U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


(Mark One)                         FORM 10-QSB

     X             QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
   ------
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the Quarterly Period Ended March 31, 2006

                                       OR

              TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
   -------             THE SECURITIES EXCHANGE ACT OF 1934

               For the Transition Period from _________to_________

                          Commission File No. 000-50257

                          CAROLINA NATIONAL CORPORATION
        (Exact name of small business issuer as specified in its charter)

         South Carolina                             57-1101005
         (State or other jurisdiction               (I.R.S. Employer
          of incorporation)                          Identification No.)


                                1350 Main Street
                         Columbia, South Carolina 29201

          (Address of principal executive offices, including zip code)


                            (803) 779-0411 (Issuer's
                     telephone number, including area code)
                ------------------------------------------------

Indicate by check mark whether the issuer (1) has filed all reports  required to
be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during
the preceding 12 months (or for such shorter period that the issuer was required
to file such reports) and (2) has been subject to such filing  requirements  for
the past 90 days.

                                 YES [X] NO [ ]

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock as of the latest practicable date.

        2,577,303 shares of common stock, no par value on April 30, 2006

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






                          CAROLINA NATIONAL CORPORATION



                                      Index




PART I - FINANCIAL INFORMATION                                                                             Page No.
- ------------------------------

Item 1.   Financial Statements (Unaudited)

                                                                                                            
          Condensed Consolidated Balance Sheets - March 31, 2006 and December 31, 2005............................3

          Condensed Consolidated Statements of Operations- Three months ended March 31, 2006 and 2005.............4

          Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income-
           Three months ended March 31, 2006 and 2005.............................................................5

          Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2006 and 2005............6

          Notes to Condensed Consolidated Financial Statements....................................................7

Item 2.   Management's Discussion and Analysis or Plan of Operation............................................9-14

Item 3.   Controls and Procedures................................................................................15

PART II - OTHER INFORMATION

Item 6.   Exhibits and Reports on Form 8-K.......................................................................16

          Exhibits...............................................................................................16









                          CAROLINA NATIONAL CORPORATION

                      Condensed Consolidated Balance Sheets

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements


                                                                                                March 31,            December 31,
                                                                                                  2006                   2005
                                                                                                  ----                   ----
Assets                                                                                        (Unaudited)
  Cash and cash equivalents
                                                                                                                
    Cash and due from banks ......................................................           $   6,354,864            $   3,109,712
    Federal funds sold ...........................................................              20,088,000               17,858,000
                                                                                             -------------            -------------
      Total cash and cash equivalents ............................................              26,442,864               20,967,712
                                                                                             -------------            -------------
  Investment securities
    Securities available for sale ................................................                       -                2,989,688
    Nonmarketable equity securities ..............................................                 562,600                  511,200
                                                                                             -------------            -------------
      Total investment securities ................................................                 562,600                3,500,888
                                                                                             -------------            -------------
  Loans receivable ...............................................................             153,698,603              139,152,300
    Less allowance for loan losses ...............................................               2,032,799                1,882,099
                                                                                             -------------            -------------
      Loans, net .................................................................             151,665,804              137,270,201
                                                                                             -------------            -------------
  Premises, furniture and equipment, net .........................................                 873,367                  923,858
  Accrued interest receivable ....................................................                 735,654                  649,818
  Deferred tax asset .............................................................               1,116,579                1,302,766
  Other assets ...................................................................                 375,542                  241,360
                                                                                             -------------            -------------
      Total assets ...............................................................           $ 181,772,410            $ 164,856,603
                                                                                             =============            =============
Liabilities
  Deposits
    Noninterest-bearing transaction accounts .....................................           $  15,766,627            $  13,027,867
    Interest-bearing transaction accounts ........................................              11,642,789               13,635,279
    Savings and money market .....................................................              26,646,586               27,582,626
    Time deposits $100,000 and over ..............................................              60,363,908               43,705,039
    Other time deposits ..........................................................              36,319,357               37,794,899
                                                                                             -------------            -------------
      Total deposits .............................................................             150,739,267              135,745,710
                                                                                             -------------            -------------
  Advances from Federal Home Loan Bank ...........................................               1,000,000                1,000,000
  Accrued interest payable .......................................................                 767,112                  905,271
  Other liabilities ..............................................................                 227,294                  837,708
                                                                                             -------------            -------------
      Total liabilities ..........................................................             152,733,673              138,488,689
                                                                                             -------------            -------------
Shareholders' equity
  Preferred stock, 10,000,000 shares authorized, none issued .....................                       -                        -
  Common stock, no par value, 20,000,000 shares authorized;
    and 2,577,303 shares issued and outstanding ..................................              31,024,869               28,772,288
    Retained deficit .............................................................              (1,986,132)              (2,397,568)
    Accumulated other comprehensive loss .........................................                       -                   (6,806)
                                                                                             -------------            -------------
      Total shareholders' equity .................................................              29,038,737               26,367,914
                                                                                             -------------            -------------
      Total liabilities and shareholders' equity .................................           $ 181,772,410            $ 164,856,603
                                                                                             =============            =============


            See notes to condensed consolidated financial statements.


