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

                                   FORM 10-QSB

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

                For the quarterly period ended September 30, 2005

[_]      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 Small Business Issuer 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)

                                 (865) 690-6900
                          (Issuer's telephone number)

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to the filing requirements for at least the past 90 days.

                              Yes  |X|      No |_|

         Indicate by check mark whether the  registrant  is a shell  company (as
defined in Rule 12b-2 of the Exchange Act.

                              Yes  |_|      No |X|

         As of  November  4, 2005,  the issuer had  13,824,242  shares of common
stock, par value $.0001 per share, issued and outstanding.

         Transitional Small Business Disclosure Format (check one):

                               Yes |_|      No |X|


<PAGE>


                               NATIONAL COAL CORP.

                              INDEX TO FORM 10-QSB

                                                                            PAGE
                                                                            ----

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

Item 1.   Financial Statements (unaudited).....................................3

          Condensed Consolidated Balance Sheet (unaudited)
             as of September 30, 2005.....................3

          Condensed Consolidated Statements of Operations
             (unaudited) for the three months and the nine
             months ended September 30, 2005 and 2004..........................4

          Condensed Consolidated Statements of Cash Flows
          (unaudited) for the nine months ended September
          30, 2005 and 2004....................................................5

          Notes to Condensed Consolidated Financial Statements.................6

Item 2.   Management's Discussion and Analysis or Plan of Operation...........11

Item 3.   Controls and Procedures.............................................30

PART II   OTHER INFORMATION...................................................31

Item 2.   Unregistered Sales of Securities and Use of Proceeds................31

Item 6.   Exhibits............................................................31


                                       2
<PAGE>


                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

                               NATIONAL COAL CORP.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                   (UNAUDITED)

                                                                   SEPTEMBER 30,
                                                                       2005
                                                                   ------------
ASSETS
CURRENT ASSETS
   Cash and cash equivalents ................................      $    793,374
   Accounts receivable ......................................         2,166,034
   Inventory ................................................           495,039
   Prepaid and other ........................................           166,876
                                                                   ------------
     TOTAL CURRENT ASSETS ...................................         3,621,323

   Property, plant and equipment, net of accumulated
     depreciation, depletion and  amortization of
     $7,945,835 .............................................        47,743,583

   Certificates of deposit and reclamation bonds ............         5,340,841
   Loan acquisition costs, net of accumulated
      amortization of $356,923 ..............................           512,500
   Prepaid royalty ..........................................           107,980
   Deposits .................................................           560,195
                                                                   ------------
   TOTAL ASSETS .............................................      $ 57,886,422
                                                                   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Accounts payable .........................................      $  1,983,997
   Accrued expenses .........................................         4,636,187
   Current maturities of installment purchase
      obligations ...........................................         3,039,067
   Note payable .............................................         5,137,726
   Current maturities of bank loans .........................           288,021
                                                                   ------------
     TOTAL CURRENT LIABILITIES ..............................        15,084,998

   Senior secured credit facility ...........................        16,400,000
   Installment purchase obligations, net of
      current maturities ....................................         3,697,388
   Asset retirement obligations .............................         6,605,722
                                                                   ------------
     TOTAL LIABILITIES ......................................        41,788,108
                                                                   ------------

STOCKHOLDERS' EQUITY
   Series A convertible preferred stock,
       $.0001 par value; 5% coupon; 1,611
       shares authorized; 1,390.11 shares issued
       and outstanding, convertible into 3,475,275
       common shares ........................................              --
   Common stock, $.0001 per value; 80 million
      shares authorized; 13,824,242 shares
      issued and outstanding ................................             1,382
   Additional paid-in capital ...............................        33,670,308
   Accumulated deficit ......................................       (17,573,376)
                                                                   ------------
     TOTAL STOCKHOLDERS' EQUITY .............................        16,098,314
                                                                   ------------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............      $ 57,886,422
                                                                   ============

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


                                       3
<PAGE>


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

<CAPTION>
                                            THREE MONTHS                     NINE MONTHS
                                                ENDED                           ENDED
                                            SEPTEMBER 30,                   SEPTEMBER 30,
                                    ----------------------------    ----------------------------
                                        2004            2005            2004            2005
                                    ------------    ------------    ------------    ------------
<S>                                 <C>             <C>             <C>             <C>
REVENUES
  Coal sales ....................   $  4,410,287    $ 18,159,270    $  9,900,482    $ 46,754,319
  Loading services ..............           --           115,430            --           115,430
  Royalty receipts ..............           --              --           103,403            --
                                    ------------    ------------    ------------    ------------
   TOTAL REVENUE ................      4,410,287      18,274,700      10,003,885      46,869,749
                                    ------------    ------------    ------------    ------------

EXPENSES
  Cost of sales and selling
     expense ....................      4,591,496      13,031,078       9,042,434      35,898,144
  General and administrative ....      1,453,266       1,697,249       3,698,657       5,195,067
  Depreciation, depletion,
     accretion and amortization .      1,262,312       3,208,522       1,727,818       7,166,450
                                    ------------    ------------    ------------    ------------

   TOTAL OPERATING EXPENSES .....      7,307,074      17,936,849      14,468,909      48,259,661
                                    ------------    ------------    ------------    ------------

INCOME (LOSS) FROM OPERATIONS ...     (2,896,787)        337,851      (4,465,024)     (1,389,912)
                                    ------------    ------------    ------------    ------------

OTHER INCOME (EXPENSE)
Interest and financing fees .....       (320,759)     (1,054,180)     (1,011,137)     (2,801,755)
Other, net ......................            773         325,376           5,707         380,306
                                    ------------    ------------    ------------    ------------
  TOTAL OTHER INCOME (EXPENSE) ..       (319,986)       (728,804)     (1,005,430)     (2,421,449)
                                    ------------    ------------    ------------    ------------

NET (LOSS) ......................     (3,216,773)       (390,953)     (5,470,454)     (3,811,361)

PREFERRED STOCK DIVIDEND ........     10,828,553         264,020      10,828,553         859,785
                                    ------------    ------------    ------------    ------------

NET (LOSS) ATTRIBUTABLE TO COMMON
SHAREHOLDERS ....................   $(14,045,326)   $   (654,973)   $(16,299,007)   $ (4,671,146)
                                    ============    ============    ============    ============

BASIC AND DILUTED
NET (LOSS) PER COMMON SHARE .....   $      (1.27)   $      (0.05)   $      (1.52)   $      (0.34)
                                    ============    ============    ============    ============

WEIGHTED AVERAGE
COMMON SHARES ...................     11,072,554      13,804,791      10,699,362      13,671,490
                                    ============    ============    ============    ============
</TABLE>

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


                                       4
<PAGE>


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

<CAPTION>
                                                                                NINE MONTHS ENDED
                                                                                  SEPTEMBER 30,
                                                                          ----------------------------
                                                                              2004            2005
                                                                          ------------    ------------
<S>                                                                       <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net (loss) ..........................................................   $ (5,470,453)   $ (3,811,361)
  Adjustments to reconcile net (loss) to net cash provided by operating
     activities
     Depreciation, depletion, accretion and amortization ..............      1,727,818       7,166,450
     Loss on disposal of assets .......................................           --           406,304
     Issuance of common stock in lieu of interest payments ............        165,313            --
     Issuance of warrants for services ................................         48,760            --
     Non-cash compensation:
       Common stock issued in payment of accrued salary ...............        226,573            --
       Stock option expense ...........................................        677,531         672,568
     Changes in operating assets and liabilities:
       Receivables ....................................................       (638,938)       (262,300)
       Inventory ......................................................       (149,861)       (230,166)
       Prepaid and other ..............................................         27,850          96,823
       Accounts payable and accrued liabilities .......................         43,943       2,224,567
       Deferred revenue ...............................................        (39,313)           --
                                                                          ------------    ------------
         Net cash flows provided by (used in) operating activities ....     (3,380,777)      6,262,885
                                                                          ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Property, plant and equipment .......................................     (7,126,883)    (10,239,189)
  Reclamation bonds ...................................................           --          (814,241)
  Prepaid royalty .....................................................        (85,000)        284,520
  Deposits ............................................................     (4,010,600)       (404,195)
                                                                          ------------    ------------
     Net cash flows (used in) investing activities ....................    (11,222,483)    (11,173,105)
                                                                          ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of common and preferred stock ................     13,194,650         261,798
  Proceeds from exercise of options and warrants ......................         70,000         506,218
  Proceeds from issuance of notes payable .............................      7,725,000       7,083,083
  Loan acquisition costs ..............................................       (212,000)        (56,000)
  Payment of related party debt .......................................       (560,000)           --
  Proceeds from bank loans ............................................        652,586            --
  Payments on bank loans ..............................................           --          (244,887)
  Payments on installment purchase obligations ........................           --          (574,079)
  Payments on capital leases ..........................................       (458,803)     (1,090,468)
  Payments of dividends on preferred stock ............................           --          (533,769)
                                                                          ------------    ------------
     Net cash flows provided by financing activities ..................     20,411,433       5,351,896
                                                                          ------------    ------------

NET INCREASE IN CASH ..................................................      5,808,173         441,676
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD .........................            883         351,698
                                                                          ------------    ------------
CASH AND CASH EQUIVALENTS END OF PERIOD ...............................   $  5,809,056    $    793,374
                                                                          ------------    ------------

SUPPLEMENTAL DISCLOSURES
  Interest paid in cash ...............................................   $    432,442    $  2,109,079
   Non-cash investing and financing transactions:
      Installment purchase obligation incurred for equipment ..........           --         4,209,778
      Constructive dividend attributable to preferred shareholders ....     10,762,676          66,971
      Conversion of notes payable to preferred stock ..................      4,725,000            --
      Beneficial conversion discount of convertible notes payable .....      1,984,433            --
      Conversion of notes payable and accrued interest to common stock         697,864            --
      Stock issued in partial payment of land .........................        351,000            --
</TABLE>

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


                                       5
<PAGE>


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

1.       BASIS OF PRESENTATION

         The accompanying  unaudited condensed consolidated financial statements
have been prepared in accordance with accounting  principles  generally accepted
in the United States of America for interim  financial  information and with the
instructions to Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they do
not  include  all  of the  information  and  footnotes  required  by  accounting
principles  generally  accepted  in the United  States of America  for  complete
financial  statements.   The  accompanying   unaudited   consolidated  financial
statements  reflect  all  adjustments   (consisting  only  of  normal  recurring
adjustments) that, in the opinion of management,  are considered necessary for a
fair  presentation of the financial  position,  results of operations,  and cash
flows for the periods presented.  The results of operations for such periods are
not necessarily  indicative of the results  expected for the full fiscal year or
for any future period. The accompanying  financial  statements should be read in
conjunction with the audited consolidated  financial statements of National Coal
Corp. and consolidated  subsidiaries  (the "Company")  included in the Company's
Form 10-KSB for the fiscal year ended December 31, 2004.

         The  discussion and analysis of the Company's  financial  condition and
results of  operations  are based upon its  consolidated  financial  statements,
which have been  prepared in accordance  with  accounting  principles  generally
accepted in the United States of America.  The  preparation  of these  financial
statements  requires the Company to make estimates and judgments that affect the
reported  amounts of assets,  liabilities,  revenues and  expenses,  and related
disclosure  of  contingent  assets and  liabilities.  On an on-going  basis,  we
evaluate its estimates,  including  those related to the possible  impairment of
long-lived  assets.  We base  estimates on historical  experience and on various
other  assumptions that are believed to be reasonable  under the  circumstances,
the  results  of which form the basis for making  judgments  about the  carrying
value of  assets  and  liabilities  that are not  readily  apparent  from  other
sources.  Actual  results  may  differ  from  these  estimates  under  different
assumptions or conditions.

