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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 June 30, 2004

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

  For the transition period from __________________ to ______________________.

                         Commission file number 0-26509

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

          FLORIDA                                                 65-0601272
(State or Other Jurisdiction of                               (I.R.S. Employer
Incorporation or Organization)                               Identification No.)

                                319 EBENEZER ROAD
                               KNOXVILLE, TN 37923
                    (Address of Principal Executive Offices)

                                 (865) 769-3749
                (Issuer's Telephone Number, Including Area Code)

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

     As of August 5, 2004, the issuer had 44,290,216 shares of common stock, par
value $.0001 per share, issued and outstanding.

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

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


<PAGE>


                               NATIONAL COAL CORP.

                              INDEX TO FORM 10-QSB

                                                                            PAGE
                                                                            ----

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

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

          Condensed Consolidated Balance Sheet (unaudited) as
          of June 30, 2004................................. ...................3

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

          Condensed Consolidated Statement of Cash Flows
          (unaudited) for the six months ended June 30, 2004
          and the period from inception (January 30, 2003)
          to June 30, 2003.....................................................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.............................................25



PART II   OTHER INFORMATION...................................................26

Item 2.   Changes in Securities and Small Business Issuer Purchases
          of Equity Securities................................................26

Item 6.   Exhibits and Reports on Form 8-K....................................26


                                       2
<PAGE>


                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                               NATIONAL COAL CORP.
                      CONDENSED CONSOLIDATED BALANCE SHEET

                                                                   JUNE 30, 2004
                                                                   ------------
ASSETS                                                              (unaudited)
Current Assets:
   Cash and cash equivalents ...............................       $    555,671
   Accounts receivable .....................................          1,027,262
   Inventory ...............................................            195,537
   Prepaid and other .......................................              2,347
                                                                   ------------
Total current assets .......................................          1,780,817
                                                                   ------------

Property, Plant and Equipment:
   Land ....................................................            774,290
   Mining equipment ........................................          3,798,629
   Computer equipment and software .........................             81,474
   Vehicles and mobile equipment ...........................            594,880
   Buildings ...............................................          1,935,000
   Office equipment and furniture ..........................             38,461
                                                                   ------------
                                                                      7,222,735
   Less: accumulated depreciation ..........................           (644,180)
                                                                   ------------
                                                                      6,578,555
                                                                   ------------
Coal and mineral rights, net of $8,027
   accumulated depletion ...................................          1,357,203
Deposits ...................................................            560,000
Prepaid royalty ............................................             77,500
Bank letter of credit and reclamation bond .................          1,237,500
                                                                   ------------
TOTAL ASSETS ...............................................       $ 11,591,574
                                                                   ============

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
   Notes payable ...........................................       $ 10,465,217
   Notes payable to related parties ........................            150,000
   Bank loans ..............................................            270,671
   Accounts payable and accrued expenses,
      other than payroll related expenses ..................            554,693
   Accrued payroll, including payroll taxes ................            101,226
   Accrued interest payable ................................            277,634
   Deferred revenue ........................................            127,964
                                                                   ------------
Total current liabilities ..................................         11,947,404

Accrued reclamation expense ................................             75,530
                                                                   ------------
TOTAL LIABILITIES ..........................................         12,022,934
                                                                   ------------

Stockholders' Deficiency:
   Preferred stock, $.0001 par value; 10
      million shares authorized; none issued
      and outstanding ......................................               --
   Common stock, $.0001 par value; 80 million
      shares authorized; 44,290,216 issued
      and outstanding ......................................              4,417
   Additional paid-in capital ..............................          5,150,789
   Accumulated deficit .....................................         (5,586,565)
                                                                   ------------
TOTAL STOCKHOLDERS' DEFICIENCY .............................           (431,360)
                                                                   ------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY .............       $ 11,591,574
                                                                   ============

            See Notes to Condensed Consolidated Financial Statements.


                                       3
<PAGE>


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

<CAPTION>
                                              THREE           THREE           FIVE            SIX
                                              MONTHS          MONTHS          MONTHS          MONTHS
                                              ENDED           ENDED           ENDED           ENDED
                                             JUNE 30,        JUNE 30,        JUNE 30,        JUNE 30,
                                               2003            2004            2003            2004
                                           ------------    ------------    ------------    ------------
<S>                                        <C>             <C>             <C>             <C>
REVENUES
   Coal sales ..........................   $       --      $  4,475,359    $       --      $  5,465,981
   Royalty receipts ....................         17,275          29,122          17,275         103,403
   Other revenue .......................           --            24,214            --            24,214
                                           ------------    ------------    ------------    ------------
      Total revenue ....................         17,275       4,528,695          17,275       5,593,598

EXPENSES
   Cost of sales & selling expense .....        112,322       3,371,008         112,322       4,308,391
   General and administrative ..........        289,354       1,414,253       1,066,098       2,245,391
   Exploration costs ...................           --            82,365            --           142,546
   Depreciation, depletion and accretion         42,624         310,543          42,624         419,898
   Amortization ........................        157,635            --           163,360          45,607
                                           ------------    ------------    ------------    ------------

      TOTAL OPERATING EXPENSES .........        601,935       5,178,169       1,384,404       7,161,833
                                           ------------    ------------    ------------    ------------

LOSS FROM OPERATIONS ...................       (584,660)       (649,473)     (1,367,129)     (1,568,236)
                                           ------------    ------------    ------------    ------------

OTHER INCOME (EXPENSE)
   Other income (expense), net .........         75,602          19,579          75,602           4,934
   Financing fees ......................           --          (285,000)           --          (285,000)
   Interest expense ....................       (109,426)       (272,578)       (121,415)       (405,378)
                                           ------------    ------------    ------------    ------------
      TOTAL OTHER INCOME (EXPENSE) .....        (33,824)       (537,999)        (45,813)       (685,445)
                                           ------------    ------------    ------------    ------------

NET (LOSS) .............................   $   (618,484)   $ (1,187,472)   $ (1,412,942)   $ (2,253,680)
                                           ============    ============    ============    ============

BASIC AND DILUTED NET (LOSS)
   PER SHARE ...........................   $      (0.02)   $      (0.03)   $      (0.04)   $      (0.05)
                                           ============    ============    ============    ============

WEIGHTED AVERAGE COMMON SHARES .........     36,027,174      43,386,449      36,034,298      42,043,633
                                           ============    ============    ============    ============
</TABLE>


            See Notes to Condensed Consolidated Financial Statements.


