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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, 2005

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

  For the transition period from __________________ to ______________________.

                         Commission file number 0-26509

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

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

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

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

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

                              Yes [X]      No [_]


         As of August  10,  2005,  the issuer  had  13,772,656  shares of common
stock, par value $.0001 per share, issued and outstanding.

         Transitional Small Business Disclosure Format (check one):

                              Yes [_]      No    [X]


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<PAGE>


                               NATIONAL COAL CORP.

                              INDEX TO FORM 10-QSB

                                                                            PAGE
                                                                            ----

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

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

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

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

             Condensed Consolidated Statements of Cash Flows (unaudited)
             for six months ended June 30, 2005 and June 30, 2004..............5

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

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

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

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

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

Item 4.      Submission of Matters to a Vote of Security Holders..............29

Item 6.      Exhibits.........................................................30


                                       2
<PAGE>


                                     PART I
                              FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
                               NATIONAL COAL CORP.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                   (UNAUDITED)

                                                                     JUNE 30,
                                                                       2005
                                                                   ------------
ASSETS
CURRENT ASSETS
   Cash and cash equivalents ..................................    $    585,530
   Accounts receivable ........................................       1,615,412
   Inventory ..................................................         597,909
   Prepaid and other ..........................................         140,712
                                                                   ------------
     TOTAL CURRENT ASSETS .....................................       2,939,563
                                                                   ------------

PROPERTY, PLANT AND EQUIPMENT
   Land .......................................................       1,030,756
   Mining equipment ...........................................      23,523,616
   Computer equipment and software ............................         122,495
   Vehicles and mobile equipment ..............................       2,322,503
   Buildings ..................................................       5,682,129
   Office equipment and furniture .............................          53,325
                                                                   ------------
                                                                     32,734,824
   Less:  accumulated depreciation ............................      (4,845,146)
                                                                   ------------
   TOTAL PROPERTY, PLANT AND EQUIPMENT, NET ...................      27,889,678
                                                                   ------------

   Coal and mineral rights, net of $757,445 accumulated
     amortization and depletion ...............................      17,335,213
   Certificates of deposit and reclamation bond ...............       4,526,600
   Loan acquisition costs, net of $487,424 accumulated
     amortization .............................................         133,720
   Prepaid royalty ............................................         137,492
   Deposits ...................................................         340,747
                                                                   ------------
   TOTAL ASSETS ...............................................    $ 53,303,013
                                                                   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Accounts payable and accrued expenses ......................    $  6,171,323
   Short term portion of capital lease obligations ............       2,137,420
   Accrued payroll and payroll taxes payable ..................          70,502
   Note payable, less debt discount of $453,828 ...............       4,471,871
   Current portion of bank loans - vehicles ...................         387,713
                                                                   ------------
     TOTAL CURRENT LIABILITIES ................................      13,238,829
                                                                   ------------

   Senior credit facility .....................................      16,400,000
   Long term portion of capital lease obligations .............       1,021,600
   Long term portion of bank loans - vehicles .................          35,610
   Asset retirement obligations ...............................       6,113,764
                                                                   ------------
     TOTAL LIABILITIES ........................................      36,809,803
                                                                   ------------

STOCKHOLDERS' EQUITY
   Series A convertible preferred stock, $.0001 par
     value; 5% coupon; 1,611 shares authorized; 1,403.89
     shares issued and outstanding ............................            --
   Common stock, $.0001 per value; 80 million shares
     authorized; 13,772,656 shares issued and outstanding .....           1,377
   Additional paid-in capital .................................      33,674,254
   Accumulated deficit ........................................     (17,182,421)
                                                                   ------------
     TOTAL STOCKHOLDERS' EQUITY ...............................      16,493,210
                                                                   ------------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...............    $ 53,303,013
                                                                   ============


                                       3
<PAGE>


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

<CAPTION>
                                             THREE MONTHS                    SIX MONTHS
                                                ENDED                          ENDED
                                               JUNE 30,                       JUNE 30,
                                        2004            2005            2004            2005
                                    ------------    ------------    ------------    ------------
<S>                                 <C>             <C>             <C>             <C>
REVENUES
  Coal sales ....................   $  4,499,573    $ 16,010,644    $  5,490,195    $ 28,595,048
  Royalty receipts ..............         29,122            --           103,403            --
                                    ------------    ------------    ------------    ------------
   Total revenue ................      4,528,695      16,010,644       5,593,598      28,595,048
                                    ------------    ------------    ------------    ------------

EXPENSES
  Cost of sales and selling .....      3,371,007      11,931,156       4,308,391      22,666,864
  General and administrative ....      1,496,617       1,621,376       2,387,937       3,698,021
  Depreciation, depletion,
   accretion and amortization ...        310,543       2,670,968         465,505       3,957,925
                                    ------------    ------------    ------------    ------------

   TOTAL OPERATING EXPENSES .....      5,178,167      16,223,500       7,161,833      30,322,810
                                    ------------    ------------    ------------    ------------

LOSS FROM OPERATIONS ............       (649,472)       (212,856)     (1,568,235)     (1,727,762)
                                    ------------    ------------    ------------    ------------

OTHER INCOME (EXPENSE)

Interest and financing fees .....       (557,578)     (1,087,062)       (690,378)     (1,747,573)
Other, net ......................         19,580          70,551           4,933          54,929
                                    ------------    ------------    ------------    ------------
   TOTAL OTHER INCOME (EXPENSE) .       (537,998)     (1,016,511)       (685,445)     (1,692,644)
                                    ------------    ------------    ------------    ------------

NET (LOSS) ......................     (1,187,470)     (1,229,367)     (2,253,680)     (3,420,406)

PREFERRED STOCK DIVIDEND ........           --           304,575            --           595,765
                                    ------------    ------------    ------------    ------------

NET (LOSS) ATTRIBUTABLE TO COMMON
SHAREHOLDERS ....................   $ (1,187,470)   $ (1,533,942)   $ (2,253,680)   $ (4,016,171)
                                    ============    ============    ============    ============

BASIC AND DILUTED
NET (LOSS) PER COMMON SHARE .....   $      (0.11)   $      (0.11)   $      (0.21)   $      (0.30)
                                    ============    ============    ============    ============

WEIGHTED AVERAGE
COMMON SHARES ...................     10,846,612      13,736,316      10,510,908      13,604,451
                                    ============    ============    ============    ============
</TABLE>

            See Notes to Condensed Consolidated Financial Statements.