         The Company's customers are primarily investor-owned electric utilities
and industrial  concerns in the immediate and  surrounding  states.  The Company
mines, processes and sells high quality bituminous steam coal from mines located
in Eastern  Tennessee  and  Southeastern  Kentucky.  The  Company  owns the coal
mineral  rights to  approximately  75,600 acres of land and leases the rights to
another 39,300 acres. The Company has expanded its operations considerably since
commencing  operations  from a single  surface  mine in  Tennessee in July 2003.
Currently,  the Company's mining complexes include three underground  mines, two
surface mines,  and one highwall mine. In addition,  the Company  maintains four
preparation  plants,  two  active  and two  idle,  and four unit  train  loading
facilities,  two active and two inactive, served by the CSX and Norfolk Southern
railroads.

         At the close of business on January 12,  2005,  the Company  effected a
1-for-4 reverse split of its issued and  outstanding  common stock as previously
approved on October 12, 2004 by its board of  directors  and  stockholders.  All
share and per share amounts for all periods  presented herein reflect the effect
of the reverse split.

2.       PROPERTY, PLANT AND EQUIPMENT

         It is the Company's policy to periodically  review the estimated useful
lives of its fixed  assets.  This  review  during  the  second  quarter  of 2005
indicated that the estimated lives for certain asset  categories  generally were
determined to be less than that used in calculating  depreciation  expense. As a
result,  the Company revised the estimated useful lives of certain categories of
property,  principally mining equipment, as of April 1, 2005. The effect of this
change in  estimate  was to  increase  depreciation


                                       6
<PAGE>


expense  and the net  loss by  approximately  $890,000  ($0.06  per  share)  and
$1,780,000  ($0.13 per share) for the three and nine months ended  September 30,
2005, respectively.

3.       NOTES PAYABLE

              SENIOR SECURED CREDIT FACILITY

         On November 26, 2004, the Company's Tennessee subsidiary, National Coal
Corporation,  in  connection  with its  acquisition  of assets from  Appalachian
Fuels,   LLC  entered  into  a  credit   agreement  with  D.  B.  Zwirn  Special
Opportunities  Fund, L.P., as Lender and  administrative  agent for the Lenders.
The  Company  and  its  subsidiary,  NC  Transportation,  Inc.,  a  wholly-owned
subsidiary of the Tennessee corporation,  guaranteed the obligations of National
Coal Corporation under the credit agreement.  The credit agreement  provides for
an initial credit  facility of $15 million with a subsequent  additional  credit
facility not to exceed $6 million. The Company exercised its right to borrow $15
million  on  November  29,  2004,  the  proceeds  of which  were used to pay the
remaining  $12,250,000 of acquisition costs related to the acquisition of assets
of Appalachian  Fuels, LLC, pay transaction costs with respect to the closing of
the credit facility and asset purchase, and fund working capital. Pursuant to an
amendment to the credit  agreement dated January 11, 2005, the Company  borrowed
an  additional  $1.4 million in January 2005 to fund its  acquisition  of mining
equipment.  Borrowings  under the credit  agreement bear interest at the rate of
interest per annum publicly announced from time to time by JPMorgan Chase as its
prime rate in effect at its principal  office in New York City,  plus 5.75%.  At
September 30, 2005,  the interest rate on this credit  agreement was 12.5%.  The
obligations  under the credit agreement are secured by substantially  all of the
Company's assets and those of the Company's subsidiaries.

              NOTE PAYABLE

         In January 2005, the Company signed an agreement committing the Company
to the purchase of a highwall miner for a total purchase price of  approximately
$5.5 million,  and paid a $500,000 deposit toward that purchase  commitment.  In
March 2005, the Company borrowed approximately $5.14 million pursuant to certain
Note and Warrant Purchase Agreements and completed the purchase of this piece of
mining equipment.  The Company issued notes in the aggregate principal amount of
approximately  $5.14 million to three  purchasers,  including  Crestview Capital
Master, LLC, which is a significant shareholder of the Company. The notes had an
original  maturity date of August 10, 2005,  are secured by the highwall  miner,
and have an interest rate of eighteen  percent (18%) per annum  calculated  from
the  61st  day  until   maturity.   The  Company  paid  an  origination  fee  of
approximately  $200,000  upon  the  execution  of the  loan  document.  The note
purchasers were also issued 5-year common stock purchase warrants to purchase up
to 140,000  shares of the Company's  common stock at an exercise price per share
of $8.50.  In August 2005,  the maturity date of the $5.14 million  indebtedness
was extended to March 31, 2006,  and the notes were amended to provide that a 3%
fee will be due on each of December 15, 2005 and January 30, 2006 if the loan is
not repaid in full prior to December 1, 2005 or January 16, 2006,  respectively.
In November  2005,  the notes were  amended to extend  from  December 1, 2005 to
December  23,  2005 and from  January  16, 2006 to February 6, 2006 the dates by
which the notes can be repaid  without the  additional  3% fee.  Other terms and
conditions of the notes remain unchanged.

              INSTALLMENT PURCHASE OBLIGATIONS

         In August 2005, the Company's  wholly-owned  subsidiary,  National Coal
Corporation,  entered  into  installment  sale  contracts  with heavy  equipment
suppliers,  effective in July 2005,  pursuant to which National Coal Corporation
purchased, and financed or refinanced, certain equipment used in its coal mining
operations.


                                       7
<PAGE>


         Pursuant to the installment sale contracts, the Company financed and/or
refinanced  approximately  $7.3 million in equipment at the following rates with
respect to the following amounts:


         Annual Percentage Rate           Financed Amount
         ----------------------           ---------------
                  5.22%                         $ 879,010
                  6.11%                         4,967,673
                  7.65%                           870,967
                                          ---------------
                  Total                        $6,717,650
                                          ===============

         The total  $6,717,650  principal  balance  of these  contracts  include
refinancing  $2,936,590  of the  capital  leases  included  on the June 30, 2005
balance  sheet which  resulted in the  recognition  of a gain of  $328,286.  The
remaining  $3,781,060  is  additional  indebtedness  related to the  purchase of
additional   equipment  and  equipment   formerly  under  operating  lease.  The
installment  sale contracts  require monthly  payments of principal and interest
through January 14, 2008. The obligations  under the installment  sale contracts
are secured by the equipment purchased by us thereunder.  During the nine months
ended  September  30,  2005,  the Company  repaid  $1,664,547  of capital  lease
obligations and debt related to the installment sale contracts.

         In July 2005, the Company  purchased one permitted  mine, a preparation
plant and  loadout,  haul  road and other  miscellaneous  assets  (the  "Baldwin
Facility")  located  within the  boundaries  of our coal  mining  properties  in
Devonia, Tennessee. The Company previously leased a portion of these facilities.
The Company acquired the Baldwin Facility by assuming current liabilities of the
seller  consisting of outstanding  reclamation bond obligations of approximately
$1,000,000.

4.       EQUITY TRANSACTIONS

              REGISTRATION STATEMENT

         On May 6, 2005,  the Company  filed with the  Securities  and  Exchange
Commission,  a  post  effective  amendment  #1  to  Form  SB-2  on  a  Form  S-3
registration  statement  to  register  the  resale by the  selling  stockholders
identified therein, of an aggregate of 17,188,996 shares of the Company's common
stock  which was then  outstanding  or which  could be  acquired  by the selling
stockholders  from the  Company  upon the  conversion  or  exercise  of options,
warrants,  and Series A convertible  preferred stock. The amendment was declared
effective by the United  States  Securities  and Exchange  Commission on May 12,
2005.

              PREFERRED STOCK FINANCING

         On  August  31,  2004,  the  Company  sold  $16,030,000  of Series A 5%
convertible  preferred  stock and  common  stock  purchase  warrants  in private
placement  financings in separate  transactions.  The Company  issued a total of
1,068.67 shares of Series A Convertible  Preferred  Stock, at $15,000 per share,
for cash consideration of approximately $11.3 million and cancellation of $4.725
million of its senior secured promissory notes. Dividends on the preferred stock
accrue at a rate of five percent (5%) per annum and shall be cumulative from the
date of issuance.  Until paid,  the right to receive  dividends on the preferred
stock shall accumulate,  and shall be payable in cash on June 30 and December 31
of each year,


                                       8
<PAGE>


and commenced on December 31, 2004. Each share of Series A convertible preferred
stock is convertible into 2,500 shares of common stock. For each share of Series
A convertible  preferred stock, the investors also were issued two-year warrants
to purchase 500 shares of common stock at an exercise price of $8.40 per share.

         On August 31,  2004,  the  Company  issued  $3,000,000  of  convertible
promissory  notes.  Prior to maturity,  the convertible  promissory notes may be
converted into units consisting of the Series A convertible  preferred stock and
common  stock  purchase  warrants  at a price of  $15,000  per  unit.  Each unit
consists  of one  share of Series A  convertible  preferred  stock and  two-year
warrants to purchase  up to 500 shares of common  stock at an exercise  price of
$8.40 per share.  In December  2004, the holders of the  convertible  promissory
notes  converted the  $3,000,000  principle into 200 shares Series A convertible
preferred stock and warrants to purchase up to 100,000 shares of common stock.

         Investors  who  paid  cash   consideration   in  either  the  Series  A
convertible  preferred  stock  financing  or  convertible  debt  financing  also
received  the  right  to  purchase  additional  units of  Series  A  convertible
preferred  stock and common stock  purchase  warrants.  Each of these  investors
could purchase,  at a price of $15,000 per unit, up to a number of units with an
aggregate  purchase price equal to 33.33% of the amount  invested in the initial
financing.  Each unit  consisted of one share of Series A convertible  preferred
stock and  two-year  warrants to purchase up to 500 shares of common stock at an
exercise  price of $8.40 per share.  In December 2004, the Company issued 241.33
shares of its Series A  convertible  preferred  stock and  warrants  to purchase
482,660 shares of its common stock upon the exercise by certain holders of these
purchase  rights,  and received  gross proceeds of  approximately  $3,620,000 in
connection  with the sale of these  securities.  In February  2005,  the Company
issued 4.66 shares of its Series A convertible  preferred  stock and warrants to
purchase  2,330 shares of its common stock upon the exercise by certain  holders
of these purchase rights,  and received gross proceeds of approximately  $70,000
in  connection  with the sale of these  securities.  In April 2005,  the Company
issued 11.55 shares of its Series A convertible  preferred stock and warrants to
purchase  5,775 shares of its common stock upon the exercise by certain  holders
of these purchase rights, and received gross proceeds of approximately  $173,000
in connection with the sale of these securities.  The remaining  purchase rights
expired on April 28, 2005.

              ISSUANCE OF COMMON STOCK UPON  CONVERSION  OF SERIES A CONVERTIBLE
              PREFERRED STOCK

         During the nine  months  ended  September  30,  2005,  holders of 82.77
shares of Series A  convertible  preferred  stock with  liquidation  preferences
totaling  approximately  $1.2 million converted their shares into 209,958 shares
of common stock.

              ISSUANCE OF COMMON STOCK PURSUANT TO THE EXERCISE OF OPTIONS

         During the nine months ended  September  30, 2005,  the Company  issued
222,940  shares of common stock and received gross proceeds of $506,218 upon the
exercise of stock options by employees.