                                       4
<PAGE>


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


<CAPTION>
                                                                FIVE MONTHS     SIX MONTHS
                                                                   ENDED          ENDED
                                                                  JUNE 30,       JUNE 30,
                                                                    2003           2004
                                                                -----------    -----------
<S>                                                             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net (loss) ................................................   $(1,412,942)   $(2,253,680)
  Adjustments to reconcile net (loss) to
     net cash used in operating activities:
        Depreciation, depletion and accretion ...............        42,624        419,898
        Amortization ........................................       163,360         45,607
        Issuance of common stock in lieu of interest payments          --          165,313
        Issuance of warrants for services ...................          --           36,716
        Non-cash compensation:
          Impairment of assets acquired from related party ..       191,000           --
          Common stock issued in payment of accrued salary ..          --          226,573
          Stock option expense ..............................          --          451,688
          Common stock issued for outside services ..........       153,500           --
        Changes in operating assets and liabilities:
          Receivables .......................................       (13,608)    (1,022,935)
          Inventory .........................................          --          (49,673)
          Prepaid and other .................................       (58,845)        27,850
          Accounts payable and accrued liabilities ..........       153,824        101,508
          Deferred revenue ..................................          --          (51,087)
                                                                -----------    -----------
             Net cash used in operating activities ..........      (781,087)    (1,902,222)
                                                                -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Prepaid royalty ...........................................          --          (77,500)
  Acquisition of coal and mineral rights ....................    (1,277,917)          --
  Bank letter of credit .....................................          --         (980,000)
  Deposits ..................................................          --         (560,000)
  Cash paid for mining permit ...............................       (30,000)          --
  Property, plant & equipment (purchased) sold ..............      (328,312)    (5,647,358)
                                                                -----------    -----------
     Net cash used in investing activities ..................    (1,636,229)    (7,264,858)
                                                                -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of common stock ....................       122,500      2,750,000
  Proceeds from exercise of warrants ........................          --           70,000
  Proceeds from / (payment) of related party debt ...........       150,000       (410,000)
  Proceeds from issuance / (payment) of debt ................     2,623,167      7,500,000
  Proceeds from bank loans ..................................          --          270,671
  Repurchase and cancellation of common stock ...............       (21,072)          --
  Payments on capital leases ................................       (68,000)      (458,803)
                                                                -----------    -----------
     Net cash flows provided by financing activities ........     2,806,595      9,721,868
                                                                -----------    -----------

NET INCREASE (DECREASE) IN CASH .............................   $   389,279    $   554,788

CASH AND EQUIVALENTS, BEGINNING OF PERIOD ...................          --              883
                                                                -----------    -----------

CASH AND EQUIVALENTS, END OF PERIOD .........................   $   389,279    $   555,671
                                                                ===========    ===========

SUPPLEMENTAL DISCLOSURES
  Interest paid in cash .....................................   $     2,694    $    64,011
</TABLE>


            See Notes to Condensed Consolidated Financial Statements.


                                       5
<PAGE>


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


1.       BASIS OF PRESENTATION

         The accompanying  unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted  accounting  principles
in the United States for interim financial information and with the instructions
to Form 10-QSB and Item 310 of Regulation S-B. Accordingly,  they do not include
all of the information and footnotes required by generally  accepted  accounting
principles  in  the  United  States  for  complete  financial  statements.   The
accompanying  unaudited condensed  consolidated financial statements reflect all
adjustments that, in the opinion of management,  are considered  necessary for a
fair  presentation of the financial  position,  results of operations,  and cash
flows for the periods presented.  The results of operations for such periods are
not necessarily  indicative of the results  expected for the full fiscal year or
for any future period. The accompanying  financial  statements should be read in
conjunction with the audited consolidated  financial statements of National Coal
Corp. and consolidated subsidiary (the "Company") included in the Company's Form
10-KSB for the fiscal year ended  December 31, 2003 and interim  unaudited  2004
financial statements previously filed on Form 10-QSB.

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

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

         The  principal  activity  of the  Company is coal  mining.  The Company
currently  owns, in fee simple,  the coal mineral  rights to the New River Tract
assemblage,  which consists of approximately sixty-five thousand (65,000) acres,
and an  additional  approximately  five  thousand  (5,000)  acres on  contiguous
properties,  all  of  which  lie  in  Anderson,  Campbell  and  Scott  Counties,
approximately  twenty-five miles northwest of Knoxville,  Tennessee. The mineral
rights to the New River Tract  assemblage  revert  back to the surface  owner on
June 5, 2093.  At the present time there are two separate  areas  located on the
New River Tract  assemblage  that are producing coal which include (1) a surface
mine situated in Devonia,  Tennessee (Patterson  Mountain),  and (2) a deep mine
commonly referred to as "mine #9" near Smoky Mountain,  Tennessee.  SEE FOOTNOTE
#5.

         The Company's  financial  statements  have been  presented on the basis
that it is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.  From inception to
date, the Company has incurred  significant  outstanding current obligations and
has


                                       6
<PAGE>


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


incurred substantial net losses. This factor,  among others,  raises substantial
doubt as to the Company's ability to continue as a going concern.

2.       NOTES PAYABLE

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

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

3.       EQUITY TRANSACTIONS

ISSUANCE OF STOCK FOR LAND

         In May 2004,  the  Company  purchased  1,738  acres of land in  Eastern
Tennessee for a total  purchase price of $631,000,  which  consisted of $280,000
cash and 300,000  shares of common stock.  The Company valued the 300,000 shares
at a price per share of $1.17,  which  was the  closing  price of the  Company's
common stock on May 14, 2004, the date the purchase was consummated.

ISSUANCE OF WARRANTS FOR SERVICES

         In April 2004, the Company issued 2-year  warrants to purchase  100,000
shares of  common  stock,  with an  exercise  price  per  share of $1.20,  to an
attorney as  consideration  for legal services.  Also in April 2004, the Company
issued 2-year warrants to purchase up to 50,000 shares of common stock,  with an
exercise  price  per  share  of  $1.00,  to  a  financial   consulting  firm  as
consideration for consulting services. The


                                       7
<PAGE>


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


Company  valued  these  warrants  using  a  Black-Scholes  pricing  model  and a
risk-free rate of 3.50%, and recognized $36,716 of non-cash expense in the three
month period ended June 30, 2004.

ISSUANCE OF STOCK UPON THE EXERCISE OF WARRANTS

         In May 2004,  three unrelated  parties,  each holding  warrants with an
exercise  price per share of $0.60,  exercised  their  respective  warrants  and
acquired an aggregate of 116,667 shares of common stock for $70,000.

ISSUANCE OF STOCK UPON CONVERSION OF CONVERTIBLE DEBT

         In April 2004, Crestview converted $500,000 of the Convertible Notes it
acquired from an existing holder in February 2004, into 1,000,000  shares of the
Company's common stock.

2004 STOCK OPTION PLAN

         On March 25, 2004,  the Board of Directors of the Company  approved the
issuance of options to purchase a total of  4,950,000  shares of common stock to
senior  executives,  board  members and key  employees at an exercise  price per
share of $0.55.  The options  vest  ratably  over a four-year  period  beginning
January 1, 2005. In accordance with APB No. 25, during the six months ended June
30,  2004,  the Company  recognized  non-cash  compensation  expense of $451,688
related to the issuance of these options since the exercise price of the options
of $0.55 per share was below the closing price of $1.28 of the Company's  common
stock on March 25, 2004.

