Adjustments to reconcile net loss to net cash (used in) provided by
     operating activities:
     Depreciation, depletion, amortization and accretion ............     11,340,326      11,726,482
     Amortization of deferred financing costs .......................        527,526         432,778
     Amortization of notes discount .................................        502,743         447,177
     (Gain) loss on disposal of assets ..............................       (241,377)         22,233
     Loss (gain) on extinguishment of debt ..........................         50,720        (269,608)
     Settlement of asset retirement obligations .....................       (336,680)       (937,925)
     Non-cash compensation:
       Stock option expense .........................................        752,726       2,012,820
       Related party option expense .................................        434,493            --
     Changes in operating assets and liabilities:
       Decrease (increase) in accounts receivable ...................        492,675        (521,220)
       Increase in inventory ........................................       (225,737)     (1,852,931)
       Increase in prepaid and other current assets .................       (478,390)       (694,251)
       Decrease in other non-current assets .........................         89,615            --
       (Decrease) increase in accounts payable and accrued expenses .     (1,376,802)      6,969,973
       (Decrease) increase in deferred revenue ......................       (148,618)        808,409
       (Decrease) increase in other non-current liabilities .........       (105,511)        117,483
                                                                        ------------    ------------
       Net cash flows (used in) provided by operating activities ....     (8,331,018)      2,357,899
                                                                        ------------    ------------

Cash Flows from Investing Activities:
  Capital expenditures ..............................................     (3,174,585)    (23,565,659)
  Acquisition deposit ...............................................       (250,000)           --
  Proceeds from sale of equipment ...................................        411,730       7,362,829
  Decrease (increase) in restricted cash ............................        578,047      (9,727,892)
  Increase in prepaid royalties .....................................       (229,198)       (112,997)
                                                                        ------------    ------------
     Net cash flows used in investing activities ....................     (2,664,006)    (26,043,719)
                                                                        ------------    ------------

Cash Flows from Financing Activities:
  Proceeds from issuance of common ..................................     13,950,000         897,018
  Proceeds from exercise of options and warrants ....................           --         1,970,122
  Proceeds from issuance of notes payable ...........................        441,077       2,623,285
  Proceeds from borrowings on Term Loan Credit Facility .............      2,000,000            --
  Repayments on notes payable .......................................     (3,947,713)     (2,935,976)
  Repayments of capital leases ......................................       (693,943)     (1,961,032)
  Payments for deferred financing costs .............................       (533,465)       (189,146)
  Dividends paid ....................................................       (371,317)       (362,886)
                                                                        ------------    ------------
     Net cash flows provided by financing activities ................     10,844,639          41,385
                                                                        ------------    ------------

NET DECREASE IN CASH ................................................       (150,385)    (23,644,435)
Cash and cash equivalents at beginning of period ....................      2,180,885      25,434,988
                                                                        ------------    ------------
Cash and cash equivalents at end of period ..........................   $  2,030,500    $  1,790,553
                                                                        ============    ============
</TABLE>


                                       5
<PAGE>


<TABLE>
                               NATIONAL COAL CORP.
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                   (UNAUDITED)


<CAPTION>
                                                                            NINE MONTHS
                                                                         ENDED SEPTEMBER 30,
                                                                    ---------------------------
                                                                        2007           2006
                                                                    ------------   ------------
<S>                                                                 <C>            <C>
Supplemental disclosures
  Interest paid in cash .........................................   $  4,061,696   $  3,068,522
  Non-cash investing and financing transactions:
      Preferred stock dividends converted to common stock .......        135,619         63,717
      Preferred stock deemed dividends ..........................      1,710,139           --
      Equipment acquired via installment purchase obligations and
         notes payable ..........................................      4,914,339      1,751,336
      Equipment acquired via capital leases .....................        248,900        821,187
</TABLE>


         The  accompanying  notes  are  an  integral  part  of  these  condensed
consolidated financial statements.


                                       6
<PAGE>


                               NATIONAL COAL CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.       BASIS OF PRESENTATION

         The  unaudited  condensed  consolidated  financial  statements  do  not
include footnotes and certain financial  information normally presented annually
under accounting  principles  generally accepted in the United States of America
and should,  therefore,  be read in  conjunction  with the Annual Report on Form
10-K of National  Coal Corp.  (the  "Company")  for the year ended  December 31,
2006. The accompanying  unaudited condensed  consolidated  financial  statements
reflect all  adjustments  of a normal  recurring  nature 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
month periods ended September 30, 2007 are not necessarily indicative of results
that can be expected for the fiscal year.

         The accompanying  financial  statements reflect the Company's financial
position and results of operations on a  consolidated  basis.  All  intercompany
transactions and balances have been eliminated in consolidation.

         At September  30, 2007,  the Company had cash and cash  equivalents  of
$2.0 million and certificates of deposit  totalling  approximately  $1.1 million
included in other current assets and negative  working capital of  approximately
$6.3 million as compared to negative working capital of $9.5 million at December
31, 2006.  Net cash flows used in operations for the nine months then ended were
approximately $8.1 million as compared to $2.4 million provided by operations in
the nine months ended September 30, 2006. Currently, the Company's operations do
not generate positive cash flow and the ability to do so during the remainder of
2007 is dependent upon generating  additional spot sales and making  significant
improvements to operating efficiency.

         At September 30, 2007, the Company had a stockholders'  deficit of $6.8
million and had incurred net losses of $7.1 million and $19.6 million, excluding
preferred  stock and preferred  stock deemed  dividends,  for the three and nine
months then ended,  respectively.  The Company  expects to continue to incur net
losses for the intermediate term.

         On October 19, 2007, the Company raised $12.2 million of  stockholders'
equity through two separate  transactions.  The first  transaction  involved the
sale of  3,866,968  shares of the  Company's  common stock at $3 per share for a
total of $11.6  million  which was  subsequently  invested  in the newly  formed
subsidiary NCC Corp. and its newly acquired subsidiary National Coal of Alabama,
Inc. (formerly Mann Steel Products,  Inc.). The second transaction  involved the
sale of 200,000 shares of the Company's common stock previously authorized under
the 2004 Stock Option Plan to the Company's CEO and President, Daniel Roling, at
$3 per share for a total of $600,000.

         The Company invested  approximately  $8.3 million in equipment and mine
development  during the nine months ended  September  30, 2007,  $5.3 million of
which was acquired via installment  purchase obligations and capital leases. The
Company  intends  to  make  additional  capital  expenditures  of  approximately
$500,000 during the fourth quarter of 2007 to complete  ongoing capital projects
related  to  mine  development  in  addition  to  routine  capital  expenditures
estimated at $100,000 per month.

         In October 2007, the Company experienced a higher than expected net use
of cash which reduced cash balances to approximately $1.5 million as of November
1, 2007. This net use of cash was driven primarily by the deferral of


                                       7
<PAGE>


                               NATIONAL COAL CORP.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                                   (UNAUDITED)

certain  committed  sales into future months due to the  unavailability  of rail
transportation and the loss of spot sales opportunities.

         In order to ensure adequate cash availability to cover operating costs,
interest and capital  expenditures,  the Company has initiated  several projects
intended to release  cash for  operational  uses.  The Company is  restructuring
reclamation  bonds in order to reduce the amount of cash collateral  required to
support  them which is expected to release  approximately  $1.5 million in cash.
Additionally,  on November 12, 2007, the Company  received  $2,000,000  from the
sale of certain  real  property  and mineral  leases at Pine  Mountain,  an idle
mining complex, and an additional $1,000,000 from the sale to the same purchaser
an option  entitling it to purchase  for $10.00  additional  properties  at Pine
Mountain.

         The Company's wholly-owned subsidiary,  National Coal of Alabama, Inc.,
will be  consolidated  on a  financial  reporting  basis,  but  will be  treated
primarily as a stand-alone  entity,  and will provide limited positive cash flow
benefit to the parent company.

         For the first  quarter of 2008,  it is likely the Company will generate
negative  cash  flow and  expected  results  are  subject  to a large  degree of
uncertainty.  Currently, the Company has sold approximately 28% of its estimated
2008 production  volume and is in the process of negotiating  various  long-term
sales  agreements with customers and may also have the opportunity to supplement
this with spot sales if the market improves.  The Company is currently producing
on an annualized basis approximately 1.4 million tons of coal.

         If the Company is unable to execute its  operating  plans for  November
and December 2007 and for the first quarter of 2008 successfully,  including the
initiatives  discussed  above,  it  will  not be  able  to  meet  its  liquidity
requirements and will need to raise additional cash,  discontinue  operations at
some of  facilities or sell  additional  assets.  There are no  assurances  that
efforts to raise additional cash would be successful, that discontinuing certain
operations  would  generate   adequate  savings  to  meet  commitments, or  that
additional assets could be sold.

2.       RECENT ACCOUNTING PRONOUNCEMENTS

         In June  2006,  the FASB  issued  Interpretation  No.  48  ("FIN  48"),
ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES--AN  INTERPRETATION OF FASB STATEMENT
NO. 109. FIN 48 prescribes a recognition threshold and measurement attribute for
the financial  statement  recognition and measurement of a tax position taken or
expected  to  be  taken  in  a  tax  return.   It  also  provides   guidance  on
derecognition,  classification,  interest and  penalties,  accounting in interim
periods,  disclosure  and  transition.  FIN 48 is  effective  for  fiscal  years
beginning after December 15, 2006.

         The  Company  adopted the  provisions  of FIN No. 48 on January 1, 2007
with no impact to retained  earnings.  The Company has determined that it has no
uncertain tax positions.

         Due to the existence of net operating loss ("NOL")  carryforwards,  the
Company  has not  currently  accrued  interest  on any of its  unrecognized  tax
benefits.  If the accrual of  interest or  penalties  becomes  appropriate,  the
Company will record an accrual in its income tax provision.

         The  Company's  federal and state income tax returns for the years 2003
(inception)  and beyond remain subject to  examination  by the Internal  Revenue
service and various state taxing authorities.


                                       8
<PAGE>


                               NATIONAL COAL CORP.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                                   (UNAUDITED)

         In September  2006, the FASB issued  Statement of Financial  Accounting
Standards No. 157, FAIR VALUE  MEASUREMENTS  ("SFAS 157"). SFAS 157 defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about  fair  value  measurements.   SFAS  157  applies  under  other  accounting
pronouncements  that  require  or permit  fair value  measurements.  SFAS 157 is
effective  prospectively  for fiscal years beginning after November 15, 2007 and
interim periods within that fiscal year. The Company is still analyzing SFAS 157
to determine the impact on its financial position or results of operations.

         In February  2007,  the FASB issued  Statement of Financial  Accounting
Standards  No. 159, THE FAIR VALUE  OPTION FOR  FINANCIAL  ASSETS AND  FINANCIAL
LIABILITIES ("SFAS 159"). SFAS 159 provides entities with the one-time option to
measure  financial  instruments  and certain  other  items at fair  value,  with
changes in fair value  recognized  in  earnings  as they  occur.  The fair value
option  may be  applied  instrument  by  instrument  with a few  exceptions,  is
irrevocable,  and must be applied to entire  instruments  and not portions of an
instrument.

         SFAS 159 is effective for financial  statements issued for fiscal years
beginning  after  November 15, 2007. The Company does not expect the adoption of
SFAS 159 to have a  material  impact on its  financial  position  or  results of
operations.

3.       INVENTORY

         Inventory consisted of the following:

                                            SEPTEMBER 30,  DECEMBER 31,
                                                2007           2006
                                            ------------   ------------
         Raw Coal .......................   $    541,330   $    866,379
         Saleable Coal ..................      1,761,619      1,148,331
         Tires ..........................        144,530        207,032
                                            ------------   ------------
          Inventory .....................   $  2,447,479   $  2,221,742
                                            ============   ============

4.       PROPERTY,  PLANT,  EQUIPMENT  AND  MINE  DEVELOPMENT,  NET  AND  ASSETS
         HELD-FOR-SALE

         Property, plant, equipment and mine development, net is as follows:

<TABLE>
<CAPTION>
                                                             SEPTEMBER 30,   DECEMBER 31,
                                                                 2007            2006
                                                             ------------    ------------
<S>                                                          <C>             <C>
Furniture and office equipment ...........................   $    422,797    $    345,554
Mining equipment and vehicles ............................     56,330,510      48,864,201
Land and buildings .......................................      6,572,831       6,674,027
Mineral rights ...........................................     11,911,309      11,911,309
Mine development .........................................     11,094,172      10,003,328
Construction in progress .................................        528,054         854,399
                                                             ------------    ------------
     Total property, plant, equipment and mine development     86,859,673      78,652,818
Less accumulated depreciation, depletion and amortization     (32,812,288)    (22,815,191)
                                                             ------------    ------------
     Property, plant, equipment and mine development, net    $ 54,047,385    $ 55,837,627
                                                             ============    ============
</TABLE>


                                       9
<PAGE>


                               NATIONAL COAL CORP.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                                   (UNAUDITED)

         Mining equipment includes  approximately $493,000 and $869,000 of gross
assets  under  capital  leases at  September  30, 2007 and  December  31,  2006,
respectively.