5.       EVENTS SUBSEQUENT TO SEPTEMBER 30, 2005

              EXTENSION OF TIME TO REPAY NOTES WITHOUT PENALTY

         In January 2005, the Company signed an agreement committing the Company
to the purchase of a highwall miner for a total purchase price of  approximately
$5.5 million,  and paid a $500,000 deposit toward that purchase  commitment.  In
March 2005, the Company borrowed approximately $5.14 million pursuant to certain
Note and Warrant Purchase Agreements and completed the purchase of this piece of


                                       9
<PAGE>


mining equipment.  The Company issued notes in the aggregate principal amount of
approximately  $5.14 million to three  purchasers,  including  Crestview Capital
Master, LLC, which is a significant shareholder of the Company. The notes had an
original  maturity date of August 10, 2005,  are secured by the highwall  miner,
and have an interest rate of eighteen  percent (18%) per annum  calculated  from
the  61st  day  until   maturity.   The  Company  paid  an  origination  fee  of
approximately  $200,000  upon  the  execution  of the  loan  document.  The note
purchasers were also issued 5-year common stock purchase warrants to purchase up
to 140,000  shares of the Company's  common stock at an exercise price per share
of $8.50.  In August 2005,  the maturity date of the $5.14 million  indebtedness
was extended to March 31, 2006,  and the notes were amended to provide that a 3%
fee will be due on each of December 15, 2005 and January 30, 2006 if the loan is
not repaid in full prior to December 1, 2005 or January 16, 2006,  respectively.
In November  2005,  the notes were  amended to extend  from  December 1, 2005 to
December  23,  2005 and from  January  16, 2006 to February 6, 2006 the dates by
which the notes can be repaid  without the  additional  3% fee.  Other terms and
conditions of the notes remain unchanged.

              PURCHASE OF EQUIPMENT SECURING ADDITIONAL INDEBTEDNESS

         On November 1, 2005, the Company purchased for approximately $1,775,000
from Calvary Coal Company, Inc. and Free Dome Coal, Inc. various equipment to be
used in support of the Company's  Straight Creek  underground  mining operation.
The Company financed the purchase as follows:

Cash down payment                                             $     75,239
Note payable to Calvary Coal Company, Inc.
   dated November 1, 2005, payable in four
   monthly installments of $100,000 each,
   beginning December 1, 2005; non-interest-bearing                400,000
Note payable to a bank, dated November 1, 2005;
   interest rate of Prime plus 1%, principal
   and interest payable monthly in approximately
   equal installments  beginning December 1,
   2005, secured by certain mining equipment                     1,300,000
                                                              ------------
   Total                                                      $  1,775,239
                                                              ============


                                       10
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         The information contained in this Form 10-QSB is intended to update the
information  contained  in our Annual  Report on Form  10-KSB for the year ended
December 31, 2004 and presumes  that readers have access to, and will have read,
the  "Management's  Discussion  and  Analysis  or Plan of  Operation"  and other
information  contained  in such  Form  10-KSB  and 2004 and  2005  Form  10-QSBs
previously  filed.  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-QSB.

         THIS  DISCUSSION  SUMMARIZES  THE  SIGNIFICANT  FACTORS  AFFECTING  THE
CONSOLIDATED OPERATING RESULTS, FINANCIAL CONDITION AND LIQUIDITY AND CASH FLOWS
OF NATIONAL COAL CORP. FOR THE THREE MONTHS AND NINE MONTHS ENDED  SEPTEMBER 30,
2005 AND  SEPTEMBER 30, 2004.  EXCEPT FOR  HISTORICAL  INFORMATION,  THE MATTERS
DISCUSSED IN THIS MANAGEMENT'S  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ARE
FORWARD-LOOKING  STATEMENTS THAT INVOLVE RISKS AND  UNCERTAINTIES  AND ARE BASED
UPON JUDGMENTS  CONCERNING  VARIOUS FACTORS THAT ARE BEYOND OUR CONTROL.  ACTUAL
RESULTS  COULD DIFFER  MATERIALLY  FROM THOSE  PROJECTED IN THE  FORWARD-LOOKING
STATEMENTS AS A RESULT OF, AMONG OTHER THINGS, THE FACTORS DESCRIBED BELOW UNDER
THE CAPTION "CAUTIONARY STATEMENTS AND RISK FACTORS."

OVERVIEW

         We mine, process and sell high quality bituminous steam coal from mines
located in Eastern Tennessee and Southeastern  Kentucky. We own the coal mineral
rights to  approximately  75,600  acres of land and lease the  rights to another
39,300 acres.  We have expanded our  operations  considerably  since  commencing
operations from a single surface mine in Tennessee in July 2003. Currently,  our
mining  complexes  include three  underground  mines, two surface mines, and one
highwall mine. In addition,  we maintain four preparation plants, two active and
two idle, and four unit train loading  facilities,  two active and two inactive,
served by the CSX and NS railroads.  Since we commenced production in July 2003,
our  mines  have  produced  approximately  1.1  million  tons  of  coal.  Of the
approximately  1.1 million  tons  produced,  approximately  60% was  produced at
underground  mines, 26% was produced at surface mines, and the remaining portion
was  produced at our highwall  mine.  We hold permits that allow us to open five
new  mines  close to our  current  operations,  most of which  we  expect  to be
operational by the end of 2006.

         Since  our  inception,  we have  sold our coal  primarily  to  electric
utility companies in the Southeastern  United States.  For the nine month period
ended  September 30, 2005,  approximately  83% of our revenue was generated from
coal sales to electric utility  companies in the Southeastern  United States and
our three  largest  customers  represent  approximately  30%, 25% and 13% of our
revenues, respectively.

         We also sell coal that we purchase from third party coal producers on a
case by case basis.  Additionally,  when capacity is available,  we charge third
party coal  producers a  negotiated  price per ton for their use of our load-out
facilities.  These  load-out  facilities  allow  easy,  direct  access  to  load
previously mined coal onto rail cars for shipment to their customers.

         Our revenues  depend  largely on the price at which we are able to sell
our coal. We believe that the current  pricing  environment in the United States
is strong.  Any decrease in coal prices due to, among other  things,  the demand
for  electricity  and the  price  and  availability  of  alternative  fuels  for
electricity  generation,  and the supply of  domestic  and foreign  coal,  could
adversely  affect our  revenues  and our ability to  generate  cash flows in the
future.


                                       11
<PAGE>


         To mitigate the effect of possible  long-term price decreases,  we have
entered into long-term supply contracts.  As of September 30, 2005, we had sales
commitments in place for approximately 100% of our planned 2005 production,  59%
of our  planned  2006  production  and  approximately  24% of our  planned  2007
production.  We have taken  advantage of a strong pricing  environment to obtain
long-term  (greater  than 12  months in  duration)  supply  agreements  with key
customers  at  prices  averaging  over  $50 per  ton.  We plan  to  continue  to
capitalize on the currently  strong pricing  environment by pursuing  additional
long-term  contracts and  opportunistically  selling coal on the spot market for
the reminder of our uncommitted planned production.

         Our  revenues  also  depend on our coal  production  capacity.  We have
increased our coal production  since our inception.  We intend to further expand
our  production by increasing our  production  from our current  reserves and by
opening new mines.

         Our results of operations  depend on the cost of coal  production.  Our
primary  expenses are wages and benefits,  repair and maintenance  expenditures,
diesel fuel purchases,  blasting supplies,  coal  transportation  costs, cost of
purchased  coal,  freight and handling costs and taxes incurred in selling coal.
The coal industry has been highly  competitive  with very low margins during the
past several years.  Recently, the surge in prices for natural gas has made coal
more  competitive  with  that  alternative  energy  source,  which  has  enabled
coal-fired  power plants to be price  competitive  with natural  gas-fired power
plants. We believe this has caused increased demand for coal and has resulted in
higher prices and improved margins for our product.  However,  the price of coal
is very volatile, and there can be no assurances that the price of coal will not
drop below current  levels.  To reduce our exposure to fluctuations in the price
of coal, we plan to maintain  long-term  contracts with respect to a majority of
our coal production.  For additional information regarding some of the risks and
uncertainties  that affect us and our industry,  see "Cautionary  Statements and
Risk Factors."

         We estimate that our cost of commencing mining operations at a new mine
is approximately $500,000 to $750,000,  including the cost of reclamation bonds.
Presently,  we do not generate sufficient cash from operations to open more than
one new mine at a time.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

         The discussion  and analysis of our financial  condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and judgments  that affect the reported  amounts of assets,
liabilities,  revenues and expenses, and related disclosure of contingent assets
and  liabilities.  On an on-going  basis,  we evaluate our estimates,  including
those related to computing  depreciation,  depletion,  amortization,  accretion,
reclamation  liability,   workers  compensation  liability,   asset  impairment,
valuation of non-cash transactions,  and recovery of receivables.  Estimates are
then based on historical  experience and on various other  assumptions  that are
believed to be reasonable under the circumstances, the results of which form the
basis for making  judgments  about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

         We  believe  our most  critical  accounting  policies  include  revenue
recognition, the corresponding accounts receivable and the methods of estimating
depletion and  reclamation  expense of actual  mining  operations in relation to
estimated  total mineable  tonnage on our  properties.  We believe the following
accounting policies affect our more significant  judgments and estimates used in
preparation of our consolidated financial statements.


                                       12
<PAGE>


         REVENUE  RECOGNITION.  Under SEC Staff  Accounting  Bulletin  No.  104,
"Revenue  Recognition," we recognize revenue when all of the following  criteria
are met: (1)  persuasive  evidence of an  arrangement  exists,  (2) delivery has
occurred or services have been rendered,  (3) the seller's price to the buyer is
fixed or determinable, and (4) collectibility is reasonably assured. In the case
of coal we mine and sell,  we  negotiate  a specific  sales  contract  with each
customer,  which includes a fixed price per ton, a delivery schedule,  and terms
for payment. We recognize revenue from sales made pursuant to these contracts at
the time of delivery.

         ACCOUNTS  RECEIVABLE.  Accounts  receivable balances are evaluated on a
continual   basis  and   allowances,   if  any,  are  provided  for  potentially
uncollectible  accounts based on management's  estimate of the collectibility of
customer accounts. If the financial condition of a customer were to deteriorate,
resulting  in an  impairment  of its  ability to make  payments,  an  additional
allowance  may be  required.  Allowance  adjustments,  if any,  are  charged  to
operations  in the period in which the facts  that give rise to the  adjustments
become known. To date, we have not had any customer whose payment was considered
past  due,   and  as  such,   have  not   recorded  any  reserves  for  doubtful
collectibility.

         ASSET RETIREMENT OBLIGATION. The Surface Mining Control and Reclamation
Act of 1977 and similar state statutes  require that mine properties be restored
in  accordance  with  specified  standards  and an  approved  reclamation  plan.
Significant  reclamation  activities include reclaiming refuse and slurry ponds,
reclaiming the pit and support acreage at surface mines,  and sealing portals at
deep mines.  Reclamation  activities  that are  performed  outside of the normal
mining process are accounted for as asset  retirement  obligations in accordance
with the provisions of Statement of Financial Accounting Standards, or SFAS, No.
143,  "Accounting For Asset Retirement  Obligations".  We record our reclamation
obligations on a mine-by-mine  basis based upon current permit  requirements and
estimated reclamation  obligations for such mines as determined by the Office of
Surface Mining and/or the Kentucky Department for Natural Resources when we post
a  predetermined   amount  of  reclamation  bonds  prior  to  commencing  mining
operations.  The Office of Surface  Mining's and/or the Kentucky  Department for
Natural  Resources'  estimates  of  disturbed  acreage are  determined  based on
approved  mining plans and related  engineering  data.  Cost estimates are based
upon estimates  approved by OSM based on historical  costs.  In accordance  with
SFAS No. 143, we determine  the fair value of our asset  retirement  obligations
using a discounted cash flow methodology based on a discount rate related to the
rates of U.S.  Treasury bonds with maturities  similar to the expected life of a
mine, adjusted for our credit standing.