                                       4
<PAGE>


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

<CAPTION>
                                                                                   SIX MONTHS
                                                                                 ENDED JUNE 30,
                                                                          --------------------------
                                                                              2004           2005
                                                                          -----------    -----------
<S>                                                                       <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net (loss) ..........................................................   $(2,253,680)   $(3,420,406)
  Adjustments to reconcile net (loss) to net cash provided by operating
   activities
     Depreciation, depletion, accretion and amortization ..............       465,505      3,957,925
     Issuance of common stock in lieu of interest payments ............       165,313           --
       Issuance of warrants for services ..............................        36,716           --
     Non-cash compensation:
       Common stock issued in payment of accrued salary ...............       226,573           --
       Stock option expense ...........................................       451,688        449,205
     Changes in operating assets and liabilities:
       Receivables ....................................................    (1,022,935)       288,323
       Inventory ......................................................       (49,673)      (333,035)
       Prepaid and other ..............................................        27,850         93,881
       Accounts payable and accrued liabilities .......................       101,508      2,322,219
       Deferred revenue ...............................................       (51,087)          --
                                                                          -----------    -----------
         Net cash flows provided by (used in) operating activities ....    (1,902,222)     3,358,112
                                                                          -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Property, plant and equipment purchased .............................    (5,647,358)    (9,128,039)
  Prepaid royalty .....................................................       (77,500)       255,006
  Bank letter of credit ...............................................      (980,000)          --
  Deposits ............................................................      (560,000)      (184,747)
                                                                          -----------    -----------
     Net cash flows (used in) investing activities ....................    (7,264,858)    (9,057,780)
                                                                          -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of common and preferred stock ................     2,750,000        253,491
  Proceeds from exercise of options and warrants ......................        70,000        472,833
  Proceeds from issuance of notes payable .............................     7,500,000      6,933,758
  Loan acquisition costs ..............................................          --          (56,000)
  Payment of related party debt .......................................      (410,000)          --
  Proceeds from bank loans ............................................       270,671           --
   Payments on bank loans .............................................          --         (109,585)
   Payments on capital leases .........................................      (458,803)    (1,032,203)
   Payments of dividends on preferred stock ...........................          --         (528,794)
                                                                          -----------    -----------
     Net cash flows provided by financing activities ..................     9,721,868      5,933,500
                                                                          -----------    -----------

NET INCREASE IN CASH ..................................................       554,788        233,832
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD .........................           883        351,698
                                                                          -----------    -----------
CASH AND CASH EQUIVALENTS END OF PERIOD ...............................   $   555,671    $   585,530
                                                                          -----------    -----------

SUPPLEMENTAL DISCLOSURES
  Interest paid in cash ...............................................   $    64,011    $ 1,239,115
   Non-cash investing and financing transactions:
      Constructive dividend attributable to preferred shareholders ....          --           66,971
</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  subsidiaries  (the "Company")  included in the Company's
Form 10-KSB for the fiscal year ended December 31, 2004.

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

         The Company was  incorporated in Florida on August 10, 1995 and engages
principally in the business of mining coal in Eastern Tennessee and Southeastern
Kentucky.  Our  historical  operations  prior to April 30, 2003 reflect only the
operations of National Coal Corporation, a Tennessee corporation. Prior to April
30, 2003, National Coal Corp., a Florida corporation  formerly known as Southern
Group International,  Inc., was a "blank check" company, which is a company that
has no specific business plan or purpose or has indicated that its business plan
is to  engage  in a  merger  or  acquisition  with an  unidentified  company  or
companies.  On April 30, 2003, National Coal Corp.  consummated a reorganization
in  which  all of  the  outstanding  shares  of  National  Coal  Corporation,  a
privately-held  Tennessee  corporation,  were exchanged for 8,549,975  shares of
National Coal Corp. a Florida corporation.  National Coal Corporation was formed
in January  2003,  and from  inception  through  June 30,  2003,  National  Coal
Corporation was in the exploration stage with no operating  revenue.  During the
third quarter of 2003, we commenced coal mining.

         The Company's customers are primarily investor-owned electric utilities
and industrial  concerns in the immediate and  surrounding  states.  The Company
owns the coal mineral rights to approximately sixty-five thousand (65,000) acres
and leases another  approximately  twelve thousand one hundred (12,100) acres in
Tennessee,  and owns the coal mineral rights to  approximately  eleven  thousand
seven hundred (11,700) acres and leases another approximately  eighteen thousand
two hundred  (18,200) acres in Kentucky.  The Company's first mining  activities
commenced in July 2003 from a surface mine in Tennessee.  At June 30, 2005,  the
Company was  extracting  coal from three deep mines,  one highwall  mine and two
surface mines.


                                       6
<PAGE>


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

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

2.       PROPERTY, PLANT AND EQUIPMENT

         It is the Company's policy to periodically  review the estimated useful
lives of its fixed assets.  This review during second  quarter of 2005 indicated
that the estimated lives for certain asset categories  generally were determined
to be less than that used in calculating  depreciation expense. As a result, the
Company  revised the estimated  useful lives of certain  categories of property,
principally mining equipment,  as of April 1, 2005. The effect of this change in
estimate was to increase  depreciation expense and the net loss by approximately
$999,000  and the per share loss by $.07 for the three and six months ended June
30, 2005.

3.       NOTES PAYABLE

              SENIOR SECURED CREDIT FACILITY

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

              SECURED NOTE

         In January 2005, the Company signed an agreement committing the Company
to the purchase of a highwall miner for a total purchase price of  approximately
$5.5 million,  and paid a $500,000 deposit toward that purchase  commitment.  In
March 2005,  the Company  borrowed  $5.14  million  pursuant to certain Note and
Warrant  Purchase  Agreements and completed the purchase of this piece of mining
equipment.  The Company issued notes in the aggregate  principal amount of $5.14
million to three purchasers, including Crestview Capital Master, LLC, which is a
significant  shareholder of the Company. The notes had an original maturity date
of August 10, 2005, are secured by the highwall miner, and have an interest rate
of eighteen percent (18%) per annum calculated from the 61st day until maturity.
The Company paid an origination fee of approximately $200,000 upon the execution
of the loan document.  The note  purchasers were also issued 5-year common stock
purchase warrants to purchase up to 140,000 shares of the Company's common stock
at an exercise  price per share of $8.50.  In August 2005,  the maturity date of
the $5.14 million indebtedness was extended to March 31,


                                       7
<PAGE>


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

2006, and the notes were amended to provide that a 3% fee will be due on each of
December  15,  2005 and January 30, 2006 if the loan is not repaid in full prior
to  December  1,  2005 or  January  16,  2006,  respectively.  Other  terms  and
conditions of the notes remain unchanged.