                                       3


                          CAROLINA NATIONAL CORPORATION

                 Condensed Consolidated Statements of Operations
                                   (Unaudited)



                                                                                                          Three Months Ended
                                                                                                               March 31,
                                                                                                               ---------
                                                                                                    2006                     2005
                                                                                                    ----                     ----
Interest income
                                                                                                                    
  Loans, including fees ..........................................................               $2,684,069               $1,427,738
  Investment securities:
    Taxable ......................................................................                    5,000                   15,000
    Nonmarketable equity securities ..............................................                   20,701                    6,419
  Federal funds sold .............................................................                  149,958                   51,399
                                                                                                 ----------               ----------
      Total ......................................................................                2,859,728                1,500,556
                                                                                                 ----------               ----------
Interest expense
  Time deposits $100,000 and over ................................................                  530,655                  239,852
  Other deposits .................................................................                  523,944                  280,931
  Federal Home Loan Bank advances ................................................                   11,323                        -
  Note payable ...................................................................                        -                   11,037
                                                                                                 ----------               ----------
        Total ....................................................................                1,065,922                  531,820
                                                                                                 ----------               ----------
Net interest income ..............................................................                1,793,806                  968,736
Provision for loan losses ........................................................                  150,700                  146,000
                                                                                                 ----------               ----------
Net interest income after provision for loan losses ..............................                1,643,106                  822,736
                                                                                                 ----------               ----------
Noninterest income
  Service charges on deposit accounts ............................................                   51,359                   37,726
  Residential mortgage origination fees ..........................................                   24,991                   23,928
  Other ..........................................................................                   20,309                   17,789
                                                                                                 ----------               ----------
      Total noninterest income ...................................................                   96,659                   79,443
                                                                                                 ----------               ----------
Noninterest expenses
  Salaries and employee benefits .................................................                  636,812                  465,624
  Net occupancy ..................................................................                  103,576                   71,656
  Furniture and equipment ........................................................                   40,389                   36,841
  Other operating ................................................................                  338,277                  262,424
                                                                                                 ----------               ----------
      Total noninterest expense ..................................................                1,119,054                  836,545
                                                                                                 ----------               ----------
Income before income taxes .......................................................                  620,711                   65,634
Income tax expense ...............................................................                  209,275                   23,735
                                                                                                 ----------               ----------
Net income .......................................................................               $  411,436               $   41,899
                                                                                                 ==========               ==========
Earnings per share
Earnings per share - basic .......................................................               $      .16               $      .03
                                                                                                 ==========               ==========
Earnings per share - diluted .....................................................               $      .15               $      .03
                                                                                                 ==========               ==========
Average shares outstanding - basic ...............................................                2,567,303                1,427,303
                                                                                                 ==========               ==========

Average shares outstanding - diluted .............................................                2,664,898                1,502,529
                                                                                                 ==========               ==========


            See notes to condensed consolidated financial statements.


                                       4


                          CAROLINA NATIONAL CORPORATION

      Condensed Consolidated Statements of Changes in Shareholders' Equity
                         and Comprehensive Income (Loss)
               For the three months ended March 31, 2006 and 2005
                                   (Unaudited)



                                                                                                      Accumulated
                                                           Common Stock                                  Other
                                                           ------------              Retained        Comprehensive
                                                     Shares           Amount          Deficit             Loss             Total
                                                     ------           ------          -------             ----             -----
                                                                                                        
Balance, December 31, 2004 .................        1,427,303     $ 13,994,796     $ (3,044,801)     $    (24,881)     $ 10,925,114

Net income .................................                -                -           41,899                              41,899

Other comprehensive loss,
  net of tax benefit .......................                -                -                -            (6,806)           (6,806)
                                                                                                                       ------------
Comprehensive income .......................                -                -                                               35,093
                                                    ---------     ------------     ------------      ------------      ------------

Balance, March 31, 2005 ....................        1,427,303     $ 13,994,796     $ (3,002,902)     $    (31,687)     $ 10,960,207
                                                    =========     ============     ============      ============      ============



Balance, December 31, 2005 .................        2,427,303     $ 28,772,288     $ (2,397,568)     $     (6,806)     $ 26,367,914

Issuance of common stock, net ..............          150,000        2,245,344                                            2,245,344
Stock-based employee compensation
  expense ..................................                             7,237                                                7,237
Net income .................................                                            411,436                             411,436
  Other comprehensive income,
  net of tax benefit .......................                                                                6,806             6,806
                                                                                                                       ------------
Comprehensive income .......................                                                                                418,242
                                                    ---------     ------------     ------------      ------------      ------------

Balance, March 31, 2006 ....................        2,577,303     $ 31,024,869     $ (1,986,132)     $          -      $ 29,038,737
                                                    =========     ============     ============      ============      ============


            See notes to condensed consolidated financial statements.


                                       5


                          CAROLINA NATIONAL CORPORATION

                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)



                                                                                                          Three Months Ended
                                                                                                               March 31,
                                                                                                               ---------
                                                                                                      2006                  2005
                                                                                                      ----                  ----
Cash flows from operating activities
                                                                                                                 
  Net income .........................................................................          $    411,436           $     41,899
  Adjustments to reconcile net loss to net cash provided (used) by
    operating activities
      Provision for loan losses ......................................................               150,700                146,000
      Depreciation and amortization expense ..........................................                54,203                 41,352
      Deferred income tax expense (benefit) ..........................................               182,681                (13,914)
      Increase in accrued interest receivable ........................................               (85,836)               (25,784)
      Increase (decrease) in accrued interest payable ................................              (138,159)                64,481
      Increase in other assets .......................................................              (134,182)                (6,373)
      Decrease in other liabilities ..................................................              (610,414)               (52,015)
                                                                                                ------------           ------------
        Net cash (used) provided by operating activities .............................              (169,571)               195,646
                                                                                                ------------           ------------
Cash flows from investing activities
  Purchases of nonmarketable equity securities .......................................               (51,400)               (73,800)
  Securities called or redeemed ......................................................             3,000,000                      -
  Net increase in loans ..............................................................           (14,546,303)           (12,068,398)
  Purchase of premises, furniture and equipment ......................................                (3,712)               (18,121)
                                                                                                ------------           ------------
      Net cash used by investing activities ..........................................           (11,601,415)           (12,160,319)
                                                                                                ------------           ------------