         On at least an annual basis, we review our entire reclamation liability
and make necessary  adjustments for permit changes granted by the permit-issuing
authorities,  additional  costs resulting from  accelerated  mine closures,  and
revisions to cost estimates and  productivity  assumptions,  to reflect  current
experience.  At September 30, 2005, we had recorded asset retirement  obligation
liabilities  of  approximately  $6.6 million.  While the precise amount of these
future costs cannot be determined with  certainty,  as of September 30, 2005, we
estimate  that  the  aggregate  undiscounted  cost  of  final  mine  closure  is
approximately $12.3 million.

         STOCK-BASED COMPENSATION. We account for stock-based compensation using
Accounting Principles Board ("APB") Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES".  Under APB No. 25,  compensation  expense is recognized for stock
options  with an exercise  price that is less than the market price on the grant
date of the option.  For stock  options  granted  employees  or  directors  with
exercise  prices at or above the market value of the stock on the grant date, we
have adopted the Financial Accounting  Standards Board ("FASB")  disclosure-only
provisions of Statement of Financial  Accounting  Standards No. 123, "ACCOUNTING
FOR  STOCK-BASED  COMPENSATION"  ("SFAS No.  123").  Except for the  issuance of
1,237,500  options  granted to directors and officers in March 2004, we have not
recorded any compensation costs for these types of option grants.


                                       13
<PAGE>


         In December 2004, the FASB issued SFAS No. 123(R), SHARE-BASED PAYMENT.
SFAS No.  123(R) is a  revision  of SFAS No.  123,  ACCOUNTING  FOR STOCK  BASED
COMPENSATION,  and supersedes APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES. Among other things, SFAS No. 123(R) eliminates the use of APB Opinion
No. 25 and the intrinsic value method of accounting,  and requires  companies to
recognize  the cost of employee  services  received  in  exchange  for awards of
equity  instruments,  based on the grant date fair value of those awards, in the
financial statements.  The effective date of SFAS No. 123(R) for public entities
that file as small business issuers is the first reporting period after December
15, 2005, although early adoption is allowed.  SFAS No. 123(R) permits companies
to adopt its  requirements  using  either a MODIFIED  PROSPECTIVE  method,  or a
MODIFIED   RETROSPECTIVE   method.   Under  the  MODIFIED   PROSPECTIVE  method,
compensation cost is recognized in the financial  statements  beginning with the
effective date, based on the requirements of SFAS No. 123(R) for all share-based
payments  granted after that date, and based on the requirements of SFAS No. 123
for all unvested  awards granted prior to the effective date of SFAS No. 123(R).
Under the MODIFIED  RETROSPECTIVE method, the requirements are the same as under
the MODIFIED  PROSPECTIVE method, but also permits entities to restate financial
statements of previous periods based on pro forma disclosures made in accordance
with SFAS No. 123.

         We currently  use a standard  option  pricing model to measure the fair
value of stock  options  granted to  employees.  While SFAS No.  123(R)  permits
entities to use such a model,  the standard also permits use of a LATTICE model.
National  Coal has not yet  determined  which model it will use to measure  fair
value of the employee stock options upon the adoption of SFAS No. 123(R).

         SFAS No. 123(R) also requires that the benefits associated with the tax
deductions in excess of recognized  compensation cost be reported as a financing
cash flow,  rather  than as an  operating  cash flow as required  under  current
pronouncements.  This  requirement  will  reduce  net  operating  cash flows and
increase net financing  cash flows in periods after the  effective  date.  These
future amounts cannot be estimated,  because they depend on, among other things,
when employees exercise stock options.

         We expect to adopt SFAS No. 123(R) effective  January 1, 2006;  however
the  aforementioned  adoption  method  to be used has not yet  been  determined.
National Coal is currently reviewing the requirements of SFAS No. 123(R) and has
not determined the effects of adoption,  although a reduction in net earnings is
anticipated.

         BENEFICIAL   CONVERSION   FEATURE  OF  DEBT  AND  PREFERRED  STOCK.  In
accordance with Emerging Issues Task Force No. 98-5, "ACCOUNTING FOR CONVERTIBLE
SECURITIES  WITH  BENEFICIAL  CONVERSION  FEATURES  OR  CONTINGENTLY  ADJUSTABLE
CONVERSION  RATIOS," and No.  00-27,  "APPLICATION  OF ISSUE NO. 98-5 TO CERTAIN
CONVERTIBLE  INSTRUMENTS," we recognize the value of conversion  rights attached
to  convertible  debt and equity  instruments.  These rights give the instrument
holder the  immediate  ability to convert debt or  preferred  equity into common
stock at a price per share  that is less than the  trading  price of the  common
stock to the public.  The  beneficial  value is  calculated  based on the market
price of the stock at the commitment  date in excess of the  conversion  rate of
the debt and related  accruing  interest or preferred stock and is recorded as a
discount to the related debt or constructive dividend to preferred  stockholders
and an addition to additional  paid-in  capital.  The debt discount is amortized
and  recorded as  interest  expense  over the  remaining  outstanding  period of
related debt.


                                       14
<PAGE>


RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                THREE MONTHS              NINE MONTHS
                                                   ENDED                     ENDED
                                               SEPTEMBER 30,             SEPTEMBER 30,
                                             -------------------      ------------------
                                               2004        2005         2004       2005
                                             -------     -------      ------     -------
<S>                                            <C>         <C>         <C>         <C>
Revenues..................................     100.0 %     100.0 %     100.0 %     100.0 %
                                             -------     -------      ------     -------
Operating expenses:
   Cost of sales and selling expenses.....     104.1        71.3        90.4        76.6
   General and administrative.............      33.0         9.3        37.0        11.1
   Depreciation, depletion, accretion and
     amortization.........................      28.6        17.6        17.3        15.3
                                             -------     -------      ------     -------
     Total operating expenses.............     165.7        98.2       144.7       103.0
                                             -------     -------      ------     -------
Gain or (loss) from operations............     (65.7)        1.8       (44.7)       (3.0)
Other income (expense):
   Interest expense and financing fees....      (7.3)       (5.8)      (10.1)       (6.0)
   Other income (expense), net............       0.0         1.8         0.1         0.8
                                             -------     -------      ------     -------
Net (loss)................................     (73.0)%      (2.2)%     (54.7)%      (8.2)%
                                             =======     =======      ======     =======
</TABLE>

     COMPARISON  OF THREE  MONTHS AND NINE MONTHS ENDED  SEPTEMBER  30, 2005 AND
     SEPTEMBER 30, 2004

         REVENUES
<TABLE>
<CAPTION>
                              THREE MONTHS                           NINE MONTHS
                                 ENDED                                  ENDED
                              SEPTEMBER 30,                          SEPTEMBER 30,
                       -------------------------   PERCENT    -------------------------   PERCENT
                         2004           2005       CHANGE         2004          2005      CHANGE
                       ----------    -----------   -------    -----------   -----------   -------
<S>                    <C>           <C>            <C>       <C>           <C>           <C>
Coal sales..........   $4,410,287    $18,159,270    311.7%    $ 9,900,482   $46,754,319   372.2%
Loading services....           --        115,430        *              --       115,430       *
Royalty receipts....           --             --        *         103,403            --       *
                       ----------    -----------              -----------   -----------
   Total revenues...   $4,410,287    $18,274,700    314.4%    $10,003,885   $46,869,749   368.5%
</TABLE>

* - Not meaningful

         For the nine months ended September 30, 2005, our revenues were derived
from coal sales to 13 customers,  six of which were utilities and seven of which
were  industrial  customers.  Our five  largest  customers,  all of  which  were
utilities, represented 90% of our total revenue. For the nine-month period ended
September  30, 2004,  we had a total of five  customers,  two utilities of which
accounted for approximately  88% of our sales. The significant  increase in coal
sales in the 2005 period is mainly attributable to increased mining activity and
the entering into of long-term  contracts  with multiple  industrial and utility
customers.  In the 2005 period,  we also derived revenues from loading services,
where we charge a negotiated price per ton for third parties to use our load-out
facilities to transport  coal by rail.  We began  providing a service to a third
party coal  producer in August 2005 for which we charge a  negotiated  price per
ton for the use of our load-out facility. There were no royalty receipts for the
nine months ended  September 30, 2005, and we do not anticipate any  significant
royalty revenues for the foreseeable future.


                                       15
<PAGE>


         OPERATING EXPENSES

              COST OF SALES AND SELLING EXPENSES

<TABLE>
<CAPTION>
                              THREE MONTHS                           NINE MONTHS
                                 ENDED                                 ENDED
                              SEPTEMBER 30,                         SEPTEMBER 30,
                       -------------------------   PERCENT    -------------------------   PERCENT
                         2004           2005       CHANGE         2004            2005    CHANGE
                       ----------    -----------   -------    -----------   -----------   -------
<S>                    <C>           <C>            <C>        <C>          <C>            <C>
Cost of sales and
  selling expenses...  $4,591,496    $13,031,078    183.8%     $9,042,434   $35,898,144    297.0%
</TABLE>

         Cost of  sales  and  selling  expenses  consist  primarily  of  salary,
benefits and other  compensation costs paid directly to miners, and direct costs
paid to third party  vendors  whose goods and services were directly used in the
process of producing coal inventory.  Third party vendor costs include equipment
leases and maintenance  costs,  blasting costs, fuel costs,  parts and supplies,
coal purchases,  and  transportation  costs.  The increase in costs of sales and
selling  expenses in the 2005 period as compared to the 2004 period is primarily
due to the increase in mining  activity.  Our cost of sales and selling expenses
as a percentage of revenues has consistently  improved since 2004, from 94.0% to
85.3% to 74.5% to 71.3% in the year  ended  December  31,  2004,  and the  three
months ended March 31, 2005, June 30, 2005 and September 30, 2005, respectively.

         GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>
                              THREE MONTHS                               NINE MONTHS
                                 ENDED                                      ENDED
                              SEPTEMBER 30,                              SEPTEMBER 30,
                       -------------------------   PERCENT    -------------------------   PERCENT
                         2004           2005       CHANGE         2004            2005    CHANGE
                       ----------    -----------   -------    -----------   -----------   -------
<S>                    <C>           <C>            <C>        <C>          <C>            <C>
General and adminis-
   trative expenses..  $1,453,266    $1,697,249     16.8%      $3,698,657   $5,195,067     40.5%
</TABLE>

         General and administrative  expenses primarily include salary, benefits
and related expenses; executive,  financial, and accounting consulting expenses;
legal and outside audit professional fees;  insurance  expenses;  and travel and
travel related expenses. The increase in general and administrative  expenses in
the 2005 periods as compared to the 2004 periods is primarily attributable to an
increase  in  administrative  costs due to the  increase  in the  volume of coal
production  and sales after we expanded  production on both existing  properties
and on  operations  acquired in the previous  year. As a percentage of revenues,
general and  administrative  expenses  decreased in the 2005 periods because the
increase in sales exceeded that of general and administrative expenses. Our goal
is to continue increasing sales while keeping general and administrative expense
increases to a minimum.

              DEPRECIATION, DEPLETION, ACCRETION AND AMORTIZATION EXPENSE

<TABLE>
<CAPTION>
                                 THREE MONTHS                            NINE MONTHS
                                    ENDED                                   ENDED
                                 SEPTEMBER 30,                          SEPTEMBER 30,
                          -------------------------   PERCENT    -------------------------   PERCENT
                            2004           2005       CHANGE         2004          2005      CHANGE
                          ----------    -----------   -------    -----------   -----------   -------
<S>                       <C>           <C>            <C>       <C>            <C>            <C>
Depreciation, depletion,
   accretion and
   amortization expense.. $1,262,312    $3,208,522     154.2%    $1,727,818     $7,166,450     314.8%
</TABLE>

         The increase in  depreciation,  depletion,  accretion and  amortization
expense  for the  nine  months  ended  September  30,  2005 as  compared  to the
comparable period in 2004, is primarily attributable to the


                                       16
<PAGE>


acquisition  of property,  plant and  equipment  in support of increased  mining
activity. It is the Company's policy to periodically review the estimated useful
lives of its fixed  assets.  This  review  during  the  second  quarter  of 2005
indicated that the estimated actual lives for certain asset categories generally
were determined to be less than that used in calculating  depreciation  expense.
As a result,  we revised the  estimated  useful lives of certain  categories  of
property,  principally mining equipment, as of April 1, 2005. The effect of this
change in  estimate  was to  increase  depreciation  expense and the net loss by
approximately  $890,000  ($0.06 per share) and $1,780,000  ($0.13 per share) for
the three and nine months ended September 30, 2005,  respectively.  Because coal
mining is capital intensive,  we expect our depreciation  expense to increase in
the remainder of 2005 and beyond as we increase coal production.

