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                                  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, 2004

[_]      Transition  Report  Pursuant  to 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, Including Area Code)

         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 such filing requirements for the past 90 days.
                            Yes [X]      No [_]

         As of  November  4, 2004,  the issuer had  52,706,515  shares of common
stock, par value $.0001 per share, issued and outstanding.

         Transitional Small Business Disclosure Format (check one):
                            Yes [_]      No [X]

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<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, 2004..............................................3

         Condensed Consolidated Statements of Operations
         (unaudited) for the three months ended September 30,
         2004 and September 30, 2003, the nine months
         ended September 30, 2004, and the period from
         inception (January 30, 2003) to September 30, 2004....................4

         Condensed Consolidated Statement of Cash Flows
         (unaudited) for the nine months ended September 30,
         2004 and the period from inception (January 30, 2003)
         to September 30, 2003.................................................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..............................................28

PART II  OTHER INFORMATION....................................................29

Item 6.  Exhibits.............................................................29


                                       2
<PAGE>


                                     PART I
                              FINANCIAL INFORMATION
ITEM 1.     FINANCIAL STATEMENTS
                               NATIONAL COAL CORP.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                   (unaudited)
                                                                   SEPTEMBER 30,
                                                                       2004
                                                                   ------------
ASSETS
CURRENT ASSETS
   Cash and cash equivalents ................................      $  5,809,056
   Accounts receivable ......................................           643,265
   Inventory ................................................           295,725
   Prepaid and other ........................................             2,347
                                                                   ------------
     TOTAL CURRENT ASSETS ...................................         6,750,392

PROPERTY, PLANT AND EQUIPMENT
   Land .....................................................           774,290
   Mining equipment .........................................         4,116,979
   Computer equipment and software ..........................            81,474
   Vehicles and mobile equipment ............................         1,108,667
   Buildings ................................................         2,646,429
   Office equipment and furniture ...........................            42,517
                                                                   ------------
                                                                      8,680,356
Less:  accumulated depreciation .............................        (1,052,294)
                                                                   ------------
   TOTAL PROPERTY, PLANT AND EQUIPMENT, NET .................         7,628,063

Coal and mineral rights, net of $82,188 accumulated
   depletion ................................................         1,371,712
Deposits ....................................................         2,977,000
Prepaid Royalty .............................................            85,000
Loan acquisition costs, net of $23,556 accumulated
   amortization .............................................           188,444
Bank Letters of Credit and Reclamation Bond .................         1,291,100
                                                                   ------------
   TOTAL ASSETS .............................................      $ 20,291,712
                                                                   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Notes payable, less $1,763,940 beneficial conversion
      discount ..............................................      $  4,201,276
   Accounts payable .........................................           603,299
   Accrued payroll and payroll taxes payable ................            61,299
   Accrued interest payable .................................           211,390
   Accrued dividends payable ................................            65,877
   Deferred revenue .........................................           139,737
   Bank loans - autos .......................................           652,587
                                                                   ------------
     TOTAL CURRENT LIABILITIES ..............................         5,935,465

   Reclamation Obligation ...................................           678,287

     TOTAL LIABILITIES ......................................      $  6,613,751
                                                                   ------------

STOCKHOLDERS' EQUITY
   Series A convertible preferred stock, $.0001
     par value; 5% coupon; 1,611 shares authorized;
     1,068.67 shares issued and outstanding .................              --
   Common stock, $.0001 per value; 80 million
     dollars authorized; 44,290,216 shares issued
     and outstanding ........................................             4,429
   Additional paid-in capital ...............................        22,476,870
   Accumulated deficit ......................................        (8,803,338)
                                                                   ------------
     TOTAL STOCKHOLDERS' EQUITY .............................      $ 13,677,961
                                                                   ------------
     TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY .............      $ 20,291,712
                                                                   ============

            See Notes to Condensed Consolidated Financial Statements.


                                       3
<PAGE>


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

<CAPTION>
                                             THREE MONTHS
                                                 ENDED             EIGHT MONTHS      NINE MONTHS
                                             SEPTEMBER 30,             ENDED            ENDED
                                    ----------------------------   SEPTEMBER 30,    SEPTEMBER 30,
                                        2003            2004            2003            2004
                                    ------------    ------------    ------------    ------------
<S>                                 <C>             <C>             <C>             <C>
REVENUES
  Coal Sales ....................   $    205,713    $  4,407,953    $    205,713    $  9,873,935
  Royalty receipts ..............         68,651            --            85,925         103,403
  Other revenue .................           --             2,334            --            26,547
                                    ------------    ------------    ------------    ------------
   Total revenue ................        274,363       4,410,287         291,638      10,003,885

EXPENSES
  Cost of sales and selling
   expense ......................        521,666       4,506,966         633,988       8,815,357
  General and administrative ....        385,136       1,453,266       1,451,233       3,698,657
  Exploration costs .............         17,779          84,530          17,779         227,077
  Depreciation, depletion .......              8               4               3               2
   and accretion ................          99,67        1,018,26          142,30        1,438,16
  Amortization ..................        154,785         244,048         318,145         289,656
                                    ------------    ------------    ------------    ------------

   TOTAL OPERATING EXPENSES .....      1,179,043       7,307,075       2,563,447      14,468,908
                                    ------------    ------------    ------------    ------------

LOSS FROM OPERATIONS ............       (904,680)     (2,896,787)     (2,271,809)     (4,465,023)

OTHER INCOME (EXPENSE)
  Other income (expense), net ...        (33,810)            773          41,792           5,707
  Financing fees ................           --           (18,571)           --          (303,571)
  Interest expense ..............       (113,398)       (302,188)       (234,813)       (707,566)
                                    ------------    ------------    ------------    ------------
   TOTAL OTHER INCOME (EXPENSE) .       (147,208)       (319,986)       (193,021)     (1,005,430)

NET (LOSS) ......................     (1,051,888)     (3,216,773)     (2,464,830)     (5,470,453)
                                    ============    ============    ============    ============

PREFERRED STOCK DIVIDEND ........           --        10,828,553            --        10,828,553
                                    ------------    ------------    ------------    ------------

NET (LOSS) ATTRIBUTABLE TO COMMON
SHAREHOLDERS ....................     (1,051,888)    (14,045,326)     (2,464,830)    (16,299,006)
                                    ============    ============    ============    ============

BASIC AND DILUTED
NET (LOSS) PER COMMON SHARE .....   $      (0.03)   $      (0.32)   $      (0.07)   $      (0.38)
                                    ============    ============    ============    ============

WEIGHTED AVERAGE
COMMON SHARES ...................     36,932,235      44,290,216      36,374,276      42,797,449
                                    ============    ============    ============    ============
</TABLE>

            See Notes to Condensed Consolidated Financial Statements.