         Depreciation  expense for the three months ended September 30, 2007 and
2006 was approximately $3,066,000 and $3,392,000, respectively, and for the nine
months  ended  September  30,  2007 and 2006 was  approximately  $9,149,000  and
$10,549,000,  respectively.  Expense  related to the  depletion  of  capitalized
mineral  rights  was  approximately  $717,000  and  $280,000  and  approximately
$1,418,000  and  $800,000,  respectively  for the  three and nine  months  ended
September  30,  2007 and 2006,  respectively.  In  November  2007,  the  Company
determined  that  during the years ended  December  31,  2005,  2006 and the six
months  ended June 30,  2007,  depletion  and  depreciation  expense for certain
mineral  rights and fixed assets was  calculated  incorrectly  and resulted in a
cumulative   understatement   of  accumulated   depreciation  and  depletion  of
approximately  $485,000 which was corrected in the three months ended  September
30,  2007.  The  cumulative   understatement  of  accumulated  depreciation  and
depletion  for the  years  ended  December  31,  2005 and 2006 of  $739,000  was
corrected in the nine months ended  September 30, 2007. The impact of the errors
on the years ended  December 31, 2005 and 2006 and the prior interim  periods of
2007 was not material.

         The net  book  value of  assets  held for  sale at  December  31,  2006
approximated the fair value and is disclosed separately on the balance sheet. In
January 2007, these assets were sold for a gain of approximately $4,000.

5.       OTHER NON-CURRENT ASSETS

         Other non-current assets are as follows:

                                                SEPTEMBER 30,  DECEMBER 31,
                                                    2007           2006
                                                ------------   ------------
         Prepaid royalties ..................   $    559,903   $    330,705
         Notes receivable ...................          7,196         96,811
                                                ------------   ------------
         Total other non-current assets .....   $    567,099   $    427,516
                                                ============   ============

6.       ACCOUNTS PAYABLE AND ACCRUED EXPENSES

         Accounts payable and accrued expenses are as follows:

                                                     SEPTEMBER 30,  DECEMBER 31,
                                                          2007          2006
                                                     ------------   ------------
Accounts payable .................................   $  8,367,519   $  9,944,033
Accrued payroll and related taxes ................        183,275        189,753
Accrued interest .................................      1,691,042        379,581
Accrued insurance premiums .......................         45,843        310,726
Accrued dividends ................................        220,066        548,480
Royalty obligations ..............................          1,635        464,987
Accrued federal, state and local taxes ...........        120,718        143,935
                                                     ------------   ------------
Total accounts payable and accrued expenses ......   $ 10,630,098   $ 11,981,495
                                                     ============   ============


                                       10
<PAGE>


                               NATIONAL COAL CORP.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                                   (UNAUDITED)

7.       DEBT AND FINANCING ARRANGEMENTS

         TERM LOAN CREDIT FACILITY

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

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

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

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

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


                                       11
<PAGE>


                               NATIONAL COAL CORP.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                                   (UNAUDITED)

         On October 19, 2007,  the parties to the credit  agreement also entered
into a letter agreement (the "Lender Fee Letter")  pursuant to which the Company
agreed,  at its election and as  compensation  for the Waiver and  Amendment and
assignment  agreements,  (i) to issue  warrants  on or before  June 30,  2008 to
purchase up to 750,000 shares of the Company's common stock at an exercise price
of $3.00 per share with a term  through  December  31,  2011 or (ii) make a cash
payment on or before  October 17, 2008 in an amount  equal to the  Black-Scholes
value of a  warrant,  exercisable  on or before  December  31,  2011,  for up to
750,000  shares of the Company's  common stock at an exercise price of $3.00 per
share,  obtained  using the "OV"  function on  Bloomberg  Financial  Markets and
reflecting the calculation  assumptions  set forth in the Lender Fee Letter,  to
Steelhead Offshore Capital,  LP, Big Bend 38 Investments L.P., and J-K Navigator
Fund,  L.P.  In the event that the Company  issues  these  warrants,  the shares
issuable upon exercise of these warrants shall have registration  rights similar
to  those  provided  in  the  Registration  Rights  Agreement  entered  into  in
connection with the equity financing.

         On November 16, 2007, the lenders party to the credit agreement entered
into a Waiver  under  which the  EBITDA  financial  covenant  was waived for the
fiscal  quarters  ending  March 31, 2008 and June 30,  2008.  Management  of the
Company  believes,  based on its ability to achieve its operating plan, that the
Company will be in  compliance  with the terms of the credit  agreement  and its
remaining applicable  covenants,  as amended,  through September 30, 2008 and as
such has reflected  this  obligation as long-term on the condensed  consolidated
balance  sheet  at  September  30,  2007.  The  Company  is in  the  process  of
determining the proper  accounting under EITF 96-19,  DEBTOR'S  ACCOUNTING FOR A
MODIFICATION  OR  EXCHANGE  OF  DEBT  INSTRUMENTS  for the  related  unamortized
deferred  financing fees of  approximately  $323,000 as of the  modification  on
October 19, 2007 and the fees incurred to modify the term loan credit facility.

         INSTALLMENT PURCHASE OBLIGATIONS

         In  January  2007 and  February  2007,  the  Company  entered  into new
installment sale contracts with an equipment  manufacturer pursuant to which the
Company refinanced  equipment with an aggregate principal value of approximately
$719,000 formerly acquired under various capital leases.  These installment sale
contracts  require  payments over 36 months at fixed interest rates ranging from
5.29% to 8.75%. The obligations under the installment sale contracts are secured
by the equipment purchased.

         In August 2007, the Company entered into new installment sale contracts
with equipment  manufacturers  pursuant to which the Company acquired  equipment
with an aggregate principal value of approximately $4,889,000. These installment
sale  contracts  require  payments over 36 to 60 months at fixed  interest rates
ranging  from  5.97% to  7.99%.  The  obligations  under  the  installment  sale
contracts are secured by the equipment purchased.


                                       12
<PAGE>


                               NATIONAL COAL CORP.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                                   (UNAUDITED)

         The  following  table  summarizes  long-term  debt  obligations  of the
Company, excluding capital leases:

                                                  SEPTEMBER 30,    DECEMBER 31,
                                                      2007             2006
                                                  ------------     ------------

10.5% Senior Secured Notes, due 2010 .........    $ 55,000,000     $ 55,000,000
Term Loan Credit Facility ....................      10,000,000        8,000,000
Bank note (prime + 1%), due 2007 .............          76,163          637,374
Installment purchase obligations, due 2008 ...         724,350        2,825,209
Installment purchase obligations, due 2009 ...       2,230,482        3,200,286
Installment purchase obligations, due 2010 ...       2,441,501             --
Installment purchase obligations, due 2012 ...       2,737,856             --
Equipment notes (7.83%-9.28%, due 2009) ......         153,385          125,382
Equipment note (4.48%, due 2009) .............         152,729          234,721
Other ........................................           3,721           89,512
Less unamortized discounts ...................      (2,795,936)      (3,298,679)
                                                  ------------     ------------
                                                    70,724,251       66,813,805
Less current portion of long-term debt .......      (3,989,038)      (4,720,671)
                                                  ------------     ------------
Long-term debt ...............................    $ 66,735,213     $ 62,093,134
                                                  ============     ============

         On  October  19,  2007,  the  Company's  newly  acquired,  wholly-owned
subsidiary,  National Coal of Alabama, Inc. (formerly Mann Steel Products, Inc.)
completed $60 million in private  placements (the "Debt Financing")  through the
issuance of Senior Secured Notes as described in Note 15 ACQUISITION.

8.       LEASES

         The  Company   leases   mining  and  certain  other   equipment   under
noncancelable  lease agreements with terms up to five years.  Rental expense for
equipment under operating lease  agreements with initial lease terms of one year
or greater was  approximately  $515,000  and $232,000 for the three months ended
September 30, 2007 and 2006, and  approximately  $1,628,000 and $414,000 for the
nine months ended September 30, 2007 and 2006, respectively.

         During the first  quarter of 2007,  the Company  entered into a capital
lease agreement of $248,900 with an equipment supplier for mining equipment with
a comparable value. The lease is for a period of thirty-two months.

9.       ASSET RETIREMENT OBLIGATIONS

         The  following  table  describes  the  changes to the  Company's  asset
retirement obligations:

         Obligation at December 31, 2006 ..............    $ 7,214,894
         Accretion expense ............................        637,064
         Obligations incurred .........................        104,900
         Obligations settled ..........................       (336,680)
                                                           -----------
         Obligation at September 30, 2007 .............      7,620,178
         Current portion ..............................       (514,048)
                                                           -----------
         Long-term liability at September 30, 2007 ....    $ 7,106,130
                                                           ===========


                                       13
<PAGE>


                               NATIONAL COAL CORP.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                                   (UNAUDITED)

10.      STOCKHOLDERS' DEFICIT

         During the nine months ended September 30, 2006,  152,500 warrants were
exercised with gross proceeds  totaling  $1,006,500.  No warrants were exercised
during the nine months ended September 30, 2007.

         During the nine months ended  September  30, 2007 and 2006,  holders of
386.10 and 542.01 shares of Series A cumulative convertible preferred stock with
liquidation   preferences   totaling  $5,791,494  and  $8,130,156  plus  accrued
dividends of $135,619 and $63,717,  converted  their shares into  1,016,428  and
1,364,166 shares of common stock, respectively.  The holders of 278.10 shares of
the Series A cumulative  convertible  preferred stock converted  during the nine
months ended  September  30, 2007 were provided with an inducement to convert in
the form of an  additional  331,104  shares of common  stock  with an  aggregate
market  value  of  $1,057,356.  The  holders  of 28.0  shares  of the  Series  A
cumulative  convertible  preferred stock converted  during the nine months ended
September 30, 2007 were provided with a $53,985 cash inducement to convert.  The
combined $1,111,341 value of these inducements was recorded as a deemed dividend
to reflect the excess of the fair value of the common  stock over the fair value
of the Series A preferred  stock  exchanged.  This treatment is necessary  under
EITF Topic D-42 which requires that if convertible  preferred stock is converted
to other securities  pursuant to an inducement  offer, the Company should record
the  excess of (1) the fair  value of all  securities  and  other  consideration
transferred to the holders of the convertible  preferred stock over (2) the fair
value of securities  issuable  pursuant to the original  conversion  terms as an
increase to net loss to arrive at net loss attributable to common shareholders.

         On February  28,  2007,  the  Company  signed  definitive  subscription
agreements to sell three million  shares of its common stock at the February 28,
2007  closing  consolidated  bid price of $4.65 per share.  Daniel  Roling,  the
Company's   President  and  CEO,   purchased   200,000  of  these  shares.   Two
institutional  investors  purchased  2,800,000  shares and the proceeds from the
sale were $13,950,000. The Company filed a registration statement on Form S-3 to
register the shares on April 27, 2007.  The statement was made effective on June
21, 2007. The issuance of additional  shares by the Company resulted in a change
in the rate at which the  Company's  Series A cumulative  convertible  preferred
stock is converted to common stock from 2,500 common  shares per share of Series
A cumulative  convertible  preferred  stock prior to the issuance to 2,590 after
the  issuance.  EITF  No.  98-5,  ACCOUNTING  FOR  CONVERTIBLE  SECURITIES  WITH
BENEFICIAL  CONVERSION  FEATURES OR CONTINGENTLY  ADJUSTABLE  CONVERSION RATIOS,
requires that when convertible  securities  include conversion terms that change
upon the  occurrence of a future event,  any  contingent  beneficial  conversion
feature should be measured at the commitment  date but not recognized  until the
contingency is resolved. Management determined that the impact of this reduction
of retained  earnings and equivalent  increase of additional  paid-in capital is
not material to the  Company's  consolidated  financial  statements in the prior
interim  period.  Therefore,  the $598,797  value of the  beneficial  conversion
feature was recorded as a deemed dividend and is reflected as an increase to net
loss to arrive at net loss  attributable  to common  shareholders  in the second
quarter of 2007.

         During the nine months ended  September  30, 2006,  the Company  issued
400,010  shares of common stock and received gross proceeds of $963,622 upon the
exercise of stock options by employees or former employees.  There were no stock
option exercises during the nine months ended September 30, 2007.

         On October 19, 2007, the Company issued  3,866,968 shares of its common
stock  at $3 per  share  in  connections  with  its  acquisition  of Mann  Steel
Products, Inc. as described at Note 15 ACQUISITION.


                                       14
<PAGE>


                               NATIONAL COAL CORP.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                                   (UNAUDITED)

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

         Net  loss  is  equal  to  total  comprehensive  loss  for  all  periods
presented.

