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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

[X]      Quarterly  Report  Pursuant  to Section  13 or 15(d) of the  Securities
         Exchange Act of 1934

                  For the quarterly period ended June 30, 2008

                                       or

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

      For the transition period from _______________ to __________________.

                         Commission file number 0-26509

                               NATIONAL COAL CORP.
             (Exact name of registrant as specified in its charter)

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

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

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

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

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

     Large accelerated filer  [_]                        Accelerated filer  [_]

     Non-accelerated filer    [_]                Smaller reporting company  [X]
     (Do not check if smaller reporting company)

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

         As of August 13, 2008 the issuer had 33,470,660 shares of common stock,
par value $.0001 per share, issued and outstanding.


<PAGE>


                               NATIONAL COAL CORP.

                                TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements..................................................2

           Condensed Consolidated Balance Sheets as of
           June 30, 2008 and December 31, 2007.................................2
           Condensed Consolidated Statements of Operations
           for the Three Months and Six Months Ended
           June 30, 2008 and 2007..............................................3
           Condensed Consolidated Statements of Cash Flows
           for the Six Months Ended June 30, 2008 and 2007.....................4
           Notes to Condensed Consolidated Unaudited Financial Statements......5

Item 2 - Management's Discussion and Analysis of Financial Condition
         and Results of Operations............................................21

Item 3 - Quantitative and Qualitative Disclosures About Market Risk...........36

Item 4T -  Controls and Procedures............................................36

PART II - OTHER INFORMATION

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds..........36

Item 4 - Submission of Matters to a Vote of Security Holders..................37

Item 6 - Exhibits.............................................................37


                                       1
<PAGE>


                          PART I: FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

<TABLE>
                               NATIONAL COAL CORP.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
<CAPTION>
                                                                                    DECEMBER 31,
                                                                  JUNE 30, 2008         2007
                                                                  -------------    -------------
<S>                                                               <C>              <C>
ASSETS
Current Assets:
     Cash and cash equivalents ................................   $  11,196,751    $   9,854,351
     Accounts receivable, net .................................       8,750,851        8,787,046
     Inventory ................................................       2,228,138        2,946,101
     Prepaid and other current assets .........................       1,220,451        1,951,827
                                                                  -------------    -------------
        Total current assets
                                                                     23,396,191       23,539,325


Property, plant, equipment and mine development, net ..........      94,087,391      108,880,599

Deferred financing costs ......................................       4,620,829        6,669,703

Restricted cash ...............................................      25,410,912       29,115,383

Other non-current assets ......................................       1,264,239        1,049,991
                                                                  -------------    -------------
        Total Assets ..........................................   $ 148,779,562    $ 169,255,001
                                                                  =============    =============


LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Current maturities of long - term debt ...................   $   4,610,704    $  15,453,230
     Current installments of obligations under capital leases .         116,041          157,062
     Current portion of asset retirement obligation ...........       1,109,394        1,310,344
     Accounts payable and accrued  expenses ...................      14,371,428       12,759,593
                                                                  -------------    -------------
        Total current liabilities .............................      20,207,567       29,680,229


     Long - term debt, less current maturities, net of discount     102,665,736      114,350,348
     Obligations under capital leases, less current portion ...          60,874           74,688
     Asset retirement obligations, less current portion .......       6,101,272        8,954,343
     Deferred revenue .........................................       1,428,730        1,553,806
     Other noncurrent liabilities .............................       1,798,641        1,774,766
     Deferred tax liability ...................................       2,580,748        3,351,465
                                                                  -------------    -------------
        Total Liabilities
                                                                    134,843,568      159,739,645
                                                                  -------------    -------------

Stockholders' Equity:
     Series A convertible preferred stock, $.0001 par value;
        8% coupon; 1,611 shares authorized; 133.33 and 356.44
        shares issued and outstanding at June 30, 2008 and
        December 31, 2007, respectively .......................            --               --
     Common Stock, $.0001 par value; 80 million shares
        authorized; 32,714,230 and 27,698,792 shares issued
        and outstanding at June 30, 2008 and December 31,
        2007, respectively ....................................           3,271            2,770
     Additional paid - in capital .............................     108,319,578       83,309,703
     Accumulated deficit ......................................     (94,386,855)     (73,797,117)
                                                                  -------------    -------------
        Total Stockholders' Equity ............................      13,935,994        9,515,356
                                                                  -------------    -------------
        Total Liabilities and Stockholders' Equity ............   $ 148,779,562    $ 169,255,001
                                                                  =============    =============
</TABLE>

The  Condensed  Consolidated  Balance  Sheet as of December 31, 2007 was derived
from audited financials.

     See Accompanying Notes to Condensed Consolidated Financial Statements.


                                       2
<PAGE>


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

<CAPTION>
                                                            FOR THE THREE MONTHS ENDED       FOR THE SIX MONTHS ENDED
                                                                     JUNE 30,                        JUNE 30,
                                                           ----------------------------    ----------------------------
                                                               2008            2007            2008            2007
                                                           ------------    ------------    ------------    ------------
<S>                                                        <C>             <C>             <C>             <C>
Revenues:
     Coal sales ........................................   $ 30,371,697    $ 18,729,218    $ 65,855,138    $ 37,543,116
     Other revenues ....................................      1,215,043         153,227       1,400,350         374,275
                                                           ------------    ------------    ------------    ------------
        Total revenues .................................     31,586,740      18,882,445      67,255,488      37,917,391
                                                           ------------    ------------    ------------    ------------

Operating expenses:
     Cost of sales .....................................     30,872,858      18,309,912      65,622,135      35,903,825
     Depreciation, depletion, amortization and accretion      3,055,884       3,664,058       7,868,139       7,292,655
     General and administrative ........................      2,798,746       1,575,011       4,623,368       3,653,908
                                                           ------------    ------------    ------------    ------------
        Total operating expenses .......................     36,727,488      23,548,981      78,113,642      46,850,388
                                                           ------------    ------------    ------------    ------------

Loss from operations ...................................     (5,140,748)     (4,666,536)    (10,858,154)     (8,932,997)
                                                           ------------    ------------    ------------    ------------

Other income (expense):
     Interest expense ..................................     (4,347,294)     (2,216,205)     (9,236,348)     (4,320,553)
     Interest income ...................................        315,900         309,747         544,608         607,988
     Income from joint venture .........................         23,113            --           225,129            --
     Other .............................................     (1,073,201)         33,255      (1,755,966)        144,305
                                                           ------------    ------------    ------------    ------------
        Other income (expense), net ....................     (5,081,482)     (1,873,203)    (10,222,577)     (3,568,260)
                                                           ------------    ------------    ------------    ------------

Loss before income taxes ...............................    (10,222,230)     (6,539,739)    (21,080,731)    (12,501,257)


Income tax benefit .....................................        371,192            --           490,993            --
                                                           ------------    ------------    ------------    ------------

Net loss ...............................................     (9,851,038)     (6,539,739)    (20,589,738)    (12,501,257)

Preferred stock dividend ...............................        (39,889)        (91,968)        (79,779)       (299,843)
Preferred stock deemed dividend ........................           --        (1,023,106)           --        (1,023,106)
                                                           ------------    ------------    ------------    ------------

Net loss attributable to common shareholders ...........   $ (9,890,927)   $ (7,654,813)   $(20,669,517)   $(13,824,206)
                                                           ============    ============    ============    ============

Basic net loss per common share ........................   $      (0.33)   $      (0.38)   $      (0.70)   $      (0.74)
                                                           ============    ============    ============    ============

Diluted net loss per common share ......................   $      (0.33)   $      (0.38)   $      (0.70)   $      (0.74)
                                                           ============    ============    ============    ============

Weighted average common shares outstanding .............     30,080,337      19,970,054      29,450,135      18,763,215
                                                           ============    ============    ============    ============
</TABLE>


     See Accompanying Notes to Condensed Consolidated Financial Statements.


                                       3
<PAGE>


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

<CAPTION>
                                                                           FOR THE SIX MONTHS ENDED
                                                                                   JUNE 30,
                                                                         ----------------------------
                                                                             2008            2007
                                                                         ------------    ------------
<S>                                                                      <C>             <C>
OPERATING ACTIVITIES
Net loss .............................................................   $(20,589,738)   $(12,501,257)
Adjustments to reconcile net loss to net cash provided by (used in)
     operating activities:
        Depreciation, depletion, amortization and accretion ..........      7,868,139       7,292,655
        Deferred income tax benefit ..................................       (490,993)
        Amortization of deferred financing costs .....................        477,840         322,428
        Amortization of debt discount ................................      1,683,567         329,378
        Gain on disposal of assets ...................................       (102,146)       (168,661)
        Loss on sale of Straight Creek properties ....................        397,549            --
        Loss on extinguishment of debt ...............................      1,676,840          50,720
        Income from joint venture ....................................       (225,129)           --
        Settlement of asset retirement obligations ...................       (386,763)       (335,802)
        Stock option expense .........................................        453,926         475,139
        Related party stock option expense ...........................           --           434,493
        Changes in operating assets and liabilities:
           Accounts receivable .......................................       (146,472)      2,003,169
           Inventory .................................................        (82,220)     (1,458,600)
           Prepaid and other current assets ..........................      1,095,344         242,976
           Other non - current assets ................................         80,000          58,386
           Accounts payable and accrued expenses .....................      1,653,260      (3,808,204)
           Deferred revenue ..........................................           --          (148,618)
           Other non - current liabilities ...........................         23,875         145,340
                                                                         ------------    ------------
Net cash flows used in operating activities ..........................     (6,613,121)     (7,066,458)
                                                                         ------------    ------------

INVESTING ACTIVITIES
Capital expenditures .................................................     (4,627,807)     (1,945,518)

Proceeds from sale of Straight Creek properties ......................     10,711,399            --
Acquisition deposit ..................................................           --          (250,000)
Proceeds from sale of equipment ......................................           --           878,074
Restricted cash released to operations ...............................      3,645,906        (358,133)
Additions to prepaid royalties .......................................       (518,299)       (492,719)
                                                                         ------------    ------------
Net cash provided by (used in) investing activities ..................      9,211,199      (2,168,296)
                                                                         ------------    ------------


FINANCING ACTIVITIES
Proceeds from issuance of common and preferred stock .................     10,863,256      13,950,000
Proceeds from stock option exercises .................................      1,037,125            --
Proceeds from issuance of notes payable ..............................           --           441,077
Proceeds from borrowings on Term Loan Credit Facility ................           --         2,000,000
Repayments of debt ...................................................    (12,876,093)     (2,757,915)
Repayments of capital leases .........................................       (279,966)       (657,195)
Payments for deferred financing costs ................................           --           (51,467)
Dividends paid .......................................................           --          (371,317)
                                                                         ------------    ------------
Net cash flows (used in) provided by financing activities ............     (1,255,678)     12,553,183
                                                                         ------------    ------------
Net increase in cash and cash equivalents ............................      1,342,400       3,318,429
Cash and cash equivalents at beginning of period .....................      9,854,351       2,180,885
                                                                         ------------    ------------
Cash and cash equivalents at end of period ...........................   $ 11,196,751    $  5,499,314
                                                                         ============    ============

Supplemental Cash Flow Information
     Cash paid during the year for interest ..........................   $  7,696,009    $  3,311,194
     Non-cash investing and financing activities:
        Series A preferred stock converted to common stock ...........   $  3,346,650    $  1,023,106
        Preferred stock effective dividends ..........................        131,712          81,370
        Preferred stock dividends converted to to common stock .......         79,779            --
        10.5% Senior Secured Notes exchanged for common stock ........     12,735,848            --
        Equipment acquired through capital leases ....................        225,131         248,900
        Financed equipment acquisitions ..............................      3,317,221         250,338
        Asset retirement obligations incurred ........................        158,300            --
</TABLE>


     See Accompanying Notes to Condensed Consolidated Financial Statements.