              OTHER INCOME (EXPENSE)

<TABLE>
<CAPTION>
                                 THREE MONTHS                            NINE MONTHS
                                    ENDED                                   ENDED
                                 SEPTEMBER 30,                          SEPTEMBER 30,
                          -------------------------   PERCENT    -------------------------   PERCENT
                             2004           2005      CHANGE         2004          2005      CHANGE
                          ----------    -----------   -------    -----------   -----------   -------
<S>                        <C>          <C>            <C>       <C>           <C>            <C>
Interest expense and
   financing fees.......   $(320,759)   $(1,054,180)   228.7%    $(1,011,137)  $(2,801,755)   177.1%
Other income
   (expense), net.......         773        325,376       *            5,707       380,306        *
                           ---------    -----------              -----------   -----------
   Total other income
      (expense).........   $(319,986)    $ (728,804)   127.8%    $(1,005,430)  $(2,421,449)   140.8%
</TABLE>

* - Not meaningful

         The increase in other income  (expense),  net, for the three months and
nine months ended  September 30, 2005 compared to the  corresponding  periods in
the  previous  year is  primarily  attributable  to added  borrowings  for asset
acquisitions made during 2004 and the first nine months of 2005.

RELATED PARTY TRANSACTIONS

         In March 2005, we borrowed  $5.14 million  pursuant to certain Note and
Warrant Purchase  Agreements.  We issued notes in the aggregate principal amount
of $5.14 million to three purchasers. The notes had an original maturity date of
August 10, 2005, are secured by certain mining  equipment,  and have an interest
rate of  eighteen  percent  (18%) per annum  calculated  from the 61st day until
maturity.  The note  purchasers  were also issued 5-year  common stock  purchase
warrants to  purchase  an  aggregate  of up to 140,000  shares of the  Company's
common stock at an exercise price per share of $8.50. We paid an origination fee
of  approximately  $200,000 upon the execution of the loan documents.  Crestview
Capital Master, LLC, a significant shareholder of ours, purchased a note in this
transaction in the principal amount of approximately $2.1 million and received a
warrant to purchase  approximately  56,000 shares of our common stock. In August
2005, the maturity date of the $5.14 million  indebtedness was extended to March
31,  2006,  and the notes were  amended to provide  that a 3% fee will be due on
each of December 15, 2005 and January 30, 2006 if the loan is not repaid in full
prior to  December 1, 2005 or January 16,  2006,  respectively.  Other terms and
conditions of the notes remain unchanged.

         On March 21,  2005,  we and Robert  Chmiel  entered  into a  Separation
Agreement in connection with his resignation as our Chief Financial  Officer and
as a Director, pursuant to which, effective March 31, 2005, Mr. Chmiel agreed to
(i) an aggregate severance payment of $145,000, and (ii) the retention of 56,250
of  previously  issued  but  unvested  stock  options as  consideration  for the
cancellation of his employment agreement.

LIQUIDITY AND CAPITAL RESOURCES

         As of  September  30,  2005,  we  had  cash  and  cash  equivalents  of
approximately  $793,374.  As of September  30, 2005, we had negative net working
capital  of  approximately  $11.5  million.  We  anticipate  the need to acquire
additional assets and/or mining operations, and will likely be required to raise


                                       17
<PAGE>


additional funds by issuing additional equity or debt securities, the amount and
timing  of which  will  depend in large  part on our  spending  program  and our
ability to generate cash flow from operations in future months.

         In November 2004, we entered into a senior secured credit  facility and
borrowed  $15 million to  facilitate  our  purchase  of assets from  Appalachian
Fuels,  LLC. We borrowed an additional  $1.4 million in January 2005 pursuant to
this senior  secured credit  facility,  some proceeds of which were used for the
deposit on and purchase of a $5.5 million high wall miner.

         In March 2005,  we borrowed an  additional  $5.14 million in a separate
transaction to complete the purchase of the high wall miner equipment. In August
2005, the maturity date of the $5.14 million  indebtedness was extended to March
31, 2006,  and a 3% fee will be due on each of December 15, 2005 and January 30,
2006 if the loan is not repaid in full prior to  December 1, 2005 or January 16,
2006,  respectively.  In November  2005,  the notes were  amended to extend from
December 1, 2005 to December  23, 2005 and from  January 16, 2006 to February 6,
2006 the dates by which the notes can be repaid  without the  additional 3% fee.
Other terms and conditions of those notes remain unchanged.

         If  additional   funds  are  raised  through  the  issuance  of  equity
securities, the current stockholders may experience dilution. Furthermore, there
can be no assurance that additional  financings will be available when needed or
that  if  available,  such  financings  will  include  terms  favorable  to  our
stockholders.  If such  financings  are not  available  when required or are not
available on acceptable  terms,  we may be unable to take  advantage of business
opportunities  or respond to  competitive  pressures,  any of which could have a
material  adverse  effect on our  business,  financial  condition and results of
operations.

         CASH FLOWS

         We currently satisfy our working capital requirements primarily through
cash flows  generated from  operations and sales of equity and debt  securities.
For the nine months ended  September  30, 2005, we had a net increase in cash of
approximately  $442,000.  Cash flows from  operating,  financing  and  investing
activities  for the nine  months  ended  September  30, 2004 and the nine months
ended September 30, 2005 are summarized in the following table:

                                                           NINE MONTHS
                                                       ENDED SEPTEMBER 30,
                                                -------------------------------
ACTIVITY:                                           2004               2005
------------------------------------------      ------------       ------------
Operating activities .....................      $ (3,380,777)      $  6,262,885
Investing activities .....................       (11,222,483)       (11,173,105)
Financing activities .....................        20,411,433          5,351,896
                                                ------------       ------------

Net increase (decrease) in cash ..........      $  5,808,173       $    441,676
                                                ============       ============

         OPERATING ACTIVITIES

         The net cash  provided by operating  activities of  approximately  $6.3
million during the nine months ended September 30, 2005 was primarily the result
of the net loss of approximately  $3.8 million and increases in accounts payable
and accrued liabilities of approximately $2.2 million,  increases in receivables
of approximately $262,000, and increases in inventory of approximately $230,000.
The non-cash  expenses  recorded  during the first nine months of 2005  included
depreciation,  depletion,  accretion  and  amortization  of  approximately  $7.2
million,  loss on  disposal of assets of $406,304  and stock  option  expense of
approximately  $673,000.  The increase in accounts payable is primarily a result
of increased  operational  activity.  Cash generated  from operating  activities
during the nine months ended September 30, 2005 increased by approximately  $9.6
million when  compared to the same period in 2004.  This is due to the increased
volume of production and sales.


                                       18
<PAGE>


         INVESTING ACTIVITIES

         The  approximately  $11.2 million of cash used in investing  activities
during  the nine  months  ended  September  30,  2005 was due  primarily  to the
purchase  of  property,   plant  and  equipment.  The  most  significant  single
investment  was the purchase of a high wall miner ($5.5  million)  which,  along
with  other  equipment   purchases,   has  allowed  us  to  increase  production
significantly.  To the extent that we make additional asset  acquisitions in the
balance of 2005 similar to our  investing  activities  in 2004,  we will need to
raise  additional  cash from outside  sources.  If  additional  funds are raised
through  the  issuance  of  equity  securities,  the  current  stockholders  may
experience  dilution.  Furthermore,  there can be no assurance  that  additional
financings  will be available when needed or that if available,  such financings
will include terms  favorable to our  stockholders.  If such  financings are not
available  when  required or are not available on  acceptable  terms,  we may be
unable to take  advantage of business  opportunities  or respond to  competitive
pressures,  any of which could have a material  adverse  effect on our business,
financial condition and results of operations.

         FINANCING ACTIVITIES

         The net cash  provided by financing  activities of  approximately  $5.4
million during the nine months ended September 30, 2005 was primarily the result
of  approximately  $7 million raised from sales of debt  securities.  During the
nine months ended September 30, 2005,  approximately  $768,000 was raised by the
exercise of options, warrants and additional purchase rights for the purchase of
common and preferred stock from the Company.  Payments on bank loans and capital
leases were approximately $245,000 and $1.7 million,  respectively, for the nine
months ended September 30, 2005. We paid approximately  $534,000 in dividends on
preferred  stock  during the nine months  ended  September  30,  2005,  while no
similar  payment  was  made in the  comparable  period  in  2004.  There  was an
approximately  $12.9 million  decrease in the amount of cash  generated from the
issuance of common and  preferred  stock when  comparing  the nine months  ended
September 30, 2005 to the comparable period in 2004.  Approximately $1.7 million
was paid on capital  leases and  installment  purchase  obligations in the first
nine months of 2005,  compared to  approximately  $459,000 which was paid during
the comparable period in 2004.

              SALES OF PREFERRED STOCK AND WARRANTS

         In  February  and  April  2005,  we  issued  16.21  shares  of Series A
convertible  preferred  stock and two-year  warrants to purchase 8,105 shares of
its common stock upon the exercise by certain  holders of purchase  rights,  and
received gross proceeds of approximately $240,000 in connection with the sale of
these  securities.  As of September 30, 2005,  there were  outstanding  1,390.11
shares of our Series A convertible preferred stock.

         We initially issued shares of our Series A convertible  preferred stock
and common stock purchase warrants in separate private placement transactions on
August 31, 2004. Dividends on our Series A convertible preferred stock accrue at
a rate of five  percent  (5%)  per  annum  and are  cumulative  from the date of
issuance.  Until paid,  the right to receive  dividends on the  preferred  stock
accumulates  and is payable,  in cash,  on June 30 and December 31 of each year,
and commenced on December 31, 2004. Each share of Series A convertible preferred
stock is  convertible  into 2,500 shares of our common stock.  For each share of
Series A  convertible  preferred  stock,  investors  were also  issued  two-year
warrants to purchase up to 500 shares of our common  stock at an exercise  price
of $8.40 per share.

         On August 31, 2004, the closing price of our common stock on the NASDAQ
Over-the-Counter Bulletin Board was $9.40. Since this closing price exceeded the
$6.00  conversion  price of the Series A preferred stock, and the $8.40 exercise
price for the warrants, we recognized a one-time constructive


                                       19
<PAGE>


dividend of $10,762,676 pursuant to the calculation of the beneficial conversion
value for both the initial issuance of our Series A convertible  preferred stock
and the attached  warrants on August 31, 2004 with  conversion  prices below the
market  price  of the  common  stock.  The  beneficial  conversion  value of the
warrants was  calculated  using a  Black-Scholes  option-pricing  model with the
following weighted average assumptions:  no dividend yield,  expected volatility
rate of 48%; risk free  interest rate of 3.50%;  and an average life of 2 years.
During the nine months  ended  September  30,  2005,  we  recognized  additional
constructive  dividends of 66,972  pursuant to the additional  Series A purchase
right  investments  exercised  in 2005.  There were no  additional  constructive
dividends  recognized  in  the  three  months  ended  September  30,  2005.  The
beneficial  conversion  value of the additional  warrants was calculated using a
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions:  no dividend yield,  expected  volatility  rates of between 30% and
162%; risk free interest rate of 3.75%; and an average life of approximately 1.5
years.

