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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 March 31, 2005

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

     For the transition period from _________________ to _________________.

                         Commission file number 0-26509

                               NATIONAL COAL CORP.
        (Exact Name of Small Business Issuer as Specified in its Charter)

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

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

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

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

                             Yes [X]       No [_]

         As of May 10, 2005, the issuer had  13,726,403  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
         March 31, 2005........................................................3

         Condensed Consolidated Statements of Operations (unaudited)
         for the three months ended March 31, 2005 and March 31, 2004..........4

         Condensed Consolidated Statements of Cash Flows (unaudited)
         for the three months ended March 31, 2005 and March 31, 2004..........5

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

Item 2.  Management's Discussion and Analysis or Plan of Operation............10

Item 3.  Controls and Procedures..............................................28

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

Item 2.  Unregistered Sales of Securities and Use of Proceeds.................29

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


                                       2
<PAGE>


                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                               NATIONAL COAL CORP.
                           CONSOLIDATED BALANCE SHEET
                                   (UNAUDITED)

                                                                     MARCH 31,
                                                                       2005
                                                                   ------------
ASSETS
CURRENT ASSETS
   Cash and cash equivalents ..................................    $    779,393
   Accounts receivable ........................................       1,739,427
   Inventory ..................................................         183,664
   Prepaid and other ..........................................         244,300
                                                                   ------------
     TOTAL CURRENT ASSETS .....................................       2,946,784
                                                                   ------------

PROPERTY, PLANT AND EQUIPMENT
   Land .......................................................         784,290
   Mining equipment ...........................................      20,809,416
   Computer equipment and software ............................          93,070
   Vehicles and mobile equipment ..............................       3,344,017
   Buildings ..................................................       5,909,096
   Office equipment and furniture .............................          43,533
                                                                   ------------
                                                                     30,983,422
   Less:  accumulated depreciation ............................      (2,734,530)
                                                                   ------------
   TOTAL PROPERTY, PLANT AND EQUIPMENT, NET ...................      28,248,892
                                                                   ------------

   Coal and mineral rights, net of $164,203 accumulated
     amortization and depletion ...............................      13,883,025
   Certificates of deposit and reclamation bond ...............       4,526,600
   Loan acquisition costs, net of $108,678 accumulated
     amortization .............................................         763,883
   Prepaid royalty ............................................         543,864
   Deposits ...................................................          53,000
                                                                   ------------
   TOTAL ASSETS ...............................................    $ 50,966,048
                                                                   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Accounts payable and accrued expenses ......................    $  5,588,051
   Short term portion of capital lease obligations ............       2,137,421
   Accrued payroll and payroll taxes payable ..................         227,980
   Note payable, less debt discount of $574,463 ...............       4,563,263
   Current portion of bank loans - vehicles ...................         335,519
                                                                   ------------
     TOTAL CURRENT LIABILITIES ................................      12,852,234
                                                                   ------------

   Senior credit facility .....................................      16,400,000
   Long term portion of capital lease obligations .............       1,575,173
   Long term portion of bank loans - vehicles .................         117,230
   Asset retirement obligations ...............................       2,438,770
                                                                   ------------
     TOTAL LIABILITIES ........................................      33,383,407
                                                                   ------------

STOCKHOLDERS' EQUITY
   Series A convertible preferred stock, $.0001 par value;
     5% coupon; 1,611 shares authorized; 1,424.78 shares
     issued and outstanding ...................................            --
   Common stock, $.0001 per value; 80 million shares
     authorized; 13,690,385 shares issued and outstanding .....           1,330
   Additional paid-in capital .................................      33,534,365
   Accumulated deficit ........................................     (15,953,054)
                                                                   ------------
     TOTAL STOCKHOLDERS' EQUITY ...............................      17,582,641
                                                                   ------------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...............    $ 50,966,048
                                                                   ============


                                       3
<PAGE>


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

                                                   THREE MONTHS    THREE MONTHS
                                                       ENDED           ENDED
                                                     MARCH 31,       MARCH 31,
                                                       2004            2005
                                                   ------------    ------------

REVENUES
  Coal Sales ...................................   $    990,622    $ 12,584,404
  Royalty receipts .............................         74,281            --
                                                   ------------    ------------
   Total revenue ...............................      1,064,903      12,584,404
                                                   ------------    ------------

EXPENSES
  Cost of sales and selling expense ............        937,384      10,735,708
  General and administrative ...................        831,137       1,915,042
  Exploration costs ............................         60,182         161,603
  Depreciation, depletion and accretion ........        109,355       1,176,150
  Amortization .................................         45,607         110,807
                                                   ------------    ------------

   TOTAL OPERATING EXPENSES ....................      1,983,665      14,099,310
                                                   ------------    ------------

LOSS FROM OPERATIONS ...........................       (918,762)     (1,514,906)
                                                   ------------    ------------

OTHER INCOME (EXPENSE)

  Interest expense .............................       (132,800)       (660,511)
  Other income (expense), net ..................        (14,646)        (15,622)
                                                   ------------    ------------
   TOTAL OTHER INCOME (EXPENSE) ................       (147,446)       (676,133)
                                                   ------------    ------------

NET (LOSS) .....................................     (1,066,208)     (2,191,039)

PREFERRED STOCK DIVIDEND .......................           --           291,190
                                                   ------------    ------------

NET (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS .   $ (1,066,208)   $ (2,482,229)
                                                   ------------    ------------

BASIC AND DILUTED
NET (LOSS) PER COMMON SHARE ....................   $      (0.11)   $      (0.18)
                                                   ------------    ------------

WEIGHTED AVERAGE
COMMON SHARES ..................................     10,046,578      13,470,799
                                                   ------------    ------------

            See Notes to Condensed Consolidated Financial Statements.


                                       4
<PAGE>


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

<CAPTION>
                                                                          THREE MONTHS   THREE MONTHS
                                                                              ENDED         ENDED
                                                                           MARCH 31,      MARCH 31,
                                                                          -----------    -----------
                                                                              2004          2005
                                                                          -----------    -----------
<S>                                                                       <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net (loss) ..........................................................   $(1,066,208)   $(2,191,039)
  Adjustments to reconcile net (loss) to net cash provided by operating
  activities
     Depreciation, depletion and accretion ............................       109,355      1,176,150
     Amortization .....................................................        45,607        229,176
     Issuance of common stock in lieu of interest payments ............       165,313           --
     Non-cash compensation:
       Common stock issued in payment of accrued salary ...............       226,573           --
       Stock option expense ...........................................       216,562        225,844
     Changes in operating assets and liabilities:
       Receivables ....................................................         4,327        164,306
       Inventory ......................................................      (115,293)        81,210
       Prepaid and other ..............................................        27,850         (1,784)
       Accounts payable and accrued liabilities .......................       (68,748)     1,636,126
       Deferred revenue ...............................................      (149,928)          --
                                                                          -----------    -----------
         Net cash flows provided by (used in) operating activities ....      (604,590)     1,319,989