                                       4
<PAGE>




                               NATIONAL COAL CORP.
         NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The  unaudited  condensed  consolidated  financial  statements  do  not  include
footnotes and certain financial  information  normally  presented annually under
accounting  principles  generally  accepted in the United  States of America and
should, therefore, be read in conjunction with the Annual Report on Form 10-K of
National Coal Corp.  (the  "Company")  for the year ended December 31, 2007. The
accompanying  unaudited condensed  consolidated financial statements reflect all
adjustments that, in the opinion of management,  are considered  necessary for a
fair  presentation of the financial  position,  results of operations,  and cash
flows for the  periods  presented.  Accounting  measurements  at  interim  dates
inherently  involve greater  reliance on estimates than at year end. The results
of  operations  for the  three  and six  months  ended  June  30,  2008  are not
necessarily indicative of the results that can be expected for the fiscal year.

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

At June 30, 2008,  the Company had cash and cash  equivalents  of  approximately
$11.2 million and working capital of approximately $3.2 million. Cash flows used
in  operations  were $9.3  million and $6.6 million for the three and six months
ended June 30, 2008, respectively. Operations have not always generated positive
cash flows in the past and the ability to do so during the  remainder of 2008 is
not assured.  At June 30, 2008,  the Company had  shareholders'  equity of $13.9
million and  incurred net losses of $20.6  million  (excluding  preferred  stock
dividends)  for the six months then ended.  Management  expects that the Company
may  continue  to incur net losses  into the  foreseeable  future,  which  would
decrease  shareholders'  equity  and  could  lead to an  eventual  shareholders'
deficit.

The  Company  invested   approximately   $8.2  million  in  equipment  and  mine
development  during the six months  ended June 30, 2008  including  $3.5 million
purchased through equipment financing arrangements.  Of this total, $500,000 was
used to acquire a 524 acre  mineral  lease in eastern  Tennessee  that  includes
approximately  1.4 million tons of  recoverable  high quality  coal.  Management
intends to make up to $7.8 million of additional capital expenditures during the
remainder of 2008 to expand  operations and  approximately  $500,000 to maintain
existing  assets.  On August 8, 2008, the Company  acquired a 1,000 acre mineral
and surface tract in eastern  Tennessee that includes  approximately 2.3 million
tons of high quality  coal.  The  purchase  price was $7.0 million of which $2.0
million was paid in cash and $5.0 million in the  issuance of 756,430  shares of
the  Company's  common  stock.  This  acquisition  is excluded  from the capital
expenditures budget for the remainder of 2008.

In March  2008,  the  Company's  dragline  equipment  utilized  in its L. Massey
surface mine in Alabama suffered a major mechanical  failure.  The equipment has
since been  repaired  and was back in full  production  on July 28,  2008.  This
breakdown  resulted in estimated lost  production of 80,000 and 110,000 tons and
lost  revenues of $5.5 million and $7.7 million  during the three months and six
months ended June 30, 2008, respectively.


                                       5
<PAGE>


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

Due primarily to the loss of production and  corresponding  revenues  associated
with the dragline  equipment  failure,  the  Company's  wholly-owned  subsidiary
National Coal of Alabama  violated its loan covenants  related to its 12% Senior
Secured  Notes due 2012 (Note 8). On August 13, 2008,  National  Coal of Alabama
received a waiver of all existing defaults and covenant  violations and obtained
amended  terms for  certain  covenants  through  March 31,  2009.  In return,  a
one-time default rate waiver fee of $300,000 was paid.

In early 2008,  the Company  successfully  renegotiated  an existing coal supply
agreement  resulting  in an  increased  selling  price  per ton.  Management  is
presently  in  negotiations  with  another  existing  customer to amend its coal
supply  agreement.  The Company's  liquidity  plans include the  finalization of
these ongoing negotiations,  receipt of the remaining $3.0 million of restricted
cash from the March 31, 2008 sale of its Straight Creek mining  operations,  and
obtaining  the release of $6.0  million in  additional  restricted  cash used to
collateralize  current  reclamation  bonds.  Additionally,  the Company  expects
significant  improvement  in its  Alabama  operations  following  the repair and
redeployment of its dragline.

Management  intends to continue  its pursuit of a $10  million  working  capital
facility during 2008 to provide additional liquidity as needed.  However, if the
Company is unable to execute its plans successfully,  it may not be able to meet
its  liquidity  requirements  and  will  need  to  pursue  additional  financing
opportunities as needed.

The  Company  has not yet priced a portion of the coal it plans to produce  over
the next  several  years in order to take  advantage  of expected  future  price
increases.  At June 30, 2008, the Company's  expected  un-priced  production was
approximately  500,000 to 600,000 tons in 2009,  3.1 million to 3.3 million tons
in 2010 and approximately 4.5 million tons in 2011.

2. RECENT ACCOUNTING PRONOUNCEMENTS

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

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

The Company adopted  Statement of Financial  Accounting  Standards No. 157, FAIR
VALUE MEASUREMENTS ("SFAS 157"), and Statement of Financial Accounting Standards
No.  159,  THE FAIR VALUE  OPTION  FOR  FINANCIAL  LIABILITIES  -  INCLUDING  AN
AMENDMENT  OF FASB  STATEMENT  NO.  115 ("SFAS  159") on  January  1, 2008.  The
adoptions  of SFAS  157 and  SFAS  159 did not  have a  material  impact  on the
Company's financial position or results of operations.


                                       6
<PAGE>


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

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

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

3. SALE OF STRAIGHT CREEK PROPERTIES

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

Additionally,   the  transaction  will  result  in  the  subsequent  release  of
approximately  $7.0 million in restricted  cash that was  previously  pledged to
secure reclamation bonds, of which  approximately $4.0 million has been recouped
through June 30, 2008.

The  Company's  Straight  Creek mining  operations  recognized  revenues of $5.0
million and $9.6  million and  operating  losses of $2.3 million and $563,000 on
sales of 99,669 and 187,095 tons of coal during the three months ended March 31,
2008 and 2007,  respectively,  and  recognized  revenues  of $17.2  million  and
operating  losses of $1.3 million on the sale of 341,425 tons of coal during the
six months  ended June 30,  2007.  Pursuant  to a Contract  Mining and  Services
Agreement dated April 1, 2008, the Company will provide highwall mining services
to Xinergy at Straight Creek for a period of up to twenty-four  months.  Xinergy
was  founded  and is  controlled  by Jon Nix,  the former  founder,  officer and
director, as well as a shareholder of the Company.


                                       7
<PAGE>


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

4. INVENTORY

Inventory consists of the following:

                                              JUNE 30,     DECEMBER 31,
                                                2008           2007
                                            ------------   ------------
         Coal inventory .................   $  2,162,288   $  2,830,926
         Tire inventory .................         65,850        115,175
                                            ------------   ------------
                                            $  2,228,138   $  2,946,101
                                            ============   ============


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

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

<TABLE>
<CAPTION>
                                                                JUNE 30,       DECEMBER 31,
                                                                  2008             2007
                                                             -------------    -------------
<S>                                                          <C>              <C>
Furniture and office equipment ...........................   $     301,024    $     468,178
Mining equipment and vehicles ............................      72,723,223       77,625,779
Land and buildings .......................................       4,255,599        6,764,479
Mineral rights ...........................................      41,487,678       48,487,494
Mine development .........................................       8,065,780       12,955,114
Construction in progress .................................       1,786,046        1,268,512
                                                             -------------    -------------
                                                               128,619,350      147,569,556

Less accumulated depreciation, depletion and amortization      (34,531,959)     (38,688,957)
                                                             -------------    -------------

Total property, plant, equipment and mine development, net   $  94,087,391    $ 108,880,599
                                                             =============    =============
</TABLE>


Included in mining equipment and vehicles for the period ended June 30, 2008 and
December  31, 2007 was  approximately  $493,000 of gross  assets  under  capital
leases.

In May 2008,  the Company  acquired  for  $500,000 a 524 acre  mineral  lease in
eastern  Tennessee that includes  approximately  1.4 million tons of recoverable
high quality coal.

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

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


                                       8
<PAGE>


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

6. OTHER NON-CURRENT ASSETS

                                              JUNE 30,     DECEMBER 31,
                                                2008           2007
                                            ------------   ------------
         Prepaid royalties ..............   $    924,287   $    935,168
         Investment in joint venture ....        339,952        114,823
                                            ------------   ------------
                                            $  1,264,239   $  1,049,991
                                            ============   ============


The  Company  uses the  equity  method  to  account  for its 49%  joint  venture
investment  in Powhatan  LLC  ("Powhatan"),  which began  operations  during the
fourth quarter of 2007.  Powhatan  recorded  revenues of $820,380 and $2,095,799
and net income of $47,172  and  $459,448  during the three and six months  ended
June 30, 2008, respectively.