                                       4
<PAGE>


<TABLE>
                               NATIONAL COAL CORP.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
                                   (unaudited)

<CAPTION>
                                                                          EIGHT MONTHS     NINE MONTHS
                                                                              ENDED           ENDED
                                                                          SEPTEMBER 30,   SEPTEMBER 30,
                                                                          ------------    ------------
                                                                              2003            2004
                                                                          ------------    ------------
<S>                                                                       <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net (loss) ..........................................................   $ (2,464,830)   $ (5,470,453)
  Adjustments to reconcile net (loss) to net cash provided
   by operating activities
     Depreciation, depletion and accretion ............................        142,303       1,438,162
     Amortization .....................................................        318,145         289,656
     Issuance of common stock in lieu of interest payments ............           --           165,313
     Issuance of warrants for services ................................           --            48,760
     Non-cash compensation:
       Impairment of assets acquired from related party ...............        191,000            --
       Common stock issued in payment of accrued salary ...............           --           226,573
       Stock option expense ...........................................           --           677,531
       Common stock issued for outside services .......................        153,500            --
     Changes in operating assets and liabilities:
       Receivables ....................................................        (96,028)       (638,938)
       Inventory ......................................................        (98,018)       (149,861)
       Prepaid and other ..............................................        (47,293)         27,850
       Accounts payable and accrued liabilities .......................        307,181          43,943
       Deferred revenue ...............................................        195,601         (39,313)
                                                                          ------------    ------------
         Net cash flows (used in) operating activities ................     (1,398,440)     (3,380,777)
                                                                          ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Prepaid royalty .....................................................           --           (85,000)
  Proclamation bonds ..................................................       (257,500)     (1,033,600)
  Acquisition of coal and mineral rights ..............................     (1,307,917)           --
  Deposits ............................................................           --        (2,977,000)
  Property, plant and equipment (purchased) sold ......................       (425,462)     (7,126,883)
                                                                          ------------    ------------
     Net cash flows (used in) investing activities ....................     (1,990,879)    (11,222,483)
                                                                          ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Net Proceeds from issuance of common and preferred stock ............        287,500      13,194,650
  Proceeds from exercise of warrants ..................................           --            70,000
  Proceeds from / (payment) of related party debt .....................        430,000        (560,000)
  Proceeds from issuance / (payment) of debt, net .....................      3,318,717       7,725,000
  Proceeds from bank loans ............................................           --           652,587
  Repurchase and cancellation of common stock .........................        (21,072)           --
  Payments on capital leases ..........................................       (191,403)       (458,803)
  Loan acquisition costs ..............................................       (412,235)       (212,000)
                                                                          ------------    ------------
     Net cash flows provided by (used in) financing activities ........      3,411,506      20,411,433
                                                                          ------------    ------------

NET INCREASE IN CASH ..................................................   $     22,187    $  5,808,173

CASH AND EQUIVALENTS BEGINNING OF PERIOD...............................           --               883
                                                                          ------------    ------------
CASH AND EQUIVALENTS END OF PERIOD ....................................   $     22,187    $  5,809,056
                                                                          ============    ============

SUPPLEMENTAL DISCLOSURES
  Interest paid in cash ...............................................        217,569         432,442
   Non-cash investing and financing transactions:
       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
       Constructive dividend attributable to preferred shareholders ...           --        10,762,676
       Net liabilities of Southern Group International, Inc. at the
          date of reverse merger ......................................         14,012            --
       Equipment acquired with capital lease obligations ..............        775,916            --
   Assumption of promissory notes from Strata Coal, LLC:
       Charged to operations ..........................................        191,000            --
       Partial payment of mining equipment ............................         23,000            --
</TABLE>

            See Notes to 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 generally accepted  accounting  principles
in the United States 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 generally  accepted  accounting
principles  in  the  United  States  for  complete  financial  statements.   The
accompanying  unaudited condensed  consolidated financial statements reflect all
adjustments that, in the opinion of management,  are considered  necessary for a
fair  presentation of the financial  position,  results of operations,  and cash
flows for the periods presented.  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 subsidiary (the "Company") included in the Company's Form
10-KSB for the fiscal year ended  December 31, 2003 and interim  unaudited  2004
financial statements previously filed on Form 10-QSB.

         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.  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, the Company evaluates
its  estimates,  including  those  related to  reserves  for bad debts and those
related to the possible  impairment of long-lived  assets. The Company bases its
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 use of
estimates,  however,  is quite  limited,  as it has adequate time to process and
record actual results from operations.

         During the three months ended March 31, 2003, National Coal Corp. was a
"blank check" company,  which is a company that has no specific business plan or
purpose  or has  indicated  that its  business  plan is to engage in a merger or
acquisition  with an  unidentified  company  or  companies.  On April 30,  2003,
National Coal Corp. consummated a reorganization in which all of the outstanding
shares of National Coal Corporation,  a Tennessee  corporation formed in January
2003,  were  exchanged  for  34,200,000  shares of common stock of National Coal
Corp. As a result of the  reorganization  of the group and the  commencement  of
operating  activities,  the results for the eight  month  period from  inception
(January 30, 2003) through  September  30, 2003 are not  comparable to those for
the nine month period ended September 30, 2004.

         The  Company  engages  principally  in the  business  of mining coal in
Eastern  Tennessee.  The Company owns the coal  mineral  rights to the New River
Tract assemblage,  which consists of approximately  sixty-five thousand (65,000)
acres,  and  leases  another   approximately  ten  thousand  (10,000)  acres  on
contiguous  properties,  all  of  which  lie in  Anderson,  Campbell  and  Scott
Counties, approximately twenty-five miles northwest of Knoxville, Tennessee. The
mineral  rights to the New River  Tract  assemblage  revert  back to the surface
owner on June 5, 2093. At September 30, 2004,  the Company was  extracting  coal
from a surface mine in Devonia,  Tennessee  (Patterson  Mountain),  and two deep
mines,  commonly  referred to as "mine #9" and "mine #1",  near Smoky  Junction,
Tennessee. The Company commenced mining coal from mine #9 in April 2004 and mine
#1 in August 2004.


                                       6
<PAGE>


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


         The Company's  financial  statements  have been  presented on the basis
that it is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.  From inception to
date, the Company has incurred  significant  outstanding current obligations and
has  incurred  substantial  net  losses.  This  factor,  among  others,   raises
substantial doubt as to the Company's ability to continue as a going concern.

2.       NOTES PAYABLE

         In March 2003,  the Company issued  convertible  notes in the principal
amount of  $3,194,902 to an unrelated  party (the  "Convertible  Notes").  These
notes and related accrued  interest are  convertible  into common stock at $0.50
per share. In addition,  the note holder received  two-year warrants to purchase
1,597,250  shares of common  stock at $0.55 per share.  In September  2003,  the
Company borrowed  $75,000 and $195,315 from the same entity.  These two notes do
not have a conversion  feature.  All of the notes payable accrue simple interest
at an annual rate of 12%,  matured in March 2004, and have terms that require an
earlier payoff in the event of a successful equity or debt capital financing. In
February 2004, Crestview Capital Master, LLC ("Crestview"), an entity controlled
by Crestview  Capital Funds,  directly  purchased these four  outstanding  notes
payable, in the aggregate principal amount of $3,465,200,  plus accrued,  unpaid
interest.  Concurrent with the purchase of this debt, Crestview agreed to extend
the maturity date on all four notes to March 25, 2005. The interest rate remains
at 12%  per  annum.  The  Convertible  Notes  have  been  modified  to  preclude
conversion if the issuance of common stock upon conversion would cause Crestview
to own more  that  9.99% of the then  outstanding  equity  in the  Company  when
computed in accordance  with Section 13(d) of the Securities and Exchange Act of
1934. Crestview also purchased the warrants from the debt holder, which had been
concurrently  issued with the two convertible  notes.  In April 2004,  Crestview
converted  $500,000 of Convertible  Notes into 1,000,000 shares of common stock.
As of September 30, 2004, an aggregate of $2,965,217 remained  outstanding under
the four notes, exclusive of accrued interest.

         In April and May 2004,  the Company sold one-year  promissory  notes in
the  aggregate  principal  amount of $7.5  million  (the  "Secured  Notes")  and
three-year  warrants to purchase up to an aggregate  of 2,500,000  shares of its
common stock at an exercise price of $1.00 per share.  The interest rate for the
first three  months is 12%, 15% for the second three months and is capped at 18%
thereafter,  and is payable  quarterly.  The Company  sold these  securities  to
institutional  investors and individual accredited  investors,  with the largest
investor being Crestview Capital Master, LLC, for an aggregate purchase price to
the Company of $7.5 million.  The Company paid a placement agent and expensed in
the second  quarter 2004  $285,000 and  warrants to purchase  150,000  shares of
common  stock with an  exercise  price of $1.00 per share as  consideration  for
services in this  transaction.  These notes mature on the first  anniversary  of
issuance and are secured by all coal mining assets. This indebtedness was repaid
in full in August and September, 2004.

         In September  2004,  the Company  repaid to a related party $150,000 of
principal indebtedness and $3,300 of accrued interest.