11.      EARNINGS (LOSS) PER SHARE

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

         For the three months ended  September 30, 2007 and 2006,  1,058,569 and
3,314,927,  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, 2007 and 2006, 1,160,240
and  4,152,204  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.


                                       15
<PAGE>


                               NATIONAL COAL CORP.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                                   (UNAUDITED)

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

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED               NINE MONTHS ENDED
                                                 SEPTEMBER 30,                   SEPTEMBER 30,
                                         ----------------------------    ----------------------------
                                             2007            2006            2007            2006
                                         ------------    ------------    ------------    ------------
<S>                                      <C>             <C>             <C>             <C>
Numerator:
Net loss .............................   $ (7,107,470)   $ (3,327,046)   $(19,608,727)   $(15,903,521)
Preferred dividends ..................        (42,894)       (377,105)       (342,737)       (739,991)
Preferred stock deemed dividends .....       (687,034)           --        (1,710,139)           --
                                         ------------    ------------    ------------    ------------
Numerator for basic and diluted ......   $ (7,837,398)   $ (3,704,151)   $(21,661,603)   $(16,643,512)
                                         ============    ============    ============    ============

Denominator:
Weighted average shares - basic ......     20,246,652      15,778,005      19,263,128      15,029,335
Effect of warrants ...................           --              --              --           155,898
Effect of convertible preferred shares      1,027,047       1,978,024       1,062,117       2,534,566
Effect of stock options ..............         31,522       1,336,903          98,123       1,461,740
                                         ------------    ------------    ------------    ------------
Adj. weighted average shares - diluted     21,305,221      19,092,932      20,423,368      19,181,539
                                         ============    ============    ============    ============

Net loss per share - basic ...........   $      (0.39)   $      (0.23)   $      (1.12)   $      (1.11)
                                         ============    ============    ============    ============

Net loss per share - diluted .........   $      (0.39)   $      (0.23)   $      (1.12)   $      (1.11)
                                         ============    ============    ============    ============
</TABLE>

12.      STOCK-BASED COMPENSATION PLANS

         The Company's 2004 Option Plan (the "Plan") was authorized by the Board
of Directors of the Company in March 2004,  and amended in January 2005 and July
2007.  Under the terms of the Plan,  stock  options may be granted to  officers,
directors,  employees,  and others.  At September 30, 2007,  4,450,000 shares of
common stock were  authorized  for issuance  under the Plan.  Shares  subject to
awards  that  expire  unexercised  or are  otherwise  terminated,  again  become
available for awards.  Upon exercise,  stock is issued from unissued or treasury
shares.  The grant  price of an  option  under the Plan may not be less than the
fair  market  value of the common  stock  subject to such  option on the date of
grant.  Options  have a  maximum  life of ten years and vest 25% per year over a
four year period.

         During the three months ended  September 30, 2007 and 2006, the Company
recognized  $284,593  and  $1,308,880,  respectively,  of  compensation  expense
related to stock options,  respectively.  During the nine months ended September
30, 2007 and 2006, the Company recognized $752,726 and $2,012,820, respectively,
of compensation expense related to stock options, respectively.


                                       16
<PAGE>


                               NATIONAL COAL CORP.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                                   (UNAUDITED)

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

                                      THREE MONTHS ENDED       NINE MONTHS ENDED
                                         SEPTEMBER 30,            SEPTEMBER 30,
                                       -----------------       -----------------
                                        2007        2006        2007        2006
                                       -----       -----       -----       -----

Expected term (years) ..........        6.25        6.25        6.25        6.25
Risk-free interest rates .......        4.4%        4.9%        4.5%        4.9%
Expected dividend yield ........        0.0%        0.0%        0.0%        0.0%
Expected volatility ............       51.1%       54.2%       52.1%       53.9%


         The risk-free  interest rate is based on the U.S. Treasury rate for the
expected life at the time of grant, volatility is based on the average long-term
implied  volatilities  of peer  companies as the  Company's  trading  history is
limited,  and the expected term is  determined  using the  SIMPLIFIED  method as
accepted under Securities and Exchange  Commission Staff Accounting Bulletin No.
107  assuming a ten-year  original  contract  term and graded  vesting over four
years. The  weighted-average  grant-date fair value of options issued during the
three  months  ended   September  30,  2007  and  2006  were  $1.64  and  $3.11,
respectively.  The  weighted-average  grant-date  fair value of  options  issued
during the nine months ended  September  30, 2007 and 2006 were $2.14 and $3.68,
respectively.  The total intrinsic value of options  exercised  during the three
months ended  September  30, 2006 was  $223,362.  The total  intrinsic  value of
options  exercised during the three and nine months ended September 30, 2006 was
$952,500 and $1,619,063,  respectively.  There were no options  exercised during
the three or nine month period ended September 30, 2007.

         The following  table  summarizes  activity  under the Plan for the nine
months ended September 30, 2007:

<TABLE>
<CAPTION>
                                                                                    WEIGHTED
                                                                                    AVERAGE
                                                                  WEIGHTED         REMAINING         AGGREGATE
                                                OPTIONS           AVERAGE         CONTRACTUAL        INTRINSIC
                                              OUTSTANDING      EXERCISE PRICE    TERM (IN YEARS)       VALUE
                                            ---------------   ---------------   ---------------   ---------------
<S>                                               <C>         <C>                          <C>    <C>
Outstanding at December 31, 2006 ........         1,323,625   $          6.90              8.81
Granted .................................           200,000   $          3.83
Exercised ...............................              --                --
Forfeited ...............................           100,500   $          4.66
Expirations .............................              --                --
                                            ---------------   ---------------   ---------------   ---------------
Outstanding at September 30, 2007 .......         1,423,125   $          6.62              8.19   $        18,750
                                            ===============
Vested or expected to vest at
September 30, 2007 ......................         1,299,016   $          6.58              8.03   $        17,925
                                            ===============
Exercisable .............................           595,314   $          6.02              7.63   $        13,281
                                            ===============
</TABLE>

         As of September 30, 2007,  there was  $1,710,343 of total  unrecognized
compensation  cost related to non-vested  stock options  granted under the Plan.
That cost is expected to be  recognized  over a weighted  average  period of 2.1
years.  The total fair value of shares  vested  during  the three  months  ended
September 30, 2007 and 2006 was $402,618 and $1,436,250, respectively.


                                       17
<PAGE>


                               NATIONAL COAL CORP.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                                   (UNAUDITED)

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

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

         At the July 23, 2007 Annual Meeting of Shareholders of the Company, the
Company's  shareholders  approved an amendment to the Plan increasing the number
of shares  authorized  for issuance  under the Plan from 2,750,000 to 4,450,000.
The Company intends to include those shares on a Registration  Statement on Form
S-8 to be filed with the SEC as soon as is  practicable.  At September 30, 2007,
there were 2,080,125 shares available for grant under the plan.

13.      COMMITMENTS AND CONTINGENCIES

         During  2005,  the  Company  was  audited  by  its  previous   workers'
compensation insurance provider which contends that an additional  approximately
$1.4 million in premiums is owed for the year ended April 15,  2005.  The matter
primarily  involved the  application  of premium  rates to employees  performing
certain  job  functions.  In January  2006,  the  Company  paid  $427,000 to the
previous insurance  provider.  The Company made an offer to settle in March 2007
which was accepted  and  subsequently  rejected by the  insurance  company.  The
Company filed a Motion with the Court to enforce the settlement  accepted by the
insurance  company.  The Court  granted the Motion to enforce the  settlement in
August 2007 and the Company  paid  $300,000  to the  insurance  provider in full
settlement of the claim.  The District  Court  subsequently  entered an Order of
Dismissal by agreement of the parties.

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

14.      RELATED PARTY TRANSACTIONS

         On February  28,  2007,  the  Company  signed  definitive  subscription
agreements to sell three million  shares of its common stock at the February 28,
2007  closing  consolidated  bid price of $4.65 per share.  Daniel  Roling,  the
Company's President and CEO, purchased 200,000 of these shares for a total price
of $930,000. The sale was completed on March 1, 2007.

         In March 2007, the  then-Chairman  of the Company's Board of Directors,
who is also the former President and CEO and a significant shareholder,  sold to
the current  President  and CEO for $10.00 the fully  vested  option to purchase
400,000  shares of  National  Coal Corp.  common  stock at $7.00 per share until
December  31,  2008.  The   transaction   resulted  in  $434,493  of  additional
compensation expense to the Company in the nine months ended September 30, 2007.


                                       18
<PAGE>


                               NATIONAL COAL CORP.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                                   (UNAUDITED)

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

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

15.      ACQUISITION

         On June 18,  2007,  the  Company  entered  into that  certain  Purchase
Agreement (the  "Purchase  Agreement")  with Mann Steel  Products,  Inc.  ("Mann
Steel"),  Frank C. Mann, II and William T. Mann  (collectively  the  "Sellers"),
pursuant  to which the Company  agreed to  purchase  from the Sellers all of the
outstanding  equity interests of Mann Steel for a purchase price of $55 million.
Mann Steel mines coal from surface  mines on several  properties in the State of
Alabama.

         The Purchase  Agreement was amended on two occasions.  The Amendment to
the  Purchase  Agreement  dated August 22, 2007 (the "First  Amendment"),  among
other things,  postponed  (i) until August 27, 2007 the date on which  obtaining
the  approval  of the  Company's  board of  directors  for the  acquisition  and
completion of a due diligence  review of Mann Steel would cease to be conditions
to the Company's obligations to consummate the transaction, (ii) until September
10, 2007 the date on which  completion  of lenders' due  diligence  review would
cease  to  be a  condition  to  the  Company's  obligations  to  consummate  the
transaction,  and (iii) until  October 15, 2007 the date on which  either  party
could  terminate  the  Purchase  Agreement in the event that the closing had not
occurred prior to that date.

         The  Purchase  Agreement  was  further  amended  on October  15,  2007.
Pursuant to the  Assignment  and Second  Amendment  dated  October 15, 2007 (the
"Assignment and Second Amendment"),  the Company assigned all of it's rights and
obligations  under the  Purchase  Agreement  and all related  agreements  to NCC
Corp., an Alabama corporation and the Company's  wholly-owned  subsidiary formed
specifically  to acquire Mann Steel.  The Assignment  and Second  Amendment also
amended the Purchase Agreement to provide for the deduction from the $55,000,000
purchase  price of (i)  $1,900,000 to be placed in escrow for payment to certain
key  employees  of Mann Steel and (ii) the total  amount on the closing  date of
Mann Steel's  indebtedness to certain parties.  In addition,  the Assignment and
Second Amendment postponed until October 17, 2007 the date on which either party
could  terminate  the  Purchase  Agreement in the event that the closing had not
occurred prior to that date.

         On  October  19,  2007,   NCC  Corp.   consummated   the   transactions
contemplated under the Purchase Agreement. At the closing NCC Corp. acquired all
of the  outstanding  stock of Mann  Steel  for an  aggregate  purchase  price of
$55,000,000  less (i)  $1,900,000  placed in escrow for  payment to certain  key
employees  of  Mann  Steel,   and  (ii)  $7,406,745  for  repayment  of  certain
indebtedness  of Mann  Steel  that  existed  at  closing.  Mann  Steel  became a
wholly-owned  subsidiary  of NCC Corp.  and changed its name to National Coal of
Alabama, Inc.

         On October 19, 2007, the Company completed  approximately $11.6 million
in private  placements  through the issuance of  3,866,968  shares of our common
stock at a per share price of $3.00 (the "Equity  Financing").  The Company sold
these  securities  to the  following  investors  (the  "Investors")  pursuant to
Subscription  Agreements  entered into on October 17, 2007:  Steelhead  Offshore
Capital,  LP, J-K Navigator Fund, L.P., Jayvee & Co., GF Aurum Offshore Partners
LTD, GF Aurum Partners LTD,  Geologic  Resource Fund LP, Geologic Resource Fund,
Ltd.,  Drawbridge  Global Macro  Master Fund Ltd.,  William T. Mann and Frank C.
Mann,  II.  The net  proceeds  received  in the  Equity  Financing  were used to
capitalize NCC Corp.