4.       RELATED PARTY TRANSACTIONS

         On July 1, 2003, the Company sold mineral royalty rights for coal mined
on the Patterson Mountain portion of its New River Tract property for $75,156 to
Jenco Capital Corporation ("Jenco"), an entity controlled by the Company's Chief
Executive Officer and President. The Company is obligated to pay Jenco $2.00 per
mined ton on the  property.  During the three months  ended June 30,  2004,  the
Company paid Jenco $43,995 in accordance with this agreement.

         On August 1, 2003,  the Company  sold its  interest in mineral  royalty
rights  received by the Company from U.S. Coal, Inc. for coal mined on the Smoky
Mountain  portion  of the New River  Tract.  The  royalty  rights  were sold for
$250,000 to Jenco,  which  thereafter  received royalty payments from U.S. Coal.
The Company recorded the transaction as deferred revenue and recognizes  revenue
each month based on U.S. Coal's production.  For the three months ended June 30,
2004, the Company recognized  royalty revenue of $29,122,  which constitutes the
remaining amount of revenue to be recognized pursuant to this transaction.

         These  transactions were completed by the Company with Jenco, a related
party,  because (i) the Company needed a prompt capital infusion to ramp up coal
production, (ii) Jenco had available cash for the transaction, (iii) the Company
could not have  developed  another  independent  source for the capital  without
considerable  time  delay  due to lack of a  production  history,  and  (iv) the
Company had no knowledge of any outside  sources for such  capital.  The Company
believes  that given the time delay to search for  capital  and the cost of lost
opportunity, the terms of these transactions were acceptable because it afforded
immediate liquidity for operating purposes.

         In May and June 2004, the Company repaid $250,000 of principal plus all
accrued and unpaid  interest to Jenco.  These  payments  represented  a complete
payment to Jenco for all previously recorded related party debt.


                                       8
<PAGE>


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


5.       ACQUISITION OF U.S. COAL, INC. ASSETS

         In April 2004 the Company  acquired  certain mining  assets,  including
active and idle mining permits,  mining equipment,  a rail load-out facility,  a
prepaid  royalty and a coal washing plant,  from U.S. Coal,  Inc. for a purchase
price of $4.2  million  plus the  assumption  of  certain  operating  leases for
equipment  used in the  normal  course  of  business.  The  Company  immediately
commenced mining operations at the deep mine referred to herein as mine #9.

6.       EVENTS SUBSEQUENT TO JUNE 30, 2004

         In July 2004,  the  Company  issued  3-year  warrants to purchase up to
35,000 shares of common stock,  with an exercise price per share of $1.18, to an
outside consultant as partial consideration for business advisory services to be
rendered to the Company during the third quarter 2004.


                                       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, 2003 and presumes  that readers have access to, and will have read,
the  "Management's  Discussion  and  Analysis  or Plan of  Operation"  and other
information  contained  in such Form  10-KSB  and 2004 Form  10-QSBs  previously
filed.  The following  discussion and analysis also should be read together with
our condensed  consolidated  financial statements and the notes to the condensed
consolidated financial statements included elsewhere in this Form 10-QSB.

         THIS  DISCUSSION  SUMMARIZES  THE  SIGNIFICANT  FACTORS  AFFECTING  THE
CONSOLIDATED OPERATING RESULTS, FINANCIAL CONDITION AND LIQUIDITY AND CASH FLOWS
OF NATIONAL  COAL CORP.  FOR THE THREE AND SIX MONTHS ENDED JUNE 30,  2004,  THE
THREE  MONTHS ENDED JUNE 30, 2003,  AND THE PERIOD FROM  INCEPTION  (JANUARY 30,
2003) TO JUNE 30, 2003. EXCEPT FOR HISTORICAL INFORMATION, THE MATTERS DISCUSSED
IN THIS  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OR PLAN OF OPERATION ARE FORWARD
LOOKING  STATEMENTS  THAT  INVOLVE  RISKS AND  UNCERTAINTIES  AND ARE BASED UPON
JUDGMENTS CONCERNING VARIOUS FACTORS THAT ARE BEYOND OUR CONTROL. ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE  FORWARD-LOOKING  STATEMENTS
AS A RESULT OF,  AMONG  OTHER  THINGS,  THE  FACTORS  DESCRIBED  BELOW UNDER THE
CAPTION "CAUTIONARY STATEMENTS AND RISK FACTORS."

OVERVIEW

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

         We own the coal mineral rights to the New River Tract assemblage, which
consists of approximately  sixty-five  thousand  (65,000) acres, as well another
approximately five thousand (5,000) acres on contiguous properties, all of which
lie in Anderson,  Campbell and Scott Counties,  approximately  twenty-five miles
northwest of  Knoxville,  Tennessee.  The mineral  rights to the New River Tract
assemblage  revert back to the surface  owner on June 5, 2093. At June 30, 2004,
we were  extracting  coal from a surface mine in Devonia,  Tennessee  (Patterson
Mountain),  and a deep  mine,  commonly  referred  to as "mine  #9",  near Smoky
Junction,  Tennessee.  We  commenced  mining  coal from  mine #9 in April  2004,
following our  acquisition  of coal mining assets from U.S.  Coal,  Inc.,  which
assets included equipment,  a coal washing plant, a rail load-out facility,  and
coal mineral rights and permits to mine #9 and other deep mines.

         We  engage  in  coal  production  by  locating,  assembling,   leasing,
assessing, permitting and developing coal properties in Eastern Tennessee. After
obtaining permits from the U.S.  Department of the Interior,  we mine properties
for the extraction of coal minerals. We then sell the coal on a per ton basis at
previously negotiated rates, primarily to state run utility companies. We obtain
reclamation  bonds for each of our producing  properties.  These bonds typically
take the form of cash deposits with the U.S. Department of the Interior,  Office
of Surface  Mining,  or OSM. At June 30, 2004,  $257,500 was on deposit with OSM
for reclamation bonds related to our Patterson  Mountain mining  operations.  In
addition, we have $980,000 of cash in a separate bank account,  against which an
irrevocable bank letter of credit is written in favor of OSM


                                       10
<PAGE>


for the  reclamation  bonds related to our mine #9  operations  and other mining
permits acquired from U.S. Coal, Inc.

         We  sell  our  coal  at  a  negotiated  price  pursuant  to  short-term
contracts.  The price charged is typically for a specified  tonnage  amount.  We
also price sales on a one-day or one-shipment  tonnage amount. The price per ton
for these types of sales typically fluctuates in direct correlation to the price
per ton of coal quoted on the New York Mercantile  Exchange,  referred to as the
"spot price." We intend to reduce the price  volatility for our coal by entering
long-term  supply  contracts  (contracts in excess of one year) for a portion of
our coal  production,  which 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 price per ton at which we are
able to sell the coal,  usually from short term  contracts.  Additionally,  when
capacity is available,  we charge third party coal producers a negotiated  price
per ton for their use of our load-out facility located in Turley,  TN. This load
out facility allows easy,  direct access to load previously mined coal onto rail
cars for  shipment to their  customers.  This load out  facility was acquired in
April 2004 from U.S. Coal, Inc. We do not expect the sale of coal purchased from
third party producers or the rental to third parties of our load-out facility to
represent a material portion of our business in 2004 or beyond.