         On August 31, 2004, the Company sold  convertible  promissory  notes in
the aggregate  principal amount of $3,000,000 to Crestview and SDS Capital Group
SPC, Ltd. Prior to maturity,  the convertible  promissory notes may be converted
into units  consisting  of our 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 2,000  shares of common  stock at an exercise  price of $2.10 per
share. The convertible  promissory notes bear interest at a rate of 8% per annum
and have a term of nine months. The holders of the convertible  promissory notes
also  received the right to purchase  additional  units of Series A  convertible
preferred


                                       7
<PAGE>


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


stock and common stock purchase warrants. Each of these holders can 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.  The
holders of convertible promissory notes may exercise this purchase right only if
they convert their promissory note in full.

         On August 31, 2004, the closing price of the Company's  common stock on
the NASDAQ  Over-the-Counter  Bulletin Board was $2.35. Since this closing price
exceeded the $1.50  conversion  price of the convertible  promissory  notes, and
exceeded the $2.10 exercise price for the warrants to be issued upon  conversion
of the notes, the Company  recognized  $220,493 of amortization  expense for the
quarter ended  September 30, 2004 pursuant to the  calculation of the beneficial
conversion  value for both the  issuance of the debt and the  attached  warrants
below market prices. The $1,700,000 beneficial conversion value for the debt was
calculated  based on the number of common shares issuable upon conversion of the
Series A preferred stock issuable upon conversion of the principal amount of the
debt,  multiplied by the difference  between the conversion price and the market
price for the common stock,  or $0.85,  and will be amortized on a straight line
basis over the nine-month term of the notes. The $284,433 beneficial  conversion
value of the warrants was calculated  using a Black-Scholes  pricing model and a
risk-free rate of 3.5%,  stock price volatility of 48%, and will be amortized on
a straight line basis over the nine-month term of the notes.

3.       EQUITY TRANSACTIONS

AUGUST FINANCING TRANSACTIONS

         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 our senior secured promissory notes. Dividends on the preferred stock
initially  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,  commencing  on December  31, 2004.  Each share of
Series A convertible preferred stock is convertible into 10,000 shares of common
stock.  For each share of Series A convertible  preferred  stock,  the investors
also were issued  two-year  warrants to purchase 2,000 shares of common stock at
an exercise price of $2.10 per share.

         On August 31, 2004, the closing price of the Company's  common stock on
the NASDAQ  Over-the-Counter  Bulletin Board was $2.35. Since this closing price
exceeded  the  $1.50  conversion  price of the  Series A  preferred  stock,  and
exceeded the $2.10  exercise  price for the warrants,  the Company  recognized a
one-time constructive dividend of $10,762,676 pursuant to the calculation of the
beneficial conversion value for both the issuance of the preferred stock and the
attached  warrants with  conversion  prices below the market price of the common
stock.  The beneficial  conversion  value of the warrants was calculated using a
Black-Scholes  pricing  model  and a  risk-free  rate of 3.5%  and  stock  price
volatility of 48%.

         Investors  who paid  cash  consideration  in the  Series A  convertible
preferred stock financing also received the right to purchase  additional  units
consisting of our Series A convertible preferred stock and common stock purchase
warrants.  Each of these investors can 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  consists of one share of
Series A  convertible  preferred  stock and two-year  warrants to purchase up to
2,000  shares of common  stock at an  exercise  price of $2.10  per  share.  The


                                       8
<PAGE>


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


purchase  rights  must be  exercised  no later than ninety  days  following  the
effective  date of a  registration  statement  filed to register  such shares of
underlying common stock.

ISSUANCE OF WARRANTS FOR SERVICES

         In July 2004,  the  Company  issued  3-year  warrants to purchase up to
35,000 shares of common stock,  with an exercise price per share of $1.18, to an
outside  consultant  as partial  consideration  for business  advisory  services
rendered to the Company  during the third quarter 2004. The Company valued these
warrants using a Black-Scholes  pricing model and a risk-free rate of 3.50%, and
recognized $12,044 of non-cash expense in the three month period ended September
30, 2004.

4.       RELATED PARTY TRANSACTIONS

         In September  2004, the Company repaid $150,000 of principal and $3,300
of accrued and unpaid  interest to the former Chairman and current board member.
This debt was outstanding since February 2003.

5.       EVENTS SUBSEQUENT TO SEPTEMBER 30, 2004

         On October 26, 2004, the Company's Tennessee subsidiary,  National Coal
Corporation,  entered  into a Coal Supply  Agreement  with East  Kentucky  Power
Cooperative,  Incorporated  ("EKP").  The Agreement  provides that National Coal
Corporation  will sell,  and EKP will  purchase,  a specified  amount of coal at
fixed prices over the four year term of the Agreement.

         On October 26, 2004, the Company's Tennessee subsidiary,  National Coal
Corporation,  completed  the  purchase  of certain  assets of Robert  Clear Coal
Corporation.  Pursuant to the terms of an Asset  Purchase  Agreement with Robert
Clear dated October 26, 2004, which superseded an Asset Purchase  Agreement with
Robert Clear dated September 1, 2004,  National Coal acquired  mining  equipment
and the mining  rights and  permits  on 7,000  acres of land  located in the Elk
Valley  area of Eastern  Tennessee,  for  approximately  $5.5  million  plus the
assumption of certain  current  liabilities  of Robert Clear.  National Coal has
also replaced  approximately $3.9 million of the seller's  reclamation and other
bonds for the property.  This transaction will be recorded in the fourth quarter
2004.

         In October  2004,  the Company  entered  into a  non-binding  letter of
intent with Appalachian  Fuels,  LLC to purchase coal mining rights,  leases and
permits on 40,000 acres located on the Straight Creek and Pine Mountain mines in
the South Eastern portion of Kentucky.  If the  transaction is consummated,  the
Company anticipates replacing $6.5 million of the seller's reclamation and other
bonds and acquiring all leases,  permits and mining equipment for  approximately
$12.5 million, plus the assumption of some current liabilities.

         Subsequent to September 30, 2004, the Company issued  3,026,495  shares
of common stock upon the exercise of warrants, of which 1,297,578 were issued in
cashless transactions,  and 1,728,917 were issued for total cash proceeds to the
Company of $990,821.

         In October  2004,  Crestview  converted  the  remaining  $2,694,902  of
Convertible Notes into 5,389,804 shares of common stock.

         In October  2004,  the Company's  board of directors  and  shareholders
holding  the  requisite  number of voting  securities,  approved  the  following
actions,  which are expected to take effect in the fourth quarter of 2004 or the
first quarter of 2005:

         o        a 1-for-4  reverse  stock  split of the  Company's  issued and
                  outstanding common stock;

         o        an  amendment  to the Company 2004 Option Plan to increase the
                  number of shares  available  for issuance  under the plan from
                  6,000,000 to 11,000,000  (before  giving effect to the reverse
                  split); and


                                       9
<PAGE>


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


         o        an amendment to the  Company's  articles of  incorporation  to
                  provide  that any action  required or permitted to be taken at
                  any annual or special  meeting  of  shareholders  may be taken
                  only upon the vote of the shareholders at an annual or special
                  meeting,  and may  not be  taken  by  written  consent  of the
                  shareholders;  the Board of Directors  of National  Coal shall
                  consist  of not less than one (1) nor more than  fifteen  (15)
                  members,  the exact  number of directors to be fixed from time
                  to time by resolution of the Board of Directors.

         In November  2004,  the Company filed with the  Securities and Exchange
Commission,  a registration statement on Form SB-2 to register the resale by the
selling  stockholders  identified  therein, an aggregate of 71,961,883 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,  Series  A  convertible  preferred  stock  and  convertible
promissory notes.