Cash flows from financing activities
  Net increase (decrease) in demand deposits, interest-bearing
    transaction accounts and savings accounts ........................................              (189,770)             2,786,996
  Net increase in certificates of deposit and
    other time deposits ..............................................................            15,183,327             15,411,164
  Issuance of common stock, net ......................................................             2,252,581                      -
  Net increase in notes payable ......................................................                     -                450,000
                                                                                                ------------           ------------
    Net cash provided by financing activities ........................................            17,246,138             18,648,160
                                                                                                ------------           ------------
Net increase in cash and cash equivalents ............................................             5,475,152              6,683,487
Cash and cash equivalents, beginning of period .......................................            20,967,712              3,381,863
                                                                                                ------------           ------------
Cash and cash equivalents, end of period .............................................          $ 26,442,864           $ 10,065,350
                                                                                                ============           ============
Cash paid during the period for:
  Income taxes .......................................................................          $      7,542           $      3,472
                                                                                                ============           ============
  Interest ...........................................................................          $    436,969           $    467,339
                                                                                                ============           ============


            See notes to condensed consolidated financial statements.


                                       6


                          CAROLINA NATIONAL CORPORATION
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

Note 1 - Basis of Presentation

The accompanying  financial statements have been prepared in accordance with the
requirements  for  interim  financial  statements  and,  accordingly,  they  are
condensed  and  omit  disclosures  that  would  substantially   duplicate  those
contained  in the most  recent  annual  report  on Form  10-KSB.  The  financial
statements,  as of March 31,  2006 and for the interim  periods  ended March 31,
2006 and 2005,  are  unaudited  and, in the opinion of  management,  include all
adjustments  (consisting of normal recurring  adjustments)  considered necessary
for a fair presentation.  The financial  information as of December 31, 2005 has
been derived from the audited financial  statements as of that date. For further
information,  refer  to the  financial  statements  and the  notes  included  in
Carolina National Corporation's 2005 Annual Report on Form 10-KSB.

Note 2 - Recently Issued Accounting Pronouncements

The  following is a summary of recent  authoritative  pronouncements  that could
impact the accounting,  reporting,  and / or disclosure of financial information
by the Company.

In February 2006, the FASB issued SFAS No. 155,  "Accounting  for Certain Hybrid
Financial  Instruments--an  amendment of FASB  Statements No. 133 and 140." This
Statement  amends SFAS No.  133,  "Accounting  for  Derivative  Instruments  and
Hedging  Activities," and SFAS No. 140,  "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." This Statement resolves
issues addressed in SFAS No. 133  Implementation  Issue No. D1,  "Application of
Statement 133 to Beneficial Interests in Securitized Financial Assets." SFAS No.
155 is  effective  for all  financial  instruments  acquired or issued after the
beginning of an entity's first fiscal year that begins after September 15, 2006.
The  Company  does not  believe  that the  adoption  of SFAS No. 155 will have a
material impact on its financial position, results of operations and cash flows.

In March  2006,  the FASB  issued SFAS No. 156,  "Accounting  for  Servicing  of
Financial Assets--an amendment of FASB Statement No. 140." This Statement amends
FASB No. 140,  "Accounting  for Transfers and Servicing of Financial  Assets and
Extinguishments  of Liabilities,"  with respect to the accounting for separately
recognized servicing assets and servicing liabilities.  SFAS No. 156 requires an
entity to  recognize  a  servicing  asset or  servicing  liability  each time it
undertakes  an  obligation  to  service a  financial  asset by  entering  into a
servicing  contract;  requires all separately  recognized  servicing  assets and
servicing  liabilities to be initially  measured at fair value,  if practicable;
permits an entity to choose its subsequent measurement methods for each class of
separately recognized servicing assets and servicing liabilities; at its initial
adoption,  permits a one-time reclassification of available-for-sale  securities
to trading  securities by entities with  recognized  servicing  rights,  without
calling into question the treatment of other available-for-sale securities under
Statement 115, provided that the available-for-sale securities are identified in
some  manner as  offsetting  the  entity's  exposure to changes in fair value of
servicing assets or servicing liabilities that a servicer elects to subsequently
measure at fair value;  and requires  separate  presentation of servicing assets
and servicing  liabilities  subsequently measured at fair value in the statement
of financial position and additional  disclosures for all separately  recognized
servicing assets and servicing liabilities.  An entity should adopt SFAS No. 156
as of the  beginning of its first fiscal year that begins  after  September  15,
2006.  The Company  does not  believe  the  adoption of SFAS No. 156 will have a
material impact on its financial position, results of operations and cash flows.

Other  accounting  standards  that have been  issued or  proposed by the FASB or
other standards-setting bodies are not expected to have a material impact on the
Company's financial position, results of operations and cash flows.

Note 3 - Stock-Based  Compensation - On January 1, 2006, the Company adopted the
fair value  recognition  provisions  of  Financial  Accounting  Standards  Board
("FASB")  Statement  of Financial  Accounting  Standards  ("SFAS")  No.  123(R),
Accounting for Stock-Based Compensation, to account for compensation costs under
its stock option plans.  The Company  previously  utilized the  intrinsic  value
method under Accounting  Principles  Board Opinion No. 25,  Accounting for Stock
Issued to Employees (as amended)  ("APB 25").  Under the intrinsic  value method
prescribed by APB 25, no  compensation  costs were  recognized for the Company's
stock options  because the option  exercise price in its plans equals the market
price on the date of grant. Prior to January 1, 2006, the Company only disclosed
the pro forma  effects on net income and earnings per share as if the fair value
recognition provisions of SFAS 123(R) had been utilized.