         The coal industry has been highly  competitive with very low margins in
the past several years.  Recently,  the surge in prices for natural gas has made
coal more  competitive with that  alternative  energy source,  which has enabled
coal  fired  power  plants,  using  the  latest  clean  air  compliant  scrubber
technology,  to be price  competitive with natural gas fired plants.  We believe
this  has  and  will  continue  to  cause  increased  demand  for  coal  for the
foreseeable  future,  resulting in higher  prices and  improved  margins for our
product.  However,  the  price of coal is very  volatile,  and  there  can be no
assurances that the price of coal will not drop below current levels.  To reduce
our exposure to  fluctuations  in the price of coal, we intend to sign long term
contracts  with respect to a majority of our coal  production,  to fix the price
per ton we receive for our coal over a period of one or more years.

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

SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

         The discussion  and analysis of our financial  condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues  and  expenses,   and  related  disclosure  of  contingent  assets  and
liabilities.  On an on-going basis,  we evaluate our estimates,  including those
related  to  computing  depreciation,   depletion,   amortization,   reclamation
liability, asset impairment,  valuation of non-cash transactions and recovery of
receivables.  Estimates are then based on historical  experience  and on various
other  assumptions that are believed to be reasonable  under the  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.


                                       11
<PAGE>


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

         REVENUE RECOGNITION

         Under SEC Staff Accounting  Bulletin No. 101,  "Revenue  Recognition in
Financial  Statements," we recognize revenue when all of the following  criteria
are met: (1)  persuasive  evidence of an  arrangement  exists,  (2) delivery has
occurred or services have been rendered,  (3) the seller's price to the buyer is
fixed or determinable, and (4) collectibility is reasonably assured.

               MINED COAL.  In the case of coal we mine and sell, we negotiate a
specific  sales  contract with each  customer,  which includes a fixed price per
ton, a delivery schedule, and terms for payment. We recognize revenue from sales
made pursuant to these contracts at the time of delivery.

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

         ACCOUNTS RECEIVABLE

         Accounts  receivable  balances are  evaluated on a continual  basis and
allowances  are  provided  for  potentially   uncollectable  accounts  based  on
management's  estimate  of  the  collectability  of  customer  accounts.  If the
financial  condition  of  a  customer  were  to  deteriorate,  resulting  in  an
impairment  of its ability to make  payments,  an  additional  allowance  may be
required. Allowance adjustments are charged to operations in the period in which
the facts that give rise to the adjustments become known.

         ASSET RETIREMENT OBLIGATION

         The  Surface  Mining  Control and  Reclamation  Act of 1977 and similar
state  statutes  require that mine  properties  be restored in  accordance  with
specified standards and an approved  reclamation plan.  Significant  reclamation
activities  include  reclaiming refuse and slurry ponds,  reclaiming the pit and
support acreage at surface mines, and sealing portals at deep mines. Reclamation
activities that are performed outside of the normal mining process are accounted
for as  asset  retirement  obligations  in  accordance  with the  provisions  of
Statement of  Financial  Standards  No. 143,  "Accounting  For Asset  Retirement
Obligations"   ("SFAS  143").  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  prepared by the OSM
based on historical  costs.  In accordance  with SFAS 143, we determine the fair
value  of  our  asset  retirement  obligations  using  a  discounted  cash  flow
methodology  based on a discount rate related to the rates of US treasury  bonds
with maturities similar to the expected life of a mine,  adjusted for our credit
standing.

         On at least an annual basis, we review our entire reclamation liability
and make necessary  adjustments for permit changes granted by state authorities,
additional costs resulting from accelerated mine closures, and revisions to cost
estimates and productivity  assumptions,  to reflect current experience. At June
30, 2004, we recorded asset retirement obligation  liabilities of $75,530. While
the precise amount of these future costs


                                       12
<PAGE>


cannot be determined with  certainty,  as of June 30, 2004, we estimate that the
aggregate undiscounted cost of final mine closure is approximately $1,237,500.

         RESERVES

         We do  not  disclose  coal  "reserves"  in  our  financial  statements.
"Reserves",  to be  so  classified,  must  be  based  upon  reasonably  accurate
scientific data and  professional  analysis,  be recoverable  (economically  and
physically),  have a permitted and operating mine facility at the coal location,
and 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 being actively mined.

RESULTS OF OPERATIONS

         REVENUES.  Revenues were  $4,528,695 and $5,593,598 for the three-month
and six-month periods,  respectively,  ended June 30, 2004, consisting primarily
of coal sales of $4,475,359 and $5,465,981,  and royalty receipts of $29,122 and
$103,403,   for  the  three-month  and  six-month  periods,   respectively.   We
experienced  a  significant  increase  for the three month period ended June 30,
2004  compared to the three month period  ended March 31, 2004.  This was mainly
attributed to (i) a higher price per ton received on average from our customers,
and (ii) the  shipment  of coal to a new  customer.  These added sales were made
possible  in part to the  added  production  we  experienced  as a result of our
acquisition of assets from U.S. Coal. For the three-month and five-month periods
ended June 30, 2003, we had no coal sales and $17,275 of royalty  receipts,  all
of which was  recorded  during the quarter  ended June 30,  2003.  For the three
months  ended  June 30,  2004,  we had a total of five  customers,  two of which
accounted for approximately 88% of our sales.  These sales were made pursuant to
a short term  contract to deliver  each  customer  100,000 tons of coal during a
one-year  period.  The royalty  receipts for the three and six months ended June
30, 2004 were the result of the recognition of deferred  revenue relating to our
sale in August 2003 for $250,000 of royalty rights relating to coal mined on the
Smoky Mountain  portion of our New River Tract  property.  We will not recognize
any more royalty revenue pursuant to this transaction.

         COST OF  MINING  OPERATIONS  AND  SELLING  EXPENSES.  For the three and
six-month  periods ended June 30, 2004,  cost of mining  operations  and selling
expenses was $3,371,008 and $4,308,391, respectively. For the three month period
ended  June 30,  2003,  cost of  mining  operations  and  selling  expenses  was
$112,322. There were no such expenses for the period prior to the second quarter
2003.  For the three and six-month  periods ended June 30, 2004,  these expenses
consisted  primarily  of  salary,  benefits  and other  compensation  costs paid
directly to miners of approximately $866,330 and $1,145,030,  respectively,  and
direct costs paid to third party  vendors whose goods and services were directly
used in the process of producing  coal  inventory.  For the three and  six-month
periods ended June 30, 2004,  third party vendor costs include coal purchases of
$814,857 and $947,357, equipment leases and maintenance expenses of $269,091 and
$439,891,  blasting expenses of $92,374 and $186,074, fuel costs of $117,370 and
$221,070,  parts and supplies of $254,769  and  $339,369,  and hauling  costs of
$300,455 and $336,555,  respectively.  For the three months ended June 30, 2003,
our total cost of mining  operations and selling expenses  ($112,322)  consisted
primarily of salary,  benefits  and other  compensation  costs paid  directly to
miners who were preparing the mine for production which commenced in July 2003.