                                       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, 2003 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 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 AND NINE MONTHS ENDED  SEPTEMBER 30, 2004,
THE THREE  MONTHS  ENDED  SEPTEMBER  30,  2003,  AND THE PERIOD  FROM  INCEPTION
(JANUARY 30, 2003) TO SEPTEMBER 30, 2003. 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

         National Coal Corp. engages  principally in the business of mining coal
in Eastern  Tennessee.  We own the coal  mineral  rights to the New River  Tract
assemblage,  which consists of approximately sixty-five thousand (65,000) acres,
and lease  another  approximately  ten  thousand  (10,000)  acres on  contiguous
properties,  all  of  which  lie  in  Anderson,  Campbell  and  Scott  Counties,
approximately  twenty-five miles northwest of Knoxville,  Tennessee. The mineral
rights to the New River Tract  assemblage  revert  back to the surface  owner on
June 5, 2093. At September 30, 2004, we were extracting coal from a surface mine
in  Devonia,  Tennessee  (Patterson  Mountain),  and two  deep  mines,  commonly
referred  to as "mine #9" and "mine #1",  near  Smoky  Junction,  Tennessee.  We
commenced mining coal from mine #9 in April 2004 and mine #1 in August 2004.

         We  engage  in  coal  production  by  locating,  assembling,   leasing,
assessing, permitting and developing coal properties in Eastern Tennessee. After
obtaining permits from the U.S.  Department of the Interior,  we mine properties
for the extraction of coal minerals. We then sell the coal on a per ton basis at
previously negotiated rates, primarily to state run utility companies. We obtain
reclamation  bonds for each of our producing  properties.  These bonds typically
take the form of cash deposits with the U.S. Department of the Interior,  Office
of Surface Mining,  or OSM. At September 30, 2004,  $257,500 was on deposit with
OSM for reclamation bonds related to our Patterson  Mountain mining  operations.
In  addition,  we  have  approximately  $1.033  million  of cash  invested  in a
certificate of deposit,  against which an  irrevocable  bank letter of credit is
written  in favor of OSM for the  reclamation  bonds  related to our mine #9 and
mine #1 operations and other mining permits acquired from U.S. Coal, Inc.

         We typically sell our coal at a negotiated price pursuant to contracts.
The price charged is typically  for a specified  tonnage  amount.  We also price
sales on a one-day or one-shipment  tonnage amount.  The price per ton for these
types of sales typically  fluctuates in direct  correlation to the price per ton
of coal  quoted on the New York  Mercantile  Exchange,  referred to as the "spot
price."  We intend  to reduce  the  price  volatility  for our coal by  entering
long-term supply  contracts  (contracts in excess of one year) for a majority of
our coal production,  which generally will provide us a fixed price for our coal
over the term of the  contract.  We will continue to use the spot market to sell
surplus coal produced above our long-term contract commitments.


                                       11
<PAGE>


         We also sell coal that we purchase from third party coal producers on a
case by case basis. We only enter into these transactions when the price per ton
paid to these third party  producers  is below the price per ton at which we are
able to sell the coal,  usually from short term  contracts.  Additionally,  when
capacity is available,  we charge third party coal producers a negotiated  price
per ton for their use of our load-out facility located in Turley,  TN. This load
out facility allows easy,  direct access to load previously mined coal onto rail
cars for  shipment to their  customers.  This load out  facility was acquired in
April 2004 from U.S. Coal, Inc. We do not expect the sale of coal purchased from
third party producers or the rental to third parties of our load-out facility to
represent a material portion of our business in 2004 or beyond.

         The coal industry has been highly  competitive with very low margins in
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,  using  the  latest  clean  air  compliant  scrubber
technology,  to be price  competitive with natural gas fired plants.  We believe
this  has  and  will  continue  to  cause  increased  demand  for  coal  for the
foreseeable  future,  resulting 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 intend to sign long term
contracts  with respect to a majority of our coal  production,  to fix the price
per ton we receive for our coal over a period of one or more years.

         We estimate our cost of commencing  mining  operations at a new mine is
approximately $500,000 to $750,000,  including the cost of reclamation bonds. We
do not generate  sufficient cash from  operations to fund new mine  development,
and our expansion into new mines  therefore  depends on our ability to raise the
required  funds  through  debt or equity  offering.  If we are not able to raise
additional  financing or if such financing is not available on acceptable terms,
we may be unable to expand  our  mining  operations  beyond  current  production
levels.

         Our  historical  operations  prior to April 30, 2003  discussed in this
section  reflect only the operations of National Coal  Corporation,  a Tennessee
corporation.  Prior to April 30, 2003,  National Coal Corp.,  formerly  known as
Southern  Group  International,  Inc., was a "blank check"  company,  which is a
company that has no specific  business plan or purpose or has indicated that its
business  plan is to  engage  in a merger or  acquisition  with an  unidentified
company or  companies.  On April 30, 2003,  National  Coal Corp.  consummated  a
reorganization  in  which  all  of  the  outstanding  shares  of  National  Coal
Corporation,   a  privately-held  Tennessee  corporation,   were  exchanged  for
34,200,000 shares of National Coal Corp. National Coal Corporation was formed in
January 2003,  and from  inception  through  September  30, 2003,  National Coal
Corporation was in the development stage with no operating  revenue.  During the
third quarter of 2003, we commenced coal mining operations and, accordingly, are
no longer in the  development  stage. As a result of the  reorganization  of the
group and the  commencement of operating  activities,  our results for the eight
months  from  inception  (January  30,  2003)  to  September  30,  2003  are not
comparable to those for the nine months ended September 30, 2004.

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. 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,   reclamation
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


                                       12
<PAGE>


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. Our use of estimates, however, is limited, as we have
adequate time to process and record actual results from operations.

         We  believe  our most  critical  accounting  policies  include  revenue
recognition, the corresponding accounts receivable and the methods of estimating
depletion  and  accretion  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.

         REVENUE  RECOGNITION.  Under SEC Staff  Accounting  Bulletin  No.  104,
"Revenue Recognition in Financial  Statements," 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.

                  MINED COAL. 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.

                  COAL  ROYALTIES.  We recognize  coal  royalty  revenues on the
basis of tons of coal mined by our lessees. We had one source of royalty revenue
pursuant to our agreement  with Jenco  Capital  Corporation.  We recognized  the
final  remaining  royalties  pursuant to our agreement  with Jenco in the second
calendar  quarter of 2004 and don't  anticipate any future royalty  transactions
for the foreseeable future.

         ACCOUNTS  RECEIVABLE.  Accounts  receivable balances are evaluated on a
continual  basis and  allowances  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  are charged to operations in
the period in which the facts that give rise to the adjustments become known.

         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 when we post a predetermined amount of reclamation bonds prior to
commencing  mining  operations.  The Office of  Surface  Mining's  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 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 US 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 state authorities,
additional costs resulting from accelerated


                                       13
<PAGE>


mine closures, and revisions to cost estimates and productivity assumptions,  to
reflect  current  experience.  At  September  30, 2004,  we had  recorded  asset
retirement obligation liabilities of approximately  $678,000.  While the precise
amount  of these  future  costs  cannot  be  determined  with  certainty,  as of
September 30, 2004, we estimate  that the aggregate  undiscounted  cost of final
mine closure is approximately $700,000.

         RESERVES.   We  do  not  disclose  coal  "reserves"  in  our  financial
statements.  "Reserves," to be so classified,  must (i) be based upon reasonably
accurate  scientific  data  and  professional  analysis,   (ii)  be  recoverable
(economically  and  physically),  (iii)  have a  permitted  and  operating  mine
facility at the coal location, and (iv) be subject to current sales. We have not
satisfied all of these  requirements with respect to our coal mineral rights. To
record coal reserves,  in addition to the other  requirements,  we would have to
engage a geologist to render a professional  report  indicating the  recoverable
tonnage on the portions of our property  which are permitted and being  actively
mined.