                                       19
<PAGE>


                               NATIONAL COAL CORP.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                                   (UNAUDITED)

         In  connection  with the Equity  Financing,  on October 19,  2007,  the
Company also entered into a Registration Rights Agreement dated October 17, 2007
with the Investors  and NCC Corp.,  pursuant to which,  among other things,  the
Company agreed to provide certain  registration  rights under the Securities Act
of 1933, as amended (the "Securities Act"), and applicable state securities laws
for the shares or the  Company's  common stock sold in the Equity  Financing and
issuable under a warrant to purchase the Company's common stock initially issued
to NCC Corp. to capitalize NCC Corp. The Registration  Rights Agreement provides
that if (i) the  Company  does not file a  registration  statement  on or before
April 15, 2008,  (ii) a registration  statement is not declared  effective on or
prior to July 31, 2008, or (iii) after its  effective  date sales cannot be made
pursuant to the registration  statement for any reason other than as excepted in
the Registration  Rights  Agreement,  then the Company must pay to each Investor
and NCC Corp. (or any assignee thereof) for each calendar month during which any
of the  foregoing  events  continues,  an amount in cash as  partial  liquidated
damages equal to $0.03 for each share of common stock held by such Investors or,
in the case of NCC Corp.,  1% of the  product  obtained by  multiplying  (a) the
market value of a share of common stock (less the per share exercise price under
the  warrant)  as of the first  trading  day of each  month by (b) the number of
shares for which NCC Corp.'s warrant is exercisable,  except where the per share
exercise  price  exceeds  the  market  value on the  first  trading  day of each
applicable month.

         On October 19, 2007, the Company  capitalized NCC Corp. in part through
the issuance of a warrant dated October 19, 2007 to purchase  250,000  shares of
our common  stock at a per share price of $4.00 and a term  expiring on December
31, 2010.  NCC Corp.  assigned this warrant to National  Coal of Alabama,  Inc.,
which  further  assigned  the warrant to the Holders on October  19,  2007.  The
shares  issuable  upon  exercise of this  warrant have the  registration  rights
provided for in the  Registration  Rights  Agreement  entered into in connection
with the Equity  Financing.  The Company  paid fees of $1.1  million and 175,000
shares  of the  Company's  common  stock  to a broker  who  assisted  with  this
transaction.

         On  October  19,  2007,  the  Company's  newly  acquired,  wholly-owned
subsidiary,  National Coal of Alabama, Inc. (formerly Mann Steel Products, Inc.)
completed $60 million in private  placements (the "Debt Financing")  through the
issuance of Senior Secured Notes (the "Notes") to TCW Energy Fund XIV, L.P., TCW
Energy Fund XIV-A, L.P. and TCW Energy Fund XIV (Cayman), L.P. (collectively the
"Holders")  pursuant to a Note Purchase  Agreement dated October 19, 2007, among
National Coal of Alabama,  Inc.,  the Holders and TCW Asset  Management  Company
("TAMCO").  The Notes  have a  maturity  date of  October  19,  2012 and  accrue
interest at the rate of 12% per annum  compounded  quarterly  on each  quarterly
payment date to the extent not paid. In lieu of paying interest due on the Notes
on each  quarterly  payment date in full in cash,  National  Coal of Alabama may
elect to pay a portion of such  interest in cash equal to the amount of interest
which would be owing on such  quarterly  payment date if the  interest  rate had
been 9% per annum,  and to borrow the remaining  portion from the Holders in the
form of additional  loans made through the increase of the principal  amounts of
the Notes.

         On each quarterly payment date from and after March 2008, National Coal
of Alabama is required to make a principal payment in respect of the Notes in an
aggregate amount equal to the adjusted net cash flow for the applicable  quarter
(as specified in the Note Purchase  Agreement),  provided that in no event shall
National  Coal of  Alabama be  required  to make a payment  that  results in its
having cash and cash  equivalents  (exclusive  of any cash and cash  equivalents
that have been  pledged to secure  other  obligations  permitted  under the Note
Purchase  Agreement or that otherwise  constitutes  "restricted  cash" permitted
under the Note Purchase Agreement) of less than $2,000,000.  Certain amounts may


                                       20
<PAGE>


                               NATIONAL COAL CORP.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                                   (UNAUDITED)

also be set aside to fund ongoing capital expenditures. National Coal of Alabama
is also  required  to repay  outstanding  amounts  upon  the sale of  collateral
approved by the Holders of a majority of the aggregate  unpaid  principal amount
under the Notes and upon the receipt of certain casualty insurance proceeds.  In
addition, National Coal of Alabama will be required to pay a "make-whole" amount
or incur a  prepayment  premium in the event that it prepays  the Notes prior to
their stated maturity.

         Pursuant  to the  terms  of the Note  Purchase  Agreement  and  related
security and pledge  agreements,  all dated  October 19, 2007,  National Coal of
Alabama  granted  the Holders a security  interest  in all of that  subsidiary's
assets to secure  repayment of the  obligations  arising under the Note Purchase
Agreement and related agreements, and established a debt service reserve account
equal to six months of  interest  on the then  outstanding  aggregate  principal
amount of the Notes.

         As additional  consideration  to the Holders,  National Coal of Alabama
conveyed to the Holders an  Overriding  Royalty  Interest  with  respect to coal
mined by  National  Coal of Alabama  in the State of  Alabama.  Pursuant  to the
Conveyance of Overriding Royalty Interest, dated October 19, 2007, National Coal
of Alabama  agreed to pay the holders of the  interest a royalty on 18.5 million
tons of coal mined and sold by National  Coal of Alabama,  in an amount equal to
(i)  $2.00  per  ton of  coal  mined  and  sold  while  the  obligations  remain
outstanding under the Note Purchase Agreement, and (ii) an amount equal to 1% of
the gross sales price of coal mined and sold after  repayment of the obligations
under the Note Purchase Agreement.

         National Coal of Alabama used the proceeds  from the Debt  Financing to
make a distribution to NCC Corp., its sole  shareholder,  to enable NCC Corp. to
pay the purchase price to the Sellers of Mann Steel,  to repay  indebtedness  of
National Coal of Alabama existing on the closing date of the Debt Financing,  to
pay closing expenses,  costs and fees, to cash  collateralize  reclamation bonds
issued by Indemnity  National Insurance Company for the account of National Coal
of Alabama,  to fund the debt service  reserve  account and to pay other amounts
permitted under the Note Purchase Agreement.  National Coal of Alabama also paid
to TAMCO a commitment  fee of $900,000,  which is equal to 1.5% of the aggregate
commitments of $60 million under the Note Purchase.

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

         National  Coal  of  Alabama,  Inc.  is  restricted  in its  ability  to
distribute cash to the Company under the terms of the TCW credit facility. On an
annual basis,  National Coal of Alabama can distribute  cash to the Company only
if it meets certain  EBITDA based  operating  requirements  for the  immediately
preceding fiscal year.  Additionally,  the Company's  subsidiary,  National Coal
Corporation, has entered into a management services agreement with National Coal
of Alabama,  Inc. that  compensates the Company for services that it provides to
National Coal of Alabama,  and a tax sharing  agreement  that requires  National
Coal  of  Alabama  to pay to the  Company  75% of its  tax  liability.  For  the


                                       21
<PAGE>


                               NATIONAL COAL CORP.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                                   (UNAUDITED)

remainder  of fiscal 2007 and fiscal  2008,  however,  the  Company  anticipates
National  Coal of Alabama's  operations  to provide  limited cash for use at the
corporate level.

16.      EVENTS SUBSEQUENT TO SEPTEMBER 30, 2007

         Between October 1, 2007 and November 12, 2007,  holders of 40.00 shares
of our  Series  A  convertible  preferred  stock  with  liquidation  preferences
totaling  approximately  $600,000  plus accrued  dividends of $23,533  converted
their shares into 107,692 shares of our common stock.  The holders were provided
with an  inducement to convert in the form of an  additional  100,154  shares of
common  stock with an aggregate  market value of $310,675.  The holders of 223.1
shares of the Series A cumulative convertible preferred stock were provided with
a  $1,648,168  cash  inducement  to convert  their  shares  within sixty days of
October 16, 2007. As a condition of the cash  inducement  the holders  purchased
558,701  shares of the Company's  common stock at $2.95 per share.  The combined
$1,958,843  value of these  inducements  was  recorded  as a deemed  dividend to
reflect the excess of the fair value of the common  stock over the fair value of
the Series A preferred stock exchanged.

         On October 19, 2007, the Company acquired Mann Steel Products,  Inc. as
described at Note 15 ACQUISITION.

                                       22
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         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, 2006 and presumes  that readers have access to, and will have read,
the "Management's  Discussion and Analysis of Financial Condition and Results of
Operations"  and other  information  contained in such Form 10-K.  The following
discussion  and  analysis  also  should  be read  together  with  our  condensed
consolidated  financial  statements and the notes to the condensed  consolidated
financial statements included elsewhere in this Form 10-Q.

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

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

         o        the worldwide demand for coal;

         o        the price of coal;

         o        the supply of coal and other competitive factors;

         o        the costs to mine and transport coal;

         o        the ability to obtain new mining permits;

         o        the costs of reclamation of previously mined properties;

         o        the risks of expanding coal production;

         o        industry competition;

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

         o        general economic conditions;


                                       23
<PAGE>


         o        our ability to successfully  integrate Mann Steel's operations
                  with our operations; and

         o        other  factors   discussed  under  the  headings   "Cautionary
                  Statements   and  Risk   Factors"   and   elsewhere   in  this
                  "Management's  Discussion and Analysis of Financial  Condition
                  and Results of Operations."

         Forward-looking  statements speak only as of the date of this quarterly
report. You should not put undue reliance on any forward-looking statements. The
Company strongly encourages investors to carefully read the factors described in
the Company's Annual Report on Form 10-K for the year ended December 31, 2006 in
the section entitled "Risk Factors" and the risk factors described  elsewhere in
this report for a description  of certain risks that could,  among other things,
cause  actual  results to differ  from  these  forward-looking  statements.  The
Company  assumes  no  responsibility  to update the  forward-looking  statements
contained in this quarterly report on Form 10-Q.

OVERVIEW

         We mine, process and sell high quality bituminous steam coal from mines
located in East  Tennessee and  Southeastern  Kentucky.  We own the coal mineral
rights  to  approximately   74,600  acres  of  land  and  lease  the  rights  to
approximately   40,900   additional  acres.  We  have  expanded  our  operations
considerably  since commencing  operations at a single surface mine in Tennessee
in July 2003.  As of  September  30,  2007,  our mining  complexes  included two
underground  mines,  two surface mines,  and one highwall mine. In addition,  we
have four preparation  plants,  two active and two inactive,  and two unit train
loading  facilities,  both active,  and one  twenty-four  hour loadout  which is
inactive,  served by the CSX and  Norfolk  Southern  ("NS")  railroads.  We hold
permits  that allow us to open seven new mines close to our current  operations.
As of September  30, 2007, we controlled  approximately  35.4 million  estimated
recoverable  tons. During the nine months ended September 30, 2007, we generated
total  revenues  of  approximately  $58.8  million,   incurred  a  net  loss  of
approximately  $19.6  million  and EBITDA  loss (See  EBITDA NOTE below) of $3.0
million and sold  approximately  1,150,000  tons of coal. Our goal is to acquire
additional  mines and  increase  production  from  existing  reserves  as market
conditions allow.

         Our revenues have resulted  primarily from the sale of coal to electric
utility  companies  in the  Southeastern  United  States.  According to the U.S.
Department of Energy, Energy Information  Administration  ("EIA"), the long-term
outlook  for coal  demand  in the  Southeast  is  favorable,  as coal  generated
electricity in our region is expected to grow at a rate of 2.5% per year. During
the nine months ended September 30, 2007, approximately 89.2% of our revenue was
generated  from coal sales to electric  utility  companies  in the  Southeastern
United  States.  Our  largest  customers  were  South  Carolina  Public  Service
Authority  (Santee  Cooper),   Duke  Power,  and  Georgia  Power,   representing
approximately  33.5%, 25.1% and 17.2% of our revenues,  respectively.  We sell a
majority of our coal  pursuant  to  long-term  contracts.  We  regularly  pursue
additional long-term contracts at favorable prices.