                                       7

                         CAROLINA NATIONAL CORPORATION

Note 3 - Stock-Based Compensation - continued

In adopting  SFAS No. 123, the Company  elected to use the modified  prospective
method to account for the transition from the intrinsic value method to the fair
value recognition method.  Under the modified  prospective method,  compensation
cost is  recognized  from the adoption  date  forward for all new stock  options
granted and for any outstanding  unvested awards as if the fair value method had
been  applied  to those  awards as of the date of  grant.  The  following  table
illustrates the effect on net income and earnings per share as if the fair value
based method had been  applied to all  outstanding  and unvested  awards in each
period.



                                                                                                     Three months ended March 31,
                                                                                                     ----------------------------
                                                                                                       2006                 2005
                                                                                                       ----                 ----
                                                                                                                 
Net income, as reported .................................................................         $     411,436         $   41,899
Add:  Stock-Based employee compensation expense included in
  reported net income, net of related tax effects .......................................                 4,559
Deduct: Total stock-based employee compensation expense determined
  under fair value based method for all awards, net of related tax effects ..............                (4,559)           (13,464)
                                                                                                  -------------         ----------
Pro forma net income including stock-based compensation cost
based on fair-value method ..............................................................         $     411,436         $   28,435
                                                                                                  =============         ==========
Earnings (loss) per share:
  Basic - as reported ...................................................................         $         .16         $      .03
                                                                                                  =============         ==========
  Basic - pro forma .....................................................................         $         .16         $      .02
                                                                                                  =============         ==========
  Diluted - as reported .................................................................         $         .15         $      .03
                                                                                                  =============         ==========
  Diluted - pro forma ...................................................................         $         .15         $      .02
                                                                                                  =============         ==========


Note 4 - Earnings Per Share

Basic   earnings   per  share  is  computed  by  dividing   net  income  by  the
weighted-average number of common shares outstanding. Diluted earnings per share
is  computed  by dividing  net income by the  weighted-average  number of common
shares  outstanding  and dilutive  common share  equivalents  using the treasury
stock method.  Dilutive common share equivalents  include common shares issuable
upon exercise of outstanding stock warrants and stock options.



                                                                                                  Three months ended March 31,
                                                                                                  ----------------------------
                                                                                                  2006                       2005
                                                                                                  ----                       ----
Net income per share - basic computation:
                                                                                                                    
Net income to common shareholders ............................................               $      411,436               $   41,899
                                                                                             ==============               ==========
Average common shares outstanding - basic ....................................                    2,567,303                1,427,303
                                                                                             ==============               ==========
Basic income per share .......................................................               $          .16               $      .03
                                                                                             ==============               ==========


Net income per share - dilutive computation:
Net income to common shareholders ............................................               $      411,436               $   41,899
                                                                                             ==============               ==========
Average common shares outstanding - dilutive .................................                    2,664,898                1,502,529
                                                                                             ==============               ==========
Dilutive income per share ....................................................               $          .15               $      .03
                                                                                             ==============               ==========


                                       8

                         CAROLINA NATIONAL CORPORATION

Forward-Looking Statements

This  report  contains  "forward-looking  statements"  within the meaning of the
securities   laws.   All   statements   that  are  not   historical   facts  are
"forward-looking  statements." You can identify these forward-looking statements
through  our  use of  words  such  as  "may,"  "will,"  "expect,"  "anticipate,"
"believe," "intend," "estimate,"  "project," "continue," or other similar words.
Forward-looking statements include, but are not limited to, statements regarding
our future business prospects,  revenues,  working capital,  liquidity,  capital
needs, interest costs, income, business operations and proposed services.

These forward-looking  statements are based on current  expectations,  estimates
and projections about our industry,  management's  beliefs, and assumptions made
by management. Such information includes, without limitation,  discussions as to
estimates,  expectations,  beliefs, plans, strategies, and objectives concerning
our  future  financial  and  operating  performance.  These  statements  are not
guarantees of future  performance  and are subject to risks,  uncertainties  and
assumptions  that are  difficult to predict,  particularly  in light of the fact
that we are a new company  with limited  operating  history.  Therefore,  actual
results  may  differ  materially  from those  expressed  or  forecasted  in such
forward-looking  statements.  The risks and uncertainties  include,  but are not
limited to:

          o    our growth and our ability to maintain growth;

          o    governmental monetary and fiscal policies, as well as legislative
               and regulatory changes;

          o    the effect of interest rate changes on our level and  composition
               of deposits, loan demand and the value of our loan collateral and
               securities;

          o    the  effects of  competition  from other  financial  institutions
               operating   in  our   market   area  and   elsewhere,   including
               institutions  operating  locally,   regionally,   nationally  and
               internationally,  together  with  competitors  that offer banking
               products and services by mail,  telephone and computer and/or the
               Internet;

          o    failure  of  assumptions  underlying  the  establishment  of  our
               allowance  for loan  losses,  including  the value of  collateral
               securing loans; and

          o    loss of consumer  confidence and economic  disruptions  resulting
               from terrorist activities.

We  undertake no  obligation  to publicly  update or revise any  forward-looking
statements, whether as a result of new information,  future events or otherwise.
In light of these risks,  uncertainties,  and assumptions,  the  forward-looking
events discussed in this report might not occur.

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

The following is our discussion and analysis of certain significant factors that
have  affected our  financial  position and  operating  results and those of our
subsidiary,  Carolina National Bank (the "Bank"), during the periods included in
the  accompanying  financial  statements.  This  commentary  should  be  read in
conjunction  with the financial  statements  and the related notes and the other
statistical information included in this report and in our 2005 Annual Report on
Form 10-KSB.