4.       EQUITY TRANSACTIONS

              REGISTRATION STATEMENT

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

              PREFERRED STOCK FINANCING

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

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

         Investors  who  paid  cash   consideration   in  either  the  Series  A
convertible  preferred  stock  financing  or  convertible  debt  financing  also
received  the  right  to  purchase  additional  units of  Series  A  convertible
preferred  stock and common stock  purchase  warrants.  Each of these  investors
could purchase,  at a price of $15,000 per unit, up to a number of units with an
aggregate  purchase price equal to 33.33% of the amount  invested in the initial
financing.  Each unit  consisted of one share of Series A convertible  preferred
stock and  two-year  warrants to purchase up to 500 shares of common stock at an
exercise  price of $8.40 per share.  In December 2004, the Company issued 241.33
shares of its Series A  convertible  preferred  stock and  warrants  to purchase
482,660 shares of its common stock upon the exercise by certain holders of these
purchase  rights,  and received  gross proceeds of  approximately  $3,620,000 in
connection  with the sale of these  securities.  In February  2005,  the Company
issued 4.44 shares of its Series A convertible  preferred  stock and warrants to
purchase  2,220 shares of its common stock upon the exercise by certain  holders
of these purchase rights,  and received gross proceeds of approximately  $67,000
in  connection  with the sale of these  securities.  In April 2005,  the Company
issued 11.55 shares of its Series


                                       8
<PAGE>


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

A  convertible  preferred  stock and  warrants to purchase  5,775  shares of its
common stock upon the exercise by certain holders of these purchase rights,  and
received gross proceeds of approximately $173,000 in connection with the sale of
these securities. The remaining purchase rights expired on April 28, 2005.

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

         During the six months ended June 30,  2005,  holders of 68.77 shares of
Series A  convertible  preferred  stock with  liquidation  preferences  totaling
approximately  $1 million  converted  their shares into 174,129 shares of common
stock.

              ISSUANCE OF COMMON STOCK PURSUANT TO THE EXERCISE OF OPTIONS

         During the six months ended June 30, 2005,  the Company  issued 206,250
shares of common stock and received gross proceeds of $469,500 upon the exercise
of stock options by employees.

              ISSUANCE OF COMMON STOCK PURSUANT TO THE EXERCISE OF WARRANTS

         During  the six months  ended  June 30,  2005,  the  Company  issued an
aggregate of 933 shares of its common stock upon the exercise  warrants for cash
proceeds of $3,333.

5.       EVENTS SUBSEQUENT TO JUNE 30, 2005

              EQUIPMENT FINANCING

         In August 2005, our wholly-owned subsidiary, National Coal Corporation,
entered into two installment sale contracts with Stowers Machinery  Corporation,
and one installment sale contract with Whayne Supply Company, effective in July,
2005,  pursuant to which National Coal  Corporation  purchased,  and financed or
refinanced,  certain equipment used in its coal mining  operations.  Pursuant to
the terms thereof, the installment sale contracts were subsequently  immediately
assigned by Stowers and Whayne to Caterpillar Financial Services Corporation.

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


         Annual Percentage Rate           Financed Amount
         ----------------------           ---------------
                  5.22%                       $879,010
                  6.11%                      $4,967,673
                  7.65%                       $870,967

         The total  $6,717,650  principal  balance  of these  contracts  include
refinancing  $2,936,590  of the  capital  leases  included  on the June 30, 2005
balance sheet. The remaining  $3,781,060 is additional  indebtedness  related to
the purchase of  additional  equipment and equipment  formerly  under  operating
lease. The installment sale contracts  require monthly payments of principal and
interest  through January 14, 2008. The obligations  under the installment  sale
contracts are secured by the equipment purchased by us thereunder.

         In July,  2005, we purchased one permitted  mine, a preparation  plant,
haul road and other miscellaneous assets (the "Baldwin Facility") located within
the  boundaries  of  our  coal  mining  properties  in  Devonia,  Tennessee.  We
previously leased a portion of these facilities.  The acquisition of the Baldwin


                                       9
<PAGE>


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

Facility will allow the Company to undertake  improvements  designed to increase
production  capacity  and improve  utilization  of  resources  in its  Tennessee
operations.  The  acquisition  should enable the Company to meet the  increasing
demand for coal from its  existing  and  potential  customers.  We acquired  the
Baldwin  Facility by assuming  current  liabilities of the seller  consisting of
outstanding reclamation bond obligations of approximately $1,000,000.


              MATURITY DATE EXTENDED ON SECURED NOTES PAYABLE

         In August 2005,  the maturity date of the $5.14  million  indebtedness,
described in Note 3 above,  was  extended to March 31, 2006,  and the notes were
amended to provide  that a 3% fee will be due on each of  December  15, 2005 and
January  30, 2006 if the loan is not repaid in full prior to December 1, 2005 or
January 16, 2006,  respectively.  Other terms and conditions of the notes remain
unchanged.


                                       10
<PAGE>


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

         The information contained in this Form 10-QSB is intended to update the
information  contained  in our Annual  Report on Form  10-KSB for the year ended
December 31, 2004 and presumes  that readers have access to, and will have read,
the  "Management's  Discussion  and  Analysis  or Plan of  Operation"  and other
information  contained  in such  Form  10-KSB  and 2004 and  2005  Form  10-QSBs
previously  filed.  The  following  discussion  and analysis also should be read
together with our condensed  consolidated  financial statements and the notes to
the condensed  consolidated financial statements included elsewhere in this Form
10-QSB.