7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

                                                       JUNE 30,     DECEMBER 31,
                                                         2008           2007
                                                     ------------   ------------
Accounts payable .................................   $  9,235,516   $ 10,579,615
Accrued payroll and related taxes ................        869,548        528,868
Accrued interest .................................        517,262        326,979
Accrued insurance premiums .......................         52,628        229,229
Accrued dividends ................................        193,995        114,216
Royalty obligations ..............................        916,300        774,887
Security deposits received .......................      1,550,493           --
Accrued federal, state and local taxes ...........        273,735        205,799
Bank overdrafts ..................................        269,289           --
Other accrued expenses ...........................        492,662           --
                                                     ------------   ------------
                                                     $ 14,371,428   $ 12,759,593
                                                     ============   ============


8. DEBT AND FINANCING ARRANGEMENTS

12.0% SENIOR SECURED NOTES DUE 2012

As of June 30, 2008,  the Company had violated the loan  covenants  set forth in
its 12% Senior Secured Notes due 2012. On August 13, 2008, the Company  received
a waiver of all existing  defaults and covenant  violations.  Additionally,  the
Company obtained amended terms for certain covenants, through March 31, 2009. In
return,  the  Company  agreed  to pay a  one-time  default  rate  waiver  fee of
$300,000.  Management  of the  Company  believes  that it is  probable  that the
Company will be in compliance with the amended  covenants  through June 30, 2009
and therefore has  classified  the 12% Senior Secured Notes as long-term debt at
June 30, 2008.

10.5% SENIOR SECURED NOTES DUE 2010

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


                                       9
<PAGE>


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

TERM LOAN CREDIT FACILITY

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

INSTALLMENT PURCHASE OBLIGATIONS AND EQUIPMENT NOTES

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

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

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

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


                                       10
<PAGE>


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

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

<TABLE>
<CAPTION>
                                                          JUNE 30,       DECEMBER 31,
                                                            2008             2007
                                                       -------------    -------------
<C>                                                    <C>              <C>
12.0% Senior Secured Notes, due 2012 ...............   $  60,000,000    $  60,000,000
10.5% Senior Secured Notes, due 2010 ...............      42,000,000       55,000,000
Term Loan Credit Facility, due 2008 ................            --         10,000,000
Overriding Royalty Interest obligation, due 2023 ...       8,613,447        9,177,273
Equipment loans and installment purchase obligations       6,007,402        6,839,462
Insurance premium financing, due 2008 ..............         415,688           51,817
                                                       -------------    -------------
                                                         117,036,537      141,068,552

Unamortized discounts ..............................      (9,760,097)     (11,264,974)

Current portion of long-term debt ..................      (4,610,704)     (15,453,230)
                                                       -------------    -------------

Total long-term debt ...............................   $ 102,665,736    $ 114,350,348
                                                       =============    =============
</TABLE>


9. LEASES

The Company leases mining and certain other equipment under  noncancelable lease
agreements  with terms up to five  years.  Rental  expense for  equipment  under
operating  lease  agreements with initial lease terms of one year or greater was
approximately  $540,000 and  $1,071,000 for the three and six months ending June
30, 2008 and $539,000 and  $1,109,000  for the three and six months  ending June
30, 2007, 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.

10. ASSET RETIREMENT OBLIGATIONS

Asset  retirement  obligation  activity for the six months  ending June 30, 2008
follows:

Obligation at December 31, 2007 .........................          $ 10,264,687
     Accretion expense ..................................               783,701
     Obligations incurred ...............................               158,300
     Obligations settled ................................              (386,764)
     Obligations disposed ...............................            (3,609,258)
                                                                   ------------
Obligation at June 30, 2008 .............................             7,210,666
Current portion .........................................            (1,109,394)
                                                                   ------------
Long-term liability at June 30, 2008 ....................          $  6,101,272
                                                                   ============


                                       11
<PAGE>


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

11. STOCKHOLDERS' EQUITY

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

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

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

12. EARNINGS (LOSS) PER SHARE

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

For the three  months  ended June 30,  2008 and 2007,  2,553,808  and  1,717,890
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 six months ended June 30,
2008 and  2007,  2,574,577  and  1,685,293  potentially  dilutive  shares of the
Company,  from warrants,  convertible preferred stock and stock options were not
included in the  computation of diluted loss per share because to do so would be
anti-dilutive.

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


                                       12
<PAGE>


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

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED              SIX MONTHS ENDED
                                                    JUNE 30,                       JUNE 30,
                                         ----------------------------    ----------------------------
                                             2008            2007            2008            2007
                                         ------------    ------------    ------------    ------------
<S>                                      <C>             <C>             <C>             <C>
NUMERATOR:
Net loss .............................   $ (9,851,038)   $ (6,539,739)   $(20,589,738)   $(12,501,257)
Preferred dividends ..................        (39,889)        (91,968)        (79,779)       (299,843)
Preferred stock deemed dividends .....           --        (1,023,106)           --        (1,023,106)
                                         ------------    ------------    ------------    ------------

Numerator for basic and diluted ......   $ (9,890,927)   $ (7,654,813)   $(20,669,517)   $(13,824,206)
                                         ============    ============    ============    ============

DENOMINATOR:
Weighted average shares - basic ......     30,080,337      19,970,054      29,450,135      18,763,215
Effect of warrants ...................      1,396,664            --         1,396,664            --
Effect of convertible preferred shares        386,838       1,511,640         436,350       1,511,640
Effect of stock options ..............        770,306         206,250         741,563         173,653
                                         ------------    ------------    ------------    ------------

Adj. weighted average shares - diluted     32,634,145      21,687,944      32,024,712      20,448,508
                                         ============    ============    ============    ============

Net loss per share - basic ...........   $      (0.33)   $      (0.38)   $      (0.70)   $      (0.74)
                                         ============    ============    ============    ============

Net loss per share - diluted .........   $      (0.33)   $      (0.38)   $      (0.70)   $      (0.74)
                                         ============    ============    ============    ============
</TABLE>


13. STOCK - BASED COMPENSATION PLANS

The  Company's  2004 Option Plan (the  "Plan")  was  authorized  by the Board of
Directors of the Company in March 2004,  and amended in January 2005.  Under the
terms  of the  Plan,  stock  options  may be  granted  to  officers,  directors,
employees,  and others. At June 30, 2008,  4,450,000 shares of common stock were
authorized  for issuance  under the Plan.  Shares  subject to awards that expire
unexercised or are otherwise terminated, again become available for awards. Upon
exercise,  stock is issued from unissued or treasury shares.  The grant price of
an  option  under  the Plan may not be less  than the fair  market  value of the
common stock subject to such option on the date of grant. Options have a maximum
life of ten years and generally vest 25% per year over a four year period.

During the three  months  ended June 30, 2008 and 2007,  the Company  recognized
$212,850 and $240,264 in stock-based compensation expense, respectively.  During
the six months ended June 30, 2008 and 2007, the Company recognized $453,926 and
$909,632 in stock-based compensation, respectively.


                                       13
<PAGE>


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

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

<TABLE>
<CAPTION>
                                    THREE MONTHS ENDED              SIX MONTHS ENDED
                                         JUNE 30,                       JUNE 30,
                              ----------------------------    ----------------------------
                                  2008            2007            2008            2007
                              ------------    ------------    ------------    ------------
<S>                              <C>                <C>          <C>             <C>
Expected term (years) ......      6.25              *             6.25            6.25
Risk-free interest rates ...      3.20%             *             3.49%           4.69%
Expected dividend yield ....      0.0%              *             0.0%            0.0%
Expected volatility ........     66.24%             *            65.09%          53.07%
</TABLE>

* No options were granted during the three months ended June 30, 2007.


The risk-free  interest rate is based on the U.S. Treasury rate for the expected
life at the time of grant,  volatility is based on the average long-term implied
volatilities of peer companies as the Company's trading history is limited,  and
the expected term is determined  using the  SIMPLIFIED  method as accepted under
Securities and Exchange  Commission Staff Accounting Bulletin No. 110 assuming a
ten-year  original  contract  term and  graded  vesting  over  four  years.  The
weighted-average  grant-date  fair value of options issued during the six months
ended June 30, 2008 was $3.76.  The total intrinsic  value of options  exercised
during the six months ended June 30, 2008 was approximately $562,130. There were
no options exercised during the six month period ended June 30, 2007.

Stock option activity for the six months ended June 30, 2008 follows:

<TABLE>
<CAPTION>
                                                                 WEIGHTED
                                                                  AVERAGE
                                                    WEIGHTED     REMAINING     AGGREGATE
                                                    AVERAGE     CONTRACTUAL    INTRINSIC
                                     OPTIONS        EXERCISE        TERM         VALUE
                                   OUTSTANDING       PRICE       (IN YEARS)     ($000)
                                  ------------    -----------   -----------   -----------
<S>                                  <C>          <C>                  <C>    <C>
Outstanding at December 31, 2007     1,565,625    $      6.22          8.19   $ 1,053,320
Granted ........................       121,500           5.22
Exercised ......................          --              --
Forfeited ......................       (38,500)          6.82
Expirations ....................          --              --
                                   -----------
Outstanding at March 31, 2008 ..     1,648,625    $      6.13          8.09   $   881,680
Granted ........................       170,000           6.94
Exercised ......................      (211,750)          4.87
Forfeited ......................       (48,750)          3.39
Expirations ....................          --              --
                                   -----------
Balance at June 30, 2008 .......     1,558,125    $      6.47          7.71   $ 3,782,509
                                   ===========
Vested or expected to vest
  at June 30, 2008 .............     2,478,453    $      4.70
Exercisable ....................       585,250    $      6.22
</TABLE>


                                       14
<PAGE>


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

As of June 30, 2008,  there was  $1,550,725 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 2.7 years. The total
fair value of shares  vested  during the six months ended June 30, 2008 and 2007
was $1,864,691 and $1,204,180, respectively.