CASH FLOWS FROM INVESTING ACTIVITIES
  Property, plant and equipment purchased .............................      (647,785)    (7,274,060)
  Prepaid royalty .....................................................          --         (151,364)
  Deposits ............................................................      (500,000)       103,000
                                                                          -----------    -----------
     Net cash flows (used in) investing activities ....................    (1,147,785)    (7,322,424)

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of common and preferred stock ................     2,750,000           --
  Proceeds from exercise of options and warrants ......................          --          539,500
  Proceeds from issuance of notes payable .............................          --        6,537,726
  Loan acquisition costs ..............................................          --          (90,062)
  Payment of related party debt .......................................      (160,000)          --
  Proceeds from bank loans ............................................        50,053           --
   Payments on bank loans .............................................          --          (80,158)
   Payments on capital leases .........................................      (257,390)      (478,631)
   Other ..............................................................          --            1,755
                                                                          -----------    -----------
     Net cash flows provided by financing activities ..................     2,382,663      6,430,130
                                                                          -----------    -----------

NET INCREASE IN CASH ..................................................       630,288        427,695
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD .........................           883        351,698
                                                                          -----------    -----------
CASH AND CASH EQUIVALENTS END OF PERIOD ...............................   $   631,171    $   779,393
                                                                          -----------    -----------

SUPPLEMENTAL DISCLOSURES
  Interest paid in cash ...............................................   $    52,364    $   660,511
   Non-cash investing and financing transactions:
      Warrants issued in connection with notes payable ................          --          665,855
      Preferred stock dividends payable ...............................          --          260,699
      Constructive dividend attributable to preferred shareholders ....          --           30,891
</TABLE>


                                       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, 2004.

         The  discussion and analysis of the Company's  financial  condition and
results of  operations  are based upon its  consolidated  financial  statements,
which have been  prepared in accordance  with  accounting  principles  generally
accepted in the United States.  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.

         The Company was  incorporated in Florida on August 10, 1995 and engages
principally in the business of mining coal in Eastern Tennessee and Southeastern
Kentucky.  Its customers are primarily  state  operated  electric  utilities and
industrial  concerns in the immediate and surrounding  states.  The Company owns
the coal mineral rights to approximately  sixty-five thousand (65,000) acres and
leases  another  approximate  twelve  thousand  one  hundred  (12,100)  acres in
Tennessee,  and owns the coal mineral rights to  approximately  eleven  thousand
seven hundred (11,700) acres and leases another  approximate  eighteen  thousand
two hundred  (18,200) acres in Kentucky.  The Company's first mining  activities
commenced in July 2003 from a surface mine in Tennessee.  At March 31, 2005, the
Company was extracting coal from four deep mines and one surface mine.

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

2.       NOTES PAYABLE

              SENIOR SECURED CREDIT FACILITY

         On November 26, 2004, the Company's Tennessee subsidiary, National Coal
Corporation,  in  connection  with its  acquisition  of assets from  Appalachian
Fuels,   LLC  entered  into  a  credit   agreement  with  D.  B.  Zwirn  Special
Opportunities  Fund, L.P., as Lender and  administrative  agent for the Lenders.


                                       6
<PAGE>


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


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

              SECURED NOTE

         In January 2005, the Company signed an agreement committing the Company
to the purchase of a highwall miner for a total purchase price of  approximately
$5.5 million,  and paid a $500,000 deposit toward that purchase  commitment.  In
March 2005,  the Company  borrowed  $5.14  million  pursuant to certain Note and
Warrant  Purchase  Agreements and completed the purchase of this piece of mining
equipment.  The Company issued notes in the aggregate  principal amount of $5.14
million to three purchasers, including Crestview Capital Master, LLC, which is a
significant shareholder of the Company. The notes have a maturity date of August
10,  2005,  are secured by the  highwall  miner,  and have an  interest  rate of
eighteen  percent (18%) per annum  calculated  from the 61st day until maturity.
The Company paid an origination fee of approximately $200,000 upon the execution
of the loan document.  The note  purchasers were also issued 5-year common stock
purchase warrants to purchase up to 140,000 shares of the Company's common stock
at an exercise price per share of $8.50.

3.       EQUITY TRANSACTIONS

              PREFERRED STOCK FINANCING

         On  August  31,  2004,  the  Company  sold  $16,030,000  of Series A 5%
convertible  preferred  stock and  common  stock  purchase  warrants  in private
placement  financings in separate  transactions.  The Company  issued a total of
1,068.67 shares of Series A Convertible  Preferred  Stock, at $15,000 per share,
for cash consideration of approximately $11.3 million and cancellation of $4.725
million of its senior secured promissory notes. Dividends on the preferred stock
accrue at a rate of five percent (5%) per annum and shall be cumulative from the
date of issuance.  Until paid,  the right to receive  dividends on the preferred
stock shall accumulate,  and shall be payable in cash on June 30 and December 31
of each  year,  and  commenced  on  December  31,  2004.  Each share of Series A
convertible  preferred  stock is convertible  into 2,500 shares of common stock.
For each share of Series A convertible  preferred stock, the investors also were
issued  two-year  warrants to purchase 500 shares of common stock at an exercise
price of $8.40 per share.

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


                                       7
<PAGE>


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


convertible  promissory notes converted the $3,000,000 principle into 200 shares
Series A  convertible  preferred  stock and  warrants  to purchase up to 100,000
shares of common stock.

         Investors  who  paid  cash   consideration   in  either  the  Series  A
convertible  preferred  stock  financing  or  convertible  debt  financing  also
received  the  right  to  purchase  additional  units of  Series  A  convertible
preferred stock and common stock purchase warrants.  Each of these investors 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 500 shares of common stock at an
exercise  price of $8.40 per share.  The  purchase  rights must be  exercised no
later than ninety days  following  January 28, 2005.  The holders of convertible
promissory  notes may  exercise  this  additional  purchase  right  only if they
convert their  promissory  note in full. In December  2004,  the Company  issued
241.33  shares of its  Series A  convertible  preferred  stock and  warrants  to
purchase 482,660 shares of its common stock upon the exercise by certain holders
of  these  purchase  rights,   and  received  gross  proceeds  of  approximately
$3,620,000 in connection  with the sale of these  securities.  In February 2005,
the Company issued 4.44 shares of its Series A convertible  preferred  stock and
warrants  to  purchase  2,220  shares of its common  stock upon the  exercise by
certain  holders of these  purchase  rights,  and  received  gross  proceeds  of
approximately $67,000 in connection with the sale of these securities.  In April
2005,  the Company  issued  11.55 shares of its Series A  convertible  preferred
stock and  warrants  to  purchase  5,775  shares of its  common  stock  upon the
exercise  by certain  holders  of these  purchase  rights,  and  received  gross
proceeds  of  approximately  $173,000  in  connection  with  the  sale of  these
securities. These purchase rights expired on April 28, 2005.