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

OVERVIEW

         National Coal Corp., through our wholly-owned  subsidiary National Coal
Corporation,  engages  principally  in the  business  of mining  coal in Eastern
Tennessee  and  Southeastern  Kentucky.  We  own  the  coal  mineral  rights  to
approximately  sixty-five  thousand (65,000) acres and lease another approximate
twelve  thousand  one  hundred  (12,100)  acres in  Tennessee,  and own the coal
mineral rights to approximately eleven thousand seven hundred (11,700) acres and
lease  another  approximate  eighteen  thousand  two hundred  (18,200)  acres in
Kentucky.  We  commenced  mining  coal  in  July  2003  from a  surface  mine in
Tennessee.  At June 30, 2005, we were extracting coal from three deep mines, one
highwall mine and two surface mines.

         We  engage  in  coal  production  by  locating,  assembling,   leasing,
assessing,  permitting and developing coal  properties in Eastern  Tennessee and
Southeastern  Kentucky.  After obtaining permits from the U.S. Department of the
Interior,  Office of Surface  Mining  ("OSM") and,  with respect to our Kentucky
operations,   the  Kentucky  Department  for  Natural  Resources,   and  posting
reclamation  bonds,  we mine our properties for the extraction of coal, and then
sell the coal at negotiated rates per ton,  primarily to investor-owned  utility
companies. The reclamation bonds typically take the form of letters of credit or
direct  cash  deposits  with OSM  and/or the  Kentucky  Department  for  Natural
Resources.  At June 30, 2005, we had $4,526,600 of cash invested in certificates
of deposit,  against  which  irrevocable  bank  letters of credit are written in
favor of OSM and had posted a $700,000  letter of credit in favor of OSM secured
by our executive office building.

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


                                       11
<PAGE>


         We also sell coal that we purchase from third party coal producers on a
case by case basis. We only enter into these transactions when the price per ton
paid to these third party  producers  is below the price per ton at which we are
able to sell the coal,  usually under 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.

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

         Our  historical  operations  prior to April 30, 2003  reflect  only the
operations of National Coal Corporation, a Tennessee corporation. Prior to April
30, 2003, National Coal Corp., a Florida corporation  formerly known as Southern
Group International,  Inc., was a "blank check" company, which is a company that
has no specific business plan or purpose or has indicated that its business plan
is to  engage  in a  merger  or  acquisition  with an  unidentified  company  or
companies.  On April 30, 2003, National Coal Corp.  consummated a reorganization
in  which  all of  the  outstanding  shares  of  National  Coal  Corporation,  a
privately-held  Tennessee  corporation,  were exchanged for 8,549,975  shares of
National Coal Corp. a Florida corporation.  National Coal Corporation was formed
in January  2003,  and from  inception  through  June 30,  2003,  National  Coal
Corporation was in the exploration stage with no operating  revenue.  During the
third quarter of 2003, we commenced coal mining.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

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

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


                                       12
<PAGE>


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

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

              COAL ROYALTIES. We recognize coal royalty revenues on the basis of
tons of coal mined by our lessees.  During the six months ended June 30, 2005 we
did not recognize any coal royalty  revenues,  and during  calendar 2004, we had
one source of royalty  revenue  pursuant  to our  agreement  with Jenco  Capital
Corporation  ("Jenco").  We recognized the final remaining royalties pursuant to
our  agreement  with  Jenco in the  second  calendar  quarter of 2004 and do not
anticipate any royalty revenue transactions for the foreseeable future.

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

         ASSET RETIREMENT OBLIGATION. The Surface Mining Control and Reclamation
Act of 1977 and similar state statutes  require that mine properties be restored
in  accordance  with  specified  standards  and an  approved  reclamation  plan.
Significant  reclamation  activities include reclaiming refuse and slurry ponds,
reclaiming the pit and support acreage at surface mines,  and sealing portals at
deep mines.  Reclamation  activities  that are  performed  outside of the normal
mining process are accounted for as asset  retirement  obligations in accordance
with the provisions of Statement of Financial Accounting Standards, or SFAS, No.
143,  "Accounting For Asset Retirement  Obligations".  We record our reclamation
obligations on a mine-by-mine  basis based upon current permit  requirements and
estimated reclamation  obligations for such mines as determined by the Office of
Surface Mining and/or the Kentucky Department for Natural Resources when we post
a  predetermined   amount  of  reclamation  bonds  prior  to  commencing  mining
operations.  The Office of Surface  Mining's and/or the Kentucky  Department for
Natural  Resources'  estimates  of  disturbed  acreage are  determined  based on
approved  mining plans and related  engineering  data.  Cost estimates are based
upon estimates  approved by OSM based on historical  costs.  In accordance  with
SFAS No. 143, we determine  the fair value of our asset  retirement  obligations
using a discounted cash flow methodology based on a discount rate related to the
rates of 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 the permit-issuing
authorities,  additional  costs resulting from  accelerated  mine closures,  and
revisions to cost estimates and  productivity  assumptions,  to reflect  current
experience.  At June 30,  2005,  we had  recorded  asset  retirement  obligation
liabilities  of  approximately  $6.1 million.  While the precise amount of these
future costs  cannot be  determined  with  certainty,  as of June 30,  2005,  we
estimate  that  the  aggregate  undiscounted  cost  of  final  mine  closure  is
approximately $11.3 million.


                                       13
<PAGE>


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

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

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

RESULTS OF OPERATIONS

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

                                            THREE MONTHS         SIX MONTHS
                                               ENDED               ENDED
                                              JUNE 30,            JUNE 30,
                                         -----------------   -----------------
                                           2004      2005      2004      2005
                                         -------   -------   -------   -------

Revenues ..............................    100.0 %   100.0 %   100.0 %   100.0 %
Operating expenses:
   Cost of sales and selling expenses .     74.4      74.5      77.0      79.3
   General and administrative .........     33.0      10.1      42.7      12.9
   Depreciation, depletion, accretion
     and amortization .................      6.9      16.7       8.3      13.8
                                         -------   -------   -------   -------
     Total operating expenses .........    114.3     101.3     128.0     106.0
                                         -------   -------   -------   -------
Gain or (loss) from operations ........    (14.3)     (1.3)    (28.0)     (6.0)
Other income (expense):
   Interest expense and financing fees     (12.3)     (6.8)    (12.3)     (6.2)
   Other income (expense), net ........      0.4       0.4       0.1       0.2
                                         -------   -------   -------   -------
Net (loss) ............................    (26.2)%    (7.7)%   (40.2)%   (12.0)%
                                         =======   =======   =======   =======