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

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

14. COMMITMENTS AND CONTINGENCIES

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

15. SUPPLEMENTAL GUARANTOR AND NON - GUARANTOR INFORMATION

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

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


                                       15
<PAGE>


<TABLE>
                               NATIONAL COAL CORP.
               SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS
                                  JUNE 30, 2008
                                   (UNAUDITED)
<CAPTION>
                                                            NCC              NCA          ELIMINATIONS     CONSOLIDATED
                                                       -------------    -------------    -------------    -------------
<S>                                                    <C>              <C>              <C>              <C>
ASSETS
Current Assets:
     Cash and cash equivalents .....................   $  11,196,751    $        --      $        --      $  11,196,751
     Accounts receivable ...........................       3,211,985        5,538,866             --          8,750,851
     Inventory .....................................       1,957,454          270,684             --          2,228,138
     Prepaid and other current assets ..............       1,162,365           58,086             --          1,220,451
                                                       -------------    -------------    -------------    -------------
        Total current assets
                                                          17,528,555        5,867,636             --         23,396,191


Property, plant, equipment and mine development, net      35,864,463       58,222,928             --         94,087,391
Deferred financing costs ...........................       1,360,242        3,260,587             --          4,620,829
Restricted cash ....................................      12,889,356       12,521,556             --         25,410,912
Other non-current assets ...........................      13,303,237          985,927      (13,024,925)       1,264,239
                                                       -------------    -------------    -------------    -------------
        Total Assets ...............................   $  80,945,853    $  80,858,634    $ (13,024,925)   $ 148,779,562
                                                       =============    =============    =============    =============


LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Current maturities of long-term debt ..........   $   2,852,823    $   1,757,881    $        --          4,610,704
     Current installments of obligations under
       capital leases ..............................         116,041             --               --            116,041
     Current portion of asset retirement obligation          669,130          440,264             --          1,109,394
     Accounts payable and accrued  expenses ........       8,916,764        5,454,664             --         14,371,428
                                                       -------------    -------------    -------------    -------------
        Total current liabilities
                                                          12,554,758        7,652,809             --         20,207,567

     Long - term debt, less current maturities,
       net of discount .............................      42,059,546       60,606,190             --        102,665,736
     Obligations under capital leases, less current
       portion .....................................          60,874             --               --             60,874
     Asset retirement obligations, less current
       portion .....................................       3,734,860        2,366,412             --          6,101,272
     Deferred revenue ..............................       1,428,730             --               --          1,428,730
     Other non - current liabilities ...............         468,641        1,330,000             --          1,798,641
     Deferred tax liability ........................            --          2,580,748             --          2,580,748
                                                       -------------    -------------    -------------    -------------
        Total Liabilities ..........................      60,307,409       74,536,159             --        134,843,568
                                                       -------------    -------------    -------------    -------------

Stockholders' Equity:
     Preferred Stock
     Common stock ..................................           3,271              104             (104)           3,271
     Additional paid - in capital ..................     108,310,954       13,033,445      (13,024,821)     108,319,578
     Accumulated deficit ...........................     (87,675,781)      (6,711,074)            --        (94,386,855)
                                                       -------------    -------------    -------------    -------------
        Total Stockholders' Equity .................      20,638,444        6,322,475      (13,024,925)      13,935,994
                                                       -------------    -------------    -------------    -------------
        Total Liabilities and Stockholders' Equity .   $  80,945,853    $  80,858,634    $ (13,024,925)   $ 148,779,562
                                                       =============    =============    =============    =============
</TABLE>


                                       16
<PAGE>


<TABLE>
                               NATIONAL COAL CORP.
               SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS
                                DECEMBER 31, 2007
                                   (UNAUDITED)

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


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


LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Current maturities of long-term debt ..........   $  13,053,230    $   2,400,000    $        --      $  15,453,230
     Current installments of obligations under
       capital leases ..............................         157,062             --               --            157,062
     Current portion of asset retirement obligation        1,095,029          215,315             --          1,310,344
     Accounts payable and accrued  expenses ........       9,094,288        3,665,305             --         12,759,593
                                                       -------------    -------------    -------------    -------------
        Total current liabilities
                                                          23,399,609        6,280,620             --         29,680,229

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

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


                                       17
<PAGE>


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

<CAPTION>
                                                  NCC            NCA         ELIMINATIONS    CONSOLIDATED
                                             ------------    ------------    ------------    ------------
<S>                                          <C>             <C>             <C>             <C>
Revenues:
     Coal sales ..........................   $ 15,520,631    $ 14,851,066    $       --      $ 30,371,697
     Other revenues ......................      1,480,534          34,509        (600,000)        915,043
                                             ------------    ------------    ------------    ------------
        Total revenues ...................     17,001,165      14,885,575        (600,000)     31,286,740
                                             ------------    ------------    ------------    ------------

Operating expenses:
     Cost of sales .......................     15,037,885      15,834,973            --        30,872,858
     Depreciation, depletion, amortization
       and accretion .....................      1,957,951       1,097,933            --         3,055,884
     General and administrative ..........      2,215,013         883,733        (600,000)      2,498,746
                                             ------------    ------------    ------------    ------------
        Total operating expenses .........     19,210,849      17,816,639        (600,000)     36,427,488
                                             ------------    ------------    ------------    ------------

Loss from operations .....................     (2,209,684)     (2,931,064)           --        (5,140,748)
                                             ------------    ------------    ------------    ------------
Other income (expense):
     Interest expense ....................     (1,706,035)     (2,641,259)           --        (4,347,294)
     Interest income .....................        183,781         132,119            --           315,900
     Income from joint venture ...........           --            23,113            --            23,113
     Other ...............................     (1,139,779)         66,578            --        (1,073,201)
                                             ------------    ------------    ------------    ------------
        Other income (expense), net ......     (2,662,033)     (2,419,449)           --        (5,081,482)
                                             ------------    ------------    ------------    ------------

Loss before income taxes .................     (4,871,717)     (5,350,513)           --       (10,222,230)

Income tax benefit .......................           --           371,192            --           371,192
                                             ------------    ------------    ------------    ------------

Net loss .................................   $ (4,871,717)   $ (4,979,321)   $       --      $ (9,851,038)
                                             ============    ============    ============    ============
</TABLE>


<TABLE>
          SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2008
                                   (UNAUDITED)

<CAPTION>
                                                  NCC            NCA         ELIMINATIONS    CONSOLIDATED
                                             ------------    ------------    ------------    ------------
<S>                                          <C>             <C>             <C>             <C>
Revenues:
     Coal sales ..........................   $ 31,479,548    $ 34,375,590    $       --      $ 65,855,138
     Other revenues ......................      1,964,156          36,194        (600,000)      1,400,350
                                             ------------    ------------    ------------    ------------
        Total revenues ...................     33,443,704      34,411,784        (600,000)     67,255,488
                                             ------------    ------------    ------------    ------------

Operating expenses:
     Cost of sales .......................     33,268,558      32,353,577            --        65,622,135
     Depreciation, depletion, amortization
       and accretion .....................      5,072,734       2,795,405            --         7,868,139
     General and administrative ..........      3,914,446       1,308,922        (600,000)      4,623,368
                                             ------------    ------------    ------------    ------------
        Total operating expenses .........     42,255,738      36,457,904        (600,000)     78,113,642
                                             ------------    ------------    ------------    ------------

Loss from operations .....................     (8,812,034)     (2,046,120)           --       (10,858,154)
                                             ------------    ------------    ------------    ------------

Other income (expense):
     Interest expense ....................     (4,010,038)     (5,226,310)           --        (9,236,348)
     Interest income .....................        392,115         152,493            --           544,608
     Income from joint venture ...........           --           225,129            --           225,129
     Other ...............................     (1,854,968)         99,002            --        (1,755,966)
                                             ------------    ------------    ------------    ------------
        Other income (expense), net ......     (5,472,891)     (4,749,686)           --       (10,222,577)
                                             ------------    ------------    ------------    ------------
Loss before income taxes .................    (14,284,925)     (6,795,806)           --       (21,080,731)

Income tax benefit .......................           --           490,993            --           490,993
                                             ------------    ------------    ------------    ------------

Net loss .................................   $(14,284,925)   $ (6,304,813)   $       --      $(20,589,738)
                                             ============    ============    ============    ============
</TABLE>


                                       18
<PAGE>


<TABLE>
                               NATIONAL COAL CORP.
          SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2008
                                   (UNAUDITED)

<CAPTION>
                                                                 NCC              NCA        ELIMINATIONS    CONSOLIDATED
                                                             ------------    ------------    ------------    ------------
<S>                                                          <C>             <C>             <C>             <C>
OPERATING ACTIVITIES
Net cash flows provided by (used in) operating activities    $ (8,355,109)   $  1,741,988    $       --      $ (6,613,121)

INVESTING ACTIVITIES
Capital expenditures .....................................     (3,672,065)       (955,742)           --        (4,627,807)
Proceeds from sale of Straight Creek properties ..........     10,711,399            --              --        10,711,399
Restricted cash releaesd to operations ...................      3,563,888          82,018            --         3,645,906
Return of capital from subsidiary ........................        423,913            --          (423,913)           --
Additions to prepaid royalties ...........................       (390,625)       (127,674)           --          (518,299)
                                                             ------------    ------------    ------------    ------------
Net cash provided by (used in) investing activities ......     10,636,510      (1,001,398)       (423,913)      9,211,199
                                                             ------------    ------------    ------------    ------------

FINANCING ACTIVITIES
Proceeds from issuance of common and preferred stock .....     10,863,256            --              --        10,863,256
Proceeds from stock option exercises .....................      1,037,125            --              --         1,037,125
Repayments of debt .......................................    (11,528,081)     (1,348,012)           --       (12,876,093)
Repayments of capital leases .............................       (279,966)           --              --          (279,966)
Distribution to Parent ...................................           --          (423,913)        423,913            --
                                                             ------------    ------------    ------------    ------------
Net cash flows provided by (used in) financing activities          92,334      (1,771,925)        423,913      (1,255,678)
                                                             ------------    ------------    ------------    ------------
Net increase (decrease) in cash and cash equivalents .....      2,373,735      (1,031,335)           --         1,342,400
Cash and cash equivalents at beginning of period .........      8,823,016       1,031,335            --         9,854,351
                                                             ------------    ------------    ------------    ------------
Cash and cash equivalents at end of period ...............   $ 11,196,751    $       --      $       --      $ 11,196,751
                                                             ============    ============    ============    ============

Supplemental Cash Flow Information
  Cash paid during the year for interest .................   $  3,697,815    $  3,998,194    $       --      $  7,696,009
  Non-cash investing and financing activities:
    Series A preferred stock converted to common stock ...   $  3,346,650    $       --      $       --      $  3,346,650
    Preferred stock effective dividends ..................        131,712            --              --           131,712
    Preferred stock dividends converted to to common stock         79,779            --              --            79,779
    10.5% Senior Secured Notes exchanged for common stock      12,735,848            --              --        12,735,848
    Equipment acquired through capital leases ............        225,131            --              --           225,131
    Financed equipment acquisitions ......................      1,450,835       1,866,386            --         3,317,221
    Asset retirement obligations incurred ................        158,300            --              --           158,300
</TABLE>


                                       19
<PAGE>


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

16. SUBSEQUENT EVENTS

On August 8, 2008,  the Company  acquired a 1,000 acre mineral and surface tract
in eastern  Tennessee  that  includes  approximately  2.3  million  tons of high
quality coal.  The purchase  price was $7.0  million,  of which $2.0 million was
paid in cash and $5.0 million in the issuance of 756,430 shares of the Company's
common stock.


                                       20
<PAGE>


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

FORWARD LOOKING STATEMENTS OR INFORMATION

The  information  contained  in  this  Form  10-Q  is  intended  to  update  the
information  contained  in our  Annual  Report on Form  10-K for the year  ended
December 31, 2007 and presumes  that readers have access to, and will have read,
the "Management's  Discussion and Analysis of Financial Condition and Results of
Operations"  and other  information  contained in such Form 10-K.  The following
discussion  and  analysis  also  should  be read  together  with  our  condensed
consolidated  financial  statements and the notes to the condensed  consolidated
financial statements included elsewhere in this Form 10-Q.