              ISSUANCE OF STOCK PURSUANT TO THE EXERCISE OF OPTIONS

         In the three months ended March 31, 2005,  the Company  issued  206,250
shares of common stock and received gross proceeds of $469,500 upon the exercise
of stock options by employees.

4.       EVENTS SUBSEQUENT TO MARCH 31, 2005

              APPOINTMENT OF AN OFFICER AND DIRECTORS

         On April 1, 2005,  Mark Oldham  became the  Company's  Chief  Financial
  Officer and a member of the  Company's  board of  directors.  Also on April 1,
  2005,  Robert Heinlein and Ken Scott were appointed  independent  directors of
  the Company's board.

              FORM S-3 REGISTRATION STATEMENT

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

              EXERCISE OF ADDITIONAL PURCHASE RIGHTS BY SERIES A SHAREHOLDERS

         In April 2005,  certain  investors who paid cash  consideration  in the
Series A  convertible  preferred  stock  financing  and  received  the  right to
purchase  additional  units of Series A convertible  preferred  stock and common
stock  purchase  warrants,  exercised  their  rights prior to the April 28, 2005
expiration date.


                                       8
<PAGE>


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


Pursuant to these  exercises,  the Company  issued  11.55 shares of its Series A
convertible  preferred stock and warrants to purchase 5,775 shares of its common
stock, and received gross proceeds of approximately  $173,000 in connection with
the sale of these securities.


                                       9
<PAGE>


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

         The information contained in this Form 10-QSB is intended to update the
information  contained  in our Annual  Report on Form  10-KSB for the year ended
December 31, 2004 and presumes  that readers have access to, and will have read,
the  "Management's  Discussion  and  Analysis  or Plan of  Operation"  and other
information  contained  in such Form  10-KSB  and 2004 Form  10-QSBs  previously
filed.  The following  discussion and analysis also should be read together with
our condensed  consolidated  financial statements and the notes to the condensed
consolidated financial statements included elsewhere in this Form 10-QSB.

         THIS  DISCUSSION  SUMMARIZES  THE  SIGNIFICANT  FACTORS  AFFECTING  THE
CONSOLIDATED OPERATING RESULTS, FINANCIAL CONDITION AND LIQUIDITY AND CASH FLOWS
OF NATIONAL  COAL CORP.  FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND THE THREE
MONTHS  ENDED MARCH 31, 2004.  EXCEPT FOR  HISTORICAL  INFORMATION,  THE MATTERS
DISCUSSED IN THIS MANAGEMENT'S  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ARE
FORWARD-LOOKING  STATEMENTS THAT INVOLVE RISKS AND  UNCERTAINTIES  AND ARE BASED
UPON JUDGMENTS  CONCERNING  VARIOUS FACTORS THAT ARE BEYOND OUR CONTROL.  ACTUAL
RESULTS  COULD DIFFER  MATERIALLY  FROM THOSE  PROJECTED IN THE  FORWARD-LOOKING
STATEMENTS AS A RESULT OF, AMONG OTHER THINGS, THE FACTORS DESCRIBED BELOW UNDER
THE CAPTION "CAUTIONARY STATEMENTS AND RISK FACTORS."

OVERVIEW

         National Coal Corp., through our wholly-owned  subsidiary National Coal
Corporation,  engages  principally  in the  business  of mining  coal in Eastern
Tennessee  and  Southeastern  Kentucky.  We  own  the  coal  mineral  rights  to
approximately  sixty-five  thousand (65,000) acres and lease another approximate
twelve  thousand  one  hundred  (12,100)  acres in  Tennessee,  and own the coal
mineral rights to approximately eleven thousand seven hundred (11,700) acres and
lease  another  approximate  eighteen  thousand  two hundred  (18,200)  acres in
Kentucky.  We  commenced  mining  coal  in  July  2003  from a  surface  mine in
Tennessee.  At March 31, 2005, we were  extracting coal from four deep mines and
one surface mine.

         We  engage  in  coal  production  by  locating,  assembling,   leasing,
assessing,  permitting and developing coal  properties in Eastern  Tennessee and
Southeastern  Kentucky.  After obtaining permits from the U.S. Department of the
Interior,  Office of Surface Mining ("OSM") and posting  reclamation  bonds,  we
mine our properties for the extraction of coal minerals,  and then sell the coal
on a per ton  basis at  previously  negotiated  rates,  primarily  to state  run
utility  companies.  The reclamation bonds typically take the form of letters of
credit or direct cash  deposits  with OSM. At March 31, 2005, we had $257,500 on
deposit  with  OSM,  had  approximately   $4.27  million  of  cash  invested  in
certificates of deposit,  against which  irrevocable  bank letters of credit are
written in favor of OSM and had  posted a $700,000  letter of credit in favor of
OSM secured by our executive office building.

         We  typically  sell our coal for a  specified  tonnage  amount and at a
negotiated  price pursuant to short-term and long term contracts.  We also price
coal 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  continue  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.

         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


                                       10
<PAGE>


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.  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
future business.

         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.

         Our  historical  operations  prior to April 30, 2003  reflect  only the
operations of National Coal Corporation, a Tennessee corporation. Prior to April
30, 2003, National Coal Corp., a Florida corporation  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 8,549,975  shares of
National Coal Corp. a Florida corporation.  National Coal Corporation was formed
in January  2003,  and from  inception  through  June 30,  2003,  National  Coal
Corporation was in the exploration stage with no operating  revenue.  During the
third quarter of 2003, we commenced coal mining operations and, accordingly, are
no longer in the exploration stage.

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,   accretion,
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
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  reclamation  expense of actual  mining  operations in relation to
estimated  total mineable  tonnage on our  properties.  We believe the following
accounting policies affect our more significant  judgments and estimates used in
preparation of our consolidated financial statements.


                                       11
<PAGE>


         REVENUE  RECOGNITION.  Under SEC Staff  Accounting  Bulletin  No.  104,
"Revenue  Recognition," we recognize revenue when all of the following  criteria
are met: (1)  persuasive  evidence of an  arrangement  exists,  (2) delivery has
occurred or services have been rendered,  (3) the seller's price to the buyer is
fixed or determinable, and (4) collectibility is reasonably assured.

              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.  During the three months ended March 31, 2005
we did not recognize any coal royalty revenues, and during calendar 2004, we had
one source of royalty  revenue  pursuant  to our  agreement  with Jenco  Capital
Corporation  ("Jenco").  We recognized the final remaining royalties pursuant to
our  agreement  with  Jenco in the  second  calendar  quarter of 2004 and do not
anticipate any future royalty transactions for the foreseeable future.