         EXPLORATION  AND  DEVELOPMENT  EXPENSES.  For the  three  and six month
period ended June 30, 2004, we incurred  exploration  and  development  costs of
$82,365 and $142,546  respectively for fees paid to professional  geological and
exploration  experts.  For the three and five months ended June 30, 2003, we did
not have any exploration and development expenses.


                                       13
<PAGE>


         GENERAL  AND  ADMINISTRATIVE   EXPENSES.   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.
For the six  month  period  ended  June 30,  2004,  general  and  administrative
expenses were approximately  $2,245,400,  which was an increase of approximately
$1,179,300  or 111%,  from  $1,066,100  for the five months ended June 30, 2003.
This increase is primarily  attributable to an increase in salary,  benefits and
related  expenses of $1,110,100,  and an increase of $335,100 of insurance fees,
partially offset by a decrease in consulting fees of $463,100.  This occurred as
we transitioned  from our initial  start-up phase in the five month period ended
June  30,  2003,  during  which  we used  consultants,  to  on-going  operations
conducted by employees in 2004. Additionally,  legal and other professional fees
increased  $149,800  from  $39,800  for the five  months  ended June 30, 2003 to
$189,600  for the six months  ended June 30,  2004.  For the three month  period
ended June 30, 2004,  general and  administrative  expenses  were  approximately
$1,414,300,  which was an increase of approximately $1,124,900 from $289,400 for
the three months ended June 30, 2003. This increase is primarily attributable to
an increase in salary, benefits and related expenses of $544,300, an increase of
$312,800 of insurance fees and an increase in legal and other  professional fees
of $114,200.

         INTEREST,  DEPRECIATION,  AMORTIZATION  AND OTHER  INCOME AND  EXPENSE.
Other  significant  expenses  primarily  include interest expense related to the
issuance of notes  payable,  financing  fees paid for the issuance of debt which
matures in less than one year,  depreciation of fixed assets,  and  amortization
expense. For the six month period ended June 30, 2004, interest, financing fees,
depreciation, amortization and other income and expense items were approximately
$1,150,900,  which was an increase of  approximately  $899,100 from $251,800 for
the five months ended June 30, 2003. This increase is primarily  attributable to
an increase in interest  expense of $284,000  from  $121,400 for the five months
ended  June 30,  2003 to  $405,400  for the six  months  ended  June  30,  2004,
attributable  to  one  extra  month  of  interest  charge  and  an  increase  in
indebtedness; increase in financing fees of $285,000 from $0 for the five months
ended  June 30,  2003 to  $285,000  for the six  months  ended  June  30,  2004,
attributable  to a debt  financing in the second quarter of 2004; an increase in
depreciation and depletion  expense of $377,300 from $42,600 for the five months
ended  June 30,  2003 to  $419,900  for the six  months  ended  June  30,  2004,
attributable  to the  acquisition  of fixed  assets;  offset  by a  decrease  in
amortization  expense of $117,800  from  $163,400 for the five months ended June
30,  2003 to $45,600 for the six months  ended June 30,  2004,  attributable  to
amortization  expense  related to financing  fees paid in  conjunction  with our
issuance of convertible  notes in March 2003 having been fully  amortized by the
end of the first quarter 2004.

RELATED PARTY TRANSACTIONS

         On July 1, 2003, we sold mineral  royalty  rights for coal mined on the
Patterson  Mountain  portion of our New River Tract for $75,156 to Jenco Capital
Corporation  ("Jenco"),  an entity controlled by our Chief Executive Officer and
President.  We are  obligated to pay Jenco $2.00 per mined ton on the  property.
During the three months ended June 30, 2004, we paid Jenco $43,995 in accordance
with this agreement.

         On August 1,  2003,  we sold our  interest  in mineral  royalty  rights
received by us from U.S. Coal, Inc. for coal mined on the Smoky Mountain portion
of the New River  Tract.  The royalty  rights  were sold for  $250,000 to Jenco,
which  thereafter  received  royalty  payments  from U.S.  Coal. We recorded the
transaction as deferred  revenue and recognize  revenue each month based on U.S.
Coal's  production.  For the three  months ended June 30,  2004,  we  recognized
royalty revenue of $29,122, which constitutes the remaining amount of revenue to
be recognized pursuant to this transaction.

         These  transactions  were  completed by us with Jenco, a related party,
because (i) we needed a prompt capital infusion to ramp up coal production, (ii)
Jenco had available cash for the transaction,  (iii) we could not have developed
another  independent source for the capital without  considerable time delay due
to lack of a  production  history,  and (iv) we had no  knowledge of any outside
sources for such capital. We believe that


                                       14
<PAGE>


given the time delay to search for capital and the cost of lost opportunity, the
terms of these  transactions  were  acceptable  because it afforded us immediate
liquidity for operating purposes.

         In May and June 2004, we repaid  $250,000 of principal plus all accrued
and unpaid interest to Jenco.  These payments  represented a complete payment to
Jenco for all previously recorded related party debt.

LIQUIDITY AND CAPITAL RESOURCES

         As of June 30, 2004, we had cash and cash  equivalents of approximately
$555,700.  As of June 30, 2004, we had negative working capital of approximately
$9,606,600 and a stockholders' deficiency of approximately $431,400. Included in
our negative working capital is $7.5 million of indebtedness  outstanding  under
secured  promissory notes due in April and May 2005. We expect a significant use
of cash  during the second half of fiscal 2004 as we continue to expand our coal
mining operations.  We anticipate,  however, that our current cash reserves plus
cash we  expect to  generate  from  operations  will be  sufficient  to fund our
operational  expenditures for the next twelve months.  If we acquire  additional
assets and/or mining operations,  however,  we will require additional equity or
debt financing,  the amount and timing of which will depend in large part on our
spending program.  If additional funds are raised through the issuance of equity
securities, the current stockholders may experience dilution. Furthermore, there
can be no assurance that  additional  financing will be available when needed or
that  if  available,   such  financing  will  include  terms  favorable  to  our
stockholders.  If  such  financing  is not  available  when  required  or is not
available on acceptable  terms,  we may be unable to take  advantage of business
opportunities  or respond to  competitive  pressures,  any of which could have a
material  adverse  effect on our  business,  financial  condition and results of
operations.

         In April  and May  2004,  we  raised  gross  proceeds  of $7.5  million
pursuant to a series of private  placements of senior secured  promissory  notes
that  mature in April and May 2005.  We used $3.7  million of these  proceeds in
connection  with our  acquisition of assets from U.S.  Coal,  Inc.  which,  when
combined with  $500,000  previously  deposited in escrow in connection  with the
purchase,  total the purchase  price for the U.S.  Coal assets of $4.2  million.
Additionally,  in April  2004,  the  holder of  approximately  $3.2  million  of
convertible  notes  included in current  liabilities at March 31, 2004 converted
$500,000 of these notes into 1,000,000  shares of common stock,  pursuant to the
original debt agreement  allowing for a $0.50 per share conversion price.  After
giving  effect to these  transactions,  we have  approximately  $10.5 million of
indebtedness  underlying promissory notes with maturities of less than one year.
We intend to repay these notes from proceeds from the sale of equity securities.
There can be no  assurance,  however,  that we will be successful in raising the
proceeds necessary to repay this indebtedness,  or that we will be able to do so
without our existing stockholders experiencing significant dilution.