                                       14
<PAGE>


     COMPARISON OF THREE MONTHS AND SIX ENDED JUNE 30, 2005 AND JUNE 30, 2004

         REVENUES

<TABLE>
<CAPTION>
                                  THREE MONTHS                             SIX MONTHS
                                     ENDED                                   ENDED
                                    JUNE 30,                                JUNE 30,
                           -------------------------   PERCENT    --------------------------   PERCENT
                              2004          2005        CHANGE        2004           2005       CHANGE
                           -----------   -----------   -------    -----------    -----------   -------
<S>                        <C>           <C>            <C>       <C>            <C>            <C>
Coal sales..............   $ 4,499,573   $16,010,644    257.7%    $ 5,490,195    $28,595,048    420.8%
Royalty receipts........        29,122            --      *           103,403             --      *
                           -----------   -----------              -----------    -----------
   Total revenues.......   $ 4,528,695   $16,010,644    253.5%    $ 5,593,598    $28,595,048    411.2%
<FN>
* - Not meaningful
</FN>
</TABLE>


         For the three months and six months  ended June 30, 2005,  our revenues
were  derived  entirely  from  coal  sales to 11  customers,  six of which  were
utilities  and  five of  which  were  industrial  customers.  Our  five  largest
customers represented 90% of our total revenue. The significant increase in coal
sales in the 2005 periods is mainly  attributable  to increased  mining activity
and the existence of long-term  contracts  with multiple  industrial and utility
customers. For the three-month and six-month periods ended June 30, 2004, we had
a total of five customers,  two of which accounted for  approximately 88% of our
sales.  There were no royalty  receipts  for the six months ended June 30, 2005,
and we do not anticipate any royalty revenues for the foreseeable future.

         OPERATING EXPENSES

              COST OF SALES AND SELLING EXPENSES


<TABLE>
<CAPTION>
                                  THREE MONTHS                             SIX MONTHS
                                     ENDED                                   ENDED
                                    JUNE 30,                                JUNE 30,
                           -------------------------   PERCENT    --------------------------   PERCENT
                              2004          2005        CHANGE        2004           2005       CHANGE
                           -----------   -----------   -------    -----------    -----------   -------
<S>                        <C>           <C>            <C>       <C>            <C>            <C>
Cost of sales and
  selling expenses......   $ 3,371,007   $11,931,156    253.9%    $ 4,308,391    $22,666,864    426.1%
</TABLE>


         Cost of  sales  and  selling  expenses  consist  primarily  of  salary,
benefits and other  compensation costs paid directly to miners, and direct costs
paid to third party  vendors  whose goods and services were directly used in the
process of producing coal inventory.  Third party vendor costs include equipment
leases and maintenance  costs,  blasting costs, fuel costs,  parts and supplies,
coal purchases,  and  transportation  costs.  The increase in costs of sales and
selling  expenses  in the  2005  periods  as  compared  to the 2004  periods  is
primarily  due to the  increase  in mining  activity  and higher  initial  costs
incurred in starting new mines.  Our goal is to lower costs as a  percentage  of
revenues  by  employing  the  latest  mining  technologies,  analyzing  our coal
properties  in order to mine them  efficiently,  and increase  volume to achieve
economies of scale.


                                       15
<PAGE>


              GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>
                                  THREE MONTHS                             SIX MONTHS
                                     ENDED                                   ENDED
                                    JUNE 30,                                JUNE 30,
                           -------------------------   PERCENT    --------------------------   PERCENT
                              2004          2005        CHANGE        2004           2005       CHANGE
                           -----------   -----------   -------    -----------    -----------   -------
<S>                        <C>           <C>              <C>     <C>            <C>             <C>
General and administra-
   tive expenses........   $ 1,496,617   $ 1,621,376      8.3%    $ 2,387,937    $ 3,691,646     54.9%
</TABLE>


         General and administrative  expenses primarily include salary, benefits
and related expenses; executive,  financial, and accounting consulting expenses;
legal and outside audit professional fees;  insurance  expenses;  and travel and
travel related expenses. The increase in general and administrative  expenses in
the 2005 periods as compared to the 2004 periods is primarily attributable to an
increase  in  administrative  costs due to the  increase  in the  volume of coal
production  and sales after we expanded  production on both existing  properties
and on operations acquired in the previous year.

              DEPRECIATION, DEPLETION, ACCRETION AND AMORTIZATION EXPENSE

<TABLE>
<CAPTION>
                                      THREE MONTHS                             SIX MONTHS
                                         ENDED                                   ENDED
                                        JUNE 30,                                JUNE 30,
                               -------------------------   PERCENT    --------------------------   PERCENT
                                  2004          2005        CHANGE        2004           2005       CHANGE
                               -----------   -----------   -------    -----------    -----------   -------
<S>                            <C>           <C>            <C>       <C>            <C>           <C>
Depreciation, depletion,
   accretion and
   amortization expense ....   $   310,543   $ 2,670,968    760.1%    $   465,505    $ 3,957,925   750.2%
</TABLE>


         The increase in  depreciation,  depletion,  accretion and  amortization
expense for the six months  ended June 30,  2005 as  compared to the  comparable
period in 2004, is primarily attributable to the acquisition of property,  plant
and  equipment  in support of increased  mining  activity.  It is the  Company's
policy to  periodically  review the estimated  useful lives of its fixed assets.
This  review  during the second  quarter of 2005  indicated  that the  estimated
actual lives for certain asset  categories  generally were determined to be less
than that used in calculating  depreciation  expense.  As a result,  the Company
revised  the  estimated   useful  lives  of  certain   categories  of  property,
principally mining equipment,  as of April 1, 2005. The effect of this change in
estimate was to increase  depreciation expense and the net loss by approximately
$999,000  and the per share loss by $.07 for the three and six months ended June
30, 2005. Because coal mining is capital  intensive,  we expect our depreciation
expense to increase  in the  remainder  of 2005 and beyond as we  increase  coal
production.