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

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

         o        the worldwide demand for coal;

         o        the price of coal;

         o        the supply of coal and other competitive factors;

         o        the costs to mine and transport coal;

         o        the ability to obtain new mining permits;

         o        the costs of reclamation of previously mined properties;

         o        the risks of expanding coal production;

         o        industry competition;

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

         o        general economic conditions; and

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


                                       21
<PAGE>


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

OVERVIEW

We mine,  process and sell high quality bituminous steam coal from mines located
in East  Tennessee  and North  Alabama and,  until March 31, 2008,  in Southeast
Kentucky.  We own the coal mineral rights to approximately  66,000 acres of land
and lease the rights to  approximately  15,000  additional  acres  excluding the
Southeast Kentucky properties,  known as Straight Creek, sold on March 31, 2008.
As of June 30, 2008, our mining complexes included three active and two inactive
underground  mines,  six active and one inactive surface mines, and one highwall
mine.  In addition,  we have two  preparation  plants and two unit train loading
facilities  served by the Norfolk  Southern ("NS")  railroad.  We are a minority
joint venture partner in a barge loading  facility on the Warrior River in North
Alabama.  We hold permits that allow us to open or re-open seven new mines close
to our  current  operations.  During the six  months  ended  June 30,  2008,  we
acquired  a  524  acre  mineral  lease  in  eastern   Tennessee   that  includes
approximately  1.4 million tons of recoverable high quality coal. As of June 30,
2008, we  controlled  approximately  30.6 million  estimated  recoverable  tons.
During the six months ended June 30, 2008, we generated  total revenues of $67.3
million, a net loss of $20.6 million,  an EBITDA loss (See EBITDA NOTE below) of
$3.0 million and sold approximately 1.1 million tons of coal.

We plan to  acquire  additional  mines and  increase  production  from  existing
reserves as market conditions allow. On August 8, 2008, we acquired a 1,000 acre
mineral and surface  tract in East  Tennessee  that includes  approximately  2.3
million tons of recoverable high quality coal.

Our revenues  are derived  primarily  from the sale of coal to electric  utility
companies and industrial customers in the Southeastern United States.  According
to the  U.S.  Department  of  Energy,  Energy  Information  Administration,  the
long-term  outlook  for  coal  demand  is  favorable,  as  domestic  electricity
consumption  is  expected  to grow at an  average  annual  rate of 1.3% per year
through 2030 with 48% to 49% of that growth provided by coal. International coal
consumption  is expected  to grow by 2.6%  through  2015.  During the six months
ended June 30, 2008,  approximately 61.4% of our revenue was generated from coal
sales to electric  utility  companies in the  Southeastern  United  States.  Our
largest  customers  were  Georgia  Power,  Alabama  Power,  and  Solutia,  Inc.,
representing approximately 27.4%, 22.6% and 14.9% of our revenues, respectively.

In the six months  ended June 30, 2008,  our mines  produced  approximately  0.9
million tons of coal.  Approximately  19.8% of our production for the six months
ended June 30, 2008 was produced at underground  mines and 80.2% was produced at
our  surface  and  highwall  mining  operations.  We sell a majority of our coal
pursuant to long-term  contracts or open purchase order  arrangements  with long
time customers. In early 2008, management successfully  renegotiated an existing
coal supply  agreement  resulting in an increased  selling price per ton. We are
presently in  discussions  with other  customers on other  existing  coal supply
agreements  and intend to pursue  other  opportunities  as they arise during the
remainder of 2008.

We also have not priced a portion  of the coal we plan to produce  over the next
several years in order to take advantage of expected future price increases.  At
June 30, 2008, our expected  unpriced  production was  approximately  500,000 to
600,000 tons in 2009, 3.1 million to 3.3 million tons in 2010 and  approximately
4.5 million tons in 2011.


                                       22
<PAGE>


In March 2008, our dragline  equipment utilized on our L. Massey surface mine in
Alabama  suffered  a major  mechanical  failure.  The  equipment  has since been
repaired and was back in production on July 28, 2008. This breakdown resulted in
estimated  lost  production of 80,000 and 110,000 tons and lost revenues of $5.5
million and $7.7  million  during the three months and six months ended June 30,
2008,  respectively.  We expect production levels and corresponding  revenues to
increase now that the dragline is fully operational.

EBITDA DISCLOSURES

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

<TABLE>
<CAPTION>
                                   THREE MONTHS ENDED                SIX MONTHS ENDED
                              ----------------------------    ----------------------------
                                JUNE 30,        JUNE 30,        JUNE 30,        JUNE 30,
                                  2008            2007            2008            2007
                              ------------    ------------    ------------    ------------
<S>                           <C>             <C>             <C>             <C>
Net loss ..................   $ (9,851,038)   $ (6,539,739)   $(20,589,738)   $(12,501,257)
Income tax benefit ........       (371,192)           --          (490,993)           --
Other (income) expense, net      1,073,201         (33,255)      1,755,966        (144,305)
Income from joint venture .        (23,113)           --          (225,129)           --
Interest income ...........       (315,900)       (309,747)       (544,608)       (607,988)
Interest expense ..........      4,347,294       2,216,205       9,236,348       4,320,553
Depreciation, depletion,
  amortization and
  accretion ...............      3,055,884       3,664,058       7,868,139       7,292,655
                              ------------    ------------    ------------    ------------
EBITDA ....................   $ (2,084,864)   $ (1,002,478)   $ (2,990,015)   $ (1,640,342)
                              ============    ============    ============    ============
</TABLE>


SALE OF STRAIGHT CREEK MINING OPERATIONS

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


                                       23
<PAGE>


Additionally,   the  transaction  will  result  in  the  subsequent  release  of
approximately  $7.0 million in restricted  cash that was  previously  pledged to
secure  reclamation  bonds and other  liabilities  associated  with the Straight
Creek mining  operations,  of which $4.0 million had been recouped  through June
30, 2008.

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

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

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

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


                                       24
<PAGE>


RESULTS OF OPERATIONS

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



                                          Three Months Ended   Six Months Ended
(in percentages)                                June 30,           June 30,
                                           ----------------    ----------------
                                            2008      2007      2008      2007
                                           ------    ------    ------    ------
Revenues ...............................    100.0     100.0     100.0     100.0
                                           ------    ------    ------    ------
Operating expenses:
    Cost of sales ......................     97.7      97.0      97.6      94.7
    Depreciation, depletion,
       amortization and accretion ......      9.7      19.4      11.7      19.2
    General and administrative .........      8.9       8.3       6.8       9.7
                                           ------    ------    ------    ------
    Total operating expenses ...........    116.3     124.7     116.1     123.6
                                           ------    ------    ------    ------
Loss from operations ...................    (16.3)    (24.7)    (16.1)    (23.6)
Other income (expense):
    Interest expense ...................    (13.8)    (11.7)    (13.7)    (11.4)
    Interest income ....................      1.0       1.6       0.8       1.6
    Income from joint venture ..........      0.1       0.0       0.3       0.0
    Other income (expense), net ........     (3.4)      0.2      (2.6)      0.4
                                           ------    ------    ------    ------
Loss before income taxes ...............    (32.4)    (34.6)    (31.3)    (33.0)
Income tax benefit .....................      1.2       0.0       0.7       0.0
                                           ------    ------    ------    ------
Net loss ...............................    (31.2)    (34.6)    (30.6)    (33.0)
                                           ======    ======    ======    ======


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

PRODUCTION

During the three months ended June 30, 2008 and 2007, our mines produced 439,830
and 243,703 tons of coal, respectively, as follows:

                                                    THREE MONTHS ENDED
                                             JUNE 30, 2008      JUNE 30, 2007
                                           -----------------   -----------------
                                             Tons       %        Tons       %
                                           -------   -------   -------   -------
Production:
     Surface mines .....................   320,807      68.6    81,321      23.0
     Highwall mines ....................    35,502       7.6    34,938       9.9
     Underground mines .................    83,521      17.9   127,444      36.1
                                           -------   -------   -------   -------
Total tons produced ....................   439,830      94.1   243,703      69.0
Purchased coal .........................    27,356       5.9   109,466      31.0
                                           -------   -------   -------   -------
Total tons available ...................   467,186     100.0   353,169     100.0
                                           =======   =======   =======   =======

Tons produced by contract miners
     (included above) ..................    50,807      10.9    81,370      23.0
                                           =======   =======   =======   =======


                                       25
<PAGE>


The 2008 figures above include  191,614 tons from National Coal of Alabama.  The
2007  figures  above  include  155,897  tons  from  our  Straight  Creek  mining
operations.

REVENUE

During the three  months ended June 30, 2008 and 2007,  approximately  88.7% and
78.6% of coal sales were made to four  utilities and four  industrial  customers
under  contracts and open purchase  order  arrangements  with original  terms of
twelve  months or longer.  The  remaining  coal sales for the three month period
were made under  short term  contracts  or  purchase  orders.  Tons sold and the
associated revenue for the three month period ended follows:

<TABLE>
<CAPTION>
                                    THREE MONTHS ENDED
                                         JUNE 30                 INCREASE/DECREASE
                                 -------------------------   -------------------------
                                     2008          2007           $             %
                                 -----------   -----------   -----------   -----------
<S>                              <C>           <C>           <C>                 <C>
Coal sales ...................   $30,371,697   $18,729,218   $11,642,479          62.2
Tons sold ....................       458,245       372,341        85,904          23.1
Average price per ton sold ...   $     66.28   $     50.30   $     15.98          31.8

Other revenues ...............   $ 1,215,043   $   153,227   $ 1,061,816         693.0
</TABLE>


The increase in revenue from coal sales for the three months ended June 30, 2008
as compared to the same period in 2007 was  primarily  the result of the average
price per ton sold  increasing from $50.30 during the three month period in 2007
to $66.28  during the three  month  period in 2008,  along with the  addition of
National Coal of Alabama which sold 205,549 tons of coal during the period at an
average  price of $72.25  per ton,  reduced  by the sale of the  Straight  Creek
operations, which sold 153,134 tons at an average price of $48.68 per ton during
the same period in 2007.


The  increase in other  revenues of  $1,061,816  resulted  primarily  from a new
contract  mining and  services  agreement  between  Xinergy  and  National  Coal
Corporation  to extract  coal from a highwall  mine  previously  sold to Xinergy
under the Straight Creek sale on March 31, 2008.