         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 six  months  ended  June  30,  2004,  we had a net  increase  in cash of
approximately  $554,800.  Cash flows from  operating,  financing  and  investing
activities for the five months ended June 30, 2003 and the six months ended June
30, 2004 are summarized in the following table:


                                       15
<PAGE>


                                                  FIVE MONTHS        SIX MONTHS
                                                     ENDED             ENDED
ACTIVITY:                                        JUNE 30, 2003     JUNE 30, 2004
--------------------------------------------      -----------       -----------

Operating activities .......................      $  (781,087)      $(1,902,222)
Investing activities .......................       (1,636,229)       (7,264,858)
Financing activities .......................        2,806,595         9,721,868
                                                  -----------       -----------
  Net increase (decrease) in cash ..........      $   389,279       $   554,788


         The net cash used in operating  activities of $1,902,222 during the six
months  ended  June  30,  2004  was  primarily  the  result  of the net  loss of
$2,253,680 and increases in receivables of $1,022,935, inventory of $49,673, and
deferred  revenue of $51,087 as we increased coal production  during the period,
partially offset by an increase in accounts  payable and accrued  liabilities of
$101,508,  prepaid and other of $27,850 and non-cash expenses of $1,345,795. The
non-cash expenses during the period included  $451,688 of non-cash  compensation
expense  related to the issuance of stock  options with an exercise  price below
the  closing  price of the  Company's  common  stock on the date of  grant,  and
$428,602 of non-cash  expense for the  issuance of common  stock and warrants in
consideration of interest payments and for accrued salary and services.

         The net cash used in operating  activities of $781,087  during the five
months ended June 30, 2003 was primarily the result of our substantial operating
costs exceeding  revenues,  offset  primarily by an increase in accounts payable
and accrued liabilities of $153,824 and non-cash expenses of $550,484,  of which
$163,360  was  recognition  of  amortization  expense,   $191,000  was  non-cash
impairment  of  acquired  assets,  and  $153,500  was  non-cash  expense for the
issuance of common stock for services.

         The  $7,264,858  of cash used in  investing  activities  during the six
months ended June 30, 2004 was due primarily to  $5,647,358  for the purchase of
land,  mining  assets  and other  equipment  and  vehicles,  primarily  from the
purchase from U.S. Coal, Inc.,  $980,000 deposited with a bank as collateral for
reclamation  bonds used for mine #9 and other mining  assets  acquired from U.S.
Coal,  Inc.  in April  2004,  $560,000  in  deposits  for mining  equipment  and
potential land purchase,  and $77,500 of prepaid royalty in advance of royalties
to be paid on property  we lease and expect to mine within a few years.  For the
five months ended June 30, 2003, $1,636,229 of cash used in investing activities
resulted  primarily  from  $1,307,917  for the  acquisition  of coal and mineral
rights, and $328,312 for the acquisition of mining equipment.

         The net cash provided by financing  activities of $9,721,867 during the
six months ended June 30, 2004 was  primarily  the result of  $7,500,000  raised
from sales of debt securities,  $2,750,000 raised from the sale of common stock,
offset by  $410,000  paid on  related  party debt and  $458,803  paid on capital
leases.  The net cash provided by financing  activities of $2,806,595 during the
five months ended June 30, 2003 was primarily  the result of  $2,623,167  raised
from sales of debt securities.

         COMMON STOCK TRANSACTIONS

         In April  2004,  we issued  2-year  warrants  to purchase up to 100,000
shares  of our  common  stock  with an  exercise  price per share of $1.20 to an
attorney as  consideration  for legal  services.  Also in April 2004,  we issued
2-year  warrants  to purchase  up to 50,000  shares of our common  stock with an
exercise  price  per  share  of  $1.00  to  a  financial   consulting   firm  as
consideration  for  consulting  services.  We  valued  these  warrants  using  a
Black-Scholes  pricing  model  and a  risk-free  rate of 3.50%,  and  recognized
$36,716 of non-cash expense in the three month period ended June 30, 2004.

         In May 2004, we purchased 1,738 acres of land in Eastern  Tennessee for
a total purchase price of $631,000, which consisted of $280,000 cash and 300,000
shares of common stock.  The 300,000  shares were issued at a price per share of
$1.17,  which was the closing  price of our stock on May 14,  2004,  the date of
closing for this transaction.


                                       16
<PAGE>


         In April 2004,  Crestview Capital Master,  LLC, an entity controlled by
Crestview Capital Funds, converted $500,000 of convertible  indebtedness that it
acquired from an existing holder in February 2004, into 1,000,000  shares of our
common stock.

         In May 2004,  three unrelated  parties,  each holding  warrants with an
exercise  price per share of $0.60,  exercised  their  respective  warrants  and
acquired  and  aggregate  of  116,667  shares of common  stock for an  aggregate
payment to us of $70,000.

         2004 STOCK OPTION PLAN

         On March 25,  2004,  our Board of  Directors  approved  the issuance of
options  to  purchase  a total of  4,950,000  shares of  common  stock to senior
executives,  board members and key  employees at an exercise  price per share of
$0.55.  The options vest ratably over a four-year  period  beginning  January 1,
2005. In accordance  with APB No. 25, during the three and six months ended June
30, 2004, we recognized non-cash  compensation  expense of $235,125 and $451,688
respectively  related to the issuance of these options since the exercise  price
of the  options of $0.55 per share was below the  closing  price of $1.28 of our
common stock on March 25, 2004.

         CONTRACTUAL OBLIGATIONS

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

<TABLE>
<CAPTION>
                                                           PAYMENTS DUE BY PERIOD
                                   -------------------------------------------------------------------
                                                 LESS THAN 1       1-3           3-5         AFTER
                                       TOTAL         YEAR         YEARS         YEARS       5 YEARS
--------------------------------   -----------   -----------   -----------   ----------   ------------
<S>                                <C>           <C>           <C>           <C>          <C>
Notes payable ..................   $10,615,217   $10,615,217   $      --     $     --     $       --
Operating leases ...............        83,300        83,300          --           --             --
Property leases ................         5,400         5,400          --           --             --
Employment obligations .........     3,840,000     1,493,000     2,347,000         --             --
                                   -----------   -----------   -----------   ----------   ------------
   Total contractual obligations   $14,543,917   $12,196,917   $ 2,347,000   $     --     $       --
                                   ===========   ===========   ===========   ==========   ============
</TABLE>


                                       17
<PAGE>


         Our notes payable at June 30, 2004 consisted of the following:

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

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

Note payable to a trust owned by an officer  dated  February
20, 2003,  8% interest,  payable with accrued  interest upon
the earlier of February  20, 2008 and the closing of certain
financing, merger or disposition activities ................             150,000

Note payable dated September 25, 2003, 12% interest, payable
with accrued interest upon the earlier of September 25, 2004
and the closing of certain financing,  merger or disposition
activities .................................................              75,000

Note payable dated September 30, 2003, 12% interest, payable
with accrued interest upon the earlier of September 30, 2004
and the closing of certain financing,  merger or disposition
activities .................................................             195,315

Notes payable to  institutional  and  accredited  individual
investors  dated April 15, 2004 (with  respect to $6,250,000
of indebtedness),  May 10, 2004 (with respect to $500,000 of
indebtedness), and May 20, 2004 (with respect to $750,000 of
indebtedness).  The interest rate for the first three months
is 12%, 15% for the second three months and is capped at 18%
thereafter,  and is payable quarterly. These notes mature on
the first  anniversary of their respective  issuance and are
secured by all of our coal mining assets ...................           7,500,000
                                                                     -----------

     Total .................................................         $10,615,217
                                                                     ===========

         We rent mining equipment  pursuant to operating lease  agreements,  and
made lease  payments  totaling  $270,088  during the three months ended June 30,
2004.