RECENT ACCOUNTING PRONOUNCEMENTS

         In April 2003,  the  Financial  Accounting  Standards  Board,  or FASB,
issued SFAS No. 149,  "Amendment of Statement No. 133 on Derivative  Instruments
and Hedging  Activities." SFAS No. 149 amends and clarifies financial accounting
and  reporting  for  derivative   instruments,   including  certain   derivative
instruments  embedded  in other  contracts.  SFAS No. 149  clarifies  under what
circumstances a contract with an initial net investment meets the characteristic
of a derivative,  clarifies  when a derivative  contains a financing  component,
amends the  definition  of an  underlying to conform it to language used in FASB
Interpretation,   or  FIN,   No.   45,  and  amends   certain   other   existing
pronouncements. SFAS No. 149 is effective for contracts entered into or modified
after June 30,  2003 and for  hedging  relationships  designated  after June 30,
2003. All provisions of the Statement, except those related to forward purchases
or sales of "when-issued" securities, should be applied prospectively. We do not
currently have any  instruments  that meet the  definition of a derivative,  and
therefore,  the adoption of this Statement has had no effect on our consolidated
financial position or results of operations.

         In June 2003, the FASB approved SFAS No. 150,  "Accounting  for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 establishes  standards for how an issuer classifies and measures certain
financial  instruments with characteristics of both liabilities and equity. This
Statement is effective for financial  instruments entered into or modified after
May 31, 2003,  and  otherwise is effective at the beginning of the first interim
period  beginning after June 15, 2003. The adoption of SFAS No. 150 did not have
a material impact on our financial position or results of operations.

         In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest  Entities,  an  Interpretation  of ARB No. 51." FIN 46 requires certain
variable interest entities to be consolidated by the primary  beneficiary of the
entity, if the equity investors in the entity do not have the characteristics of
a controlling  financial  interest or do not have sufficient  equity at risk for
the entity to finance its activities without additional  subordinated  financial
support from other parties.  In December 2003, the FASB issued FIN 46-R (revised
December 2003), "Consolidation of Variable Interest Entities" to address certain
FIN 46 implementation  issues.  The effective dates and impact of FIN 46 and FIN
46-R are as follows:

         o        Special-purpose  entities,  or SPEs, created prior to February
                  1, 2003.  We must apply  either  the  provisions  of FIN 46 or
                  early adopt the provisions of FIN 46-R at the end of the first
                  interim or annual  reporting  period ending after December 15,
                  2003.

         o        Non-SPEs created prior to February 1, 2003. We are required to
                  adopt  FIN  46-R at the end of the  first  interim  or  annual
                  reporting period ending after March 15, 2004.


                                       14
<PAGE>


         o        All entities, regardless of whether an SPE, created subsequent
                  to January 31, 2003. The provisions of FIN 46 were  applicable
                  for variable  interests in entities obtained after January 31,
                  2003.

         The  adoption  of the  provisions  applicable  to SPEs  and  all  other
variable  interests  obtained  after  January  31,  2003 did not have a material
impact our consolidated financial position,  consolidated results of operations,
or liquidity.  We believe that the adoption of FIN 46-R will not have a material
impact on our financial position or results of operations.

RESULTS OF OPERATIONS

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

                                                          EIGHT          NINE
                                                          MONTHS        MONTHS
                                                          ENDED         ENDED
                                                         SEP. 30,      SEP. 30,
                                                           2003          2004
                                                         -------       -------

Revenues .........................................           100 %         100 %
Operating expenses:
   Cost of sales and selling expenses ............         217.4          88.1
   General and administrative ....................         497.6          37.0
   Exploration costs .............................           6.1           2.3
   Depreciation, depletion and accretion .........          48.8          14.4
   Amortization ..................................         109.1           2.9
                                                         -------       -------
     Total operating expenses ....................         878.9         144.7
                                                         -------       -------
Loss from operations .............................        (778.9)        (44.7)
                                                         -------       -------
Other income (expense):
   Gain on sale of marketable securities .........          --            --
   Other income (expense), net ...................          14.3          --
   Financing fees ................................          --            (3.0)
   Interest expense ..............................         (80.5)         (7.7)
                                                         -------       -------
Net loss .........................................        (845.2)%       (55.4)%
                                                         =======       =======

     COMPARISON  OF NINE MONTHS ENDED  SEPTEMBER 30, 2004 AND EIGHT MONTHS ENDED
SEPTEMBER 30, 2003

         REVENUES

                                  EIGHT MONTHS       NINE MONTHS
                                      ENDED              ENDED
                                  SEPTEMBER 30,      SEPTEMBER 30,      PERCENT
                                       2003              2004           CHANGE
                                  ------------       ------------       -------

Coal sales .................      $   205,713        $ 9,873,935            *
Royalties receipts .........           85,925            103,403          20.3%
Other revenue ..............             --               26,547            --
                                  -----------        -----------            --
   Total revenues ..........      $   291,638        $10,003,885            *
----------
* Not meaningful


                                       15
<PAGE>


         We  experienced  relatively  flat coal sales for the three month period
ended September 30, 2004 compared to the three month period ended June 30, 2004.
For  the  three  months  ended  September  30,  2004,  we had a total  of  seven
customers,  two of which  accounted for  approximately  62% of our sales.  These
sales were made  pursuant  to short term  contracts  to  deliver  each  customer
100,000 tons of coal during a one-year period. The royalty receipts for the nine
months ended  September 30, 2004 were the result of the  recognition of deferred
revenue  relating  to our sale in August  2003 for  $250,000  of royalty  rights
relating  to coal mined on the Smoky  Mountain  portion  of our New River  Tract
property.  We will not  recognize  any more  royalty  revenue  pursuant  to this
transaction.

         OPERATING EXPENSES

              COST OF SALES AND SELLING EXPENSES

                                      EIGHT MONTHS       NINE MONTHS
                                          ENDED             ENDED
                                      SEPTEMBER 30,     SEPTEMBER 30,    PERCENT
                                           2003             2004         CHANGE
                                      ------------      ------------     -------

Cost of sales and
   selling expenses..........         $     633,988     $  8,815,357        *
----------
* Not meaningful

         There were no cost of sales and  selling  expenses  prior to the second
quarter 2003. For the nine-month period ended September 30, 2004, these expenses
consisted  primarily  of  salary,  benefits  and other  compensation  costs paid
directly to miners of approximately  $2,241,000,  and direct costs paid to third
party  vendors  whose goods and services  were  directly  used in the process of
producing coal inventory, which included coal purchases of $1,638,000, equipment
leases and maintenance expenses of $962,600, blasting expenses of $260,900, fuel
costs of  $470,100,  parts  and  supplies  of  $709,700,  and  hauling  costs of
$712,100. For the eight months ended September 30, 2003, our total cost of sales
and  selling  expenses  consisted  primarily  of  salary,   benefits  and  other
compensation  costs  paid  directly  to  miners  who were  preparing  a mine for
production which commenced in July 2003.

              GENERAL AND ADMINISTRATIVE EXPENSES

                                      EIGHT MONTHS       NINE MONTHS
                                          ENDED             ENDED
                                      SEPTEMBER 30,     SEPTEMBER 30,    PERCENT
                                           2003             2004         CHANGE
                                      ------------      ------------     -------

General and administrative
   expenses....................      $   1,451,233     $   3,698,657      154.9%

         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 2004 period is primarily attributable to an increase in salary, benefits and
related  expenses of  $1,542,200,  partially  offset by a decrease in consulting
fees of $476,600.  This occurred as we  transitioned  from our initial  start-up
phase in the eight month period ended  September 30, 2003,  during which we used
consultants,   to  on-going   operations   conducted   by   employees  in  2004.
Additionally,  legal and other professional fees increased $247,900 from $28,600
for the eight  months ended  September  30, 2003 to $276,500 for the nine months
ended September 30, 2004.