COST OF SALES

<TABLE>
<CAPTION>
                                     THREE MONTHS ENDED
                                          JUNE 30                 INCREASE/DECREASE
                                  -------------------------   -------------------------
                                      2008          2007           $             %
                                  -----------   -----------   -----------   -----------
<S>                               <C>           <C>           <C>                  <C>
Cost of sales .................   $30,872,858   $18,309,912   $12,562,946          68.6
Tons sold .....................       458,245       372,341        85,904          23.1
Average cost per ton sold .....   $     67.37   $     49.18   $     18.19          37.0
                                  -----------   -----------   -----------   -----------
</TABLE>


Total cost of sales  increased 68.6% during the three months ended June 30, 2008
as compared to the same three month period in 2007 primarily as a result of:

   (i)   The addition of National  Coal of Alabama,  selling  205,549 tons at an
         average cost of $77.04 per ton during the 2008 period as compared to no
         production  during  the  2007  period.  Additionally,  the  March  2008
         mechanical  failure of our dragline  equipment  in Alabama  resulted in
         lost  production  and  corresponding  revenues  of  approximately  $5.5
         million and 80,000  tons,  respectively,  during the three months ended
         June 30, 2008.

   (ii)  The sale of the Straight  Creek mining  operations,  which sold 153,124
         tons at an average  cost of $47.31  per ton  during the 2007  period as
         compared to no production during the 2008 period.


                                       26
<PAGE>


   (iii) Costs associated with the  aforementioned  contract mining agreement of
         $1.1 million.

   (iv)  Other  increases were noted in the cost of diesel fuel in the Tennessee
         operations of $1.2 million or $4.73 per ton produced and contract labor
         and hauling costs of $1.1 million, or $4.51 per ton produced.

DEPRECIATION, DEPLETION, AMORTIZATION AND ACCRETION

<TABLE>
<CAPTION>
                                     THREE MONTHS ENDED
                                          JUNE 30                 INCREASE/DECREASE
                                  -------------------------   -------------------------
                                      2008          2007           $             %
                                  -----------   -----------   -----------   -----------
<S>                               <C>           <C>           <C>                 <C>
Depreciation, depletion,
  amortization and accretion ..   $ 3,055,884   $ 3,664,058   $  (608,174)        (16.6)
Tons sold .....................       458,245       372,341        85,904          23.1
Average cost per ton sold .....   $      6.67   $      9.84   $     (3.17)        (32.2)
</TABLE>


The 16.6%  decrease in  depreciation,  depletion,  amortization,  and  accretion
expense for the three  months ended June 30, 2008 as compared to the same period
in 2007,  is  principally  due to: (i) the sale of $16.1  million  in  property,
plant,  equipment,  and mine  development,  or $0.9 million of related  expense,
associated  with the sale of the Straight  Creek  properties  on March 31, 2008;
offset by (ii) the addition of National Coal of Alabama, which sold 205,549 tons
of  coal  with  an   associated   average  cost  of   depreciation,   depletion,
amortization,  and  accretion  per ton of  $5.63,  or $1.1  million  of  related
expense;  and  offset by (iii) a  reduction  in expense  of  approximately  $0.9
million for assets that were fully depreciated.

GENERAL AND ADMINISTRATIVE

<TABLE>
<CAPTION>
                                     THREE MONTHS ENDED
                                          JUNE 30                 INCREASE/DECREASE
                                  -------------------------   -------------------------
                                      2008          2007           $             %
                                  -----------   -----------   -----------   -----------
<S>                               <C>           <C>           <C>                 <C>
General and administrative
  expense .....................   $ 2,798,746   $  1,575,011  $  1,223,735        77.7
Tons sold .....................       458,245        372,341        85,904        23.1
Average cost per ton sold .....   $      6.11   $       4.23  $       1.88        44.4
</TABLE>


The 77.7% increase in general and  administrative  expenses for the three months
ended June 30,  2008 as  compared  to the same  period in the  previous  year is
primarily  attributable  to the addition of $0.9 million in reserves  associated
with uncollectible  accounts and legal contingencies and increased  professional
fees of $0.3 million.


                                       27
<PAGE>


OTHER INCOME (EXPENSE)

<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED
                                                JUNE 30,               INCREASE/DECREASE
                                       -------------------------   --------------------------
                                           2008          2007           $              %
                                       -----------   -----------   -----------    -----------
<C>                                    <C>           <C>           <C>                  <C>
12.0% senior secured notes, due 2012   $ 2,600,007   $      --     $ 2,600,007          100.0
10.5% senior secured notes, due 2010     1,524,526     1,769,397      (244,871)         (13.8)
Term loan credit facility ..........          --         281,035      (281,035)        (100.0)
Installment obligations and notes ..       182,412        22,611       159,801          706.7
Capital lease obligations ..........        29,478       109,927       (80,449)         (73.2)
Other ..............................        10,871        33,235       (22,364)         (67.3)
                                       -----------   -----------   -----------    -----------
Total interest expense .............   $ 4,347,294   $ 2,216,205   $ 2,131,089           96.2
                                       ===========   ===========   ===========    ===========
</TABLE>


The 96.2% increase in interest  expense for the three months ended June 30, 2008
as compared to the same three month period in 2007,  was  primarily  due to: (i)
the October 19, 2007 issuance of our 12.0% Senior Secured Notes, the proceeds of
which were used to purchase Mann Steel  Products,  Inc.;  less (ii) repayment of
our term loan credit  facility and a reduction in interest  expense on our 10.5%
senior secured discount notes due to a reduction in debt of $10.0 million.

COMPARISON OF SIX MONTHS ENDED JUNE 30, 2008 AND SIX MONTHS ENDED JUNE 30, 2007

PRODUCTION

During the six months ended June 30, 2008 and 2007, our mines  produced  940,053
and 544,506 tons of coal, respectively, as follows:

<TABLE>
<CAPTION>
                                                         SIX MONTHS ENDED
                                                JUNE 30, 2008          JUNE 30, 2007
                                           ---------------------   ---------------------
                                              Tons         %         Tons          %
                                           ---------   ---------   ---------   ---------
<S>                                        <C>             <C>       <C>           <C>
Production:
     Surface mines .....................     664,356        62.3     182,622        23.3
     Highwall mines ....................      89,513         8.4      69,746         8.9
     Underground mines .................     186,184        17.4     292,138        37.3
                                           ---------   ---------   ---------   ---------
Total tons produced ....................     940,053        88.1     544,506        69.5
Purchased coal .........................     126,601        11.9     238,938        30.5
                                           ---------   ---------   ---------   ---------
Total tons available ...................   1,066,654       100.0     783,444       100.0
                                           =========   =========   =========   =========

Tons produced by contract miners
    (included above) ...................     129,853        12.2     184,294        23.5
                                           =========   =========   =========   =========
</TABLE>


The 2008 figures  above  include  482,783 tons from National Coal of Alabama and
59,181 tons from our Straight Creek mining operations.  The 2007 figures include
356,396 tons from our Straight Creek mining operations.


                                       28
<PAGE>


REVENUE

During the six  months  ended June 30,  2008 and 2007,  approximately  85.0% and
93.2% of coal sales were made to four  utilities and four  industrial  customers
under  contracts and open purchase  order  arrangements  with original  terms of
twelve months or longer. The remaining coal sales for the six months period were
made under short term contracts or purchase orders. Tons sold and the associated
revenue for the six month period ended follows:

<TABLE>
<CAPTION>
                                      SIX MONTHS ENDED
                                          JUNE 30                INCREASE/DECREASE
                                 -------------------------   -------------------------
                                    2008           2007           $             %
                                 -----------   -----------   -----------   -----------
<S>                              <C>           <C>           <C>                 <C>
Coal sales ...................   $65,855,138   $37,543,116   $28,312,022          75.4
Tons sold ....................     1,056,153       740,672       315,481          42.6
Average price per ton sold ...   $     62.35   $     50.69   $     11.66          23.0

Other revenues ...............   $ 1,400,350   $   374,275   $ 1,026,075         274.2
</TABLE>


The  increase in revenue  from coal sales for the six months ended June 30, 2008
as compared to the same period in 2007 was  primarily the result of the addition
of National  Coal of Alabama,  which sold  499,149  tons of coal during the 2008
period at an average price of $68.87 per ton as compared to no production during
the 2007 period,  reduced by the sale of the Straight  Creek mining  operations,
which sold 341,425 tons at an average price of $49.27 during the 2007 period.

The increase in other  revenues of  $1,026,075  consisted  primarily of (i) fees
charged to another coal  producer  for use of our train  loading  facilities  in
Southeast  Kentucky,  which were sold on March 31, 2008; and (ii) revenue from a
new  contract  mining  services  agreement  between  Xinergy and  National  Coal
Corporation  to extract  coal from a highwall  mine  previously  sold to Xinergy
under the Straight Creek sale on March 31, 2008.

COST OF SALES

<TABLE>
<CAPTION>
                                      SIX MONTHS ENDED
                                          JUNE 30                INCREASE/DECREASE
                                 -------------------------   -------------------------
                                    2008           2007           $             %
                                 -----------   -----------   -----------   -----------
<S>                              <C>           <C>           <C>                <C>
Cost of sales .................  $65,622,135   $35,903,825   $29,718,310        82.8
Tons sold .....................    1,056,153       740,672       315,481        42.6
Average cost per ton sold .....  $     62.13   $     48.47   $     13.66        28.2
</TABLE>


Total cost of sales increased 82.8% during the six months ended June 30, 2008 as
compared to the same six month period in 2007 due primarily to:

(i)      The  addition of National  Coal of Alabama,  which sold 499,149 tons of
         coal at an average cost per ton sold of $64.82. Additionally, the March
         2008  mechanical  failure of our  dragline  equipment  resulted in lost
         production and corresponding revenues of approximately $7.7 million and
         110,000 tons, respectively, during the six months ended June 30, 2008.

(ii)     Our  operations  in  Tennessee  and  Kentucky  (sold on March 31, 2008)
         experienced large increases in the cost of labor, explosives, equipment
         repair,  and fuel while  experiencing  deceases in both  production and
         sales which  resulted in the  significant  increase in the average cost
         per ton sold from $47.89 per ton to $59.63 per ton. Our Tennessee mines
         sold  456,126  tons at an  average  cost per ton sold of $56.31 and our
         Kentucky  mines sold  100,878  tons at an average  cost per ton sold of
         $59.63.