Results of Operations

Net Interest Income

For the three  months  ended March 31,  2006,  net  interest  income,  the major
component of the Company's net income was $1,793,806 as compared to $968,736 for
the same  period in 2005.  The  improvement  in the 2005  period  was  primarily
attributable  to  increased  loan  volume,  and to the  increase in net interest
margin.  The average  yield  realized on  interest-earning  assets was 7.11% and
5.62%, respectively,  for the three month periods ended March 31, 2006 and 2005.
The  average  rate paid on  interest-bearing  liabilities  was 3.51% and  2.42%,
respectively, for the three month periods ended March 31, 2006 and 2005.

The  net  interest  spread  and  net  interest  margin  were  3.60%  and  4.46%,
respectively,  for the three month period ended March 31, 2006. The net interest
spread and net interest margin were 3.20% and 3.63%, respectively, for the three
month period ended March 31, 2005.  These  increases are primarily the result of
changes  in  interest  rates,  improved  loan  pricing  and a  reduction  in the
dependency  on higher  priced  certificates  of deposit  products  to fund loans
during the 2006 reporting period.

                                       9

                         CAROLINA NATIONAL CORPORATION

Provision and Allowance for Loan Losses

The  provision  for  loan  losses  is the  charge  to  operating  earnings  that
management believes is necessary to maintain the allowance for loan losses at an
adequate  level to reflect the losses  inherent in the loan  portfolio.  For the
three months ended March 31, 2006 and 2005, the provision charged to expense was
$150,700 and $146,000,  respectively.  The allowance for loan losses  represents
1.32% and 1.44% of gross loans at March 31, 2006 and 2005,  respectively.  There
are risks  inherent  in making all loans,  including  risks with  respect to the
period of time over which loans may be repaid,  risks  resulting from changes in
economic  and industry  conditions,  risks  inherent in dealing with  individual
borrowers,  and, in the case of a  collateralized  loan,  risks  resulting  from
uncertainties about the future value of the collateral. We maintain an allowance
for loan  losses  based on,  among  other  things,  an  evaluation  of  economic
conditions, and regular reviews of delinquencies and loan portfolio quality. Our
judgment about the adequacy of the allowance is based upon a number of estimates
and assumptions about present conditions and future events,  which we believe to
be reasonable,  but which may not prove to be accurate.  Since we have a limited
operating  history,  we rely heavily on the  experience  of  management at other
financial  institutions  and peer group data in  formulating  our  estimates and
assumptions.  Thus,  there is a risk that  chargeoffs  in future  periods  could
exceed the allowance for loan losses or that substantial additional increases in
the allowance for loan losses could be required.  Additions to the allowance for
loan losses  would  result in a decrease of our net income  and,  possibly,  our
capital.

Noninterest Income

Total  noninterest  income for the three month  periods ended March 31, 2006 and
2005 was $96,659 and $79,443,  respectively. Of this total, $51,359 and $37,726,
respectively,  was generated  from service  charges on deposit  accounts,  which
includes NSF fees. The number of deposit  transaction  accounts increased by 24%
over the same period last year  resulting  in the  improved  earnings in service
charge fees. Fees generated from  residential  mortgage  originations of $23,928
and $24,991 were basically flat for the two reporting periods.

Noninterest Expense

Total noninterest expense for the three months ended March 31, 2006 and 2005 was
$1,119,054 and $836,545,  respectively. This represents an increase of $282,509,
or 34% over the comparable  period of 2005. The largest  increase,  salaries and
employee benefits,  increased from $465,624 for the three months ended March 31,
2005 to $636,812  for the three  months  ended March 31,  2006.  The increase is
primarily  attributable  to the hiring of  additional  staff to meet the growing
needs of the Bank.  Net  occupancy  expense for the three months ended March 31,
2006 was $103,576 as compared to $71,656 for the same period a year earlier. The
increase was due primarily to an additional  lease and costs  associated  with a
new branch in the  northeast  area of  Richland  County.  The  increase in other
operating  expenses from 2005 to 2006 is  attributable  to the overall growth of
the bank.

Income Taxes

An income tax expense of  $209,275  and  $23,735  was  recorded  for the periods
ending March 31, 2006 and 2005, respectively. The increase in income tax expense
is a result of the increased  income before taxes between the two periods.  This
represents an effective tax rate of 34% and 36%, respectively.

Net Income

The  combination  of the above  factors  resulted in net income of $411,436  and
$41,899 for the three  months ended March 31, 2006 and 2005,  respectively.  The
net income for 2006 is primarily the result of our increased earning asset base,
which is now becoming large enough to support the expenses related to the normal
infrastructure of a start up bank, coupled with the increase in the net interest
margin. Average earning assets increased by $13,005,740, or 9% from December 31,
2005 to March 31, 2006.

                                       10

                         CAROLINA NATIONAL CORPORATION

Financial Condition

Assets and Liabilities

During the first three months of 2006,  total assets increased  $16,915,807,  or
10%,  when  compared to December  31,  2005.  Federal  funds sold  increased  to
$20,088,000  at March 31,  2006 as a result of an increase  in  deposits.  Total
loans increased $14,546,303 or 10%, during the first three months of 2006. Total
deposits  increased by $14,993,557,  or 11% from the December 31, 2005 amount of
$135,745,710.  Within the deposit area, time deposits increased $15,183,327,  or
19%, during the first three months of 2006, savings deposits decreased $936,040,
or 3%, while transaction  accounts  increased  $746,270,  or 3% during the first
three months of 2006.