                                       16
<PAGE>


         EXPLORATION COSTS

                                      EIGHT MONTHS       NINE MONTHS
                                          ENDED             ENDED
                                      SEPTEMBER 30,     SEPTEMBER 30,    PERCENT
                                           2003             2004         CHANGE
                                      ------------      ------------     -------

Exploration costs..............      $      17,779     $     227,077        *
----------
* Not meaningful

         For the nine  month  period  ended  September  30,  2004,  we  incurred
exploration  and  development  costs of $227,077  for fees paid to  professional
geological and  exploration  experts.  For the eight months ended  September 30,
2003, we had nominal exploration and development expenses of $17,779.

         DEPRECIATION, DEPLETION AND ACCRETION EXPENSE

                                      EIGHT MONTHS       NINE MONTHS
                                          ENDED             ENDED
                                      SEPTEMBER 30,     SEPTEMBER 30,    PERCENT
                                           2003             2004         CHANGE
                                      ------------      ------------     -------

Depreciation, depletion and
    accretion expense..........      $     142,203     $   1,438,162       911%

         The  increase  in  depreciation,  depletion  and  accretion  expense is
primarily  attributable  to the  acquisition  of  fixed  assets,  as well as the
recognition of estimated  depletion  expenses and accretion  expenses related to
our coal mining activities and reclamation liabilities.

         AMORTIZATION EXPENSE

                                      EIGHT MONTHS       NINE MONTHS
                                          ENDED             ENDED
                                      SEPTEMBER 30,     SEPTEMBER 30,    PERCENT
                                           2003             2004         CHANGE
                                      ------------      ------------     -------

        Amortization expense...      $     318,145     $     289,656      (9.0)%

         The  decrease  in  amortization   expense  is  mainly  attributable  to
amortization  expense  related to financing  fees paid in  conjunction  with our
issuance of convertible  notes in March 2003 having been fully  amortized by the
end of the first  quarter  2004 offset by an  increase  of  $220,493  due to the
amortization of the beneficial  conversion feature of the principal and warrants
for the debt issued in August 2004.

         OTHER INCOME (EXPENSE)

                                      EIGHT MONTHS       NINE MONTHS
                                          ENDED             ENDED
                                      SEPTEMBER 30,     SEPTEMBER 30,    PERCENT
                                           2003             2004         CHANGE
                                      ------------      ------------     -------

Other income (expense), net....      $      41,792     $       5,707     (86.3)%
Financing fees.................               --            (303,571)       --
Interest expense...............           (234,813)         (707,566)      201%
                                     -------------     -------------
   Total other income (expense)           (193,021)    $  (1,005,430)      421%


                                       17
<PAGE>


         The decrease in other income (expense), net, is due to the gain on sale
of  securities  in the second  quarter of 2003,  which did not occur in the 2004
period. The incurrence of financing fees in the 2004 period is attributable to a
debt financing in the second quarter of 2004 and the capital raising transaction
completed  in the third  quarter  2004.  The  increase  in  interest  expense is
attributable  to  one  extra  month  of  interest  charge  and  an  increase  in
indebtedness during the 2004 period.

RELATED PARTY TRANSACTIONS

         In  September  2004,  we repaid  $150,000  of  principal  and $3,300 of
accrued and unpaid  interest to the former  Chairman and current  board  member.
This debt was outstanding since February 2003.

LIQUIDITY AND CAPITAL RESOURCES

         As of  September  30,  2004,  we  had  cash  and  cash  equivalents  of
approximately  $5,809,000.  As of September  30, 2004,  we had negative  working
capital  of  approximately  $949,000,  not  accounting  for  $1,763,940  of debt
discount pursuant to the beneficial  conversion feature of the convertible notes
issued in August 2004, and stockholders' equity of approximately $13,678,100. We
expect a  significant  use of cash  during the balance of fiscal 2004 and fiscal
2005 as we continue to expand our coal mining operations. We anticipate that our
current cash reserves plus cash we expect to generate  from  operations  will be
sufficient to fund our operational  expenditures for the next twelve months.  If
we acquire additional assets and/or mining operations,  however, we will require
additional equity or debt financing,  the amount and timing of which will depend
in large part on our spending program. For instance,  our pending acquisition of
coal mining rights,  leases and permits from Appalachian  Fuels, LLC is expected
to require approximately $19 million. 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  financing  will  be
available  when needed or that if available,  such  financing will include terms
favorable to our stockholders.  If such financing is not available when required
or is 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, 2004, we had a net increase in cash of
approximately  $5,808,000.  Cash flows from  operating,  financing and investing
activities  for the eight  months ended  September  30, 2003 and the nine months
ended September 30, 2004 are summarized in the following table:

                                                EIGHT MONTHS        NINE MONTHS
                                                    ENDED              ENDED
                                                SEPTEMBER 30,      SEPTEMBER 30,
ACTIVITY:                                           2003               2004
------------------------------------------      ------------       ------------

Operating activities .....................      $ (1,398,440)      $ (3,380,777)
Investing activities .....................        (1,990,879)       (11,222,483)
Financing activities .....................         3,411,506         20,411,433
                                                ------------       ------------
  Net increase (decrease) in cash ........      $     22,817       $  5,808,173


                                       18
<PAGE>


         The net cash used in operating activities of $3,380,777 during the nine
months  ended  September  30, 2004 was  primarily  the result of the net loss of
$5,470,453 and increases in receivables of $638,938,  inventory of $149,861, and
deferred  revenue of $39,313 as we increased coal production  during the period,
partially offset by an increase in accounts  payable and accrued  liabilities of
$43,943,  prepaid and other of $27,850 and non-cash expenses of $2,845,995.  The
non-cash expenses during the period included  $677,531 of non-cash  compensation
expense  related to the issuance of stock  options with an exercise  price below
the  closing  price of the  Company's  common  stock on the date of  grant,  and
$226,573 of non-cash  expense for the  issuance of common  stock and warrants in
consideration of interest payments and for accrued salary and services.

         The net cash used in  operating  activities  of  $1,398,440  during the
eight  months  ended  September  30,  2003  was  primarily  the  result  of  our
substantial operating costs exceeding revenues,  offset primarily by an increase
in accounts payable and accrued liabilities of $307,181 and non-cash expenses of
$804,948,  of which  $318,145  was  recognition  of  amortization  expense,  and
$191,000 was non-cash  impairment of acquired assets,  and $153,500 was non-cash
expense for the issuance of common stock for services.

         The  $11,222,483 of cash used in investing  activities  during the nine
months ended September 30, 2004 was due primarily to $7,126,883 for the purchase
of land,  mining assets and other  equipment and  vehicles,  primarily  from the
purchase from U.S. Coal,  Inc.,  $1,033,600  deposited with a bank as collateral
for  reclamation  bonds used for mine #9 and other mining  assets  acquired from
U.S. Coal, Inc. in April 2004,  $2,977,000 in deposits for mining  equipment and
potential land purchase,  and $85,000 of prepaid royalty in advance of royalties
to be paid on property  we lease and expect to mine within a few years.  For the
eight  months  ended  September  30,  2003, $1,990,879 of cash used in investing
activities  resulted  primarily from  $1,307,917 for the acquisition of coal and
mineral  rights,  and  $425,462 for the  acquisition  of mining  equipment,  and
$257,500  paid  to OSM for  reclamation  bonds  used  for  surface  mine #2 , in
September 2003.

         The net cash provided by financing activities of $20,441,433 during the
nine months ended  September  30, 2004 was  primarily  the result of  $7,725,000
raised from sales of debt securities, and $13,194,650 net amount raised from the
sale of common stock and Series A convertible  preferred stock, offset primarily
by $560,000 paid on related party debt and $458,803 paid on capital leases.  The
net cash provided by financing  activities of $3,441,506 during the eight months
ended  September 30, 2003 was  primarily  the result of  $4,036,217  raised from
sales of debt and equity securities.