                                       29
<PAGE>


DEPRECIATION, DEPLETION, AMORTIZATION AND ACCRETION

<TABLE>
<CAPTION>
                                      SIX MONTHS ENDED
                                          JUNE 30                INCREASE/DECREASE
                                 -------------------------   -------------------------
                                    2008           2007           $             %
                                 -----------   -----------   -----------   -----------
<S>                              <C>           <C>           <C>                <C>
Depreciation, depletion,
 amortization and accretion ..   $ 7,868,139   $ 7,292,655   $   575,484          7.9
Tons sold ....................     1,056,153       740,672       315,481         42.6
Average cost per ton sold ....   $      7.45   $      9.85   $     (2.40)       (24.4)
</TABLE>

The 7.9%  increase  in  depreciation,  depletion,  amortization,  and  accretion
expense for the six months  ended June 30,  2008 as  compared to the  comparable
period in 2007, is attributable to: (i) the sale of approximately  $16.1 million
in  property,  plant,  equipment,  and  mine  development,  or $0.6  million  of
corresponding expense, associated with the sale of the Straight Creek properties
on March 31, 2008; offset by (ii) the addition of National Coal of Alabama which
sold 499,149 tons of coal during the 2008 period with an associated average cost
of  depreciation,  depletion,  amortization,  and accretion per ton of $5.66, or
$2.7  million of  corresponding  expense;  and (iii) a  reduction  in expense of
approximately $1.6 million for assets that were fully depreciated.

GENERAL AND ADMINISTRATIVE

<TABLE>
<CAPTION>
                                      SIX MONTHS ENDED
                                          JUNE 30                INCREASE/DECREASE
                                 -------------------------   -------------------------
                                    2008           2007           $             %
                                 -----------   -----------   -----------   -----------
<S>                              <C>           <C>           <C>                <C>
General and administrative
  expense ....................   $ 4,623,368   $ 3,653,908   $   969,460         26.5
Tons sold ....................     1,056,153       740,672       315,481         42.6
Average cost per ton sold ....   $      4.38   $      4.93   $     (0.55)       (11.2)
</TABLE>


The 26.5%  increase in general and  administrative  expenses  for the six months
ended June 30,  2008 as  compared  to the same  period in the  previous  year is
primarily  attributable  to the addition of $0.9 million in reserves  associated
with uncollectible accounts and legal contingencies.

OTHER INCOME (EXPENSE)

<TABLE>
<CAPTION>
                                            SIX MONTHS ENDED
                                                JUNE 30,                INCREASE/DECREASE
                                       -------------------------   --------------------------
                                           2008          2007           $              %
                                       -----------   -----------   -----------    -----------
<C>                                    <C>           <C>           <C>                  <C>
12.0% senior secured notes, due 2012   $ 5,281,299   $      --     $ 5,281,299          100.0
10.5% senior secured notes, due 2010     3,258,194     3,513,683      (255,489)          (7.3)
Term loan credit facility ..........       411,517       501,928       (90,411)         (18.0)
Installment obligations and notes ..       193,693        47,831       145,862          305.0
Capital lease obligations ..........        71,181       218,682      (147,501)         (67.4)
Other ..............................        20,464        38,429       (17,965)         (46.7)
                                       -----------   -----------   -----------    -----------
Total interest expense .............   $ 9,236,348   $ 4,320,553   $ 4,915,795          113.8
                                       ===========   ===========   ===========    ===========
</TABLE>


The 113.8%  increase in interest  expense for the six months ended June 30, 2008
as compared to the same six month period in 2007,  was  primarily  the result of
(i) the  October  19,  2007  issuance of our 12.0%  senior  secured  notes,  the
proceeds of which were used to purchase  Mann Steel  Products,  Inc; (ii) less a
reduction  in  interest  expense  on our  10.5%  senior  secured  notes due to a
reduction in debt of $13.0 million.


                                       30
<PAGE>


Interest  income  declined  from  $607,988  during 2007 to $544,608 in 2008 as a
result of lower average cash balances and lower  average  interest  rates during
the six month period.

LIQUIDITY AND CAPITAL RESOURCES

At June  30,  2008,  we had cash and cash  equivalents  of  approximately  $11.2
million and working capital of  approximately  $3.2 million.  Cash flows used in
operations were $9.3 million and $6.6 million for the three and six months ended
June 30, 2008, respectively.  Operations have not always generated positive cash
flows in the past and the ability to do so during the  remainder  of 2008 is not
assured.  At June 30, 2008,  we had  shareholders'  equity of $13.9  million and
incurred net losses of $20.6 million  (excluding  preferred stock dividends) for
the six months then ended.  Management expects that we may continue to incur net
losses into the foreseeable future,  which would decrease  shareholders'  equity
and could lead to an eventual shareholders' deficit.

We invested  approximately $8.2 million in equipment and mine development during
the six months  ended June 30, 2008  including  $3.5 million  purchased  through
equipment financing arrangements.  Of this total, $500,000 was used to acquire a
524 acre mineral  lease in eastern  Tennessee  that includes  approximately  1.4
million  tons of  recoverable  high quality  coal.  We intend to make up to $7.8
million of  additional  capital  expenditures  during the  remainder  of 2008 to
expand  operations and  approximately  $500,000 to maintain  existing assets. On
August 8, 2008,  we acquired a 1,000 acre  mineral and surface  tract in eastern
Tennessee  that  includes  approximately  2.3 million tons of  recoverable  high
quality coal. The purchase price was $7.0 million of which $2.0 million was paid
in cash and $5.0  million in the  issuance  of 756,430  shares of the  Company's
common stock. This acquisition is excluded from the capital  expenditures budget
for the remainder of 2008.

In March 2008, our dragline  equipment utilized in our L. Massey surface mine in
Alabama  suffered  a major  mechanical  failure.  The  equipment  has since been
repaired and was back in production on July 28, 2008. This breakdown resulted in
lost production of 80,000 and 110,000 tons and lost revenues of $5.5 million and
$7.7  million  during  the three  months and six  months  ended  June 30,  2008,
respectively.

In early 2008, we successfully  renegotiated  an existing coal supply  agreement
resulting  in an increased  selling  price per ton.  Management  is presently in
negotiations  with  another  existing  customer  to amend  another  coal  supply
agreement.  Our  liquidity  plans  include  the  finalization  of these  ongoing
negotiations,  receipt of the remaining $3.0 million of restricted cash from the
March 31, 2008 sale of our Straight Creek mining  operations,  and obtaining the
release of $6.0  million in  additional  restricted  cash used to  collateralize
current   reclamation  bonds.   Additionally,   management  expects  significant
improvement in its Alabama  operations  following the repair and redeployment of
its dragline equipment.

Management also intends to continue its pursuit of a $10 million working capital
facility during 2008 to provide additional  liquidity as needed.  However, if we
are unable to  execute  our plans  successfully,  we may not be able to meet our
liquidity   requirements   and  will   need  to  pursue   additional   financing
opportunities as needed.

We also have not priced a portion  of the coal we plan to produce  over the next
several years in order to take advantage of expected future price increases.  At
June 30, 2008, our expected  un-priced  production was approximately  500,000 to
600,000 tons in 2009, 3.1 million to 3.3 million tons in 2010 and  approximately
4.5 million tons in 2011.


                                       31
<PAGE>


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

<TABLE>
<CAPTION>
                                                          JUNE 30,       DECEMBER 31,
                                                            2008             2007
                                                       -------------    -------------
<C>                                                    <C>              <C>
12.0% Senior Secured Notes, due 2012 ...............   $  60,000,000    $  60,000,000
10.5% Senior Secured Notes, due 2010 ...............      42,000,000       55,000,000
Term Loan Credit Facility, due 2008 ................            --         10,000,000
Overriding Royalty Interest obligation, due 2023 ...       8,613,447        9,177,273
Equipment loans and installment purchase obligations       6,007,402        6,839,462
Insurance premium financing, due 2008 ..............         415,688           51,817
                                                       -------------    -------------
                                                         117,036,537      141,068,552

Unamortized discounts ..............................      (9,760,097)     (11,264,974)

Current portion of long-term debt ..................      (4,610,704)     (15,453,230)
                                                       -------------    -------------

Total long-term debt ...............................   $ 102,665,736    $ 114,350,348
                                                       =============    =============
</TABLE>


12.0% SENIOR SECURED NOTES DUE 2012

National Coal of Alabama,  Inc. is restricted in its ability to distribute  cash
to our other consolidated  companies for use in their operations under the terms
of our 12% Senior  Secured Notes due 2012. On an annual basis,  National Coal of
Alabama can  distribute  cash for use in our other  operations  only if it meets
certain EBITDA-based operating requirements for the immediately preceding fiscal
year. Additionally, our subsidiary,  National Coal Corporation, has entered into
a  management  services  agreement  with  National  Coal of Alabama,  Inc.  that
compensates  National Coal Corporation for services that it provides to National
Coal of Alabama,  and a tax sharing  agreement  that  requires  National Coal of
Alabama  to  make  payments  to us in  respect  of its  tax  liability.  For the
remainder of fiscal 2008, we anticipate National Coal of Alabama's operations to
provide limited cash for use in our other operations.

Due primarily to the decrease in revenues and loss of production associated with
our dragline  equipment  failure,  we violated our loan covenants related to our
12% senior secured notes due 2012. We received a waiver of all existing defaults
and covenant  violations.  Additionally,  we obtained  amended terms for certain
covenants,  through March 31, 2009. In return,  we paid a one-time  default rate
waiver fee of $300,000.

10.5% SENIOR SECURED NOTES DUE 2010

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

TERM LOAN CREDIT FACILITY

On March  31,  2008,  we used a  portion  of the  proceeds  from the sale of our
Straight  Creek,  Kentucky  properties  (see  Note  3,  SALE OF  STRAIGHT  CREEK
PROPERTIES) to repay $5.0 million of the $10.0 million Term Loan Credit Facility
entered  into in October  2006 with  Guggenheim  Corporate  Funding,  L.L.C.  as
administrative  agent and  accrued  interest of  $50,000.  On April 2, 2008,  we


                                       32
<PAGE>


repaid the  remaining  $5.0  million  and  accrued  interest  of  $51,667  which
indebtedness  otherwise  would have  matured in December  2008.  The  repayments
resulted  in a $1.2  million  loss  on  extinguishment  of  debt  included  as a
component of OTHER (EXPENSE) INCOME, NET for the six months ended June 30, 2008.