              OTHER INCOME (EXPENSE)

<TABLE>
<CAPTION>
                                              THREE MONTHS                             SIX MONTHS
                                                 ENDED                                   ENDED
                                                JUNE 30,                                JUNE 30,
                                       -------------------------   PERCENT    --------------------------   PERCENT
                                          2004          2005        CHANGE        2004           2005       CHANGE
                                       -----------   -----------   -------    -----------    -----------   -------
<S>                                    <C>           <C>             <C>      <C>            <C>             <C>
Interest expense and financing fees.   $ (557,578)   $(1,087,062)    95.0%    $ (690,378)    $(1,747,573)    153.1%
Other income (expense), net.........       19,580         70,551        *        4,933            54,929         *
   Total other income (expense).....   $ (537,998)   $(1,016,511)    88.9%    $ (685,445)    $(1,692,644)    146.9%
<FN>
* - Not meaningful
</FN>
</TABLE>


                                       16
<PAGE>


         The increase in other income  (expense),  net, for the three months and
six months  ended June 30,  2005  compared to the  corresponding  periods in the
previous  year  is  primarily   attributable  to  added   borrowings  for  asset
acquisitions made during 2004 and the first six months of 2005. Interest expense
in the three months ended June 30, 2005 compared to the three months ended March
31,  2005  increased  primarily  due to the  interest  expense on debt issued to
finance the purchase of a high wall mining machine.

RELATED PARTY TRANSACTIONS

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

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

LIQUIDITY AND CAPITAL RESOURCES

         As of June 30, 2005, we had cash and cash  equivalents of approximately
$586,000.  As of  June  30,  2005,  we  had  negative  net  working  capital  of
approximately  $10.3 million.  We anticipate that our current cash reserves plus
cash we  expect to  generate  from  operations  will be  sufficient  to fund our
operational expenditures for the last six months of 2005. We anticipate the need
to acquire  additional  assets  and/or  mining  operations,  and will  likely be
required  to  raise  additional  funds  by  issuing  additional  equity  or debt
securities,  the amount  and  timing of which  will  depend in large part on our
spending program and our ability to generate cash flow from operations in future
months.  In November 2004, we entered into a senior secured credit  facility and
borrowed  $15 million to  facilitate  our  purchase  of assets from  Appalachian
Fuels,  LLC. We borrowed an additional  $1.4 million in January 2005 pursuant to
this senior  secured  credit  facility for the deposit on and purchase of a $5.5
million high wall miner. In March, 2005, we borrowed an additional $5.14 million
in a  separate  transaction  to  complete  the  purchase  of the high wall miner
equipment. In August, 2005, the maturity date of the $5.14 million indebtedness,
described in Note 3 above,  was extended to March 31, 2006, and a 3% fee will be
due on each of December  15, 2005 and January 30, 2006 if the loan is not repaid
in full prior to December 1, 2005 or January 16, 2006, respectively. Other terms
and conditions of those notes remain unchanged.

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


                                       17
<PAGE>


         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,  2005,  we had a net  increase  in cash of
approximately  $234,000.  Cash flows from  operating,  financing  and  investing
activities  for the six months ended June 30, 2004 and the six months ended June
30, 2005 are summarized in the following table:

                                                           SIX MONTHS
                                                          ENDED JUNE 30,
                                                 ------------------------------
ACTIVITY:                                            2004               2005
------------------------------------------       -----------        -----------
Operating activities .....................       $(1,902,222)       $ 3,358,112
Investing activities .....................        (7,264,858)        (9,057,780)
Financing activities .....................         9,721,868          5,933,500
                                                 -----------        -----------
Net increase (decrease) in cash ..........       $   554,788        $   233,832
                                                 ===========        ===========


         OPERATING ACTIVITIES

         The net cash  provided by operating  activities of  approximately  $3.4
million  during the six months ended June 30, 2005 was  primarily  the result of
the net loss of approximately  $3.4 million and increases in accounts payable of
approximately $2.3 million,  decreases in receivables of approximately $288,000,
and  increases in inventory of  approximately  $333,000.  The non-cash  expenses
recorded during the first six months of 2005 included  depreciation,  depletion,
accretion  and  amortization  of  approximately  $4.0  million and stock  option
expense of approximately $449,000. The increase in accounts payable is primarily
a result of  increased  operational  activity.  Cash  generated  from  operating
activities  during the six months ended June 30, 2005 increased by approximately
$5.3  million  when  compared  to the same  period  in 2004.  This is due to the
increased volume of production and sales.

         INVESTING ACTIVITIES

         The  approximately  $9  million  of cash used in  investing  activities
during the six months  ended June 30, 2005 was due  primarily to the purchase of
property,  plant and equipment.  The most significant  single investment was the
purchase of a high wall miner ($5.5  million),  which has allowed us to increase
production   significantly.   To  the  extent  that  we  make  additional  asset
acquisitions in the balance of 2005 similar to our investing activities in 2004,
we will need to raise additional cash from outside sources.  If additional funds
are raised through the issuance of equity securities,  the current  stockholders
may experience dilution.  Furthermore, there can be no assurance that additional
financings  will be available when needed or that if available,  such financings
will include terms  favorable to our  stockholders.  If such  financings are not
available  when  required or are not available on  acceptable  terms,  we may be
unable to take  advantage of business  opportunities  or respond to  competitive
pressures,  any of which could have a material  adverse  effect on our business,
financial condition and results of operations.

         FINANCING ACTIVITIES

         The net cash  provided by financing  activities of  approximately  $5.9
million during the six months ended June 30, 2005 was primarily the result of $7
million raised from sales of debt  securities.  During the six months ended June
30, 2005, approximately $700,000 was raised by the exercise of options, warrants
and additional  purchase  rights for the purchase of common and preferred  stock
from the Company.  Payments on bank loans and capital leases were  approximately
$110,000 and $1,032,000,


                                       18
<PAGE>


respectively,  for the six months  ended June 30,  2005.  We paid  approximately
$520,000 in dividends  on  preferred  stock during the six months ended June 30,
2005, while no similar payment was made in the comparable  period in 2004. There
was an approximately  $2.5 million decrease in the amount of cash generated from
the issuance of common and preferred  stock when  comparing the six months ended
June 30, 2005 to the  comparable  period in 2004.  Approximately  $1 million was
paid  on  capital  leases  in  the  first  six  months  of  2005,   compared  to
approximately $460,000 which was paid during the comparable period in 2004.