              CONVERSIONS OF SERIES A CONVERTIBLE PREFERRED STOCK

         During the nine months ended  September  30, 2005,  holders of Series A
convertible preferred stock with liquidation  preferences totaling approximately
$1.2 million converted their shares into common stock.

              ISSUANCE OF STOCK PURSUANT TO THE EXERCISE OF OPTIONS

         During the nine months ended  September  30, 2005,  the Company  issued
222,940  shares of common stock and received gross proceeds of $506,218 upon the
exercise of stock options by employees.

              SENIOR SECURED CREDIT FACILITY

         On  November  26,  2004,  our  Tennessee   subsidiary,   National  Coal
Corporation,  in  connection  with our  acquisition  of assets from  Appalachian
Fuels,   LLC  entered  into  a  credit   agreement  with  D.  B.  Zwirn  Special
Opportunities  Fund, L.P., as Lender and  administrative  agent for the Lenders.
The  company  and  our  subsidiary,  NC  Transportation,  Inc.,  guaranteed  the
obligations of National Coal Corporation under the credit agreement.  The credit
agreement  provides  for  an  initial  credit  facility  of $15  million  with a
subsequent  credit facility not to exceed $6 million.  We exercised our right to
borrow $15 million on November 29, 2004,  the proceeds of which were used to pay
the remaining  $12,250,000  of acquisition  costs related to the  acquisition of
assets of  Appalachian  Fuels,  LLC, pay  transaction  costs with respect to the
closing of the credit facility and asset purchase,  and fund working capital. We
borrowed an additional  $1.4 million in January 2005 to fund our  acquisition of
mining  equipment.  Borrowings  under the credit  agreement bear interest at the
rate of  interest  per annum  publicly  announced  from time to time by JPMorgan
Chase as its prime rate in effect at its principal office in New York City, plus
5.75%.  The obligations  under the credit agreement are secured by substantially
all of our assets and those of our subsidiaries.

         Amounts  borrowed  under the Credit  Agreement  are  payable in monthly
installments  of amounts  equal to 50% of our Free Cash Flow (as  defined in the
credit agreement) and become  immediately due and payable on their maturity date
of November 26, 2006. Under this facility,  we are subject to numerous financial
covenants, including that:

         o        we maintain a specified  minimum  EBITDA (as defined in credit
                  agreement)  for  specified  periods  ending  on each  calendar
                  quarter during the term of the credit agreement;

         o        we do not  exceed  a  specified  ratio of debt to  EBITDA  for
                  specified  periods ending on each calendar  quarter during the
                  term of the credit agreement;


                                       20
<PAGE>


         o        we  maintain a specified  minimum  ratio of EBITDA to interest
                  expense for specified  periods ending on each calendar quarter
                  during the term of the credit agreement;

         o        we maintain a specified  minimum fixed charge  coverage  ratio
                  for specified  periods ending on each calendar  quarter during
                  the term of the credit agreement;

         o        we meet minimum sales volume requirements;

         o        our general and administrative costs on an annualized basis as
                  of specified  periods  ending on each calendar  quarter during
                  the term of the credit  agreement  do not  exceed a  specified
                  percentage of our coal sales for each such period; and

         o        we will  not  make  any  capital  expenditures  except  in the
                  ordinary course of business in accordance with past practices.

              MARCH 2005 BRIDGE FINANCING

         In January 2005,  we signed an agreement  committing us to the purchase
of a highwall miner for a total purchase  price of  approximately  $5.5 million,
and paid a $500,000 deposit toward that purchase  commitment.  In March 2005, we
borrowed an additional approximately $5.14 million and completed the purchase of
this piece of mining equipment. The notes had an original maturity of August 10,
2005, are secured by the highwall miner, and have a rate of interest of eighteen
percent (18%) per annum calculated from the 61st day until maturity.  We paid an
origination  fee of  approximately  $200,000  upon  the  execution  of the  loan
documents. The lenders were also issued 5-year common stock purchase warrants to
purchase an aggregate of up to 140,000  shares of the Company's  common stock at
an  exercise  price per  share of $8.50.  We  valued  these  warrants  using the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions:  no dividend  yield,  expected  volatility  rate of 133%; risk free
interest  rate of  4.00%;  and an  average  life of 5 years,  and  recognized  a
non-cash  discount against the note of $665,855 to be amortized over the life of
the note.  The  discount  has been fully  amortized,  resulting  in  $665,855 of
non-cash  expense in the nine month period ended  September 30, 2005.  Crestview
Capital Master, LLC, a significant  shareholder of the Company,  participated in
this  transaction.  In August  2005,  the  maturity  date of the  $5.14  million
indebtedness  was  extended  to March 31,  2006,  and the notes were  amended to
provide  that a 3% fee will be due on each of December  15, 2005 and January 30,
2006 if the loan is not repaid in full prior to  December 1, 2005 or January 16,
2006,  respectively.  In November  2005,  the notes were  amended to extend from
December 1, 2005 to December  23, 2005 and from  January 16, 2006 to February 6,
2006 the dates by which the notes can be repaid  without the  additional 3% fee.
Other terms and conditions of the notes remain unchanged.

              CONTRACTUAL OBLIGATIONS

         In November 2004,  pursuant to our signed asset purchase agreement with
Appalachian  Fuels,  LLC, we agreed to replace $6.5 million of their reclamation
bonds on the Straight Creek, KY mining operations upon the transfer to us all of
the mining permits listed in the asset purchase agreement.  To date, Appalachian
Fuels has not fulfilled  this  obligation and has indicated that there are three
permits which are still to be transferred.  They have indicated to us that final
transfer may take a number of months.


                                       21
<PAGE>


         Our  material  indebtedness  at  September  30, 2005  consisted  of the
following:

                                                                     BALANCE
                                                                   SEPTEMBER 30,
                                                                       2005
--------------------------------------------------------------------------------

Senior credit facility dated November 26, 2004;
   interest rate of Prime + 5.75%, payable monthly,
   with principle reductions also payable monthly
   based on 50% of Free Cash Flow (as defined
   in the credit facility)...................................      $  16,400,000
Installment purchase obligations effective July 2005,
   interest rates from 5.22% to 7.65%, payments due
   monthly through January 2008..............................          6,736,455
Notes maturing issued in March 2005 Bridge Financing,
   due date extended to March 31, 2006.......................          5,137,726
Bank loan dated July 29, 2004; interest rate of 7.25%,
   payable monthly ...................... ...................            288,021
                                                                   -------------
   Total.....................................................      $  28,562,202
                                                                   =============

         We rent mining equipment  pursuant to operating lease  agreements,  and
made lease payments  totaling  approximately  $1,240,946  during the nine months
ended September 30, 2005.

         In  September  2004,  we  purchased  an office  building in  Knoxville,
Tennessee for $690,000,  which is the new location of our corporate  operations.
The building has been pledged to satisfy certain OSM bonding requirements.

         For the nine months ended  September 30, 2005, we paid dividends to the
holders  of our  Series  A  convertible  preferred  stock  in the  aggregate  of
approximately  $529,000.  We are  required  to make  semi-annual  cash  dividend
payments to the holder of the Series A preferred  stock on June 30 and  December
31.

OFF-BALANCE SHEET ARRANGEMENTS

         At  September  30,  2005,  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.

CAUTIONARY STATEMENTS AND RISK FACTORS

         Several   of  the   matters   discussed   in  this   document   contain
forward-looking  statements  that  involve  risks  and  uncertainties.   Factors
associated with the  forward-looking  statements that could cause actual results
to differ  materially  from those  projected  or  forecast  are  included in the
statements  below.  In addition to other  information  contained in this report,
readers should carefully consider the following cautionary statements.

                          RISKS RELATED TO OUR BUSINESS

SIGNIFICANT COMPETITION FROM ENTITIES WITH GREATER RESOURCES COULD RESULT IN OUR
FAILURE.

         We  operate  in  a  highly  competitive   industry  with  national  and
international  energy resources  companies.  Some of our competitors have longer
operating histories and substantially greater financial and other resources than
we do. Our  competitors'  use of their  substantially  greater  resources  could
overwhelm our efforts to operate successfully and could cause our failure.


                                       22
<PAGE>


WE CANNOT ASSURE YOU THAT OUR LIMITED  REVENUES WILL BE SUFFICIENT TO OPERATE AS
A GOING CONCERN, OR THAT WE WILL GENERATE GREATER REVENUES IN THE FUTURE.

         We were formed to create a regional coal producer in Tennessee.  We had
no revenues  from  inception  until the third  quarter 2003 when we began mining
operations.  We are not profitable and have a limited operating history. We must
be regarded  as a risky  venture  with all of the  unforeseen  costs,  expenses,
problems, risks and difficulties to which such ventures are subject.

         Our coal  sales  for the nine  months  ended  September  30,  2005 were
approximately   $46.8   million,   and  coal  sales  during   fiscal  2004  were
approximately  $16.9 million.  There is no assurance that we can achieve greater
sales or generate  profitable  sales.  We expect that many coal producers  could
produce and sell coal at lower  prices per ton than our  production  cost rates,
which could  adversely  affect our  revenues and  profits,  if any.  There is no
assurance  that we will ever operate  profitably.  There is no assurance that we
will generate continued revenues or any profits, or that the market price of our
common stock will be increased thereby.

OUR  INABILITY  TO  DIVERSIFY  OUR   OPERATIONS   MAY  SUBJECT  US  TO  ECONOMIC
FLUCTUATIONS WITHIN OUR INDUSTRY.

         Our limited  financial  resources reduce the likelihood that we will be
able to diversify our  operations.  In addition,  if we ever decided that it was
necessary or advantageous to do so, our limited  financial  resources reduce the
likelihood  that we would be able to  diversify  our  operations.  Our  probable
inability  to diversify  our  activities  into more than one business  area will
subject us to economic fluctuations within a particular business or industry and
therefore increase the risks associated with our operations.

THE LOSS OF, OR CONFLICTS WITH, KEY MANAGEMENT  PERSONNEL COULD ADVERSELY AFFECT
OUR BUSINESS.

         We are heavily dependent upon the skills, talents, and abilities of our
executive  officers  and  board of  directors,  as well as our  consultants,  to
implement  our  business  plan.  Given the  intense  competition  for  qualified
management  personnel  in our  industry,  the  loss of the  services  of any key
management personnel may significantly and detrimentally affect our business and
prospects. There is no assurance that we will be able to retain these personnel,
and it may be  time  consuming  and  costly  to  recruit  qualified  replacement
personnel.

         Certain conflicts of interest may exist between our officers, directors
and us.  Although  management's  time is  devoted to our  business,  some of our
officers and directors have other business  interests to which they devote their
attention, and they may be expected to continue to do so. As a result, conflicts
of interest may arise that can be resolved  only through the exercise of prudent
judgment  consistent with such officers' and directors'  fiduciary duties to us.
We may,  from time to time,  find that the  inability of our directors and other
officers to devote their complete  attention to our business  results in a delay
in progress toward implementing our business plan, and detrimentally affects our
business.

OUR  DIRECTOR  AND  OFFICER  INDEMNIFICATION  POLICIES IN  CONJUNCTION  WITH THE
PROVISIONS OF FLORIDA LAW COULD RESULT IN SUBSTANTIAL UN-RECOUPABLE EXPENDITURES
AND REDUCED REMEDIES AGAINST DIRECTORS AND OFFICERS.