INSTALLMENT PURCHASE OBLIGATIONS AND EQUIPMENT NOTES

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

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

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

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

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
six months ended June 30, 2008,  we had a net increase in cash of  approximately
$1.3 million. Cash flows from operating,  financing and investing activities for
the six months  ended June 30,  2008 and 2007 are  summarized  in the  following
table:

                                                 JUNE 30,            JUNE 30,
                                                   2008                2007
                                               ------------        ------------
Activity:
Operating activities ...................       $ (6,613,121)       $ (7,066,458)
Investing activities ...................          9,211,199          (2,168,296)
Financing activities ...................         (1,255,678)         12,553,183
                                               ------------        ------------
     Net increase in cash ..............       $  1,342,400        $  3,318,429
                                               ============        ============


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<PAGE>


OPERATING ACTIVITIES

The net cash used by operating  activities of approximately  $6.6 million during
the six months ended June 30, 2008 was  comparable  with prior year cash used in
operations of $7.1 million.  The current period balance includes three months of
operating  losses  associated with the Straight Creek mining  operations,  and a
full  six  months  of  operating  results  for  National  Coal of  Alabama.  The
comparable  period in the prior  year  includes  six  months of  Straight  Creek
operating losses and excludes National Coal of Alabama. We expect improvement in
the cash flow used in  operations  as National Coal of Alabama is expected to be
more profitable than our Straight Creek operations were. However, in March 2008,
our  dragline  equipment  utilized  in our L.  Massey  surface  mine in  Alabama
suffered a major mechanical  failure.  The equipment has since been repaired and
was back in  production  on July  28,  2008.  This  breakdown  resulted  in lost
production of 80,000 and 110,000 tons and lost revenues of $5.5 million and $7.7
million   during  the  three   months  and  six  months  ended  June  30,  2008,
respectively.

INVESTING ACTIVITIES

The increase in cash  provided by investing  activities  of $9.2 million for the
six months ended June 30, 2008 compared to cash used in investing  activities of
$2.2  million for the six months ended June 30, 2007 was  primarily  due to: (i)
the sale of our  Straight  Creek,  Kentucky  properties  in March 2008 for $10.7
million;  (ii) the release of $4.0 million of reclamation  bonds associated with
the Straight Creek mining  operations  restricted cash to operations,  less $0.4
million  of other  changes  in  restricted  cash and (iii) a  reduction  of cash
provided  by  investing  activities  due to a $2.7  million  increase in capital
expenditures over the same period last year.

FINANCING ACTIVITIES

The change in net cash used in financing  activities of $1.3 million  during the
six months  ended June 30, 2008  compared to the net cash  provided by financing
activities of $12.6 million for the six months ended June 30, 2007 was primarily
due to: (i) the  repayment of our Term Loan Credit  Facility and  repayments  of
notes and equipment  related  financing in 2008 totaling $13.2  million;  (ii) a
decrease  of $3.1  million  raised  in  equity  financings  over the  respective
periods;  and (iii) less proceeds from stock option exercises of $1.0 million in
2008.

OFF-BALANCE SHEET ARRANGEMENTS

At June 30, 2008, we did not have any relationships with unconsolidated entities
or financial  partnerships,  such as entities  often  referred to as  structured
finance,  variable interest or special purpose  entities,  which would have been
established for the purpose of facilitating  off-balance  sheet  arrangements or
other contractually  narrow or limited purposes.  As such, we are not exposed to
any  financing,  liquidity,  market or credit  risk that  could  arise if we had
engaged in such relationships.

At June 30, 2008 and December 31, 2007,  we,  through our  subsidiary,  National
Coal of Alabama,  Inc.,  held an  investment  totaling  $339,952  and  $114,823,
respectively,  representing a 49% interest in Powhatan  Dock,  LLC  ("Powhatan")
which operates a barge load-out in Alabama.  We use the equity method to account
for the joint  venture  investment  in Powhatan,  which was acquired  during the
fourth quarter of 2007.  Powhatan  recorded  revenues of $820,380 and $2,095,799
and net income of $47,172  and  $459,448  during the three and six months  ended
June 30, 2008.


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<PAGE>


CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

Accounting  measurements at interim dates inherently involve greater reliance on
estimates than those made at year-end.  The results for the three and six months
ended June 30, 2008 are not necessarily indicative of results to be expected for
the  full  year.  Please  refer to the  section  entitled  "Critical  Accounting
Policies,  Judgments and Estimates" included in Item 7. Management's  Discussion
and  Analysis of  Financial  Condition  and Results of  Operation  of our Annual
Report on Form 10-K for the year ended December 31, 2007 for a discussion of our
critical  accounting  policies,  judgments  and  estimates.  There  have been no
material changes to the previously reported information  concerning our Critical
Accounting Policies, Judgments and Estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

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

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

We adopted  Statement  of Financial  Accounting  Standards  No. 157,  FAIR VALUE
MEASUREMENTS ("SFAS 157"), and Statement of Financial  Accounting  Standards No.
159, THE FAIR VALUE OPTION FOR FINANCIAL LIABILITIES - INCLUDING AN AMENDMENT OF
FASB  STATEMENT  NO. 115 ("SFAS No. 159") on January 1, 2008.  The  adoptions of
SFAS 157 and SFAS 159 did not have a material  impact on our financial  position
or results of operations.

In December 2007, the FASB issued  Statement of Financial  Accounting  Standards
No. 141R,  BUSINESS  COMBINATIONS  ("SFAS  141R") which  becomes  effective  for
acquisitions  occurring on or after the beginning of the first annual  reporting
period beginning on or after December 15, 2008. SFAS 141R establishes principles
and requirements  for determining how an enterprise  recognizes and measures the
fair value of certain assets and liabilities acquired in a business combination,
including  non-controlling  interests,  contingent  consideration,  and  certain
acquired contingencies.  SFAS 141R also requires acquisition-related transaction
expenses and restructuring costs be expensed as incurred rather than capitalized
as a component of the business combination.  We expect that SFAS 141R could have
an impact on accounting for any businesses  acquired after the effective date of
this pronouncement.

In December  2007, the FASB issued SFAS No. 160,  "Non-controlling  Interests in
Consolidated Financial Statements-An Amendment of ARB No. 51" ("SFAS 160"). SFAS
160  establishes  accounting  and reporting  standards  for the  non-controlling
interest in a subsidiary  (previously referred to as minority  interests).  SFAS


                                       35
<PAGE>


160  would  have  an  impact  on  the   presentation   and   disclosure  of  the
non-controlling  interests of any non  wholly-owned  businesses  acquired in the
future. SFAS 160 will be effective for fiscal years beginning after December 15,
2008;  earlier  adoption  is  prohibited.  We are  still  analyzing  SFAS 160 to
determine the impact of adoption.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4T. CONTROLS AND PROCEDURES

CONTROLS AND PROCEDURES

Members of our management,  including our President and Chief Executive Officer,
Daniel A. Roling,  and Chief Financial Officer,  Michael Castle,  have evaluated
the  effectiveness  of our  disclosure  controls and  procedures,  as defined by
paragraph (e) of Exchange Act Rules 13a-15 or 15d-15,  as of June 30, 2008,  the
end of the period covered by this report.  Based upon that  evaluation,  Messrs.
Roling and Castle  concluded  that our disclosure  controls and procedures  were
effective as of June 30, 2008.

INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in our  internal  control over  financial  reporting or in
other factors identified in connection with the evaluation required by paragraph
(d) of  Exchange  Act Rules  13a-15 or 15d-15 that  occurred  during the quarter
ended June 30, 2008 that have materially  affected,  or are reasonably likely to
materially affect, our internal control over financial reporting.


Section 404 of the  Sarbanes-Oxley  Act of 2002 requires us to document and test
the effectiveness of our internal control over financial reporting in accordance
with an established  internal control  framework and to report our conclusion as
to the  effectiveness  of our  internal  controls.  For the fiscal  year  ending
December 31, 2008 and  subsequent  years,  we will also  require an  independent
registered  public  accounting firm to test our internal  control over financial
reporting and report on the effectiveness of such controls.

                           PART II: OTHER INFORMATION

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

         On August 8, 2008,  we issued  756,430  shares of our common stock (the
"Shares") to Lonnie S.  Hatmaker  Irrevocable  Family Trust (the  "Trust").  The
Shares were issued in connection  with our  acquisition  of a 1,000 acre mineral
and  surface  tract  in  eastern   Tennessee  (the  "Assets")  from   Lafollette
Enterprises,   LP,  a  Tennessee   limited   partnership   and  Lonnie  Hatmaker
(collectively,  the  "Sellers"),  pursuant to an Asset Purchase  Agreement dated
August  8,  2008  among  the  Sellers  and  Rex  Coal,  Inc.,  our  wholly-owned
subsidiary.  The purchase  price for the Assets was $7.0 million,  of which $2.0
million was paid in cash and $5.0  million was  satisfied by the issuance of the
Shares.  The Sellers  designated  that the Shares be delivered  to the Trust,  a
limited partner of Lafollette Enterprises, LP.

         The Trust  represented  to us that  such  investor  was an  "accredited
investor"  within the meaning of Rule 501 of  Regulation D under the  Securities
Act of 1933,  and that such investor was receiving the securities for investment
and not in  connection  with a  distribution  thereof.  The issuance and sale of


                                       36
<PAGE>


these  securities  was exempt  from the  registration  and  prospectus  delivery
requirements  of the  Securities  Act pursuant to Section 4(2) of the Securities
Act and Rule 506 thereunder as a transaction not involving any public offering.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         On June 26, 2008, we held our 2008 Annual Meeting of  Shareholders.  At
the annual  meeting,  there were 29,239,883  shares entitled to vote,  including
28,819,931  shares of common  stock and  Series A  convertible  preferred  stock
convertible  into 419,952 shares of common stock.  There were 20,965,492  shares
(71.7% of the shares  entitled to vote)  represented at the meeting in person or
by proxy, comprised solely of shares of common stock. The only matters submitted
to the  shareholders  at the  annual  meeting  were  (a)  the  election  of four
directors.  Immediately  prior  to the  meeting,  the  Board  of  Directors  was
comprised of Daniel A. Roling, Kenneth Scott, Gerald Malys, and Robert Heinlein.
The  following  summarizes  vote  results  for those  matters  submitted  to our
shareholders for action at the annual meeting:

         1. Proposal to elect Kenneth Scott,  Daniel Roling,  Gerald Malys,  and
Robert  Heinlein  to  serve  as  our  directors  until  the  annual  meeting  of
shareholders to be held in 2009 and until their  successors are elected and have
qualified:


              NAME                    FOR                WITHHELD

          Daniel Roling            17,917,078           3,048,414
          Kenneth Scott            20,745,331            220,161
          Gerald Malys             20,743,633            221,859
         Robert Heinlein           13,872,910           7,092,582

ITEM 6. EXHIBITS

The following exhibits are filed as part of this report:

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

     10.1         Amendment  No. 1 And Waiver  dated as of August 13, 2008 among
                  National Coal of Alabama, Inc., the Holders named therein, and
                  TCW Asset Management Company

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

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

     32.1         Certification  Pursuant to 18 U.S.C.  Section  1350 as Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


                                       37
<PAGE>


                                   SIGNATURES

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

                                        NATIONAL COAL CORP.


Date: August 14, 2008                   /S/ MICHAEL R. CASTLE
                                        --------------------------------
                                    By:     Michael R. Castle
                                    Its:    Chief Financial Officer
                                            (Principal Financial and
                                            Accounting Officer)


                                       38