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

              SALES OF PREFERRED STOCK AND WARRANTS

         In  February  and  April  2005,  we  issued  15.99  shares  of Series A
convertible  preferred  stock and two-year  warrants to purchase 7,995 shares of
its common stock upon the exercise by certain  holders of purchase  rights,  and
received gross proceeds of approximately $240,000 in connection with the sale of
these securities. As of June 30, 2005, there were outstanding 1,403.89 shares of
our Series A convertible preferred stock.

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

         On August 31, 2004, the closing price of our common stock on the NASDAQ
Over-the-Counter Bulletin Board was $9.40. Since this closing price exceeded the
$6.00  conversion  price of the Series A preferred stock, and the $8.40 exercise
price for the  warrants,  we  recognized  a one-time  constructive  dividend  of
$10,762,676  pursuant to the calculation of the beneficial  conversion value for
both the initial  issuance of our Series A convertible  preferred  stock and the
attached  warrants on August 31, 2004 with  conversion  prices  below the market
price of the common stock.  The beneficial  conversion value of the warrants was
calculated  using  a  Black-Scholes  option-pricing  model  with  the  following
weighted average  assumptions:  no dividend yield,  expected  volatility rate of
48%; risk free interest  rate of 3.50%;  and an average life of 2 years.  During
the three months and six months ended June 30, 2005,  we  recognized  additional
constructive  dividends  of $36,081  and 66,972,  respectively,  pursuant to the
additional Series A purchase right investments exercised in 2005. The beneficial
conversion value of the additional warrants was calculated using a Black-Scholes
option-pricing  model  with  the  following  weighted  average  assumptions:  no
dividend  yield,  expected  volatility  rates of between 30% and 162%; risk free
interest rate of 3.75%; and an average life of approximately 1.5 years.


                                       19
<PAGE>


              CONVERSIONS OF SERIES A CONVERTIBLE PREFERRED STOCK

         In the six months ended June 30, 2005,  holders of Series A convertible
preferred stock with liquidation  preferences totaling  approximately $1 million
converted their shares into common stock.

              ISSUANCE OF STOCK PURSUANT TO THE EXERCISE OF OPTIONS

         In the six months  ended June 30,  2005,  the  Company  issued  206,250
shares of common stock and received gross proceeds of $469,500 upon the exercise
of stock options by employees.

              SENIOR SECURED CREDIT FACILITY

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

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

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

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

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

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

         o        we meet minimum sales volume requirements;

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

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


                                       20
<PAGE>


              MARCH 2005 BRIDGE FINANCING

         In January 2005,  we signed an agreement  committing us to the purchase
of a highwall miner for a total purchase  price of  approximately  $5.5 million,
and paid a $500,000 deposit toward that purchase  commitment.  In March 2005, we
borrowed an additional approximately $5.14 million through the issuance of notes
to three  purchasers,  and  completed  the  purchase  of this  piece  of  mining
equipment. The notes had an original maturity of August 10, 2005, are secured by
the highwall  miner,  and have a rate of interest of eighteen  percent (18%) per
annum calculated from the 61st day until maturity. We paid an origination fee of
approximately  $200,000  upon the execution of the loan  documents.  The lenders
were also issued 5-year common stock purchase  warrants to purchase an aggregate
of up to 140,000  shares of the Company's  common stock at an exercise price per
share of $8.50. We valued these warrants using the Black-Scholes  option-pricing
model with the  following  weighted  average  assumptions:  no  dividend  yield,
expected  volatility  rate of 133%;  risk free  interest  rate of 4.00%;  and an
average life of 5 years, and recognized a non-cash  discount against the note of
$665,855  to be  amortized  over  the  life of the  note.  Amortization  of that
discount  totaled  approximately  $487,000 of non-cash  expense in the six month
period  ended June 30,  2005.  Crestview  Capital  Master,  LLC,  a  significant
shareholder of the Company,  participated in this  transaction.  In August 2005,
the maturity  date of the $5.14 million  indebtedness  was extended to March 31,
2006, and the notes were amended to provide that a 3% fee will be due on each of
December  15,  2005 and January 30, 2006 if the loan is not repaid in full prior
to  December  1,  2005 or  January  16,  2006,  respectively.  Other  terms  and
conditions of the notes remain unchanged.

              CONTRACTUAL OBLIGATIONS

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

         Our notes payable at June 30, 2005 consisted of the following:

                                                                       BALANCE
                                                                       JUNE 30,
NOTES PAYABLE                                                           2005
---------------------------------------------------------------      -----------

Senior credit facility dated November 26, 2004;
   interest rate of Prime + 5.75%, payable monthly,
   with principle reductions also payable monthly
   based on 50% of Free Cash Flow (as defined in
   the credit facility) .......................................      $16,400,000
Notes issued in March 2005 Bridge Financing,
   exclusive of $453,828 discount, due
   date extended to March 31, 2006 ............................        4,925,699
Bank loan dated July 29, 2004; interest rate of
   7.25%, payable monthly .....................................          452,749
                                                                     -----------
   Total ......................................................      $21,778,448
                                                                     ===========

         We rent mining equipment  pursuant to operating lease  agreements,  and
made lease payments totaling  approximately $984,161 during the six months ended
June 30, 2005.

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


                                       21
<PAGE>


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

OFF-BALANCE SHEET ARRANGEMENTS

         At June 30, 2005, we did not have any relationships with unconsolidated
entities  or  financial  partnerships,  such as  entities  often  referred to as
structured finance,  variable interest or special purpose entities,  which would
have  been  established  for  the  purpose  of  facilitating  off-balance  sheet
arrangements or other contractually narrow or limited purposes.  As such, we are
not exposed to any financing,  liquidity, market or credit risk that could arise
if we had engaged in such relationships.

CAUTIONARY STATEMENTS AND RISK FACTORS

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

                          RISKS RELATED TO OUR BUSINESS

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

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

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

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

         Our  coal  sales  for  the  six  months   ended  June  30,   2005  were
approximately $28 million,  and coal sales during fiscal 2004 were approximately
$16.9  million.  There is no  assurance  that we can  achieve  greater  sales or
generate  profitable sales. We expect that many coal producers could produce and
sell coal at lower prices per ton than our  production  cost rates,  which could
adversely affect our revenues and profits, if any. There is no assurance that we
will  ever  operate  profitably.  There is no  assurance  that we will  generate
continued revenues or any profits,  or that the market price of our common stock
will be increased thereby.