Investment Securities

Investment securities decreased from $3,500,888 at December 31, 2005 to $562,600
at March 31, 2006 as a result of the maturity of a $3,000,000  bond. As of March
31, 2006, the Company had no marketable investment securities.

Loans

We experienced  significant loan growth during the first three months of 2006 as
we continued to establish our presence in our marketplace. Gross loans increased
$14,546,303,  or 10%, during the period.  As shown below,  the main component of
growth in the loan  portfolio was real estate secured  construction  loans which
increased 29%, or $7,043,071 from December 31, 2005 to March 31, 2006.  Balances
within the major loans  receivable  categories as of March 31, 2006 and December
31, 2005 are as follows:

                                                   March 31,        December 31,
                                                     2006               2005
                                                     ----               ----
Mortgage loans on real estate:
       Residential 1-4 Family ............       $ 19,002,050       $ 17,501,409
       Commercial ........................         56,894,196         50,513,416
       Construction ......................         31,602,298         24,559,227
       Second Mortgages ..................          1,143,527          1,384,798
       Equity Lines of Credit ............         26,065,731         25,056,638
                                                 ------------       ------------
                                                  134,707,802        119,015,488

Commercial and industrial ................         16,652,547         17,809,622
Consumer .................................          2,282,867          2,305,145
Other ....................................             55,387             22,045
                                                 ------------       ------------

          Total gross loans ..............       $153,698,603       $139,152,300
                                                 ============       ============

Risk Elements in the Loan Portfolio

Criticized  loans are loans that have  potential  weaknesses  that deserve close
attention  and which  could,  if  uncorrected,  result in  deterioration  of the
prospects  for  repayment or our credit  position at a future  date.  Classified
loans are loans that are  inadequately  protected  by the sound worth and paying
capacity of the borrower or any  collateral  and as to which there is a distinct
possibility or probability  that we will sustain a loss if the  deficiencies are
not corrected. At March 31, 2006, the Bank had one criticized loan in the amount
of $1,185,284 that was collateralized with real estate. Additionally, we did not
have any  loans in  nonaccrual  status  or past due for more  than 90 days as of
March 31, 2006 and December 31, 2005.


                                       11

                         CAROLINA NATIONAL CORPORATION

Allowance for Loan Losses

Activity in the Allowance for Loan Losses is as follows:


                                                                                                   Three months ended March 31,
                                                                                                   ----------------------------
                                                                                                    2006                   2005
                                                                                                    ----                   ----
                                                                                                                 
Balance, January 1 .................................................................           $  1,882,099            $  1,332,200
Provision for loan losses for the period ...........................................                150,700                 146,000
Net loans (charged-off) recovered for the period ...................................                      -                       -
                                                                                               ------------            ------------
Balance, end of period .............................................................           $  2,032,799            $  1,478,200
                                                                                               ============            ============
Gross loans outstanding, end of period .............................................           $153,698,603            $102,583,448
Allowance for loan losses to loans outstanding, end of period ......................                   1.32%                   1.44%


Deposits

At March 31, 2006,  total  deposits had increased by  $14,993,557,  or 11%, from
December 31, 2005. The largest  increase was in time deposits,  which  increased
$15,183,327  or 19%, from December 31, 2005 to March 31, 2006.  The increase was
attributable to the purchase of brokered deposits to fund loan growth. Expressed
in percentages,  noninterest-bearing deposits increased 21% and interest-bearing
deposits increased 10%.

Balances  within the major deposit  categories as of March 31, 2005 and December
31, 2004 were as follows:

                                                  March 31,      December 31,
                                                    2006             2005
                                                    ----             ----
Noninterest-bearing transaction accounts .....  $ 15,766,627     $ 13,027,867
  Interest-bearing transaction accounts ......    11,642,789       13,635,279
  Savings and money market ...................    26,646,586       27,582,626
  Time deposits $100,000 and over ............    60,363,908       43,705,039
  Other time deposits ........................    36,319,357       37,794,899
                                                ------------     ------------

                                                $150,739,267     $135,745,710
                                                ============     ============

Time deposits of $100,000 and over included  brokered deposits of $41,592,000 as
of March 31, 2006, and $24,999,000 as of December 31, 2005.







                                       12

                         CAROLINA NATIONAL CORPORATION

Off-Balance Sheet Risk

Through its  operations,  the Bank has made  contractual  commitments  to extend
credit in the ordinary course of its business activities.  These commitments are
legally   binding   agreements  to  lend  money  to  the  Bank's   customers  at
predetermined  interest rates for a specified period of time. At March 31, 2006,
the Bank had issued  commitments  to extend  credit of  $32,073,963  and standby
letters of credit of $2,660,444  through  various  types of  commercial  lending
arrangements.  Approximately $32.8 million of these commitments to extend credit
had variable rates.

The  following  table sets forth the  length of time until  maturity  for unused
commitments to extend credit and standby letters of credit at March 31, 2006.



                                                      After One      After Three
                                       Within          Through         Through           Within          Greater
                                         One            Three           Twelve            One             Than
                                        Month           Months          Months            Year           One Year            Total
                                        -----           ------          ------            ----           --------            -----
                                                                                                       
Unused commitments
  to extend credit ...........      $   419,472      $   984,315      $ 6,767,687      $ 8,171,474      $23,902,489      $32,073,963
Standby letters
  of credit ..................                -                -        2,660,444        2,660,444                -        2,660,444
                                    -----------      -----------      -----------      -----------      -----------      -----------
    Totals ...................      $   419,472      $   984,315      $ 9,428,131      $10,831,918      $23,902,489      $34,734,407
                                    ===========      ===========      ===========      ===========      ===========      ===========


Based on historical experience in the banking industry,  many of the commitments
and  letters of credit  will expire  unfunded.  Accordingly,  the amounts in the
table above do not necessarily reflect our need for funds in the periods shown.