         In March 2003, we leased office space in Peachtree City,  Georgia, on a
month-to-month  basis,  at $600 per month. In April 2003, we leased office space
in Knoxville,  Tennessee, for nine months at $1,800 per month, which we extended
for an addition nine months beginning in January 2004.  Rental expense for these
lease commitments totaled $7,200 during the three months ended June 30, 2004.

OFF-BALANCE SHEET ARRANGEMENTS

         At June 30,  2004 and  2003,  we did not  have any  relationships  with
unconsolidated  entities  or  financial  partnerships,  such as  entities  often
referred to as structured finance or special purpose entities,  which would have
been established for the purpose of facilitating  off-balance sheet arrangements
or other contractually  narrow or limited purposes.  As such, we are not exposed
to any  financing,  liquidity,  market or credit risk that could arise if we had
engaged in such relationships.

CAUTIONARY STATEMENTS AND RISK FACTORS

         Several   of  the   matters   discussed   in  this   document   contain
forward-looking  statements  that  involve  risks  and  uncertainties.   Factors
associated with the  forward-looking  statements that could cause actual results
to differ  materially  from those  projected  or  forecast  are  included in the
statements below. In addition to


                                       18
<PAGE>


other information  contained in this report,  readers should carefully  consider
the following cautionary statements.

OUR INABILITY TO GENERATE  ADDITIONAL  REVENUE OR RAISE CAPITAL COULD  ADVERSELY
IMPACT OUR ABILITY TO CONTINUE AS A GOING CONCERN.

         We currently  have a number of  obligations  that we are unable to meet
without  generating  additional  revenues or raising additional  capital.  If we
cannot  generate  additional  revenues or raise  additional  capital in the near
future,  we may become  insolvent.  As of June 30,  2004,  our cash  balance was
$555,671 and our outstanding  short term accounts  payable and accrued  expenses
totaled more than $933,553.  Additionally, we had approximately $10.5 million of
indebtedness  underlying promissory notes with maturities of less than one year.
Our working capital needs consist of debt reduction and interest  service,  mine
development,   property   acquisition  and  exploration  costs,  bonding  costs,
equipment  expenditures and compensation payments for mining.  Historically,  we
have funded our capital requirements with debt and equity financing. Our ability
to obtain  additional  equity or debt  financing  depends on a number of factors
including  the  financial  performance  and the overall  conditions  in the coal
industry. We have not fully investigated the availability, source, or terms that
might govern the  acquisition of additional  capital and will not do so until we
determine  a  need  for  additional  financing.  If we are  not  able  to  raise
additional  financing or if such financing is not available on acceptable terms,
we may liquidate  assets,  seek or be forced into  bankruptcy,  and/or  continue
operations,  but suffer material harm to our operations and financial condition.
These measures could have a material,  adverse affect on our ability to continue
as a going concern.

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

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

THERE IS NO ASSURANCE THAT OUR LIMITED REVENUES WILL BE SUFFICIENT TO OPERATE AS
A GOING CONCERN, OR THAT WE WILL GENERATE GREATER REVENUES IN THE FUTURE.

         We were formed to create a regional coal producer in Tennessee.  We had
no revenues  from  inception  until the third  quarter 2003 when we began mining
operations. We are not profitable and our business status is considered to be in
an early  development  stage. We must be regarded as a risky venture with all of
the unforeseen costs, expenses,  problems,  risks and difficulties to which such
ventures are subject.

         Our coal  sales  for the first  six  months of 2004 were  approximately
$5,466,000.  There is no assurance that we can achieve greater sales or maintain
profitable sales. We expect that many coal producers could produce and sell coal
at cheaper prices per ton than our production cost rates,  which could adversely
affect our revenues and profits, if any. There is no assurance that we will ever
operate  profitably.  There  is no  assurance  that we will  generate  continued
revenues or any  profits,  or that the market  price of our common stock will be
increased thereby.

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

         There  is  a  limited  public  market  for  our  common  stock  on  the
Over-the-Counter  Bulletin  Board,  and no assurance  can be given that a market
will  continue  or  that a  shareholder  will  ever be  able  to  liquidate  his
investment without  considerable delay, if at all. Our stock price may be highly
volatile. Factors such as those discussed in this section may have a significant
impact  upon the  market  price of our  securities.  Due to the low price of our
securities,  many brokerage  firms may not be willing to effect  transactions in
our securities.


                                       19
<PAGE>


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.

         In  addition,  all of the  outstanding  shares of common  stock held by
present  officers,   directors,   and  affiliate  stockholders  are  "restricted
securities"  within the meaning of Rule 144 under the Securities Act of 1933, as
amended.  As restricted  shares,  these shares may be resold only pursuant to an
effective  registration statement or under the requirements of Rule 144 or other
applicable exemptions from registration under the Securities Act and as required
under  applicable  state  securities  laws.  Rule 144 provides in essence that a
person  who has held  restricted  securities  for one year  may,  under  certain
conditions,  sell every three  months,  in brokerage  transactions,  a number of
shares  that does not exceed  the  greater  of 1.0% of a  company's  outstanding
common stock or the average weekly trading volume during the four calendar weeks
prior to the sale. There is no limit on the amount of restricted securities that
may be  sold  by a  non-affiliate  after  the  owner  has  held  the  restricted
securities  for a period of two years.  A sale under Rule 144 or under any other
exemption  from the  Securities  Act, if  available,  or pursuant to  subsequent
registration  of shares  of common  stock of  present  stockholders,  may have a
depressive  effect  upon the price of our common  stock in any  market  that may
develop.

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

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

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

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


                                       20
<PAGE>


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

         Our limited  financial  resources reduce the likelihood that we will be
able to  diversify  our  operations.  Our probable  inability  to diversify  our
activities  into  more  that one  business  area  will  subject  us to  economic
fluctuations within a particular business or industry and therefore increase the
risks associated with our operations.

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

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

         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.

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.

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

         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  stockholders  and  management  would
control us, and


                                       21
<PAGE>


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.