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

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


                                       22
<PAGE>


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

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

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

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

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

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

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

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

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

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

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


                                       23
<PAGE>


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 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.


                                       24
<PAGE>


         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, 2005, we
leased no acres  from the  federal  government.  The limit  could  restrict  our
ability to lease significant federal lands.

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

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

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

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

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

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

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

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

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

         Terrorist  attacks and  threats,  escalation  of  military  activity in
response  to such  attacks or acts of war may  negatively  affect our  business,
financial  condition  and  results of  operations.  Our  business is affected by
general economic  conditions,  fluctuations in consumer confidence and spending,
and market liquidity,  which can decline as a result of numerous factors outside
of our control,  such as  terrorist  attacks and acts of war.  Future  terrorist
attacks  against  U.S.  targets,  rumors or  threats  of war,  actual  conflicts


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<PAGE>


involving  the United  States or its allies,  or  military or trade  disruptions
affecting our customers may materially  adversely  affect our  operations.  As a
result, there could be delays or losses in transportation and deliveries of coal
to our customers,  decreased sales of our coal and extension of time for payment
of  accounts   receivable  from  our  customers.   Strategic   targets  such  as
energy-related  assets may be at greater risk of future  terrorist  attacks than
other  targets in the United  States.  In addition,  disruption  or  significant
increases in energy prices could result in government-imposed price controls. It
is  possible  that any,  or a  combination,  of these  occurrences  could have a
material  adverse  effect on our  business,  financial  condition and results of
operations.

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

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

                        RISKS RELATED TO OUR COMMON STOCK

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

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

WE DO NOT FORESEE PAYING DIVIDENDS IN THE NEAR FUTURE.

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

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

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

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

         Factors that may influence our quarterly operating results include:

         o        the worldwide demand for coal;


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<PAGE>


         o        the price of coal;

         o        the supply of coal and other competitive factors;

         o        the costs to mine and transport coal;

         o        the ability to obtain new mining permits;

         o        the costs of reclamation of previously mined properties; and

         o        industry competition.

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

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

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

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

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

         o        interest rates;

         o        changes in accounting principles;

         o        sales of common stock by existing security holders;

         o        announcements of key developments by our competitors; and

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

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

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

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

         As of June 30, 2005,  our officers and directors  and their  affiliates
owned  approximately  45% of our  outstanding  voting shares.  As a result,  our
officers and directors are able to exert considerable influence over the outcome
of any matters submitted to a vote of the holders of our common stock, including
the election of our Board of Directors.  The voting power of these  shareholders
could also

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<PAGE>


discourage  others from seeking to acquire control of us through the purchase of
our common stock which might depress the price of our common stock.

ITEM 3.  CONTROLS AND PROCEDURES.

CONTROLS AND PROCEDURES

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

INTERNAL CONTROL OVER FINANCIAL REPORTING

         There were no changes in our internal control over financial  reporting
or in other factors  identified in connection  with the  evaluation  required by
paragraph  (d) of Exchange Act Rules 13a-15 or 15d-15 that  occurred  during the
six months ended June 30, 2005 that have materially affected,  or are reasonably
likely to materially affect, our internal control over financial reporting.


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<PAGE>


                                     PART II

                                OTHER INFORMATION

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

         Investors  who  paid  cash   consideration   in  either  the  Series  A
convertible  preferred  stock  financing  or  convertible  debt  financing  also
received  the  right  to  purchase  additional  units of  Series  A  convertible
preferred stock and common stock purchase  warrants.  In April 2005, the Company
issued 11.55 shares of its Series A convertible  preferred stock and warrants to
purchase  5,775 shares of its common stock upon the exercise by three holders of
these purchase rights, and received gross proceeds of approximately  $173,000 in
connection  with the sale of these  securities.  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  sales  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
transactions not involving any public offering.

         In  February  2005 we issued 933  shares of our  common  stock for cash
proceeds of $3,333 upon the exercise of warrants issued in our 2004  financings.
Each of the investors in the 2004 financing 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 sales 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 transactions not involving any
public offering.

         During the six months ended June 30,  2005,  holders of 68.77 shares of
Series A  convertible  preferred  stock with  liquidation  preferences  totaling
approximately  $1 million  converted  their shares into 174,129 shares of common
stock.  The  issuance  of these  securities  was  exempt  from the  registration
requirements of the Securities Act pursuant to Section 3(a)(9) of the Securities
Act as an exchange by the issuer with its  existing  security  holders  where no
commission or other remuneration is paid for soliciting such exchange.

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

         On June 7, 2005, we held our 2005 Annual  Meeting of  Shareholders.  At
the annual  meeting,  there were 17,263,878  shares entitled to vote,  including
13,709,728  shares of common  stock and  Series A  convertible  preferred  stock
convertible into 3,554,150 shares of common stock.  There were 10,251,260 shares
(59.4% of the shares  entitled to vote)  represented at the meeting in person or
by proxy,  including  9,530,870  shares of common stock and Series A convertible
preferred stock convertible into 721,100 shares of common stock. The only matter
submitted  to the  shareholders  at the annual  meeting  was the  election  of 5
directors.  Immediately  prior  to and  following  the  meeting,  the  Board  of
Directors was comprised of Jon Nix, Mark Oldham,  Kenneth Scott, Scott Filstrup,
and Robert  Heinlein.  The following  summarizes  vote results for those matters
submitted to our stockholders for action at the annual meeting:

         1.       Proposal  to elect Jon Nix, Mark Oldham,  Kenneth Scott, Scott
Filstrup,  and Robert  Heinlein to serve as our directors for one year and until
their successors has been elected:

                  Director                    For                    Withheld

                  Jon Nix                  10,766,735                  525


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<PAGE>


                Mark Oldham                10,766,735                  525
               Kenneth Scott               10,766,735                  525
               Scott Filstrup              10,700,420                 66,840
              Robert Heinlein              10,766,735                  525


ITEM 6.  EXHIBITS

         THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:

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

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

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


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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 15, 2005                         /s/ Mark A. Oldham
                                          --------------------------------------
                                      By:     Mark A. Oldham
                                      Its:    Chief Financial Officer
                                              (Principal Financial and
                                              Accounting Officer)


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