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

         ASSET RETIREMENT OBLIGATION. The Surface Mining Control and Reclamation
Act of 1977 and similar state statutes  require that mine properties be restored
in  accordance  with  specified  standards  and an  approved  reclamation  plan.
Significant  reclamation  activities include reclaiming refuse and slurry ponds,
reclaiming the pit and support acreage at surface mines,  and sealing portals at
deep mines.  Reclamation  activities  that are  performed  outside of the normal
mining process are accounted for as asset  retirement  obligations in accordance
with the provisions of Statement of Financial Accounting Standards, or SFAS, No.
143,  "Accounting For Asset Retirement  Obligations".  We record our reclamation
obligations on a mine-by-mine  basis based upon current permit  requirements and
estimated reclamation  obligations for such mines as determined by the Office of
Surface Mining 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 No. 143, we determine the fair
value  of  our  asset  retirement  obligations  using  a  discounted  cash  flow
methodology  based on a discount rate related to the rates of 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 mine closures, and revisions to cost
estimates and productivity assumptions,  to reflect current experience. At March
31,  2005,  we  had  recorded  asset   retirement   obligation   liabilities  of
approximately  $2.4  million.  While the precise  amount of these  future  costs
cannot be determined with certainty,  as of March 31, 2005, we estimate that the
aggregate undiscounted cost of final mine closure is approximately $5 million.

         STOCK-BASED COMPENSATION. We account for stock-based compensation using
Accounting Principles Board ("APB") Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES".  Under APB No. 25,  compensation  expense is recognized for stock
options  with an exercise  price that is less than the market price on the grant
date of the option.  For stock  options  granted  employees  or  directors  with


                                       12
<PAGE>


exercise  prices at or above the market value of the stock on the grant date, we
have adopted the Financial Accounting  Standards Board ("FASB")  disclosure-only
provisions of Statement of Financial  Accounting  Standards No. 123, "ACCOUNTING
FOR  STOCK-BASED  COMPENSATION"  ("SFAS No.  123").  Except for the  issuance of
1,237,500  options  granted to directors and officers in March 2004, we have not
recorded any compensation costs for these types of option grants.

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

         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 December 2004, the Financial  Accounting  Standards  Board, or FASB,
issued SFAS No. 123R "SHARE-BASED PAYMENT," a revision to FASB No. 123. SFAS No.
123R replaces existing  requirements  under SFAS No. 123 and APB Opinion No. 25,
and  requires  public  companies  to  recognize  the cost of  employee  services
received in exchange for equity instruments,  based on the grant-date fair value
of those instruments,  with limited  exceptions.  SFAS No. 123R also affects the
pattern in which  compensation  cost is recognized,  the accounting for employee
share purchase  plans,  and the accounting for income tax effects of share-based
payment transactions. For small-business filers, SFAS No. 123R will be effective
for annual and interim periods beginning after December 15, 2005. The Company is
currently  determining  what  impact the  proposed  statement  would have on its
results of operations and financial position.

         The  FASB  has  proposed  FASB  Staff  Position  No.  SFAS  No.  109 a,
"APPLICATION OF FASB STATEMENT NO. 109, ACCOUNTING FOR INCOME TAXES, FOR THE TAX
DEDUCTION PROVIDED TO U.S. BASED MANUFACTURERS BY THE AMERICAN JOBS CREATION ACT
OF 2004." On October 22,  2004,  the  AMERICAN  JOBS  CREATION  ACT OF 2004 (the
"Act") was signed into law by the  President.  The Act  includes  tax relief for
domestic  manufacturers by providing a tax deduction up to 9 percent (when fully
phased-in) of the lesser of (a)  "qualified  production  activities  income," as
defined  in the  Act,  or (b)  taxable  income  (after  the  deduction  for  the
utilization of any net operating loss carry forwards).  As a result of this Act,
an issue has arisen as to whether this  deduction  should be accounted  for as a
special  deduction or a tax rate reduction  under  Statement 109. The FASB staff
believes that the domestic manufacturing deduction's characteristics are similar
to special deductions because the domestic  manufacturing  deduction is based on
the future  performance  of specific  activities,  including the level of wages.
Accordingly,  the FASB staff believes that the deduction  provided for under the
Act should be accounted for as a special deduction


                                       13
<PAGE>


in accordance with Statement 109 and not as a tax rate reduction. This provision
of the  Act is not  expected  to  have  an  impact  on the  Company's  financial
statements.

         In November 2004, the FASB issued FASB Statement No. 151, which revised
ARB No.43,  relating  to  inventory  costs.  This  revision  is to  clarify  the
accounting  for abnormal  amounts of idle facility  expense,  freight,  handling
costs and wasted material  (spoilage).  This Statement requires that these items
be  recognized as a current  period  charge  regardless of whether they meet the
criterion  specified  in ARB  43.  In  addition,  this  Statement  requires  the
allocation of fixed production  overheads to the costs of conversion be based on
normal  capacity of the production  facilities.  This Statement is effective for
financial  statements for fiscal years  beginning  after June 15, 2005.  Earlier
application  is permitted  for  inventory  costs  incurred  during  fiscal years
beginning  after the date this  Statement is issued.  Management  believes  this
Statement  will have no impact on the  financial  statements of the Company once
adopted.

         In December  2004, the FASB issued FASB Statement No. 152, which amends
FASB  Statement No. 66,  Accounting  for Sales of Real Estate,  to reference the
financial  accounting  and  reporting  guidance  for  real  estate  time-sharing
transactions  that is provided in AICPA  Statement  of  Position  ("SOP")  04-2,
ACCOUNTING FOR REAL ESTATE TIME-SHARING TRANSACTIONS. This Statement also amends
FASB Statement No. 67,  ACCOUNTING  FOR COSTS AND INITIAL  RENTAL  OPERATIONS OF
REAL ESTATE PROJECTS,  to state that the guidance for (a) incidental  operations
and (b)  costs  incurred  to  sell  real  estate  projects  does  not  apply  to
real-estate time-sharing  transactions.  The accounting for those operations and
costs is subject to the guidance in SOP 04-2.  This  Statement is effective  for
financial statements for fiscal years beginning after June 15, 2005.  Management
believes this Statement  will have no impact on the financial  statements of the
Company once adopted.

         In  December  2004,  the FASB  issued  FASB  Statement  No.  153.  This
Statement  addresses the  measurement  of exchanges of nonmonetary  assets.  The
guidance in APB Opinion No. 29,  ACCOUNTING  FOR  NONMONETARY  TRANSACTIONS,  is
based on the principle that  exchanges of nonmonetary  assets should be measured
based on the fair value of the assets  exchanged.  The guidance in that Opinion,
however,  included certain  exceptions to that principle.  This Statement amends
Opinion 29 to  eliminate  the  exception  for  nonmonetary  exchanges of similar
productive  assets and  replaces it with a general  exception  for  exchanges of
nonmonetary assets that do not have commercial substance. A nonmonetary exchange
has commercial  substance if the future cash flows of the entity are expected to
change  significantly  as a result of the exchange.  This Statement is effective
for financial statements for fiscal years beginning after June 15, 2005. Earlier
application is permitted for nonmonetary asset exchanges  incurred during fiscal
years beginning after the date of this Statement is issued.  Management believes
this  Statement  will have no impact on the financial  statements of the Company
once adopted.