        SALE OF PREFERRED STOCK AND WARRANTS

         On August 31,  2004,  we sold  $16,030,000  of Series A 5%  convertible
preferred  stock  and  common  stock  purchase  warrants  in  private  placement
financings  in separate  transactions.  We 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 our  senior  secured  promissory  notes.  Dividends  on the  preferred  stock
initially  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,  commencing  on December  31, 2004.  Each share of
Series A convertible preferred stock is convertible into 10,000 shares of common
stock.  For each share of Series A convertible  preferred  stock,  the investors
also were issued  two-year  warrants to purchase 2,000 shares of common stock at
an exercise price of $2.10 per share. For the three month period ended September
30, 2004, we recognized $65,877 of accrued and unpaid dividends.


                                       19
<PAGE>


         On August 31, 2004, the closing price of our common stock on the NASDAQ
Over-the-Counter Bulletin Board was $2.35. Since this closing price exceeded the
$1.50  conversion  price of the Series A preferred stock, and exceeded the $2.10
exercise price for the warrants,  we recognized a one-time constructive dividend
of $10,762,676  pursuant to the calculation of the beneficial  conversion  value
for both the  issuance of the  preferred  stock and the attached  warrants  with
conversion  prices below the market price of the common  stock.  The  beneficial
conversion  value of the warrants was calculated  using a Black-Scholes  pricing
model and a risk-free rate of 3.5% and stock volatility of 48%.

         SALE OF CONVERTIBLE PROMISSORY NOTES

         On August 31, 2004,  we issued  $3,000,000  of  convertible  promissory
notes to Crestview Capital Master LLC, an entity controlled by Crestview Capital
Funds and SDS  Capital  Group  SPC,  Ltd.  Prior to  maturity,  the  convertible
promissory  notes  may be  converted  into  units  consisting  of our  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 2,000 shares of common
stock at an exercise price of $2.10 per share.

         On August 31, 2004, the closing price of our common stock on the NASDAQ
Over-the-Counter Bulletin Board was $2.35. Since this closing price exceeded the
$1.50  conversion  price of the convertible  promissory  notes, and exceeded the
$2.10 exercise price for the warrants to be issued upon conversion of the notes,
we recognized  $220,493 of amortization  expense for the quarter ended September
30, 2004 pursuant to the calculation of the beneficial conversion value for both
the issuance of the debt and the attached  warrants  below  market  prices.  The
$1,700,000  beneficial conversion value for the debt was calculated based on the
number of common shares issuable upon conversion of the Series A preferred stock
issuable upon conversion of the principal amount of the debt,  multiplied by the
difference  between  the  conversion  price and the market  price for the common
stock,  or $0.85,  and will be  amortized  on a  straight  line  basis  over the
nine-month term of the notes.  The $284,433  beneficial  conversion value of the
warrants was calculated using a Black-Scholes pricing model and a risk-free rate
of 3.5%, stock volatility of 48%, and will be amortized on a straight line basis
over the nine-month term of the notes.

         CONTRACTUAL OBLIGATIONS

         The following  summarizes our contractual  obligations at September 30,
2004 and the effects such obligations are expected to have on liquidity and cash
flow in future periods:

<TABLE>
<CAPTION>
                                               PAYMENTS DUE BY PERIOD
                         ----------------------------------------------------------------
                                      LESS THAN 1      1-3          3-5          AFTER
                            TOTAL        YEAR         YEARS        YEARS        5 YEARS
----------------------   ----------   ----------   ----------   ----------   ------------
<S>                      <C>          <C>          <C>          <C>          <C>
Notes payable ........   $5,965,216   $5,965,216   $     --     $     --     $       --
Operating leases .....      127,000      127,000         --           --             --
Property leases ......         --           --           --           --             --
Employment obligations    1,799,000    1,709,000       90,000         --             --
                         ----------   ----------   ----------   ----------   ------------
  Total contractual
     obligations .....   $7,891,216   $7,801,216   $   90,000   $     --     $       --
                         ==========   ==========   ==========   ==========   ============
</TABLE>


                                       20
<PAGE>

         Our notes  payable at September  30, 2004  consisted  of the  following
(before  reduction  for  the  unamortized   beneficial  conversion  discount  of
$1,763,940 on the convertible notes):

                                                                   AMOUNT DUE AT
                                                                   SEPTEMBER 30,
PROMISSORY NOTES                                                        2004
--------------------------------------------------                 -------------

Convertible  notes  payable  dated March 24, 2003,
12% interest,  payable with accrued  interest upon
the  earlier of March 25,  2005 and the closing of
certain    financing,    merger   or   disposition
activities........................................                   $ 2,694,902

Note  payable  dated   September  25,  2003,   12%
interest,  payable with accrued  interest upon the
earlier  of  March  25,  2005 and the  closing  of
certain    financing,    merger   or   disposition
activities........................................                        75,000

Note  payable  dated   September  30,  2003,   12%
interest,  payable with accrued  interest upon the
earlier  of  March  25,  2005 and the  closing  of
certain    financing,    merger   or   disposition
activities........................................                       195,314

Notes payable to Crestview  Capital Master LLC and
SDS Capital Group SPC, Ltd.  dated August 31, 2004
(with respect to 3,000,000 of  indebtedness).  The
interest rate is 8% per annum.  These notes mature
on May 31, 2005...................................                     3,000,000
                                                                     -----------

     Total........................................                   $ 5,965,216
                                                                     ===========

         We rent mining equipment  pursuant to operating lease  agreements,  and
made lease payments  totaling  $227,485  during the three months ended September
30, 2004.

         In  September  2004,  we  purchased  an office  building in  Knoxville,
Tennessee, for $690,000, which is the new location of our corporate operations.

         In October 2004,  Crestview Capital Master, LLC converted the remaining
$2,694,902 of Convertible Notes into 5,389,804 shares of common stock (SEE CHART
ABOVE).

OFF-BALANCE SHEET ARRANGEMENTS

         At September 30, 2004 and 2003, we did not have any relationships  with
unconsolidated  entities  or  financial  partnerships,  such as  entities  often
referred to as structured finance 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.


                                       21
<PAGE>


                          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.

THERE IS NO ASSURANCE 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 first  nine  months of 2004 were  approximately
$9,873,935.  There is no assurance that we can achieve greater sales or maintain
profitable sales. We expect that many coal producers could produce and sell coal
at cheaper 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.  Our probable  inability  to diversify  our
activities  into  more  that 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.


                                       22
<PAGE>


         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
entitled  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.

THERE IS NO ASSURANCE THAT WE WILL FIND  PURCHASERS OF OUR PRODUCT AT PROFITABLE
PRICES.

         If we are unable to  achieve  supply  contracts,  or are unable to find
buyers  willing to purchase  our coal at  profitable  prices,  our  revenues and
operating profits could suffer.

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.

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


                                       23
<PAGE>


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.  As of September 30, 2004,
we leased no acres 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.


                                       24
<PAGE>


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.  As of September  30, 2004,  we had $257,500 in cash
deposited  with the  Department  of the  Interior  for  post-mining  reclamation
pursuant  to one mining  permit  for our  surface  mine #2,  and we have  $1.034
million of cash  invested in  certificates  of deposit,  against which letter of
credits are written in favor of the U.S.  Department of the Interior,  Office of
Surface  Mining,  or OSM, for the  reclamation  bonds related to our mine #9 and
other and mines and mining assets  acquired  from U.S.  Coal,  Inc.  Reclamation
bonds are  typically  renewable on a yearly  basis,  if they are not posted with
cash. 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;

         o        restrictions on the availability of collateral for current and
                  future  third-party  bond  issuers  under  the  terms  of  our
                  indenture or new credit facility; and

         o        the  exercise by  third-party  bond  issuers of their right to
                  refuse to renew the bonds.

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.

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 may not be
highly  creditworthy.  If deterioration of the  creditworthiness of customers or
trading counterparties occurs, our business could be adversely affected.


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<PAGE>


                        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
Over-the-Counter  Bulletin  Board,  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.