   EBITDA NOTE:

   EBITDA is  defined as net loss plus (i) other  (income)  expense,  net,  (ii)
   interest expense, (iii) depreciation,  depletion,  accretion and amortization
   minus  (iv)  interest  income.  Adjusted  EBITDA is  defined  as EBITDA  plus
   stock-based  compensation expense and certain non-recurring items. We present
   EBITDA  and  Adjusted  EBITDA  to  enhance  understanding  of  our  operating
   performance.  We use EBITDA and Adjusted  EBITDA as a criteria for evaluating
   our performance  relative to that of our peers,  including measuring our cost
   effectiveness  and return on capital,  assessing our allocations of resources
   and production  efficiencies and making  compensation  decisions.  We believe
   that  EBITDA and  Adjusted  EBITDA are  operating  performance  measure  that
   provides  investors and analysts with a measure of our operating  performance
   and  permits  them  to  evaluate  our  cost   effectiveness   and  production


                                       24
<PAGE>


   efficiencies relative to competitors. In addition, our management uses EBITDA
   and Adjusted EBITDA to monitor and evaluate our business operations. However,
   EBITDA and Adjusted  EBITDA are not  measurements  of  financial  performance
   under  accounting  principles  generally  accepted  in the  United  States of
   America ("GAAP") and may not be comparable to other similarly titled measures
   of other  companies.  EBITDA and Adjusted  EBITDA should not be considered as
   alternatives  to  cash  flows  from  operating   activities,   determined  in
   accordance with GAAP, as indicators of cash flows.  The following  reconciles
   our net loss to EBITDA and Adjusted EBITDA:

<TABLE>
<CAPTION>
                                               Three Months Ended               Nine Months Ended
                                                  September 30,                   September 30,
                                          ----------------------------    ----------------------------
                                              2007            2006            2007            2006
                                          ------------    ------------    ------------    ------------
<S>                                       <C>             <C>             <C>             <C>
Net loss ..............................   $ (7,107,470)   $ (3,327,046)   $(19,608,727)   $(15,903,521)
Other (income) expense, net(1) ........       (451,803)         46,459      (1,204,096)       (801,194)
Interest expense ......................      2,194,661       1,673,464       6,515,214       5,401,498
Depreciation, depletion, amortization,
and accretion .........................      4,047,671       3,812,736      11,340,326      11,726,482
                                          ------------    ------------    ------------    ------------
EBITDA ................................   $ (1,316,941)   $  2,205,613    $ (2,957,283)   $    423,265
Stock based compensation expense(2),(3)        277,587       1,308,880       1,187,219       2,012,820
Non-recurring item: Highwall miner and
insurance recovery ....................           --        (1,866,909)           --            50,000
                                          ------------    ------------    ------------    ------------
Adjusted EBITDA .......................   $ (1,039,354)   $  1,647,584    $ (1,770,064)   $  2,486,085
                                          ============    ============    ============    ============
</TABLE>

(1) For the three months ended September 30, 2006, figure includes $259,158 loss
related to the demolition of a preparation plant and a $44,077 net gain on asset
disposal.

(2) For the three months ended  September  30, 2006,  figure  includes  $941,961
attributable to the  accelerated  vesting of options held by the former CEO, the
former General Counsel and Secretary,  who is also the spouse of the former CEO,
and the former COO.

(3) Includes  $434,493  attributable  to options sold to the  President  and CEO
during  the first  quarter of 2007 by the  Chairman  of the  Company's  Board of
Directors who is also the former President and CEO.

MANN STEEL PRODUCTS, INC. ACQUISITION

         On June 18, 2007, we entered into a Purchase  Agreement  (the "Purchase
Agreement") with Mann Steel Products, Inc. ("Mann Steel"), Frank C. Mann, II and
William T. Mann  (collectively  the  "Sellers"),  pursuant to which we agreed to
purchase from the Sellers all of the outstanding  equity interests of Mann Steel
for a purchase price of $55 million. Mann Steel mines coal from surface mines on
several properties in the State of Alabama.


                                       25
<PAGE>


         We amended the Purchase  Agreement on two  occasions.  The Amendment to
the  Purchase  Agreement  dated August 22, 2007 (the "First  Amendment"),  among
other things,  postponed  (i) until August 27, 2007 the date on which  obtaining
the approval of our board of directors for the acquisition and completion of our
diligence  review of Mann Steel would cease to be conditions to our  obligations
to consummate the  transaction,  (ii) until September 10, 2007 the date on which
completion of our lenders' diligence review would cease to be a condition to our
obligations to consummate the transaction,  and (iii) until October 15, 2007 the
date on which either party could  terminate the Purchase  Agreement in the event
that the closing had not occurred prior to that date.

         We further amended the Purchase Agreement on October 15, 2007. Pursuant
to the Assignment and Second  Amendment dated October 15, 2007 (the  "Assignment
and Second Amendment"),  we assigned all of our rights and obligations under the
Purchase  Agreement  and  all  related  agreements  to  NCC  Corp.,  an  Alabama
corporation  and our  wholly-owned  subsidiary  that we formed  specifically  to
acquire  Mann  Steel.  The  Assignment  and Second  Amendment  also  amended the
Purchase  Agreement to provide for the deduction from the  $55,000,000  purchase
price of (i)  $1,900,000  to be placed in escrow  for  payment  to  certain  key
employees  of Mann Steel and (ii) the total  amount on the closing  date of Mann
Steel's indebtedness to certain parties. In addition,  the Assignment and Second
Amendment  postponed until October 17, 2007 the date on which either party could
terminate the Purchase  Agreement in the event that the closing had not occurred
prior to that date.

         On  October  19,  2007,   NCC  Corp.   consummated   the   transactions
contemplated under the Purchase Agreement. At the closing NCC Corp. acquired all
of the  outstanding  stock of Mann  Steel  for an  aggregate  purchase  price of
$55,000,000  less (i)  $1,900,000  placed in escrow for  payment to certain  key
employees  of  Mann  Steel,   and  (ii)  $7,406,745  for  repayment  of  certain
indebtedness  of Mann  Steel  that  existed  at  closing.  Mann  Steel  became a
wholly-owned  subsidiary  of NCC Corp.  and changed its name to National Coal of
Alabama, Inc.

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

         National  Coal  of  Alabama,  Inc.  is  restricted  in its  ability  to
distribute cash to us under the terms of the TCW credit  facility.  On an annual
basis,  National  Coal of  Alabama  can  distribute  cash to us only if it meets
certain EBITDA based operating requirements for the immediately preceding fiscal
year.  Additionally,  we have entered into a management  services agreement with
National Coal of Alabama,  Inc. that compensates us for services that we provide
to National Coal of Alabama,  and a tax sharing agreement that requires National
Coal of Alabama to pay us 75% of its tax liability.  For the remainder of fiscal
2007  and  fiscal  2008,  however,  we  anticipate  National  Coal of  Alabama's
operations to provide limited cash for use at the corporate level.


                                       26
<PAGE>


RECENT ACCOUNTING PRONOUNCEMENTS

         In June  2006,  the FASB  issued  Interpretation  No.  48  ("FIN  48"),
ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES--AN  INTERPRETATION OF FASB STATEMENT
NO. 109. FIN 48 prescribes a recognition threshold and measurement attribute for
the financial  statement  recognition and measurement of a tax position taken or
expected  to  be  taken  in  a  tax  return.   It  also  provides   guidance  on
derecognition,  classification,  interest and  penalties,  accounting in interim
periods,  disclosure  and  transition.  FIN 48 is  effective  for  fiscal  years
beginning  after December 15, 2006. We have  determined that FIN 48 will have no
material impact on our financial position and results of operations.

         We  adopted  the  provisions  of FIN No. 48 on  January 1, 2007 with no
impact to retained  earnings.  We have  determined that we have no uncertain tax
positions.

         Due to the existence of net operating  loss ("NOL")  carryforwards,  we
have not currently accrued interest on any of our unrecognized tax benefits.  If
the accrual of  interest or  penalties  becomes  appropriate,  we will record an
accrual in our income tax provision.

         Our Federal and state income tax returns for the years 2003 (inception)
and beyond remain  subject to examination  by the Internal  Revenue  service and
various state taxing authorities.

         In September  2006, the FASB issued  Statement of Financial  Accounting
Standards No. 157, FAIR VALUE  MEASUREMENTS  ("SFAS 157"). SFAS 157 defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about  fair  value  measurements.   SFAS  157  applies  under  other  accounting
pronouncements  that  require  or permit  fair value  measurements.  SFAS 157 is
effective  prospectively  for fiscal years beginning after November 15, 2007 and
interim  periods  within that fiscal year.  We are still  analyzing  SFAS 157 to
determine the impact of adoption.

         In February  2007,  the FASB issued  Statement of Financial  Accounting
Standards  No. 159, THE FAIR VALUE  OPTION FOR  FINANCIAL  ASSETS AND  FINANCIAL
LIABILITIES ("SFAS 159"). SFAS 159 provides entities with the one-time option to
measure  financial  instruments  and certain  other  items at fair  value,  with
changes in fair value  recognized  in  earnings  as they  occur.  The fair value
option  may be  applied  instrument  by  instrument  with a few  exceptions,  is
irrevocable,  and must be applied to entire  instruments  and not portions of an
instrument.

         SFAS 159 is effective for financial  statements issued for fiscal years
beginning  after  November 15, 2007. The Company does not expect the adoption of
SFAS 159 to have a  material  impact on its  financial  position  or  results of
operations.


                                       27
<PAGE>


RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                               Three Months Ended             Nine Months Ended
                                                  September 30,                 September 30,
                                            -------------------------     -------------------------
                                               2007           2006           2007           2006
                                            ----------     ----------     ----------     ----------
<S>                                              <C>            <C>            <C>            <C>
Revenues ................................        100.0%         100.0%         100.0%         100.0%
                                            ----------     ----------     ----------     ----------
Operating expenses:
    Cost of sales .......................         98.3           74.5           96.0           88.3
    Depreciation, depletion, amortization
       and accretion ....................         19.4           18.1           19.3           17.8
    General and administrative ..........          8.0           15.0            9.1           11.1
                                            ----------     ----------     ----------     ----------
    Total operating expenses ............        125.7          107.6          124.4          117.2
                                            ----------     ----------     ----------     ----------
Loss from operations ....................        (25.7)          (7.6)         (24.3)         (17.2)
Other income (expense):
    Interest expense ....................        (10.5)          (7.9)         (11.1)          (8.2)
    Other income (expense), net .........          2.2           (0.3)           2.1            1.2
                                            ----------     ----------     ----------     ----------
Net loss ................................        (34.1)         (15.8)         (33.4)         (24.2)
                                            ==========     ==========     ==========     ==========
</TABLE>

COMPARISON  OF THREE  MONTHS  ENDED  SEPTEMBER  30, 2007 AND THREE  MONTHS ENDED
SEPTEMBER 30, 2006

         PRODUCTION

         In the three  months  ended  September  30,  2007 and  2006,  our mines
produced 288,179 and 360,628 tons of coal, respectively, as follows:

<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED SEPTEMBER 30,
                                         --------------------------------------------------
                                            2007           %           2006           %
                                         ----------   ----------    ----------   ----------
<S>                                         <C>            <C>         <C>            <C>
Surface mines ........................       99,074         25.6%      114,843         26.7%
Highwall mines .......................       41,187         10.6%       81,044         18.9%
Underground mines ....................      147,918         38.5%      164,741         38.3%
                                         ----------   ----------    ----------   ----------
Total tons produced ..................      288,179         74.7%      360,628         83.9%
Coal purchased .......................       97,912         25.3%       69,130         16.1%
                                         ----------   ----------    ----------   ----------
Total tons available .................      386,091        100.0%      429,758        100.0%
                                         ==========                 ==========
Tons produced by contract miners
included in the above ................       99,896         25.9%      141,645         33.0%
</TABLE>


                                       28
<PAGE>


         REVENUES

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

<TABLE>
<CAPTION>
                                     Three Months Ended
                                        September 30,            Increase (decrease)
                                 -------------------------   --------------------------
                                     2007          2006           $              %
                                 -----------   -----------   -----------   ------------
<S>                              <C>           <C>           <C>                   <C>
Coal sales ...................   $20,561,737   $21,383,820   $  (822,083)          (3.8)
Tons sold ....................       405,685       409,215        (3,530)          (0.9)
Average  price per ton sold ..   $     50.68   $     52.26   $     (1.58)          (3.0)
</TABLE>

         The  decrease  in revenue  from coal sales for the three  months  ended
September  30,  2007 as  compared to the same period in 2006 was the result of a
$1.58  decline  in the  average  sales  price per ton on  relatively  flat sales
volume.  Other  revenues,  consisting  primarily of fees charged to another coal
producer  for  use of our  train  loading  facilities  and  the  recognition  of
previously deferred royalty revenue forfeited by a lessee of one of our Kentucky
properties,  represented  approximately  1.4% of total  revenues,  significantly
higher than the prior period at 0.2%.