         Florida  Revised  Statutes  provide  for  the  indemnification  of  our
directors, officers, employees, and agents, under certain circumstances, against
attorney's  fees and other expenses  incurred by them in any litigation to which
they become a party  arising from their  association  with or  activities on our
behalf.  We will  also  bear  the  expenses  of such  litigation  for any of our
directors,  officers,  employees, or agents, upon such person's promise to repay
us such  amounts,  if it is  ultimately  determined  that  such  person  was not


                                       23
<PAGE>

Pentitled  to  indemnification.  This  indemnification  policy  could  result in
substantial expenditures by us that we will be unable to recoup.

         Florida Revised Statutes exclude personal liability of our directors to
us and our stockholders for monetary damages for breach of fiduciary duty except
in  certain  specified  circumstances.  Accordingly,  we will  have a much  more
limited right of action against our directors than otherwise  would be the case.
This  provision  does not affect the liability of any director  under federal or
applicable state securities laws.

OUR  SUCCESS  DEPENDS  UPON OUR  ABILITY TO FIND  PURCHASERS  OF OUR  PRODUCT AT
PROFITABLE PRICES.

We typically  sell our coal for a specified  tonnage  amount and at a negotiated
price pursuant to short-term and long-term contracts.  The prices we receive for
coal depend upon factors beyond our control, including:

         o        the supply of and demand for domestic and foreign  coal;

         o        the demand for electricity;

         o        domestic  and  foreign  demand  for  steel  and the  continued
                  financial  viability  of the  domestic  and/or  foreign  steel
                  industry;

         o        the  proximity  to,  capacity  of and  cost of  transportation
                  facilities;

         o        domestic and foreign governmental regulations and taxes;

         o        air emission standards for coal-fired power plants;

         o        regulatory, administrative and judicial decisions;

         o        the price and availability of alternative fuels, including the
                  effects of technological developments; and

         o        the effect of worldwide energy conservation measures.

         Our results of operations  are dependent  upon the prices we charge for
our coal as well as our ability to improve  productivity  and control costs. Any
decreased  demand  would cause spot prices to decline and require us to increase
productivity and decrease costs in order to maintain our margins.  If we are not
able to maintain our margins, our operating results could be adversely affected.
Therefore,  price  declines may adversely  affect  operating  results for future
periods and our ability to generate cash flows necessary to improve productivity
and invest in  operations.  If we are  unable to obtain  supply  contracts  with
purchasers of our product,  or are unable to find buyers willing to purchase our
coal at profitable prices, our revenues and operating profits could suffer.

CERTAIN  PROVISIONS  IN OUR  LONG-TERM  SUPPLY  AGREEMENTS  MAY PROVIDE  LIMITED
PROTECTION  DURING  ADVERSE  ECONOMIC  CONDITIONS  OR  MAY  RESULT  IN  ECONOMIC
PENALTIES UPON THE FAILURE TO MEET SPECIFICATIONS.

         For the nine months ended September 30, 2005,  approximately 85% of the
coal we produced was sold under long-term  contracts.  Price adjustment,  "price
reopener" and other similar provisions in long-term supply agreements may reduce
the protection from short-term coal price volatility  traditionally  provided by
such contracts.  Our long-term contracts typically contain provisions that allow
for the purchase price to be  renegotiated  at periodic  intervals.  These price
reopener  provisions may  automatically  set a new price based on the prevailing
market price or, in some instances, require the parties to agree on a new price,
sometimes between a specified range of prices. In some circumstances, failure of
the parties to agree on a price  under a price  reopener  provision  can lead to
termination  of the  contract.  Any  adjustment  or  renegotiation  leading to a
significantly  lower contract price would result in decreased revenues and lower
our gross margins.


                                       24
<PAGE>


         Coal supply agreements also typically contain force majeure  provisions
allowing  temporary  suspension of performance by us or our customers during the
duration of specified  events beyond the control of the affected party.  Most of
our coal supply  agreements  contain  provisions  requiring  us to deliver  coal
meeting  quality  thresholds  for certain  characteristics  such as Btu,  sulfur
content, ash content, hardness and ash fusion temperature. Failure to meet these
specifications could result in economic penalties,  including price adjustments,
the rejection of deliveries  or, in the extreme,  termination  of the contracts.
Consequently,  due to the risks mentioned above with respect to long-term supply
agreements,  we may not achieve the revenue or profit we expect to achieve  from
these sales commitments. In addition, we may not be able to successfully convert
these sales commitments into long-term supply agreements.


OUR SUCCESS  DEPENDS UPON OUR  CONTINUED  ABILITY TO ATTRACT AND RETAIN  SKILLED
MINE WORKERS.

         Efficient coal mining using modern  techniques  and equipment  requires
skilled laborers,  preferably with at least a year of experience and proficiency
in  multiple  mining  tasks.  In the event the  shortage  of  experienced  labor
continues or worsens or we are unable to train the  necessary  amount of skilled
laborers,  there could be an adverse impact on our labor  productivity and costs
and our ability to expand production.

UNEXPECTED  INCREASES  IN RAW  MATERIAL  COSTS  COULD  SIGNIFICANTLY  IMPAIR OUR
OPERATING RESULTS.

         Our coal mining operations use significant amounts of steel,  petroleum
products and other raw materials throughout the mining process. The cost of such
supplies and materials,  including the steel roof bolts required by the room and
pillar  method  of  underground  mining,  diesel  fuel  used in  surface  mining
equipment, and certain explosives which utilize petroleum-based products used in
the surface mining process, for example, can fluctuate.  Scrap steel prices have
risen  significantly  in recent months,  and  historically,  the prices of scrap
steel and  petroleum  have  fluctuated.  If the price of steel or other of these
materials increase,  our operational expenses will increase,  which could have a
significant negative impact on our operating results.

IF  TRANSPORTATION  FOR OUR  COAL  BECOMES  UNAVAILABLE  OR  UNECONOMIC  FOR OUR
CUSTOMERS, OUR ABILITY TO SELL COAL COULD SUFFER.

         Transportation  costs represent a significant portion of the total cost
of  delivered  coal  and,  as a result,  play a  critical  role in a  customer's
purchasing decision.  Increases in transportation costs could make our coal less
competitive  as a source  of energy or could  make some of our  operations  less
competitive than other sources of coal.

         Coal producers depend upon rail, barge, trucking, overland conveyor and
other  systems to deliver  coal to its  customers.  While  U.S.  coal  customers
typically arrange and pay for  transportation of coal from the mine to the point
of use, disruption of these  transportation  services because of weather-related
problems,  strikes,  lock-outs  or other  events  could  temporarily  impair our
ability to supply  coal to our  customers  and thus could  adversely  affect our
results of operations.

RISKS INHERENT TO MINING COULD INCREASE THE COST OF OPERATING OUR BUSINESS.

         Our mining operations are subject to conditions beyond our control that
can delay coal deliveries or increase the cost of mining at particular mines for
varying lengths of time. These conditions include weather and natural disasters,
unexpected maintenance problems, key equipment failures, variations in coal seam
thickness, variations in the amount of rock and soil overlying the coal deposit,
variations  in rock and other  natural  materials  and  variations  in  geologic
conditions.


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<PAGE>


THE  GOVERNMENT  EXTENSIVELY  REGULATES  OUR MINING  OPERATIONS,  WHICH  IMPOSES
SIGNIFICANT  COSTS ON US, AND FUTURE  REGULATIONS  COULD INCREASE THOSE COSTS OR
LIMIT OUR ABILITY TO PRODUCE COAL.

         Federal,  state and local authorities regulate the coal mining industry
with  respect to matters  such as  employee  health and safety,  permitting  and
licensing  requirements,  air  quality  standards,  water  pollution,  plant and
wildlife  protection,  reclamation  and restoration of mining  properties  after
mining is completed,  the discharge of materials into the  environment,  surface
subsidence  from  underground   mining  and  the  effects  that  mining  has  on
groundwater  quality and  availability.  In  addition,  significant  legislation
mandating  specified  benefits  for retired  coal miners  affects our  industry.
Numerous  governmental permits and approvals are required for mining operations.
We are  required to prepare and present to federal,  state or local  authorities
data  pertaining  to the effect or impact that any proposed  exploration  for or
production of coal may have upon the  environment.  The costs,  liabilities  and
requirements  associated with these regulations may be costly and time-consuming
and  may  delay  commencement  or  continuation  of  exploration  or  production
operations.  The possibility  exists that new legislation and/or regulations and
orders  may  be  adopted  that  may  materially   adversely  affect  our  mining
operations,  our cost structure  and/or our customers'  ability to use coal. New
legislation  or  administrative  regulations  (or  judicial  interpretations  of
existing laws and regulations), including proposals related to the protection of
the environment that would further regulate and tax the coal industry,  may also
require  us or  our  customers  to  change  operations  significantly  or  incur
increased costs. The majority of our coal supply agreements  contain  provisions
that allow a purchaser to terminate its contract,  if legislation is passed that
either restricts the use or type of coal permissible at the purchaser's plant or
results in specified increases in the cost of coal or its use. These factors and
legislation,  if enacted,  could have a material adverse effect on our financial
condition and results of operations.

         In  addition,  the  United  States  and  over  160  other  nations  are
signatories  to the  1992  Framework  Convention  on  Climate  Change,  which is
intended to limit  emissions of greenhouse  gases,  such as carbon  dioxide.  In
December 1997, in Kyoto, Japan, the signatories to the convention  established a
binding set of emission  targets for  developed  nations.  Although the specific
emission  targets  vary from  country to  country,  the United  States  would be
required to reduce  emissions  to 93% of 1990  levels  over a  five-year  budget
period from 2008 through  2012.  Although the United States has not ratified the
emission targets and no comprehensive  regulations  focusing on U.S.  greenhouse
gas emissions are in place, these restrictions,  whether through ratification of
the emission  targets or other  efforts to stabilize  or reduce  greenhouse  gas
emissions, could adversely impact the price of and demand for coal. According to
the Energy  Information  Administration's  Emissions of Greenhouse  Gases in the
United States 2001,  coal  accounts for 32% of  greenhouse  gas emissions in the
United States,  and efforts to control  greenhouse gas emissions could result in
reduced  use of coal if  electricity  generators  switch to sources of fuel with
lower  carbon  dioxide  emissions.   Further  developments  in  connection  with
regulations  or other limits on carbon dioxide  emissions  could have a material
adverse effect on our financial condition or results of operations.

OUR FUTURE SUCCESS DEPENDS UPON OUR ABILITY TO CONTINUE ACQUIRING AND DEVELOPING
COAL RESERVES THAT ARE ECONOMICALLY RECOVERABLE.

         Our  recoverable  reserves will decline as we produce coal. We have not
yet applied for the permits required or developed the mines necessary to use all
of the coal deposits under our mineral rights.  Furthermore,  we may not be able
to  mine  all  of our  coal  deposits  as  profitably  as we do at  our  current
operations.   Our  future  success   depends  upon  our  conducting   successful
exploration  and  development  activities  and acquiring  properties  containing
economically recoverable coal deposits. Our current strategy includes increasing
our coal deposits base through acquisitions of other mineral rights,  leases, or
producing   properties   and   continuing   to  use  our  existing   properties.
Additionally,  the federal government limits the amount of federal land that may
be leased by any company to 150,000 acres nationwide.


                                       26
<PAGE>


Presently,  we do not lease land from the  federal  government.  The limit could
restrict our ability to lease significant federal lands.

         Our  planned  development  and  exploration  projects  and  acquisition
activities  may not result in the  acquisition of  significant  additional  coal
deposits and we may not have continuing success developing additional mines. Our
mining  operations  are  conducted on mineral  rights owned and/or leased by us.
Because title to most of our mineral rights are not thoroughly  verified until a
permit to mine the  property is  obtained,  our right to mine some of our leased
coal  deposits  may be  materially  adversely  affected,  if defects in title or
boundaries  exist. In addition,  in order to develop our coal deposits,  we must
receive various governmental permits. We cannot predict whether we will continue
to receive the permits necessary for us to operate profitably in the future.