The Bank evaluates each customer's  credit  worthiness on a case-by-case  basis.
The  amount  of  collateral  obtained,  if  deemed  necessary  by the Bank  upon
extension  of  credit,  is  based  on its  credit  evaluation  of the  borrower.
Collateral  varies but may include  accounts  receivable,  inventory,  property,
plant and equipment, commercial and residential real estate.

Liquidity

Liquidity  management involves monitoring our sources and uses of funds in order
to  meet  our  day-to-day  cash  flow  requirements  while  maximizing  profits.
Liquidity  represents  the  ability of a Company to convert  assets into cash or
cash  equivalents  without  significant  loss and to raise  additional  funds by
increasing  liabilities.  Without proper liquidity  management,  we would not be
able to perform the primary  function  of a  financial  intermediary  and would,
therefore, not be able to meet the needs of the communities we serve.

Liquidity  management  is made more  complex  because  different  balance  sheet
components are subject to varying  degrees of management  control.  For example,
the timing of maturities of the investment  portfolio is relatively  predictable
and subject to control at the time investment  decisions are made. However,  net
deposit  inflows and  outflows are far less  predictable  and are not subject to
nearly the same degree of control. We also have the ability to obtain funds from
various financial institutions should the need arise.

We  meet  our  liquidity  needs  through  scheduled   maturities  of  loans  and
investments and through pricing policies to attract  interest-bearing  deposits.
The level of liquidity is measured by the  loan-to-total  borrowed  funds (which
includes  deposits) ratio, which was at 101.29% at March 31, 2006 and 101.76% at
December 31, 2005.

As a source of  additional  liquidity,  we have lines of credit  available  with
correspondent  banks to purchase  federal funds for periods from one to fourteen
days. At March 31, 2006, unused lines of credit totaled $6,200,000. We also have
a line of credit to borrow  funds from the  Federal  Home Loan Bank up to 10% of
the Bank's total assets reported at the end of each previous quarter, which gave
us the ability to borrow up to $16,485,660 as of March 31, 2006. As of March 31,
2006, we had an  outstanding  balance of $1,000,000 on this line. We also have a
line of credit to borrow funds from Chase Bank up to  $7,000,000 as of March 31,
2006. As of March 31, 2006, we had no outstanding borrowings on this line.

                                       13

                         CAROLINA NATIONAL CORPORATION

Capital Resources

Total  shareholders'  equity  increased from $26,367,914 at December 31, 2005 to
$29,038,737  at March 31, 2006.  The increase is due to additional  stock issued
(net of offering  costs) totaling  $2,252,581,  and net income for the period of
$411,436.  The issuance of  additional  shares of common stock was the result of
the  underwriter's  election to exercise  their over  allotment  option from the
public offering completed in December, 2005.

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate  certain  mandatory and possibly  additional  discretionary  actions by
regulators  that,  if  undertaken,  could have a  material  effect on the Bank's
financial  position.  Under  capital  adequacy  guidelines  and  the  regulatory
framework for prompt  corrective  action,  the Bank must meet  specific  capital
guidelines that involve quantitative measures of the Bank's assets, liabilities,
and certain  off-balance-sheet  items as calculated under regulatory  accounting
practices.  The Bank's capital amounts and  classifications  are also subject to
qualitative judgments by the regulators about components,  risk weightings,  and
other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to  maintain  minimum  ratios of Tier 1 and total  capital as a
percentage of assets and off-balance-sheet exposures,  adjusted for risk weights
ranging  from  0% to  100%.  Tier 1  capital  of the  Bank  consists  of  common
shareholders'  equity,  excluding  the  unrealized  gain or  loss on  securities
available-for-sale,  minus certain  intangible assets. The Bank's Tier 2 capital
consists of the  allowance  for loan  losses and  subordinated  debt  subject to
certain limitations.  Total capital for purposes of computing the capital ratios
consists  of the  sum of  Tier 1 and  Tier 2  capital.  The  regulatory  minimum
requirements are 4% for Tier 1 capital and 8% for total risk-based capital.

The Bank is also  required  to  maintain  capital  at a minimum  level  based on
quarterly  average  assets,  which  is  known as the  leverage  ratio.  Only the
strongest  banks are allowed to maintain  capital at the minimum  requirement of
3%. All others are subject to maintaining ratios 1% to 2% above the minimum.

The Federal Deposit  Insurance  Corporation has established  risk-based  capital
requirements  for  banks  and  the  Federal  Reserve  has  established   similar
requirements  for bank  holding  companies.  As of March 31,  2006,  the Company
exceeded the adequately capitalized  requirement of the Federal Reserve, and the
Bank exceeded the well  capitalized  and adequately  capitalized  requirement as
shown in the following table.