         OPERATING EXPENSES

              COST OF SALES

<TABLE>
<CAPTION>
                                     Three Months Ended
                                        September 30,            Increase (decrease)
                                 -------------------------   --------------------------
                                     2007          2006           $              %
                                 -----------   -----------   -----------   ------------
<S>                              <C>           <C>           <C>                   <C>
Cost of sales ...............    $20,502,468   $16,050,268   $ 4,452,200           27.7
Tons sold ...................        405,685       409,215        (3,530)          (0.9)
Average cost per ton sold ...    $     50.54   $     39.22   $     11.32           28.9
</TABLE>

         Total  cost of sales  increased  27.7%  during the three  months  ended
September 30, 2007 as compared to the same three month period in 2006  primarily
as a result of a 19.8%  reduction  in the  volume of coal  produced  during  the
period  relative  to many  costs  that  are  fixed  in the  short  term  and the
offsetting  effect of $1.8 million in insurance  proceeds  received in September
2006 from a March 2006 claim  resulting from an accident at our highwall  mining
operation in Kentucky.  Excluding  the effect of the insurance  proceeds,  total
cost of sales  increased $2.6 million or 14.4% and the average cost per ton sold
increased $6.75 or 15.5%.  Notably,  purchased coal,  generally shipped directly
from third party producers to our customers, comprised 23.9% of tons sold during
the three months ended  September  30, 2007 as compared to 16.9% during the same
three month period in 2006  resulting in increased  expenditures  for  purchased
coal of $1.2 million or 43.3%.  Conversely,  tons mined on our reserves by third
party contractors  declined  approximately  28.7% to 101,035 tons resulting in a
decline in fees paid to third party  contractors  of  approximately  $817,000 or
26.9%. Cost of sales includes a 288.5%, or approximately  $398,000,  increase in
costs  associated  with idle  facilities  as the  result  of  idling  one of our
highwall miners, our newly renovated Baldwin facility,  and our Mine # 17 at the
beginning of 2007 due to an insufficiency  of existing sales contracts.  Royalty
expense  declined 12.5%, or  approximately  $124,000,  because we mined 18.6% of
total  production on owned reserves in our New River Tract in Tennessee  whereas
all coal  mined in the same  period  in 2006 was on leased  reserves.  Labor and
labor related expenses increased by approximately 3.4%, despite a slight decline
in gross payroll, primarily as a result of an increase in health insurance costs
and workers' compensation claims payments.


                                       29
<PAGE>


              DEPRECIATION, DEPLETION, AMORTIZATION, AND ACCRETION EXPENSE

<TABLE>
<CAPTION>
                                        Three Months Ended
                                           September 30,            Increase (decrease)
                                    -------------------------   --------------------------
                                        2007          2006           $              %
                                    -----------   -----------   -----------   ------------
<S>                                 <C>           <C>           <C>                   <C>
Depreciation, depletion,
amortization & accretion ........   $ 4,047,671   $ 3,812,736   $   234,935            6.2
Tons sold .......................       405,685       409,215        (3,530)          (0.9)
Average cost per ton sold .......   $      9.98   $      9.32   $      0.66            7.1
</TABLE>

         The  6.2%  increase  in  depreciation,   depletion,  amortization,  and
accretion  expense for the three months ended  September 30, 2007 as compared to
the  comparable  period  in  2006,  is  attributable  primarily  to the  Company
recording  additional  depletion expense in the three months ended September 30,
2007  totaling  approximately  $485,000 to correct the  recording  of  depletion
expense  related to certain mineral rights for the years ended December 31, 2005
and 2006 and the six months ended June 30, 2007. The impact of the errors during
those periods was not material.  Excluding this entry,  depreciation,  depletion
and  accretion  decreased  from  2006 to 2007  primarily  due to  reductions  in
depreciation and depletion from the sale-leaseback of one of our highwall miners
in September  2006 and the idling of certain  facilities  in January 2007 net of
the September 2007  depreciation of approximately  $4.9 million of new equipment
related to the opening of our Mine # 10 in Kentucky.  The cost  associated  with
the highwall miner is currently  reflected as operating lease expense in cost of
sales.

              GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>
                                        Three Months Ended
                                           September 30,            Increase (decrease)
                                    -------------------------   --------------------------
                                        2007          2006           $              %
                                    -----------   -----------   -----------   ------------
<S>                                 <C>           <C>           <C>                  <C>
General & administrative ........   $ 1,671,768   $ 3,173,000   $(1,501,232)         (47.3)
Tons sold .......................       405,685       409,215        (3,530)          (0.9)
Average cost per ton sold .......   $      4.12   $      7.75   $     (3.63)         (46.8)
</TABLE>

         The 47.3% decrease in general and administrative expenses for the three
months ended  September  30, 2007 as compared to the same period in the previous
year is primarily  attributable to the recognition of approximately  $942,000 of
stock-based   compensation  expense  in  September  2006  as  a  result  of  the
accelerated  vesting of stock options  granted to our former CEO, his spouse and
our former COO.  Additionally,  a reduction in corporate  positions  and various
cost savings  measures  instituted  during the year have resulted in a 12.8%, or
approximately  $126,000,  reduction in overall  labor  expenses and a 25.1%,  or
approximately   $559,000,   reduction  in  overall  general  and  administrative
expenses.

              OTHER INCOME (EXPENSE)

         The 31.1%  increase in  interest  expense  for the three  months  ended
September  30, 2007 as  compared  to the same three  month  period in 2006 is as
follows:


                                       30
<PAGE>


<TABLE>
<CAPTION>
                                        Three Months Ended
                                           September 30,            Increase (decrease)
                                    -------------------------   --------------------------
                                        2007          2006           $              %
                                    -----------   -----------   -----------   ------------
<C>                                 <C>           <C>           <C>                   <C>
10.5% Senior Secured Notes ......   $ 1,711,482   $ 1,504,299   $   207,183           13.8
Term Loan Credit Facility .......       338,660          --         338,660           --
Installment obligations & notes .        55,892        36,192        19,700           54.4
Capital lease obligations .......        81,127       132,973       (51,846)         (39.0)
Other ...........................         7,500          --           7,500           --
                                    -----------   -----------   -----------    -----------
  Total interest expense ........   $ 2,194,661   $ 1,673,464   $   521,197           31.1
                                    ===========   ===========    ===========
</TABLE>

         Interest income increased 66.1% to  approximately  $276,000 in the 2007
period  as a  result  of  increased  average  cash  balances.  Other  income  of
approximately $176,000 included the sale of mining equipment and a recoupment of
upgrades to a rail loading facility received from a rail carrier.


COMPARISON  OF NINE  MONTHS  ENDED  SEPTEMBER  30,  2007 AND NINE  MONTHS  ENDED
SEPTEMBER 30, 2006

         PRODUCTION

         In the nine  months  ended  September  30,  2007 and  2006,  our  mines
produced 831,987 and 1,043,597 tons of coal, respectively, as follows:

<TABLE>
<CAPTION>
                                                     NINE MONTHS ENDED SEPTEMBER 30,
                                         --------------------------------------------------
                                            2007           %           2006           %
                                         ----------   ----------    ----------   ----------
<S>                                       <C>              <C>       <C>              <C>
Surface mines ........................      282,646         24.0%      315,955         24.1%
Highwall mines .......................      110,463          9.5%      182,411         13.9%
Underground mines ....................      438,878         37.7%      545,231         41.7%
                                         ----------   ----------    ----------   ----------
Total tons produced ..................      831,987         71.2%    1,043,597         79.7%
Coal purchased .......................      336,839         28.8%      265,201         20.3%
                                                                    ----------   ----------
Total tons available .................    1,168,826        100.0%    1,308,798        100.0%
                                         ==========                 ==========
Tons produced by contract miners
included in the above ................      278,709         23.8%      473,576         36.2%
</TABLE>

         REVENUES

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


<TABLE>
<CAPTION>
                                        Nine Months Ended
                                           September 30,            Increase (decrease)
                                    -------------------------   --------------------------
                                        2007          2006           $              %
                                    -----------   -----------   -----------   ------------
<C>                                 <C>           <C>           <C>                   <C>
Coal sales ......................   $58,104,853   $65,498,659   $(7,393,806)         (11.3)
Tons sold .......................     1,145,477     1,236,953       (91,476)          (7.4)
Average price per ton sold ......   $     50.73   $     52.95   $     (2.22)          (4.2)
</TABLE>


                                       31
<PAGE>


         The  decrease  in  revenue  from coal sales for the nine  months  ended
September  30,  2007 as  compared to the same period in 2006 was the result of a
7.4% decline in sales volume due to the completion of existing  sales  contracts
in combination with a $2.22 decline in the average sales price per ton due to an
increased  reliance  on spot sales in an  unfavorable  market.  Other  revenues,
consisting  primarily of fees  charged to another  coal  producer for use of our
train loading  facilities,  represented  1.1% of total revenues or approximately
$670,000, up slightly from 0.8% or approximately $524,000 in the prior period.

OPERATING EXPENSES

              COST OF SALES

<TABLE>
<CAPTION>
                                        Nine Months Ended
                                           September 30,            Increase (decrease)
                                    -------------------------   --------------------------
                                        2007          2006           $              %
                                    -----------   -----------   -----------   ------------
<C>                                 <C>           <C>           <C>                   <C>
Cost of sales ...................   $56,406,293   $58,268,468   $(1,862,175)          (3.2)
Tons sold .......................     1,145,477     1,236,953       (91,476)          (7.4)
Average cost per ton sold .......   $     49.24   $     47.11   $      2.13            4.5
</TABLE>

         Total cost of sales declined 3.2% but increased $2.13 on a per ton sold
basis  during the nine months ended  September  30, 2007 as compared to the same
nine month period in 2006.  Cost of sales  expressed  as a  percentage  of total
revenues  increased  significantly  to 96.0% from  88.3% for the same  period in
2006.  The primary reason for the decrease in total cost of sales is the decline
in the volume of coal sold and produced during the period.  Notable fluctuations
in cost of sales  include  labor costs  which  increased  2.9% or  approximately
$268,000  as  the  result  of an  increase  in  professional  operations  staff,
increased  health  insurance  costs,  and an increase  in workers'  compensation
premiums  and  claims  payments  net of an 11.4%  reduction  in base  wages  and
overtime.  Costs associated with idle facilities  increased  approximately  $2.1
million,  a  nine-fold  increase,  primarily  as the result of idling one of our
highwall  miners,  our newly  renovated  Baldwin  facility,  and our short  line
railroad  at  the  beginning  of  2007.   Royalty  expense   declined  42.4%  or
approximately $1.5 million as the result of a temporary reduction in the royalty
rate at one of our mines and because of mining 19.2% of total production for the
2007 period on owned reserves in our New River Tract in Tennessee as compared to
only 3.6% in the same nine month period in 2006.

         Purchased coal,  generally  shipped directly from third party producers
to our  customers,  comprised  29.3% of tons sold during the nine  months  ended
September  30, 2007 as compared  to 21.4%  during the same nine month  period in
2006 resulting in increased  expenditures  for purchased coal of $2.7 million or
25.1%.  Conversely,  tons  mined  on our  reserves  by third  party  contractors
declined  41.9% to  275,303  tons  resulting  in a decline in fees paid to third
party contractors of approximately $4.9 million or 46.1%.

              DEPRECIATION, DEPLETION, AMORTIZATION, AND ACCRETION EXPENSE

<TABLE>
<CAPTION>
                                        Nine Months Ended
                                           September 30,            Increase (decrease)
                                    -------------------------   --------------------------
                                        2007          2006           $              %
                                    -----------   -----------   -----------   ------------
<C>                                 <C>           <C>           <C>                   <C>
Depreciation, depletion,
amortization & accretion ........   $11,340,329   $11,726,482   $  (386,156)          (3.3)
Tons sold .......................     1,145,477     1,236,953       (91,476)          (7.4)
Average cost per ton sold .......   $      9.90   $      9.48   $      0.42            4.4
</TABLE>


                                       32
<PAGE>


         The 3.3% decline in depreciation, depletion, amortization and accretion
expense  for the  nine  months  ended  September  30,  2007 as  compared  to the
comparable  period in 2006, is attributable  primarily to the Company  recording
additional  depletion  expense  in the nine  months  ended  September  30,  2007
totaling  $739,000 to correct the  recording  of  depletion  expense for certain
mineral rights for the years ended December 31, 2005 and 2006. The impact of the
errors  on  those  periods  was not  material.  The  decrease  in  depreciation,
depletion and accretion,  prior to those corrections,  is primarily attributable
to the decreased  depreciation  expense due to the  sale-leaseback of one of our
highwall miners in September 2006 and the idling of certain  facilities,  net of
one months' additional  depreciation on $4.9 million in new equipment  purchased
in August  2007.  The cost  associated  with this  highwall  miner is  currently
reflected  as  operating  lease  expense  in cost of  sales.  Accretion  expense
associated  with asset  retirement  obligations  and depletion and  amortization
expense increased  approximately  $439,000 as the result of opening new mines on
owned  reserves in the New River Tract in  Tennessee  and on leased  reserves in
Kentucky.

              GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>
                                        Nine Months Ended
                                           September 30,            Increase (decrease)
                                    -------------------------   --------------------------
                                        2007          2006           $              %
                                    -----------   -----------   -----------   ------------
<C>                                 <C>           <C>           <C>                   <C>
General & administrative .......    $ 5,325,676   $ 7,331,035   $(2,005,359)         (27.4)
Tons sold ......................      1,145,477     1,236,953       (91,476)          (7.4)
Average cost per ton sold ......    $      4.65   $      5.93   $     (1.28)         (21.6)
</TABLE>

         The 27.4% decrease in general and administrative  expenses for the nine
months ended  September  30, 2007 as compared to the same period in the previous
year is primarily  attributable to a reduction in corporate  positions resulting
in a 16.9%  reduction in salaries and related  expenses and the  recognition  of
approximately $942,000 of stock-based  compensation expense in September 2006 as
a result of the accelerated  vesting of stock options granted to our former CEO,
his  spouse  and  our  former  COO  net  of  a  27.5%  increase  in  stock-based
compensation  including the sale of 400,000 options by the Chairman of the Board
of  Directors  to  the  President  and  CEO,   which   resulted  in  stock-based
compensation  expense  of  approximately  $434,000  in March  2007.  Significant
decreases  totaling  approximately  $498,000 were also realized in  professional
fees, security, and travel.