                                       14
<PAGE>


RESULTS OF OPERATIONS

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

                                                           THREE MONTHS ENDED
                                                                MARCH 31,
                                                          --------------------
                                                           2004          2005
                                                          ------        ------

Revenues ...........................................       100.0 %       100.0 %
Operating expenses:
   Cost of sales and selling expenses ..............        88.0          85.3
   General and administrative ......................        78.0          15.2
   Exploration costs ...............................         5.7           1.3
   Depreciation, depletion and accretion ...........        10.3           9.3
   Amortization ....................................         4.3           0.9
                                                          ------        ------
     Total operating expenses ......................       186.3         112.0
                                                          ------        ------
Loss from operations ...............................       (86.3)        (12.0)
                                                          ------         -----
Other income (expense):
   Gain on sale of marketable securities ...........        --            --
   Other income (expense), net .....................        (1.3)         (0.1)
   Financing fees ..................................        --            --
   Interest expense ................................       (12.5)         (5.3)
                                                          ------        ------
Net loss ...........................................      (100.0)%       (17.4)%
                                                          ======        ======

     COMPARISON  OF THREE  MONTHS  ENDED MARCH 31, 2005 AND THREE  MONTHS  ENDED
MARCH 31, 2004

         REVENUES

                                  THREE MONTHS     THREE MONTHS
                                      ENDED            ENDED          PERCENT
                                 MARCH 31, 2004   MARCH 31, 2005      CHANGE
                                  -----------      -----------      -----------

Coal sales .................      $   990,622      $12,584,404            1,170%
Royalties receipts .........           74,281             --                  *
                                  -----------      -----------      -----------
   Total revenues ..........      $ 1,064,903      $12,584,404            1,082%
----------
* Not meaningful

         For the three months ended March 31,  2005,  our revenues  were derived
entirely  from coal sales to 10  customers,  7 of which were  utilities and 3 of
which were industrial  customers.  Our five largest customers represented 90% of
our total revenues. For the three months ended March 31, 2004, approximately 90%
of revenues were derived from coal sales to one utility,  and the balance of the
revenue was derived from the  recognition of royalty  revenues.  The increase in
total revenues of approximately  $11.5 million,  or 1,082%, for the three months
ended  March 31,  2005,  compared to the three  months  ended March 31, 2004 was
mainly  attributable to our having signed contracts with multiple industrial and
utility  customers which resulted in an increase in customers to ten compared to
three, as we substantially increased our mining activity.  There were no royalty
receipts for the three months ended March 31, 2005, and we do not anticipate any
royalty revenues for the foreseeable future.


                                       15
<PAGE>


         OPERATING EXPENSES

              COST OF SALES AND SELLING EXPENSES

                                  THREE MONTHS     THREE MONTHS
                                      ENDED            ENDED          PERCENT
                                 MARCH 31, 2004   MARCH 31, 2005      CHANGE
                                  -----------      -----------      -----------

Cost of sales and selling
   expenses ................       $   937,384     $10,735,708           1,045%


         Cost of  sales  and  selling  expenses  consist  primarily  of  salary,
benefits and other  compensation costs paid directly to miners, and direct costs
paid to third party  vendors  whose goods and services were directly used in the
process of producing  coal  inventory.  Third party  vendor  costs  include coal
purchases,  equipment leases and maintenance costs,  blasting costs, fuel costs,
parts and  supplies,  and  transportation  costs.  The  primary  reason  for the
increase in total cost is due to the increase in the volume of  production  when
compared to the same period in the prior year.  Our goal is to continue to lower
costs as a percentage of revenues by employing  the latest mining  technologies,
analyzing the Company's coal properties in order to mine them  efficiently,  and
increasing volume to achieve economies of scale.

              GENERAL AND ADMINISTRATIVE EXPENSES

                                  THREE MONTHS     THREE MONTHS
                                      ENDED            ENDED          PERCENT
                                 MARCH 31, 2004   MARCH 31, 2005      CHANGE
                                  -----------      -----------      -----------

General and administrative
   expenses ................       $  831,137      $ 1,915,042           130.4%

         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.  This increase in general and  administrative  expenses
for the three months ended March 31, 2005 is primarily attributed to an increase
in administrative costs due to the increase in the volume of coal production and
sales after we expanded  production on existing properties and completed several
acquisitions of additional operations in the previous year.

              EXPLORATION COSTS

                                  THREE MONTHS     THREE MONTHS
                                      ENDED            ENDED          PERCENT
                                 MARCH 31, 2004   MARCH 31, 2005      CHANGE
                                  -----------      -----------      -----------

Exploration costs...........      $    60,182      $   161,603           168.5%

         For the three months ended March 31, 2005 we incurred  exploration  and
development costs for fees paid to professional geology and exploration experts.
We plan to invest  additional  resources to gain the necessary  understanding of
our coal  properties to make the best  decisions  about which areas to mine most
profitably.


                                       16
<PAGE>


              DEPRECIATION, DEPLETION AND ACCRETION EXPENSE

                                  THREE MONTHS     THREE MONTHS
                                      ENDED            ENDED          PERCENT
                                 MARCH 31, 2004   MARCH 31, 2005      CHANGE
                                  -----------      -----------      -----------

Depreciation, depletion and
    accretion expense.......      $   109,355      $ 1,176,150             976%

         The increase in depreciation,  depletion and accretion  expense for the
three months ended March 31, 2005 as compared to the comparable  period in 2004,
is primarily attributable to the acquisition of property, plant and equipment in
support of increased  mining  activity.  Given that the coal mining  business is
capital  intensive,  we expect  our  depreciation  expense  to  increase  in the
remainder of 2005 and beyond as we increase our  acquisition of property,  plant
and equipment.

              AMORTIZATION EXPENSE

                                  THREE MONTHS     THREE MONTHS
                                      ENDED            ENDED          PERCENT
                                 MARCH 31, 2004   MARCH 31, 2005      CHANGE
                                  -----------      -----------      -----------

Amortization expense........      $    45,607      $   110,807             143%

         We record  amortization  expense for previously  capitalized  financing
fees and discounts  related to the issuance of debt  securities.  These expenses
are recorded using the interest method over the life of the  securities.  If the
securities  are  repaid  or are  converted  prior  to  maturity,  the  remaining
unamortized  balance is  immediately  recognized.  We also  record  amortization
expense for mine development costs.