                                                                                       Capital Ratios
                                                                                       --------------
                                                                                    Adequately Capitalized          Well Capitalized
(Dollars in thousands)                                             Actual                 Requirement                Requirement
                                                                   ------                 -----------                -----------
                                                             Amount      Ratio         Amount      Ratio         Amount       Ratio
                                                             ------      -----         ------      -----         ------       -----
The Bank
                                                                                                           
  Total capital (to risk-weighted assets) ..............     $21,304     13.33%       $12,788      8.00%        $15,985      10.00%
  Tier 1 capital (to risk-weighted assets) .............      19,306     12.08%         5,296      4.00%          8,493       6.00%
  Tier 1 capital (to average assets) ...................      19,306     11.63%         5,587      4.00%          7,258       5.00%
The Company
  Total capital (to risk-weighted assets) ..............     $29,923     18.70%       $12,803      8.00%        $   N/A         N/A
  Tier 1 capital (to risk-weighted assets) .............      27,922     17.45%         5,285      4.00%            N/A         N/A
  Tier 1 capital (to average assets) ...................      27,922     15.83%         5,940      4.00%            N/A         N/A


We have a credit facility with Chase Bank which will allow us to borrow up to $7
million,  subject to a number of conditions,  which we could use to increase the
total regulatory  capital of the Bank up to 50% of Tier 1 capital.  At March 31,
2006, we did not have any monies borrowed on this line of credit.

                                       14


                         CAROLINA NATIONAL CORPORATION

Critical Accounting Policies

We have adopted  various  accounting  policies  which govern the  application of
accounting  principles generally accepted in the United States of America in the
preparation of our financial statements. Our significant accounting policies are
described in the notes to the consolidated  financial statements at December 31,
2005 as filed on our annual report on Form 10-KSB.  Certain accounting  policies
involve significant judgments and assumptions by us which have a material impact
on the  carrying  value of certain  assets and  liabilities.  We consider  these
accounting  policies to be  critical  accounting  policies.  The  judgments  and
assumptions  we use are based on the experience of our management in the banking
industry  and  other  factors,  which we  believe  to be  reasonable  under  the
circumstances.  Because of the nature of the judgments and  assumptions we make,
actual results could differ from these  judgments and estimates which could have
a major impact on our carrying  values of assets and liabilities and our results
of operations.

We believe the  allowance for loan losses is a critical  accounting  policy that
requires the most significant judgments and estimates used in preparation of our
consolidated  financial  statements.  Refer to the  portions  of our 2005 Annual
Report on Form 10-KSB and this Form 10-QSB that address our  allowance  for loan
losses for  description of our processes and  methodology  for  determining  our
allowance for loan losses.

Impact of Inflation

Unlike  most  industrial  companies,  the assets and  liabilities  of  financial
institutions  such as the Bank are  primarily  monetary  in  nature.  Therefore,
interest rates have a more significant  effect on the Bank's performance than do
the effects of changes in the general rate of inflation and change in prices. In
addition, interest rates do not necessarily move in the same direction or in the
same  magnitude as the prices of goods and  services.  As discussed  previously,
management seeks to manage the relationships  between interest  sensitive assets
and  liabilities  in order to protect  against wide interest rate  fluctuations,
including those resulting from inflation.

Item 3. Controls and Procedures

Based  on  the  evaluation  required  by  17  C.F.R.  Section  240.13a-15(b)  or
240.15d-15(b) of the Company's disclosure controls and procedures (as defined in
17  C.F.R.  Sections  240.13a-15(e)  and  240.15d-15(e)),  the  Company's  chief
executive  officer and chief financial  officer concluded that such controls and
procedures,  as of the end of the period covered by this quarterly report,  were
effective.

There  has been no change  in the  Company's  internal  control  over  financial
reporting during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially  affect,  the Company's internal control over
financial reporting.

                                       15


                         CAROLINA NATIONAL CORPORATION

Part II - Other Information

Item 6.  Exhibits and Reports on Form 8-K

     Exhibits:

     Exhibit  10.1 - Change  of  Control  Agreement  between  Carolina  National
     Corporation and Harry R. Brown.

     Exhibit 31.1 - Certification  of Principal  Executive  Officer  required by
     Rule 13a-14(a) or Rule 15d - 14(a) of the Securities  Exchange Act of 1934,
     as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     Exhibit 31.2 - Certification  of Principal  Financial  Officer  required by
     Rule 13a-14(a) or Rule 15d - 14(a) of the Securities  Exchange Act of 1934,
     as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     Exhibit 32.1 -  Certification  of Chief  Executive  Officer  pursuant to 18
     U.S.C.   Section  1350,   as  adopted   pursuant  to  Section  906  of  the
     Sarbanes-Oxley Act of 2002.

     Exhibit 32.2 -  Certification  of Chief  Financial  Officer  pursuant to 18
     U.S.C.   Section  1350,   as  adopted   pursuant  to  Section  906  of  the
     Sarbanes-Oxley Act of 2002.




                                       16


                         CAROLINA NATIONAL CORPORATION

                                    SIGNATURE

In accordance with the requirements of the Securities  Exchange Act of 1934, the
registrant  caused  this  report to be signed on its  behalf by the  undersigned
thereunto duly authorized.


                                      By: s/Roger B. Whaley
                                          --------------------------------------
                                          Roger B. Whaley
                                          President & Chief Executive Officer

Date:    May 10, 2006

                                      By: s/Harry R. Brown
                                          --------------------------------------
                                          Harry R. Brown
                                          Chief Financial Officer

Date:    May 10, 2006








                                       17


                         CAROLINA NATIONAL CORPORATION

Exhibit Index

10.1     Change of Control Agreement  between Carolina National  Corporation and
         Harry R. Brown.

31.1     Certification of Principal Executive Officer required by Rule 13a-14(a)
         or Rule 15d - 14(a) of the Securities  Exchange Act of 1934, as adopted
         pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2     Certification of Principal Financial Officer required by Rule 13a-14(a)
         or Rule 15d - 14(a) of the Securities  Exchange Act of 1934, as adopted
         pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1     Certification of Chief Executive Officer pursuant to 18 U.S.C.  Section
         1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley  Act of
         2002.

32.2     Certification of Chief Financial Officer pursuant to 18 U.S.C.  Section
         1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley  Act of
         2002.








                                       18