              OTHER INCOME (EXPENSE)

         The 20.6%  increase  in  interest  expense  for the nine  months  ended
September  30,  2007 as  compared  to the same nine  month  period in 2006 is as
follows:

<TABLE>
<CAPTION>
                                        Nine Months Ended
                                           September 30,            Increase (decrease)
                                    -------------------------   --------------------------
                                        2007          2006           $              %
                                    -----------   -----------   -----------   ------------
<C>                                 <C>           <C>           <C>                   <C>
10.5% Senior Secured Notes ......   $ 5,225,165   $ 4,946,471   $   278,694            5.6
Term Loan Credit Facility .......       840,589          --     $   840,589           --
Installment obligations & notes .       103,723       101,274         2,449            2.4
Capital lease obligations .......       299,809       315,441       (15,632)          (5.0)
Other ...........................        45,928        38,312         7,616           19.9
                                    -----------   -----------   -----------    -----------
  Total interest expense ........   $ 6,515,214   $ 5,401,498   $ 1,113,716           20.6
</TABLE>

         Interest income increased 61.6% to  approximately  $883,000 in the 2007
period as a result  of  increased  average  cash  balances  while  other  income
declined  slightly from the prior year. Other income in the 2006 period included
a gain on the sale of equipment of a transportation subsidiary.


                                       33
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

         At September 30, 2007, we had cash and cash equivalents of $2.0 million
and  certificates of deposit  totalling  approximately  $1.1 million included in
other current assets and negative working capital of approximately  $6.3 million
as compared to negative  working  capital of $9.5  million at December 31, 2006.
Net  cash  flows  used in  operations  for  the  nine  months  then  ended  were
approximately $8.1 million as compared to $2.4 million provided by operations in
the nine months ended  September  30, 2006.  Currently,  our  operations  do not
generate  positive  cash flow and the ability to do so during the  remainder  of
2007 is dependent upon generating  additional spot sales and making  significant
improvements to operating efficiency.

         At September 30, 2007, we had a  stockholders'  deficit of $6.8 million
and had  incurred  net  losses  of $7.1  million  and $19.6  million,  excluding
preferred  stock and preferred  stock deemed  dividends,  for the three and nine
months then ended, respectively.  National Coal expects to continue to incur net
losses for the intermediate term.

         On October 19, 2007, the Company raised $12.2 million of  stockholders'
equity through two separate  transactions.  The first  transaction  involved the
sale of  3,866,968  shares of the  Company's  common stock at $3 per share for a
total of $11.6  million  which was  subsequently  invested  in the newly  formed
subsidiary NCC Corp. and its newly acquired subsidiary National Coal of Alabama,
Inc. (formerly Mann Steel Products,  Inc.). The second transaction  involved the
sale of 200,000 shares of the Company's common stock previously authorized under
the 2004 Stock Option Plan to the Company's CEO and President, Daniel Roling, at
$3 per share for a total of $600,000.

         We  invested   approximately   $9.0  million  in  equipment   and  mine
development  during the nine months ended  September 30, 2007. We intend to make
additional  capital  expenditures  of  approximately  $500,000 during the fourth
quarter of 2007 to complete ongoing capital projects related to mine development
in addition to routine capital expenditures estimated at $100,000 per month.

         In October 2007, we  experienced a higher than expected net use of cash
which  reduced  cash  balances to  approximately  $1.5 million as of November 1,
2007.  This net use of cash was  driven  primarily  by the  deferral  of certain
committed  sales  into  future  months  due  to  the   unavailability   of  rail
transportation and the loss of spot sales opportunities.

         In order to ensure adequate cash availability to cover operating costs,
interest and capital  expenditures,  the Company has initiated  several projects
intended  to  free  up cash  for  operational  uses.  We are  restructuring  our
reclamation  bonds in order to reduce the amount of cash collateral  required to
support  them which is expected to release  approximately  $1.5 million in cash.
Additionally,  on November 12, 2007, the Company  received  $2,000,000  from the
sale of certain  real  property  and mineral  leases at Pine  Mountain,  an idle
mining complex, and an additional $1,000,000 from the sale to the same purchaser
an option  entitling it to purchase  for $10.00  additional  properties  at Pine
Mountain.

         The Company's wholly-owned subsidiary,  National Coal of Alabama, Inc.,
will be  consolidated  on a  financial  reporting  basis,  but  will be  treated
primarily as a  stand-alone  entity,  and will provide some  positive  cash flow
benefit to the parent company.

         For the first quarter of 2008,  it is likely we will generate  negative
cash flow and our expected results are subject to a large degree of uncertainty.
Currently,  we have sold  approximately  28% of our  estimated  2008  production
volume  and we are  in  the  process  of  negotiating  various  long-term  sales
agreements with our customers and we may also have the opportunity to supplement
this with spot sales if the coal market improves.  We are currently producing on
an annualized basis approximately 1.4 million tons of coal.


                                       34
<PAGE>


         If we are  unable to  execute  our  operating  plans for  November  and
December  2007 and for the first  quarter of 2008  successfully,  including  the
initiatives  discussed  above,  we  will  not be  able  to  meet  our  liquidity
requirements and we will need to raise additional cash,  discontinue  operations
at some of our facilities,  or sell additional  assets.  There are no assurances
that  our  efforts  to  raise  additional  cash  would  be  successful  or  that
discontinuing  certain  operations  would generate  adequate savings to meet our
commitments.

         SALES COMMITMENTS

         At September 30, 2007, we had the following contractual  commitments to
ship coal at fixed prices subject to annual adjustment:

                                      ------------   ------------   ------------
CALENDAR YEAR                             TONS        AVG. $/ TON   DOLLAR VALUE
                                      ------------   ------------   ------------

2007 remaining ....................        349,363   $      51.58   $ 18,019,524
2008 ..............................        450,000          51.29     23,082,000
2009 ..............................        450,000          51.29     23,082,000
2010 ..............................        155,379          51.75      8,040,571
                                      ------------   ------------   ------------
    Total .........................      1,404,742   $      51.41   $ 72,224,095
                                      ============   ============   ============

         On November 14, 2007,  we executed a two year  contract with one of our
existing  customers  to sell  240,000  tons of  steam  coal  during  each of the
calendar years 2008 and 2009. We typically  sell our coal at a negotiated  price
per ton pursuant to contracts of twelve  months or greater.  For the nine months
ended September 30, 2007,  90.0% of coal tons sold was under contracts of twelve
months  or  greater.  Price  adjustment,  "price  reopener"  and  other  similar
provisions in certain of our contracts may reduce the protection from short-term
coal price volatility traditionally provided by such contracts. Most of our coal
supply  agreements  contain  provisions  requiring  us to deliver  coal  meeting
quality thresholds for certain  characteristics such as Btu, sulfur content, ash
content,   hardness   and  ash  fusion   temperature.   Variations   from  these
specifications typically result in economic penalties or premiums,  including in
extreme situations the rejection of deliveries,  which could result in higher or
lower revenues than those in the table above.


                                       35
<PAGE>


         DEBT OBLIGATIONS

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

                                                  SEPTEMBER 30,    DECEMBER 31,
                                                      2007             2006
                                                  ------------     ------------

10.5% Senior Secured Notes, due 2010 .........    $ 55,000,000     $ 55,000,000
Term Loan Credit Facility ....................      10,000,000        8,000,000
Bank note (prime + 1%), due 2007 .............          76,163          637,374
Installment purchase obligations, due 2008 ...         724,350        2,825,209
Installment purchase obligations, due 2009 ...       2,230,482        3,200,286
Installment purchase obligations, due 2010 ...       2,441,501             --
Installment purchase obligations, due 2012 ...       2,737,856             --
Equipment notes (7.83%-9.28%, due 2009) ......         153,385          125,382
Equipment note (4.48%, due 2009) .............         152,729          234,721
Other ........................................           3,721           89,512
Less unamortized discounts ...................      (2,795,936)      (3,298,679)
                                                  ------------     ------------
                                                    70,724,251       66,813,805
Less current portion of long-term debt .......      (3,989,038)      (4,720,671)
                                                  ------------     ------------
Long-term debt ...............................    $ 66,735,213     $ 62,093,134
                                                  ============     ============

              TERM LOAN CREDIT FACILITY

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

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

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

         On October 19, 2007, the lenders party to the credit agreement assigned
to  Steelhead  Offshore  Capital,  LP,  Big Bend 38  Investments  L.P.,  and J-K
Navigator Fund,  L.P., the our  outstanding  obligations to repay funds borrowed
pursuant  to  the  credit  agreement  in  the  aggregate   principal  amount  of


                                       36
<PAGE>


$10,000,000  and, to the extent  permitted to be assigned under  applicable law,
all claims,  suits,  causes of action and any other right of the lenders against
any person arising under or in connection with the credit agreement.  Guggenheim
remains as administrative agent under the credit agreement.

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

         On October 19, 2007,  the parties to the credit  agreement also entered
into a letter  agreement (the "Lender Fee Letter")  pursuant to which we agreed,
at our election and as compensation  for the Waiver and Amendment and assignment
agreements,  (i) to issue  warrants on or before June 30, 2008 to purchase up to
750,000  shares of our common stock at an exercise price of $3.00 per share with
a term  through  December  31,  2011 or (ii)  make a cash  payment  on or before
October 17,  2008 in an amount  equal to the  Black-Scholes  value of a warrant,
exercisable  on or before  December  31, 2011,  for up to 750,000  shares of our
common stock at an exercise  price of $3.00 per share,  obtained  using the "OV"
function  on  Bloomberg   Financial   Markets  and  reflecting  the  calculation
assumptions set forth in the Lender Fee Letter,  to Steelhead  Offshore Capital,
LP, Big Bend 38 Investments L.P., and J-K Navigator Fund, L.P. In the event that
we issue these  warrants,  the shares  issuable upon exercise of these  warrants
shall have  registration  rights similar to those  provided in the  Registration
Rights Agreement entered into in connection with the equity financing.

         On November 16, 2007, the lenders party to the credit agreement entered
into a Waiver  under  which the  EBITDA  financial  covenant  was waived for the
fiscal  quarters  ending  March 31, 2008 and June 30,  2008.  Management  of the
Company  believes,  based on its ability to achieve its operating plan, that the
Company will be in  compliance  with the terms of the credit  agreement  and its
remaining applicable  covenants,  as amended,  through September 30, 2008 and as
such has reflected  this  obligation as long-term on the condensed  consolidated
balance sheet at September 30, 2007.  We are in the process of  determining  the
proper  accounting under EITF 96-19,  DEBTOR'S  ACCOUNTING FOR A MODIFICATION OR
EXCHANGE OF DEBT INSTRUMENTS for the related unamortized deferred financing fees
of  approximately  $323,000 as of the  modification  on October 19, 2007 and the
fees incurred to modify the term loan credit facility.

              10.5% SENIOR SECURED NOTES DUE 2010

         On December  29, 2005,  we issued  $55,000,000  in aggregate  principal
amount of 10.5% Senior Secured Notes due 2010 (the "Senior  Secured  Notes") and
55,000 warrants to purchase a total of 1,732,632  shares of the Company's common
stock (the "Warrants"). The Senior Secured Notes and Warrants were sold in Units
(the "Units")  consisting of one $1,000  principal  amount Note and one Warrant,
which entitled the holder to purchase  31.5024 shares of Company common stock at
an exercise price of $8.50 per share,  subject to  adjustment.  The warrants are
subject to  mandatory  conversion  if the price of the  Company's  common  stock
remains  above  $12.75 for twenty or more days out of a thirty-day  period.  The
Units were sold in a private placement exempt from the registration requirements


                                       37
<PAGE>


under the Securities Act of 1933, as amended (the "Securities  Act"). The Senior
Secured  Notes  are  fully  and   unconditionally   guaranteed  by  all  of  our
wholly-owned  subsidiaries  and were  offered and sold within the United  States
only to  qualified  institutional  buyers in  reliance  on Rule  144A  under the
Securities Act.

         The Senior  Secured  Notes were issued  pursuant to an  indenture  with
Wells  Fargo Bank  National  Association,  as  trustee.  Interest  on the Senior
Secured  Notes  accrues  from the date of issuance  or the most recent  interest
payment date, and is payable in cash  semi-annually  in arrears on June 15th and
December 15th of each year.  The warrants will expire on December 15, 2010.  All
of the securities in this offering were initially purchased by the underwriter.