         OTHER INCOME (EXPENSE)

                                           THREE MONTHS ENDED
                                                MARCH 31,
                                        ------------------------       PERCENT
                                          2004            2005          CHANGE
                                        ---------      ---------      ---------

Interest expense and
  financing fees ..................     $(132,800)     $(660,511)         397.4%
Other income (expense), net .......       (14,646)       (15,622)           6.7%
                                        ---------      ---------      ---------
   Total other income (expense) ...     $(147,446)     $(676,133)         358.6%

         The  $528,687  increase in other income  (expense),  net, for the three
months ended March 31, 2005 compared to the three months ended March 31, 2004 is
primarily  attributable to added borrowings for asset  acquisitions  made during
calendar 2004.

RELATED PARTY TRANSACTIONS

         In March 2005, we borrowed  $5.14 million  pursuant to certain Note and
Warrant Purchase  Agreements.  We issued notes in the aggregate principal amount
of $5.14 million to three  purchasers.  The notes have a maturity date of August
10, 2005, are secured by certain mining equipment,  and have an interest rate of
eighteen  percent (18%) per annum  calculated  from the 61st day until maturity.
The note  purchasers  were also issued 5-year common stock purchase  warrants to
purchase an aggregate of up to 140,000  shares of the Company's  common stock at
an  exercise  price  per  share  of  $8.50.   We  paid  an  origination  fee  of
approximately  $200,000  upon the  execution  of the loan  documents.  Crestview
Capital


                                       17
<PAGE>


Master,  LLC,  a  significant  shareholder  of  ours,  purchased  a note in this
transaction in the principal amount of approximately $2.1 million and received a
warrant to purchase approximately 56,000 shares of our common stock.

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

LIQUIDITY AND CAPITAL RESOURCES

         As of March 31, 2005, we had cash and cash equivalents of approximately
$779,400.  As of  March  31,  2005,  we had  negative  net  working  capital  of
approximately  $9.9  million.  We expect a  significant  use of cash  during the
balance of 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 not be sufficient to fund our operational  expenditures  for the
first six months of 2005, yet we expect to be cash flow positive from operations
commencing  in the third  quarter  of 2005.  We  anticipate  the need to acquire
additional assets and/or mining operations, and will likely be required to raise
additional funds by issuing additional equity or debt securities, the amount and
timing  of which  will  depend in large  part on our  spending  program  and our
ability to generate cashflow from operations in future months. In November 2004,
we entered  into a senior  secured  credit  facility and borrowed $15 million to
facilitate our purchase of assets from  Appalachian  Fuels,  LLC. We borrowed an
additional  $1.4 million in January 2005 pursuant to this senior  secured credit
facility for the deposit on and purchase of a $5.5 million high wall miner,  and
borrowed an additional  $5.14 million in a separate  transaction to complete the
purchase  of the high wall miner  equipment.  We may borrow an  additional  $4.6
million,  as our senior secured credit facility allows for a maximum draw of $21
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  financings will be available when needed or
that  if  available,  such  financings  will  include  terms  favorable  to  our
stockholders.  If such  financings  are not  available  when required or are not
available on acceptable  terms,  we may be unable to take  advantage of business
opportunities  or respond to  competitive  pressures,  any of which could have a
material  adverse  effect on our  business,  financial  condition and results of
operations.

         CASH FLOWS

         We currently satisfy our working capital requirements primarily through
cash flows  generated from  operations and sales of equity and debt  securities.
For the three  months  ended March 31,  2005,  we had a net  increase in cash of
approximately  $428,000.  Cash flows from  operating,  financing  and  investing
activities  for the three months ended March 31, 2004 and the three months ended
March 31, 2005 are summarized in the following table:

                                                         THREE MONTHS
                                                        ENDED MARCH 31,
                                                 ------------------------------
ACTIVITY:                                            2004              2005
------------------------------------------       -----------        -----------

Operating activities .....................       $  (604,590)       $ 1,319,989
Investing activities .....................        (1,147,785)        (7,322,424)
Financing activities .....................         2,382,663          6,430,130
                                                 -----------        -----------
Net increase (decrease) in cash ..........       $   631,171        $   427,695
                                                 ===========        ===========


                                       18
<PAGE>


         OPERATING ACTIVITIES

         The net cash  provided by operating  activities of  approximately  $1.3
million during the three months ended March 31, 2005 was primarily the result of
the net loss of approximately  $2.2 million and increases in accounts payable of
approximately $1.9 million,  decreases in receivables of approximately $164,000,
and  decreases in  inventory of  approximately  $81,000.  The non-cash  expenses
recorded during the quarter  included  depreciation,  depletion and accretion of
$1,184,073,  amortization of $200,070, and stock option expense of $225,843. The
increase in accounts  payable is  primarily  a result of  increased  operational
activity.

         INVESTING ACTIVITIES

         The  approximately  $7.3 million of cash used in  investing  activities
during the three months  ended March 31, 2005 was due  primarily to the purchase
of approximately  $$7.3million of property,  plant and equipment.  To the extent
that we make additional asset acquisitions in the balance of 2005 similar to our
investing activities in 2004, we will need to raise additional cash from outside
sources.  If  additional  funds  are  raised  through  the  issuance  of  equity
securities, the current stockholders may experience dilution. Furthermore, there
can be no assurance that additional  financings will be available when needed or
that  if  available,  such  financings  will  include  terms  favorable  to  our
stockholders.  If such  financings  are not  available  when required or are not
available on acceptable  terms,  we may be unable to take  advantage of business
opportunities  or respond to  competitive  pressures,  any of which could have a
material  adverse  effect on our  business,  financial  condition and results of
operations.

         FINANCING ACTIVITIES

         The  net  cash  provided  by  financing   activities  of  approximately
$6.4million  during the three  months  ended  March 31, 2005 was  primarily  the
result of $6.5 million  raised from sales of debt  securities.  During the three
months ended March 31, 2005,  approximately  $500,000 was raised by the exercise
of warrants for the purchase of common stock from the Company.  Payments on bank
loans and capital leases were approximately $80,000 and $480,000,  respectively,
for the three months ended March 31,  2005.  The net cash  provided by financing
activities of approximately $2.4 million during the three months ended March 31,
2004 was the result of  approximately  $2.8 million  raised from sales of common
stock,  offset  by  approximately  $160,000  paid on  related  party  debt,  and
approximately $260,000 paid on capital leases.

         As  previously  stated,  to the extent  that we make  additional  asset
acquisitions  during the balance of 2005 similar to our investing  activities in
the first quarter of 2005 we will need to raise additional cash from the sale of
equity or debt  securities,  which financings may not be available on acceptable
terms, if at all, and which may dilute existing stockholders.

         In March 2005, we borrowed  $5.14 million  pursuant to certain Note and
Warrant Purchase  Agreements.  We issued notes in the aggregate principal amount
of $5.14 million to three  purchasers.  The notes have a maturity date of August
10, 2005, are secured by certain mining equipment,  and have an interest rate of
eighteen  percent (18%) per annum  calculated  from the 61st day until maturity.
The note  purchasers  were also issued 5-year common stock purchase  warrants to
purchase an aggregate of up to 140,000  shares of the Company's  common stock at
an  exercise  price  per  share  of  $8.50.   We  paid  an  origination  fee  of
approximately  $200,000  upon the  execution  of the loan  documents.  Crestview
Capital Master, LLC, a significant shareholder of ours, purchased a note in this
transaction in the principal amount of approximately $2.1 million and received a
warrant to purchase approximately 56,000 shares of our common stock.