THE SALE OF OUR  COMMON  STOCK ON THE  OVER-THE-COUNTER  BULLETIN  BOARD AND THE
POTENTIAL  DESIGNATION  OF OUR COMMON STOCK AS A "PENNY  STOCK" COULD IMPACT THE
TRADING MARKET FOR OUR COMMON STOCK.

         Our securities,  as traded on the Over-the-Counter Bulletin Board, will
be subject to Securities and Exchange Commission rules that impose special sales
practice  requirements upon  broker-dealers  who sell such securities to persons
other than established  customers or accredited  investors.  For purposes of the
rule, the phrase  "accredited  investors" means, in general terms,  institutions
with assets in excess of $5,000,000, or individuals having a net worth in excess
of $1,000,000 or having an annual  income that exceeds  $200,000 (or that,  when
combined with a spouse's income, exceeds $300,000).  For transactions covered by
the rule, the broker-dealer  must make a special  suitability  determination for
the purchaser and receive the purchaser's  written  agreement to the transaction
prior  to  the  sale.   Consequently,   the  rule  may  affect  the  ability  of
broker-dealers  to sell our  securities  and  also may  affect  the  ability  of
purchasers to sell their securities in any market that might develop therefor.

         In  addition,  the  Securities  and Exchange  Commission  has adopted a
number of rules to regulate  "penny  stock." Such rules  include  Rules  3a51-1,
15g-1,  15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities
and Exchange Act of 1934,  as amended.  Because our  securities  may  constitute
"penny stock"  within the meaning of the rules,  the rules would apply to us and
to our  securities.  The rules may  further  affect the ability of owners of our
common stock to sell our securities in any market that might develop for them.

         Shareholders should be aware that, according to Securities and Exchange
Commission,  the  market  for penny  stocks has  suffered  in recent  years from
patterns of fraud and abuse. Such patterns include (i) control of the market for
the  security  by one or a few  broker-dealers  that are  often  related  to the
promoter or issuer; (ii) manipulation of prices through prearranged  matching of
purchases and sales and false and misleading press releases; (iii) "boiler room"
practices   involving   high-pressure   sales  tactics  and  unrealistic   price
projections  by  inexperienced  sales persons;  (iv)  excessive and  undisclosed
bid-ask  differentials  and  markups  by  selling  broker-dealers;  and  (v) the
wholesale dumping of the same securities by promoters and  broker-dealers  after
prices have been  manipulated to a desired level,  resulting in investor losses.
Our  management  is aware of the abuses that have occurred  historically  in the
penny stock market. Although we do not expect to be in a position to dictate the
behavior  of the market or of  broker-dealers  who  participate  in the  market,
management  will strive within the confines of practical  limitations to prevent
the described patterns from being established with respect to our securities.


                                       26
<PAGE>


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;

         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 would
likely 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


                                       27
<PAGE>


         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 October 31, 2004, our officers and directors and their affiliates
owned  approximately  44.7% 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.

ITEM 3.       CONTROLS AND PROCEDURES.

         We maintain disclosure controls and procedures,  which we have designed
to ensure that material  information  related to National Coal Corp.,  including
our  consolidated  subsidiary,  is disclosed in our public  filings on a regular
basis. In response to recent legislation and proposed  regulations,  we reviewed
our internal control  structure and our disclosure  controls and procedures.  We
believe our  pre-existing  disclosure  controls and  procedures  are adequate to
enable us to comply with our disclosure obligations.

         Members of the  company's  management,  including  our Chief  Executive
Officer and President, Jon Nix, and Chief Financial Officer, Robert Chmiel, have
evaluated  the  effectiveness  of the design  and  operation  of our  disclosure
controls and  procedures as of September 30, 2004, the end of the period covered
by this report.  Based upon that  evaluation,  Messrs.  Nix and Chmiel concluded
that our disclosure  controls and  procedures are effective in causing  material
information to be recorded, processed, summarized and reported by our management
on a timely  basis and to ensure that the quality and  timeliness  of our public
disclosures complies with our SEC disclosure obligations.

         There  were  no  significant  changes  in  our  internal  control  over
financial  reporting  or in other  factors that could  significantly  affect the
internal  control  over  financial  reporting  after the date of our most recent
evaluation.


                                       28
<PAGE>


                                     PART II

                                OTHER INFORMATION

ITEM 6.  EXHIBITS

         THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:

                  EXHIBIT
                  NUMBER   DESCRIPTION
                  -------  -----------

                  10.1     Asset Purchase Agreement by and between National Coal
                           Corporation and Robert Clear Coal Corporation,  dated
                           October 26, 2004. (1)

                  10.2     Coal Supply  Agreement by and between  National  Coal
                           Corporation  and  East  Kentucky  Power  Cooperative,
                           Incorporated, dated October 6, 2004. Portions of this
                           exhibit have been  omitted  pursuant to a request for
                           confidential treatment and have been filed separately
                           with  the  United  States   Securities  and  Exchange
                           Commission.

                  10.3     Preferred Stock and Warrant Purchase Agreement by and
                           between National Coal Corp. and the persons listed on
                           Schedule I  thereto,  with  respect  to  Registrant's
                           Series A Cumulative  Convertible  Preferred Stock and
                           Warrants to Purchase  Common Stock,  dated August 31,
                           2004, including Form of Warrant. (1)

                  10.4     Investor  Rights  Agreement  by and between  National
                           Coal Corp.  and the  Purchasers  listed on Schedule I
                           thereto, dated August 31, 2004. (1)

                  10.5     Preferred Stock and Warrant Purchase Agreement by and
                           between   National  Coal  Corp.   and  CD  Investment
                           Partners, Ltd., with respect to Registrant's Series A
                           Cumulative  Convertible  Preferred Stock and Warrants
                           to Purchase Common Stock, dated August 31, 2004. (1)

                  10.6     Warrant,  dated August 31,  2004,  issued by National
                           Coal Corp. to CD Investment  Partners,  Ltd. pursuant
                           to the Preferred Stock and Warrant Purchase Agreement
                           by and between  National Coal Corp .and CD Investment
                           Partners, Ltd., with respect to Registrant's Series A
                           Cumulative  Convertible  Preferred Stock and Warrants
                           to Purchase Common Stock, dated August 31, 2004. (1)

                  10.7     Investor  Rights  Agreement  by and between  National
                           Coal Corp. and CD Investment  Partners,  Ltd.,  dated
                           August 31, 2004. (1)

                  10.8     Note Purchase  Agreement by and between National Coal
                           Corp.  and the persons  listed on Schedule I thereto,
                           with   respect   to   Registrant's   8%   Convertible
                           Promissory  Notes,  dated August 31, 2004,  including
                           Form of 8%  Convertible  Promissory  Note and Form of
                           Common Stock Purchase Warrant. (1)

                  10.9     Investor  Rights  Agreement  by and between  National
                           Coal Corp. and Crestview Capital Master,  LLC and SDS
                           Capital Group SPC, Ltd., dated August 31, 2004. (1)

                  10.10    Employment  Agreement  by and between  National  Coal
                           Corporation and Jon E. Nix, dated July 1, 2004. (1)

                  10.11    Employment  Agreement  by and between  National  Coal
                           Corporation  and Robert  Chmiel,  dated July 1, 2004.
                           (1)


                                       29
<PAGE>


                  31.1     Certificate of Chief  Executive  Officer  pursuant to
                           Rule 13a-14(a)  under the Securities and Exchange Act
                           of 1934, as amended. (1)

                  31.2     Certificate of Chief  Financial  Officer  pursuant to
                           Rule 13a-14(a)  under the Securities and Exchange Act
                           of 1934, as amended. (1)

                  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.
                           (1)

                  ----------
                  (1)      Filed as an  exhibit  to the  Company's  Registration
                           Statement on Form SB-2, filed November 1, 2004.


                                       30
<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 18, 2004                   /s/ Robert Chmiel
                                         ----------------------------
                                    By:        Robert Chmiel
                                    Its: Chief Financial Officer
                                         (Principal Financial and
                                         Accounting Officer)


                                       31