IF THE COAL INDUSTRY  EXPERIENCES  OVERCAPACITY IN THE FUTURE, OUR PROFITABILITY
COULD BE IMPAIRED.

         During  the  mid-1970s  and early  1980s,  a growing  coal  market  and
increased demand for coal attracted new investors to the coal industry,  spurred
the  development  of  new  mines  and  resulted  in  added  production  capacity
throughout  the industry,  all of which led to increased  competition  and lower
coal prices.  Similarly,  an increase in future coal prices could  encourage the
development  of  expanded  capacity  by  new or  existing  coal  producers.  Any
overcapacity could reduce coal prices in the future.

OUR  OPERATIONS  COULD BE  ADVERSELY  AFFECTED IF WE FAIL TO  MAINTAIN  REQUIRED
BONDS.

         Federal  and state laws  require  bonds or cash  deposits to secure our
obligations to reclaim lands used for mining,  to pay federal and state workers'
compensation,   to  secure  coal  lease   obligations   and  to  satisfy   other
miscellaneous  obligations.  At September  30, 2005,  we had  $4,526,600 of cash
invested in certificates of deposit,  against which  irrevocable bank letters of
credit are written in favor of OSM and had posted a $700,000 letter of credit in
favor of OSM secured by our executive office building.  Our failure to maintain,
or inability to acquire,  bonds that are required by state and federal law would
have a material  adverse  effect on us. That failure could result from a variety
of factors including the following:

         o        lack of  availability,  higher expense or  unfavorable  market
                  terms of new bonds; and

         o        restrictions on the availability of collateral for current and
                  future  third-party bond issuers under the terms of our credit
                  facilities

TERRORIST  ATTACKS AND THREATS,  ESCALATION OF MILITARY  ACTIVITY IN RESPONSE TO
SUCH  ATTACKS  OR ACTS OF WAR MAY  NEGATIVELY  AFFECT  OUR  BUSINESS,  FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

         Terrorist  attacks and  threats,  escalation  of  military  activity in
response  to such  attacks or acts of war may  negatively  affect our  business,
financial  condition  and  results of  operations.  Our  business is affected by
general economic  conditions,  fluctuations in consumer confidence and spending,
and market liquidity,  which can decline as a result of numerous factors outside
of our control,  such as  terrorist  attacks and acts of war.  Future  terrorist
attacks  against  U.S.  targets,  rumors or  threats  of war,  actual  conflicts
involving  the United  States or its allies,  or  military or trade  disruptions
affecting our customers may materially  adversely  affect our  operations.  As a
result, there could be delays or losses in transportation and deliveries of coal
to our customers,  decreased sales of our coal and extension of time for payment
of  accounts   receivable  from  our  customers.   Strategic   targets  such  as
energy-related  assets may be at greater risk of future  terrorist  attacks than
other  targets in the United  States.  In addition,  disruption  or  significant
increases in energy prices could result in government-imposed price controls. It
is  possible  that any,  or a  combination,  of these  occurrences  could have a
material  adverse  effect on our  business,  financial  condition and results of
operations.


                                       27
<PAGE>


OUR ABILITY TO COLLECT  PAYMENTS  FROM OUR  CUSTOMERS  COULD BE IMPAIRED  DUE TO
CREDIT ISSUES.

         Our ability to receive  payment for coal sold and delivered  depends on
the continued  creditworthiness of our customers.  Our customer base is changing
with  deregulation  as utilities sell their power plants to their  non-regulated
affiliates or third parties that may be less  creditworthy,  thereby  increasing
the risk we bear on  payment  default.  These new power  plant  owners  may have
credit ratings that are below  investment  grade. In addition,  competition with
other coal  suppliers  could force us to extend credit to customers and on terms
that could increase the risk we bear on payment default. If deterioration of the
creditworthiness  of customers or trading  counterparties  occurs,  our business
could be adversely affected.

                        RISKS RELATED TO OUR COMMON STOCK

A LIMITED  PUBLIC  MARKET  EXISTS FOR OUR  SECURITIES,  WHICH MAY  RESTRICT  OUR
SHAREHOLDERS' ABILITY TO TRADE IN OUR STOCK.

         There is a limited  public  market for our  common  stock on the NASDAQ
Capital  Market,  and no assurance  can be given that a market will  continue or
that a  shareholder  will  ever be  able to  liquidate  his  investment  without
considerable  delay, if at all. Our stock price may be highly volatile.  Factors
such as those  discussed in this section may have a significant  impact upon the
market price of our  securities.  Due to the low price of our  securities,  many
brokerage  firms may not be willing to effect  transactions  in our  securities.
Even if a  purchaser  finds a broker  willing  to  effect a  transaction  in our
securities,  the combination of brokerage commissions,  state transfer taxes, if
any, and any other selling  costs may exceed the selling  price.  Further,  many
lending  institutions  will not permit the use of such  securities as collateral
for any loans.

WE DO NOT FORESEE PAYING DIVIDENDS IN THE NEAR FUTURE.

         We have not paid  dividends on our common  stock and do not  anticipate
paying such dividends in the foreseeable  future.  We are restricted from making
cash  dividend  payments  on our  common  stock  under the terms of our Series A
convertible preferred stock.

OUR  ISSUANCE  OF  FURTHER  STOCK MAY  RESULT IN THE LOSS OF  CONTROL BY PRESENT
MANAGEMENT AND SHAREHOLDERS.

         We may issue  further  shares  as  consideration  for  cash,  assets or
services out of our  authorized  but not issued  common  stock that could,  upon
issuance,  represent  a majority of our voting  power and equity.  The result of
such an  issuance  would be that those new  shareholders  and  management  would
control us, and unknown  persons could replace our management at that time. Such
an occurrence would result in a greatly reduced percentage of ownership of us by
our current shareholders.

WE  OPERATE  IN AN  INDUSTRY  THAT IS SUBJECT  TO  SIGNIFICANT  FLUCTUATIONS  IN
OPERATING  RESULTS  FROM  QUARTER  TO  QUARTER  THAT MAY  RESULT  IN  UNEXPECTED
REDUCTIONS IN REVENUE AND STOCK PRICE VOLATILITY.

         Factors that may influence our quarterly operating results include:

         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;


                                       28
<PAGE>


         o        the ability to obtain new mining permits;

         o        the costs of reclamation of previously mined properties; and

         o        industry competition.

         Due to  these  factors,  it is  possible  that  in  some  quarters  our
operating  results  may be below  our  shareholders'  expectations  and those of
public market analysts.  If this occurs,  the price of our common stock could be
adversely affected.

OUR STOCK PRICE MAY  DECREASE,  WHICH COULD  ADVERSELY  AFFECT OUR  BUSINESS AND
CAUSE OUR SHAREHOLDERS TO SUFFER SIGNIFICANT LOSSES.

         The following  factors could cause the market price of our common stock
to decrease, perhaps substantially:

         o        the  failure  of  our  quarterly  operating  results  to  meet
                  expectations of investors or securities analysts;

         o        adverse  developments in the financial  markets,  the coal and
                  energy industries and the worldwide or regional economies;

         o        interest rates;

         o        changes in accounting principles;

         o        sales of common stock by existing security holders;

         o        announcements of key developments by our competitors; and

         o        the   reaction   of  markets   and   securities   analysts  to
                  announcements and developments involving our Company.

IF WE  NEED TO SELL OR  ISSUE  ADDITIONAL  SHARES  OF  COMMON  STOCK  OR  ASSUME
ADDITIONAL DEBT TO FINANCE FUTURE GROWTH,  OUR SHAREHOLDERS'  OWNERSHIP COULD BE
DILUTED OR OUR EARNINGS COULD BE ADVERSELY IMPACTED.

         Our business strategy may include expansion through internal growth, by
acquiring complementary  businesses,  or by establishing strategic relationships
with targeted customers.  In order to do so or to fund our other activities,  we
may issue additional equity securities that could dilute our shareholders' stock
percentage  ownership.  We may also assume  additional debt and incur impairment
losses  related to  goodwill  and other  tangible  assets if we acquire  another
company and this could negatively impact our results of operations.

OFFICERS AND  DIRECTORS OWN A  SIGNIFICANT  PORTION OF OUR COMMON  STOCK,  WHICH
COULD  LIMIT  OUR  SHAREHOLDERS'   ABILITY  TO  INFLUENCE  THE  OUTCOME  OF  KEY
TRANSACTIONS.

         As of  September  30,  2005,  our  officers  and  directors  and  their
affiliates  owned  approximately  45% of our  outstanding  voting  shares.  As a
result, our officers and directors are able to exert considerable influence over
the  outcome of any  matters  submitted  to a vote of the  holders of our common
stock,  including  the election of our Board of  Directors.  The voting power of
these  shareholders could also discourage others from seeking to acquire control
of us through the purchase of our common stock which might  depress the price of
our common stock.


                                       29
<PAGE>


ITEM 3.  CONTROLS AND PROCEDURES.

CONTROLS AND PROCEDURES

         Members of the  company's  management,  including  our Chief  Executive
Officer and President,  Jon Nix, and Chief  Financial  Officer,  Mark A. Oldham,
have evaluated the effectiveness of our disclosure  controls and procedures,  as
defined by paragraph (e) of Exchange Act Rules 13a-15 or 15d-15, as of September
30,  2005,  the end of the  period  covered  by this  report.  Based  upon  that
evaluation,  Messrs.  Nix and Oldham concluded that our disclosure  controls and
procedures are effective.

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
nine months  ended  September  30, 2005 that have  materially  affected,  or are
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.


                                       30
<PAGE>


                                     PART II

                                OTHER INFORMATION

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

         During the nine  months  ended  September  30,  2005,  holders of 82.77
shares of Series A  convertible  preferred  stock with  liquidation  preferences
totaling  approximately  $1.2 million converted their shares into 209,958 shares
of  common  stock.  The  issuance  of  these  securities  was  exempt  from  the
registration  requirements  of the Securities Act pursuant to Section 3(a)(9) of
the  Securities  Act as an  exchange by the issuer  with its  existing  security
holders where no commission or other  remuneration  is paid for soliciting  such
exchange.

ITEM 6.  EXHIBITS

         THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:

         10.1     Installment   Sale  Contract  by  and  between  National  Coal
                  Corporation and Whayne Supply Company, effective July 1, 2005.

         10.2     Installment   Sale  Contract  by  and  between  National  Coal
                  Corporation   and  Stowers   Machinery   Corporation   (twenty
                  vehicles), effective July 1, 2005.

         10.3     Installment   Sale  Contract  by  and  between  National  Coal
                  Corporation   and   Stowers   Machinery   Corporation   (three
                  vehicles), effective July 1, 2005.

         10.4     Asset Purchase Agreement (Baldwin  Facility),  dated as of May
                  8, 2005,  by and between  National  Coal  Corporation  and LCC
                  Tennessee, LLC.

         10.5     Form of Amendment Number One to Secured Promissory Note by and
                  between  National  Coal  Corporation,  and  each of  Crestview
                  Capital Master, LLC, Big Bend Investments,  L.P., and CCA (US)
                  Fund I, L.P., dated August 10, 11 and 12, 2005, respectively.

         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.

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


                                       31
<PAGE>


                                   SIGNATURES

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

                                            NATIONAL COAL CORP.


Date: November 11, 2005                            /S/ Mark A. Oldham
                                            ------------------------------------
                                        By:        Mark A. Oldham
                                        Its:       Chief Financial Officer
                                                   (Principal Financial and
                                                   Accounting Officer)


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