                                       19
<PAGE>


              SALES OF PREFERRED STOCK AND WARRANTS

         In  February  and  April  2005,  we  issued  15.99  shares  of Series A
convertible  preferred  stock and two-year  warrants to purchase 7,995 shares of
its common stock upon the exercise by certain  holders of purchase  rights,  and
received gross proceeds of approximately $240,000 in connection with the sale of
these securities.  As of April 28, 2005, there were outstanding  1,436.33 shares
of our Series A convertible preferred stock.

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

         On August 31, 2004, the closing price of our common stock on the NASDAQ
Over-the-Counter Bulletin Board was $9.40. Since this closing price exceeded the
$6.00  conversion  price of the Series A preferred stock, and exceeded the $8.40
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 initial  issuance of our Series A convertible  preferred  stock and
the attached warrants on August 31, 2004 with conversion prices below the market
price of the common stock.  The beneficial  conversion value of the warrants was
calculated  using  a  Black-Scholes  option-pricing  model  with  the  following
weighted average  assumptions:  no dividend yield,  expected  volatility rate of
48%; risk free interest  rate of 3.50%;  and an average life of 2 years.  During
the calendar  first quarter of 2005,  we  recognized an additional  constructive
dividend  of  $30,891  pursuant  to  the  additional  Series  A  purchase  right
investments  exercised in February 2005. The beneficial  conversion value of the
additional  warrants was calculated using a Black-Scholes  option-pricing  model
with the following  weighted average  assumptions:  no dividend yield,  expected
volatility rate of 30%; risk free interest rate of 3.75%; and an average life of
1.5 years.

              ISSUANCE OF STOCK PURSUANT TO THE EXERCISE OF OPTIONS

         In the three months ended March 31, 2005,  the Company  issued  206,250
shares of common stock and received gross proceeds of $469,500 upon the exercise
of stock options by employees.

              SENIOR SECURED CREDIT FACILITY

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


                                       20
<PAGE>


obligations  under the credit agreement are secured by substantially  all of our
assets and those of our subsidiaries.

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

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

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

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

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

         o        we meet minimum sales volume requirements;

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

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

              MARCH 2005 BRIDGE FINANCING

         In January 2005,  we signed an agreement  committing us to the purchase
of a highwall miner for a total purchase  price of  approximately  $5.5 million,
and paid a $500,000 deposit toward that purchase  commitment.  In March 2005, we
borrowed an additional approximately $5.14 million and completed the purchase of
this piece of mining  equipment.  The note has a maturity of August 10, 2005, is
secured by the highwall  miner,  and has a rate of interest of eighteen  percent
(18%)  per  annum  calculated  from  the  61st day  until  maturity.  We paid an
origination  fee of  approximately  $200,000  upon  the  execution  of the  loan
documents. The lenders were also issued 5-year common stock purchase warrants to
purchase an aggregate of up to 140,000  shares of the Company's  common stock at
an  exercise  price per  share of $8.50.  We  valued  these  warrants  using the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions:  no dividend  yield,  expected  volatility  rate of 133%; risk free
interest  rate of  4.00%;  and an  average  life of 5 years,  and  recognized  a
non-cash  discount against the note of $665,855 to be amortized over the life of
the note.  Amortization of that discount  totaled $91,392 of non-cash expense in
the three month period ended March 31, 2005.  Crestview  Capital Master,  LLC, a
significant shareholder of the Company, participated in this transaction.

         CONTRACTUAL OBLIGATIONS

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


                                       21
<PAGE>


months.  None of the mining  permits to be transferred to us are for mines which
are in  current  production  and as such lack of  transfer  does not  impact our
current or planned operations.

         Our notes payable at March 31, 2005 consisted of the following:

<TABLE>
<CAPTION>
                                                                                   AMOUNT DUE AT
                                                                                     MARCH 31,
NOTES PAYABLE                                                                          2005
--------------------------------------------------------------------------------   -----------
<S>                                                                                <C>
Senior credit facility dated November 26, 2004;  interest rate of Prime + 5.75%,
   payable monthly, with principle reductions also payable monthly based on
   50% of Free Cash Flow (as defined in the credit facility) ...................   $16,400,000
Notes maturing August 10, 2005 issued in March 2005 Bridge Financing ...........     4,563,263
Bank loan dated July 29, 2004; interest rate of 7.25%, payable monthly .........       452,749
                                                                                   -----------
   Total .......................................................................   $21,416,012
                                                                                   ===========
</TABLE>

         We rent mining equipment  pursuant to operating lease  agreements,  and
made lease  payments  totaling  approximately  $400,000  during the three months
ended March 31, 2005.

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

         For the three months ended March 31, 2005, we accrued  dividends to the
holders  of our  Series  A  convertible  preferred  stock  in the  aggregate  of
$260,299.  We are required to make  semi-annual  cash  dividend  payments to the
holder of the Series A preferred stock on June 30 and December 31.

OFF-BALANCE SHEET ARRANGEMENTS

         At  March  31,   2005,   we  did  not  have  any   relationships   with
unconsolidated  entities  or  financial  partnerships,  such as  entities  often
referred  to  as  structured  finance,  variable  interest  or  special  purpose
entities,  which would have been  established  for the  purpose of  facilitating
off-balance  sheet  arrangements  or  other  contractually   narrow  or  limited
purposes.  As such, we are not exposed to any  financing,  liquidity,  market or
credit risk that could arise if we had engaged in such relationships.

CAUTIONARY STATEMENTS AND RISK FACTORS

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

                          RISKS RELATED TO OUR BUSINESS

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

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


                                       22
<PAGE>


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  three  months  ended  March  31,  2005  were
approximately   $12.6   million,   and  coal  sales  during   fiscal  2004  were
approximately  $16.9 million.  There is no assurance that we can achieve greater
sales or generate  profitable  sales.  We expect that many coal producers  could
produce and sell coal at 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  than one  business  area  will  subject  us to  economic
fluctuations within a particular business or industry and therefore increase the
risks associated with our operations.

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

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

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

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

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


                                       23
<PAGE>


         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 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


                                       24
<PAGE>


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 March 31, 2005, 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.

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.