         The Senior  Secured Notes and the related  guarantees  are secured by a
lien on  substantially  all of our  and the  guarantors'  property  and  assets,
including a pledge of 100% of the capital stock or other equity interests of our
domestic  subsidiaries.  The Senior  Secured  Notes will mature on December  15,
2010.  The Senior  Secured Notes are  subordinated  to our $10 million Term Loan
Credit Facility with Guggenheim Corporate Funding,  LLC, and will rank senior to
any future subordinated debt.

         Before  December  15,  2008,  we may, at any time or from time to time,
redeem up to 35% of the aggregate  principal  amount of the Senior Secured Notes
with the net proceeds of a public or private equity  offering at 110.500% of the
principal  amount of the  Senior  Secured  Notes,  plus any  accrued  and unpaid
interest, if at least 65% of the aggregate principal amount of the notes remains
outstanding  after such  redemption and the redemption  occurs within 90 days of
the date of the closing of such equity offering. The remaining 65% of the Senior
Secured  Notes are  redeemable,  at our  option,  in whole or part,  on or after
December 15, 2008, in each case at the redemption  prices described in the table
below. All redemption  prices are in addition to any accrued and unpaid interest
to the date of the redemption.

             TIME PERIOD                                      PERCENTAGE
             -----------                                      ----------
December 15, 2008 - December 14, 2009                          105.250%
  December 15, 2009 - June 14, 2010                            102.625%
     June 15, 2010 and thereafter                              100.000%

         The indenture  governing the Senior Secured  Notes,  among other things
and  subject to certain  exceptions,  limits our  ability and the ability of our
subsidiaries to:

         o        incur or guarantee additional  indebtedness or issue preferred
                  stock;

         o        pay dividends or  distributions  on, or redeem or  repurchase,
                  capital stock;

         o        make investments;

         o        issue or sell capital stock of restricted subsidiaries;

         o        engage in transactions with affiliates;

         o        grant or assume liens; or

         o        consolidate, merge or transfer all or substantially all of our
                  assets.

         Our failure to make required  payments of interest and principal and to
comply with other  covenants may result in the  acceleration of the principal of
the Senior Secured Notes.

         We agreed, pursuant to a registration rights agreement with the initial
purchaser,  to use our commercially  reasonable efforts to (a) register with the
SEC a new issue of notes  having  substantially  identical  terms as the  Senior
Secured Notes in order to exchange  freely tradable notes for the Senior Secured
Notes,  and (b) file a shelf  registration  statement  with the SEC covering the
resale of the Warrants and shares of our common stock  issuable upon exercise of
the  Warrants,  and to use our  commercially  reasonable  efforts  to cause that
resale registration statement to be declared effective within 240 days after the
sale date. We filed registration statements subject to our obligations under the


                                       38
<PAGE>


registration rights agreement on May 15, 2006. Both registration statements were
declared  effective on July 28, 2006,  and we issued $51.0  million in principal
amount of freely  tradable  notes in exchange for the same  principal  amount of
Senior Secured Notes.

         We immediately used approximately  $22.1 million of the proceeds of the
Senior  Secured Note offering to repay  existing  indebtedness.  During the year
ended  December  31,  2006,  we used  approximately  $2.0  million to purchase a
forty-two mile rail line in Tennessee,  approximately $8.3 million as collateral
to support  reclamation  bonds,  and $19.7 million to purchase other  equipment,
refurbish a preparation plant and rail load-out, and to use as working capital.

         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, 2007, we had a net decrease in cash of
approximately  $150,000.  Cash flows from  operating,  financing  and  investing
activities for the nine months ended  September 30, 2007 and 2006 are summarized
in the following table:

                                                         NINE MONTHS
                                                        ENDED JUNE 30,
                                              ---------------------------------
ACTIVITY                                          2007                 2006
                                              ------------         ------------

Operating activities .................        $ (8,331,018)        $  2,357,899
Investing activities .................          (2,664,006)         (26,043,719)
Financing activities .................          10,844,639               41,385
                                              ------------         ------------
   Net decrease in cash ..............        $   (150,385)        $(23,644,435)
                                              ============         ============

         OPERATING ACTIVITIES

         The increase in net cash used in operating  activities of approximately
$10.7  million to $8.3 million  during the nine months ended  September 30, 2007
was primarily due to an $8.3 million  reduction in accounts  payable  concurrent
with a $0.5 million increase in accounts  receivable and a $0.5 million increase
in other current assets.

         INVESTING ACTIVITIES

         Cash used in investing activities of $2.7 million was primarily related
to ongoing  capital  projects  necessary to develop  future  mining  properties.
Additionally,  we placed  $250,000 in escrow relating to the acquisition of Mann
Steel Products, Inc.

         FINANCING ACTIVITIES

         The net cash provided by financing  activities of  approximately  $10.8
million during the nine months ended September 30, 2007 was primarily the result
of the  issuance of  3,000,000  shares of common  stock for  $13,950,000  and an
additional  $2.0  million  borrowed on our Term Loan Credit  Facility net of the
repayment of notes and capital lease balances.


                                       39
<PAGE>


         CONTRACTUAL OBLIGATIONS

         The following  summarizes our contractual  obligations at September 30,
2007 and the effects such obligations are expected to have on liquidity and cash
flow in future periods:

<TABLE>
<CAPTION>
                                                               PAYMENTS DUE BY PERIOD
                                      ------------------------------------------------------------------------
                                                      LESS THAN 1       1-3            3-5           AFTER
                                          TOTAL          YEAR          YEARS          YEARS         5 YEARS
                                      ------------   ------------   ------------   ------------   ------------
<S>                                   <C>            <C>            <C>            <C>            <C>
Long-term debt (including interest)   $ 97,580,156   $ 12,876,662   $ 84,121,847   $    581,647   $       --
Operating leases ..................      4,880,465      1,998,813      2,881,652           --             --
Capital leases ....................        358,030        223,530        134,500           --             --
Coal purchase contracts ...........      2,605,892      2,605,892           --             --             --
                                      ------------   ------------   ------------   ------------   ------------
     Total contractual obligations    $105,424,543   $ 17,704,897   $ 87,137,999   $    581,647   $       --
                                      ============   ============   ============   ============   ============
</TABLE>

         The above obligations do not include any contingent interest related to
the credit  facility  because we do not believe it is  probable  that we will be
required to pay the fees due to our belief  that the term loan credit  agreement
will be refinanced prior to June 30, 2008. We rent mining equipment  pursuant to
operating  lease  agreements,  and made lease  payments  totaling  approximately
$1,966,000 during the nine months ended September 30, 2007.

         For the nine months ended  September 30, 2007, we accrued  dividends to
the  holders  of our  Series A  cumulative  convertible  preferred  stock in the
aggregate of approximately $343,000.  Historically we have made semi-annual cash
dividend  payments to the holder of the Series A preferred  stock on June 30 and
December 31. Dividends accrued on our Series A cumulative  convertible preferred
stock of $371,317  related to 2006 were paid in February  2007. At September 30,
2007,  there were  accrued  but  unpaid  dividends  on our  Series A  cumulative
convertible  preferred  stock of  $220,000.  The  dividend  rate of our Series A
preferred  stock increased from 5% to 8% on September 1, 2006. We intend to make
dividend  payments going forward as long as (1) no default of our debt covenants
has occurred,  (2) we will be in pro-forma  compliance with our debt agreements,
and (3) the available  credit and cash equivalents we have is not less than $1.5
million.  During the nine months  ended  September  30, 2007 and  subsequent  to
September 30, 2007, we have provided various inducements,  primarily in the form
of additional  shares of our common stock, to encourage  holders of our Series A
cumulative  convertible  preferred  stock to convert  their shares to our common
stock.  At  November  12,  2007,  25,698,792  shares of our Series A  cumulative
convertible preferred stock remained outstanding.

         ACQUISITIONS

         We regularly  seek out and evaluate the potential  acquisition  of coal
mining and related  assets that we feel would be accretive to our business.  Any
acquisition  opportunities we pursue could  materially  affect our liquidity and
capital  resources  and may require us to incur  indebtedness,  seek  additional
equity  capital,  or  both.  There  can be no  assurance  that  such  additional
indebtedness  and/or equity capital will be available on terms acceptable to us,
if at all.  On  October  19,  2007,  our  wholly-owned  subsidiary,  NCC  Corp.,
consummated  the  acquisition of National Coal of Alabama,  Inc.  (formerly Mann
Steel Products, Inc.) as described above.

OFF-BALANCE SHEET ARRANGEMENTS

         At  September  30,  2007,  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


                                       40
<PAGE>

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.

         We use bank letters of credit to secure our obligations for post-mining
reclamation and other obligations.  At September 30, 2007, we had $13,359,900 of
letters  of credit  outstanding  supporting  post-mining  reclamation  bonds and
$1,282,770  of letters of credit  supporting  an  operating  lease of a highwall
miner.  With the exception of $700,000  secured by our  Knoxville,  TN corporate
headquarters building,  these bank letters of credit are secured by certificates
of deposit at two local banks reflected as restricted cash on our balance sheet.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

         Accounting  measurements  at interim dates  inherently  involve greater
reliance on  estimates  than those made at  year-end.  The results for the three
months ended September 30, 2007 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, 2006 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.

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, 2006.

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,  T. Michael Love, 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,  2007,  the end of the  period  covered  by this  report.  Based  upon  that
evaluation,  Messrs.  Roling and Love concluded that our disclosure controls and
procedures were effective as of September 30, 2007.

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
third quarter ended  September 30, 2007 that have  materially  affected,  or are
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.


                                       41
<PAGE>


                           PART II: OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         During  2005,  the  Company  was  audited  by  its  previous   workers'
compensation insurance provider which contends that an additional  approximately
$1.4 million in premiums is owed for the year ended April 15,  2005.  The matter
primarily  involved the  application  of premium  rates to employees  performing
certain  job  functions.  In January  2006,  the  Company  paid  $427,000 to the
previous insurance  provider.  The Company made an offer to settle in March 2007
which was accepted  and  subsequently  rejected by the  insurance  company.  The
Company filed a Motion with the Court to enforce the settlement  accepted by the
insurance  company.  The Court  granted the Motion to enforce the  settlement in
August 2007 and the Company  paid  $300,000  to the  insurance  provider in full
settlement of the claim.  The District  Court  subsequently  entered an Order of
Dismissal by agreement of the parties.

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

ITEM 1A. RISK FACTORS.

         There have been no material  changes to the risk  factors  disclosed in
Item 1A "Risk Factors" in the Company's  Annual Report on Form 10-K for the year
ended December 31, 2006 with the following exceptions:

THE LOSS OF KEY MANAGEMENT PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS.

         We are heavily dependent upon the skills, talents, and abilities of our
executive  officers and board of directors to implement our business plan. Given
the intense competition for qualified management personnel in our industry,  the
loss of the  services of any key  management  personnel  may  significantly  and
detrimentally  affect our business and  prospects.  We may not be able to retain
some or all of our key management personnel, and even if replaceable,  it may be
time consuming and costly to recruit qualified replacement personnel.

         In July 2007, Jon Nix, former President and CEO, and Scott Filstrup, an
independent  director  since 2005,  retired from our Board of Directors  and our
Board  was  reduced  in size  from  seven to five  members.  Kenneth  Scott,  an
independent director since 2005, was elected to the position of Chairman.

         AFTER  CONSUMMATING  THE  ACQUISITION  OF MANN STEEL,  WE MAY ENCOUNTER
PROBLEMS IN INTEGRATING THE TWO BUSINESSES,  WHICH MAY INCREASE THE COSTS OF THE
ACQUISITION  AND DISTRACT  MANAGEMENT'S  ATTENTION  FROM  OPERATING THE COMBINED
BUSINESS.

         The  integration  of Mann Steel with  National  Coal will  require  the
dedication of management resources,  which may temporarily distract management's
attention  from the  day-to-day  operations  of the two  companies and adversely
affect  our  operating  results.  Some of the  difficulties  we would  expect to
encounter include, among others, those related to:

         o        integrating   National  Coal's  and  Mann  Steel's  management
                  staffs;

         o        retaining Mann Steel's key management and technical personnel;
                  and

         o        coordinating   the  operation  of   geographically   separated
                  organizations with distinct cultures.


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<PAGE>


ITEM 6.  EXHIBITS

         THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:

         Exhibit
         Number                          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     Certificate  of Chief  Executive  Officer and Chief  Financial
                  Officer  pursuant to Rule  13a-14(b)  under the Securities and
                  Exchange Act of 1934, as amended.


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<PAGE>


                                   SIGNATURES

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

                                           NATIONAL COAL CORP.


Date: November 19, 2007                    /S/ T. MICHAEL LOVE
                                           -------------------------------------
                                       By:        T. Michael Love
                                       Its:       Chief Financial Officer
                                                  (Principal Financial and
                                                  Accounting Officer)


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