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. Some coal supply  agreements  permit the
customer to terminate the contract if the cost of transportation increases by an
amount ranging from 10% to 20%, in any given 12-month period.

         Coal producers depend upon rail, barge, trucking, overland conveyor and
other systems to deliver coal to markets.  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 restricts the use or type of coal permissible at the


                                       22
<PAGE>


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 June 30, 2004, we
leased no acres  from the  federal  government.  The limit  could  restrict  our
ability to lease significant federal lands.

         Our  planned  development  and  exploration  projects  and  acquisition
activities  may not result in the  acquisition of  significant  additional  coal
deposits and we may not have continuing success developing additional mines. Our
mining  operations are conducted on mineral rights owned 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.


                                       23
<PAGE>


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

         Federal  and state laws  require  bonds or cash  deposits to secure our
obligations to reclaim lands used for mining,  to pay federal and state workers'
compensation,   to  secure  coal  lease   obligations   and  to  satisfy   other
miscellaneous  obligations.  As of  June  30,  2004,  we had  $257,500  in  cash
deposited  with the  Department  of the  Interior  for  post-mining  reclamation
pursuant to one mining  permit,  and we have $980,000 of cash in a separate bank
account,  against  which a letter  of  credit  is  written  in favor of the U.S.
Department  of  the  Interior,  Office  of  Surface  Mining,  or  OSM,  for  the
reclamation  bonds  related to our mine #9  operations  and other mining  assets
acquired from U.S. Coal, Inc.  Reclamation surety bonds are typically  renewable
on a yearly basis, if they are not posted with cash. Our failure to maintain, or
inability  to acquire,  surety  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 surety bonds;

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

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

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

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

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

         Our ability to receive  payment for coal sold and delivered  depends on
the continued  creditworthiness  of our customers.  Our customer base may not be
highly  creditworthy.  If deterioration of the  creditworthiness of customers or
trading counterparties occurs, our business could be adversely affected.


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<PAGE>


ITEM 3.  CONTROLS AND PROCEDURES.

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

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

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


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<PAGE>


                                     PART II

                                OTHER INFORMATION

ITEM 2.  CHANGES  IN SECURITIES AND  SMALL BUSINESS ISSUER  PURCHASES OF  EQUITY
         SECURITIES

         In April 2004, we issued 2-year warrants to purchase  100,000 shares of
common  stock,  with an  exercise  price per share of $1.20,  to an  attorney as
consideration for legal services.  Also in April 2004, we issued 2-year warrants
to  purchase up to 50,000  shares of common  stock,  with an exercise  price per
share of $1.00, to a financial  consulting firm as consideration  for consulting
services. Each of the investors in these transactions represented to us that the
investor  was an  "accredited  investor"  within  the  meaning  of  Rule  501 of
Regulation  D under  the  Securities  Act of 1933,  and that such  investor  was
receiving  the  securities   for  investment  and  not  in  connection   with  a
distribution  thereof. The issuance and sale of these securities was exempt from
the  registration  and prospectus  delivery  requirements  of the Securities Act
pursuant to Section 4(2) of the  Securities  Act as a transaction  not involving
any public offering.

         In April 2004,  Crestview  Capital Master,  LLC exercised its right and
converted  $500,000 of  Convertible  Notes into  1,000,000  common shares of the
Company.  The  issuance of these  securities  was exempt  from the  registration
requirements of the Securities Act pursuant to Section 3(a)(9) of the Securities
Act as an exchange by the issuer with its  existing  security  holders  where no
commission or other remuneration is paid for soliciting such exchange.

         In May 2004, we purchased 1,738 acres of land in Eastern  Tennessee for
a total purchase price of $631,000, which consisted of $280,000 cash and 300,000
shares of common stock.  The 300,000  shares were issued at a price per share of
$1.17,  which was the closing  price of our stock on May 14,  2004,  the date of
closing for this transaction.  The investor in the transaction represented to us
that the investor was an "accredited investor" within the meaning of Rule 501 of
Regulation  D under  the  Securities  Act of 1933,  and that such  investor  was
receiving  the  securities   for  investment  and  not  in  connection   with  a
distribution  thereof. The issuance and sale of these securities was exempt from
the  registration  and prospectus  delivery  requirements  of the Securities Act
pursuant to Section 4(2) of the  Securities  Act as a transaction  not involving
any public offering.

         In May 2004,  three unrelated  parties,  each holding  warrants with an
exercise  price per share of  $0.60,  exercised  their  rights  pursuant  to the
warrants,  and received an  aggregate  of 116,667  shares of our common stock in
consideration  for an  aggregate  amount  of  $70,000  paid  to us.  Each of the
investors  in these  transactions  represented  to us that the  investor  was an
"accredited  investor"  within the meaning of Rule 501 of Regulation D under the
Securities  Act of 1933, and that such investor was receiving the securities for
investment and not in connection with a distribution  thereof.  The issuance and
sale of these  securities  was  exempt  from  the  registration  and  prospectus
delivery  requirements  of the  Securities  Act  pursuant to Section 4(2) of the
Securities Act as a transaction not involving any public offering.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      EXHIBITS -- THE  FOLLOWING  EXHIBITS ARE FILED AS PART OF THIS
                  REPORT:

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

                  2.1      Asset  Purchase and Sale  Agreement,  dated April 15,
                           2004,  by  and  among  U.S.  Coal,  Inc.,  New  River
                           Processing,   Inc.  and  National  Coal  Corporation.
                           Incorporated  by  reference to Exhibit 2.1 to Current
                           Report on Form 8-K filed on April 29, 2004.


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<PAGE>


                  4.1      2004 National Coal Corp. Option Plan.

                  10.1     Form of Note and Warrant  Purchase  Agreement,  dated
                           April 15, 2004,  including Form of Secured Promissory
                           Note  and  Form  of  Common  Stock  Purchase  Warrant
                           attached  as  exhibits   thereto.   Incorporated   by
                           reference to Exhibit  99.1 to Current  Report on Form
                           8-K filed on April 29, 2004.

                  10.2     Security and Pledge Agreement,  dated April 15, 2004,
                           by and  among  National  Coal  Corp.,  National  Coal
                           Corporation  and Stewart Flink,  as agent for himself
                           and  the   holders  of  secured   promissory   notes.
                           Incorporated  by reference to Exhibit 99.2 to Current
                           Report on Form 8-K filed on April 29, 2004.

                  10.3     Subordination  Agreement,  dated April 15, 2004, made
                           by Crestview Capital Master,  LLC in favor of Steward
                           Flink,  as  agent  for  himself  and the  holders  of
                           secured  promissory notes.  Incorporated by reference
                           to Exhibit  99.3 to Current  Report on Form 8-K filed
                           on April 29, 2004.

                  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.

         (b)      REPORTS ON FORM 8-K

                  Current Report on Form 8-K,  reporting Items 2, 5 and 7, filed
                  on April 29, 2004.


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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: August 12, 2004                         /s/ Robert Chmiel
                                         ------------------------------
                                         By:  Robert Chmiel
                                         Its: Chief Financial Officer
                                              (Principal Financial and
                                              Accounting Officer)



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