                                       25
<PAGE>


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

         Federal  and state laws  require  bonds or cash  deposits to secure our
obligations to reclaim lands used for mining,  to pay federal and state workers'
compensation,   to  secure  coal  lease   obligations   and  to  satisfy   other
miscellaneous  obligations.  At March 31, 2005, $257,500 was on deposit with OSM
for reclamation bonds related to our Patterson  Mountain mining  operations.  In
addition,  we have approximately  $4.27 million of cash invested in certificates
of deposit,  against  which an  irrevocable  bank letter of credit is written in
favor  of OSM and  have  posted a  $700,000  letter  of  credit  secured  by our
executive office building favor of OSM for the reclamation  bonds related to our
mine #7, mine #9, and mine #1 operations and other mining permits  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..

                        RISKS RELATED TO OUR COMMON STOCK

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

         There is a limited  public  market for our  common  stock on the NASDAQ
SmallCap Stock Market, and no assurance can be given that a market will continue
or that a shareholder will ever be able to


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<PAGE>


liquidate his investment without  considerable delay, if at all. Our stock price
may be highly volatile. Factors such as those discussed in this section may have
a  significant  impact upon the market price of our  securities.  Due to the low
price of our  securities,  many  brokerage  firms may not be  willing  to effect
transactions  in our  securities.  Even if a purchaser finds a broker willing to
effect  a  transaction  in  our   securities,   the   combination  of  brokerage
commissions,  state  transfer  taxes,  if any, and any other  selling  costs may
exceed the selling price. Further, many lending institutions will not permit the
use of such securities as collateral for any loans.

WE DO NOT FORESEE PAYING DIVIDENDS IN THE NEAR FUTURE.

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

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

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

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

         Factors that may influence our quarterly operating results include:

         o        the worldwide demand for coal;

         o        the price of coal;

         o        the supply of coal and other competitive factors;

         o        the costs to mine and transport coal;

         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;


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<PAGE>


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

         o        interest rates;

         o        changes in accounting principles;

         o        sales of common stock by existing security holders;

         o        announcements of key developments by our competitors; and

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

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

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

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

         As of April 28, 2005,  our officers and directors and their  affiliates
owned  approximately  44.8% 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.

CONTROLS AND PROCEDURES

         Members of the  company's  management,  including  our Chief  Executive
Officer and President,  Jon Nix, and Chief  Financial  Officer,  Mark A. Oldham,
have evaluated the effectiveness of our disclosure  controls and procedures,  as
defined by paragraph (e) of Exchange Act Rules 13a-15 or 15d-15, as of March 31,
2005, the end of the period covered by this report.  Based upon that evaluation,
Messrs. Nix and Oldham concluded that our disclosure controls and procedures are
effective.

INTERNAL CONTROL OVER FINANCIAL REPORTING

         There were no changes in our internal control over financial  reporting
or in other factors  identified in connection  with the  evaluation  required by
paragraph  (d) of Exchange Act Rules 13a-15 or 15d-15 that  occurred  during the
first  quarter  ended  March  31,  2005 that have  materially  affected,  or are
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.


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<PAGE>


                                     PART II

                                OTHER INFORMATION

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

         NOTE AND WARRANT PURCHASE AGREEMENTS

         On  March  10,  2005,  our  wholly-owned   subsidiary,   National  Coal
Corporation,  a Tennessee corporation ("NC Tennessee") sold to each of Crestview
Capital Master, LLC, Big Bend XIX Investment, L.P. and CCA (US) Fund I, LP, in a
private  placement  transaction  pursuant  to the  terms of a series of Note and
Warrant  Purchase  Agreements by an among us, NC Tennessee,  and each purchaser,
dated March 10, 2005, (i) secured  promissory notes of NC Tennessee due no later
than August 10, 2005, in the aggregate principal amount of $5,137,726,  and (ii)
an  aggregate of 140,000  five-year  warrants to purchase our Common Stock at an
exercise price of $8.50 per share. The notes are secured by certain equipment of
NC  Tennessee  pursuant to the terms of a Security  Agreement  by and between NC
Tennessee and Crestview  Capital  Master,  LLC as agent for itself and the other
purchasers.  In connection  with this  financing,  we delivered a Continuing and
Unconditional  Guaranty  to  the  purchasers,   guaranteeing  full  payment  and
performance of the Notes and the Security Agreement by NC Tennessee.  We paid an
origination  fee of  approximately  $200,000  upon the execution of the Note and
Warrant Purchase Agreements..

         We issued the notes and  warrants  at a  purchase  price of 100% of the
principal amount of the notes. The notes accrue interest from the 61st day after
March 10,  2005  until each note is paid in full at a rate of  eighteen  percent
(18%) per annum.  The entire amount of principal and accrued interest is due and
payable on August 10, 2005. NC Tennessee may, at its option, prepay the notes at
any time without penalty.

         Each of the  purchasers  represented  to us that the  purchaser  was an
"accredited  investor"  within the meaning of Rule 501 of Regulation D under the
Securities  Act of 1933,  and that such  investor was receiving the warrants for
investment and not in connection with a distribution  thereof.  The issuance and
sale of the warrants was exempt from the  registration  and prospectus  delivery
requirements  of the  Securities  Act pursuant to Section 4(2) of the Securities
Act and Rule 506 thereunder as a transaction not involving any public offering.

ITEM 6.  EXHIBITS

         THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:

10.1     First  Amendment  to Credit  Agreement  by and  between  National  Coal
         Corporation and D.B. Zwirn Special  Opportunities Fund, L.P. as lender,
         and administrative agent for the lenders, dated January 11, 2005.

10.2     Second  Amendment  to Credit  Agreement  by and between  National  Coal
         Corporation and D.B. Zwirn Special  Opportunities Fund, L.P. as lender,
         and administrative agent for the lenders,  effective as of December 31,
         2004.

10.3     Form of Note and Warrant Purchase  Agreements by an among National Coal
         Corp., National Coal Corporation, and each of Crestview Capital Master,
         LLC, Big Bend Investments, L.P., and CCA (US) Fund I, L.P., dated March
         10, 2005,  including form of Secured Promissory Note and form of Common
         Stock Purchase Warrant attached as exhibits thereto.


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<PAGE>


10.4     Security  Agreement  by  and  between  National  Coal  Corporation  and
         Crestview Capital Master, LLC as agent for itself, Big Bend Investment,
         L.P. and CCA (US) Fund I, L.P., dated March 10, 2005.

10.5     Continuing  and  Unconditional  Guaranty of National Coal Corp.,  dated
         March 10, 2005,  guaranteeing full payment and performance of the Notes
         issued by National Coal Corporation and the Security Agreement executed
         by National Coal Corporation  pursuant to the Note and Warrant Purchase
         Agreements dated March 10, 2005.

10.6     Separation  Agreement  by and between  the  Company and Robert  Chmiel,
         dated March 21, 2005.

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

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

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


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<PAGE>


                                   SIGNATURES

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

                                           NATIONAL COAL CORP.


Date: May 16, 2005                            /S/ MARK OLDHAM
                                           -------------------------------------
                                           By:    Mark A. Oldham
                                           Its:   Chief Financial Officer
                                                  (Principal Financial and
                                                  Accounting Officer)


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