<PAGE>
<PAGE>   1

                          SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C.  20549

                                       Form 10-Q


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


For Quarter Ended December 31, 1997            Commission File Number 0-10610
                  -----------------                                   -------

                             BLUE DIAMOND COAL COMPANY                        
------------------------------------------------------------------------------
                (Exact name of registrant as specified in its charter)


       Delaware                                                62-0133200
-------------------------------                         ----------------------
(State or other jurisdiction of                            (I.R.S. Employer   
 incorporation or organization)                         Identification Number)


P. O. Box 59015, 341 Troy Circle, Knoxville, TN               37950-9015      
-----------------------------------------------         ----------------------
   (Address of principal executive offices)                    (Zip Code)     


Registrant's telephone number, including area code           (423) 588-8511   
                                                        ----------------------


Indicate by check mark whether the registrant (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
registrant 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 December 31, 1997.



              Class                           Outstanding at December 31, 1997
------------------------------------          --------------------------------
     Common Stock, $1 Par Value                         935,220 Shares
<PAGE>
<PAGE>   2

                               BLUE DIAMOND COAL COMPANY

                                         INDEX

                                                                         Page 
PART I.  FINANCIAL INFORMATION                                          Number
                                                                        ------
     Item 1.   Financial Statements

               Consolidated Condensed Balance Sheet
               December 31, 1997 (Unaudited) and 
               March 31, 1997 (Audited)......................................3

               Consolidated Condensed Statement of
               Income (Unaudited) - Three-Months and Nine-Months
               Ended December 31, 1997 and 1996..............................5

               Consolidated Condensed Statements of
               Changes in Cash Flows (Unaudited)
               Nine-Months Ended December 31, 1997 and 1996..................6

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


     Item 2.   Management's Discussion and Analysis of Results
               of Operations and Financial Condition.........................9


PART II.  OTHER INFORMATION

     Item 6.   Exhibits and Reports on Form 8-K.............................10

<PAGE>
<PAGE>   3
                             PART I.  FINANCIAL INFORMATION
                       BLUE DIAMOND COAL COMPANY AND SUBSIDIARIES
                          CONSOLIDATED CONDENSED BALANCE SHEET

<TABLE>
<CAPTION>
                                                 December 31        March 31
                                                      1997            1997
                                                 ------------     -----------
<S>                                               (Unaudited)
ASSETS
CURRENT ASSETS                                   <C>               <C>
  Cash                                           $     17,092     $     98,657
  Short Term Investments                                    0                0
  Accounts and Notes Receivable                     8,664,339        7,991,264
  Inventories - Coal                                3,240,462        5,588,665
  Inventories - Supplies                            1,970,197        1,864,524
  Other Current Assets                                 55,655          468,017
                                                  -----------      -----------
    TOTAL CURRENT ASSETS                           13,947,745       16,011,127

PROPERTY, PLANT AND EQUIPMENT                     114,166,229      112,509,247
  Less:  Accumulated Depreciation & Depletion      49,090,457       46,328,486
                                                  -----------      -----------
    NET PROPERTY, PLANT & EQUIPMENT                65,075,772       66,180,761

Investments                                           515,966          515,966
Other Assets                                        2,322,541        1,672,196
                                                  -----------      -----------
    TOTAL ASSETS                                  $81,862,024      $84,380,050
                                                   ==========       ==========


LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Notes Payable                                  $          0     $          0
  Current Notes Payable and Capital Leases            268,545        2,224,012
  Accounts Payable and Accrued Expenses             9,037,388        9,678,440
  Current Portion of Reorganization Liabilities       463,447          441,669
                                                  -----------      -----------
    TOTAL CURRENT LIABILITIES                       9,769,380       12,344,121

LONG-TERM LIABILITIES
  Long-term Debt                                    6,245,410        8,717,519
  Reserve for Health Care & Workers' Compensation  23,487,557       24,103,997
  Reorganization Liabilities                        2,070,533        2,414,503
  Deferred Income Taxes                             1,569,500        1,569,500
  Other Liabilities                                   825,474          738,244
                                                   ----------       ----------
    TOTAL LONG-TERM LIABILITIES                    34,198,474       37,543,763
<PAGE>
<PAGE>   4


STOCKHOLDERS' EQUITY
  Common Stock - $1 Par Value, 1,000,000
    Shares Authorized, 961,132 Issued 
    (Including Treasury Stock)                        961,132         961,132
  Additional Paid-In-Capital                       24,305,480      24,305,480
  Treasury Stock-25,912 Shares at 12/31 & 3/31     (2,197,420)     (2,197,420)
  Retained Earnings                                14,824,978      11,422,974
                                                  -----------     -----------
    TOTAL STOCKHOLDERS' EQUITY                     37,894,170      34,492,166
                                                   ----------      ----------
    TOTAL LIABILITIES & STOCKHOLDERS' EQUITY      $81,862,024     $84,380,050
                                                   ==========      ==========
</TABLE>

NOTE:   The Balance Sheet at March 31, 1997 has been derived from the Audited
        Financial Statements of that date.

See Notes to Consolidated Condensed Financial Statements.


<PAGE>
<PAGE>   5
                      BLUE DIAMOND COAL COMPANY AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED STATEMENT OF INCOME
                                     UNAUDITED
<TABLE>
<CAPTION>
                         Three Months Ended Dec. 31  Nine Months Ended Dec. 31
                         --------------------------  -------------------------
                             1997         1996          1997         1996  
                         ------------  -----------   -----------  -----------
<S>                      <C>          <C>           <C>           <C>
REVENUES
 Net Product Sales        $23,031,562  $22,029,064   $70,490,202  $68,159,660
 Interest Income                8,201       22,101        20,768       66,948
 Gain (Loss) on Sale 
   of Fixed Assets                  0            0         5,000       24,000
                           ----------   ----------    ----------   ----------
   TOTAL REVENUES          23,039,763   22,051,165    70,515,970   68,250,608

COSTS AND EXPENSES
 Operating Expenses
   and Purchased Products  16,816,758   16,317,487    53,198,179   50,176,949
 Other Operating Charges    3,586,512    3,841,477    10,683,861   11,696,834
 Administrative, Selling &
  Transportation Expenses     395,000      377,803     1,260,000    1,307,699
 Interest Expense             642,844      793,401     2,077,543    2,494,336
 Other Expense               (166,272)     (47,941)     (105,617)       9,972
                            ----------   ----------    ----------   ----------
 TOTAL COSTS AND EXPENSES  21,274,842   21,282,227    67,113,966   65,685,790

Income Before Taxes         1,764,921      768,938     3,402,004    2,564,818
Income Tax Expense                  0            0             0            0
                            ----------   ----------    ----------   ----------
   NET INCOME             $ 1,764,921  $   768,938   $ 3,402,004  $ 2,564,818
                           ==========   ==========    ==========   ==========

Average Number of
 Common Shares Outstanding     935,220      935,220       935,220      935,220
                               =======      =======       =======      =======

PER SHARE OF COMMON STOCK:
Net Income Based on
 Average Shares Outstanding      $1.89        $0.82         $3.64        $2.74
                                  ====         ====          ====         ====

Cash Dividends Declared
  and Paid                       $0.00        $0.00         $0.00        $0.00
                                  ====         ====          ====         ====
</TABLE>

See Notes to Consolidated Condensed Financial Statements.<PAGE>
<PAGE>   6
                        BLUE DIAMOND COAL COMPANY AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CHANGE IN CASH FLOWS
                                         UNAUDITED
<TABLE>
<CAPTION>
                                              Nine-Months Ended December 31
                                              -----------------------------
                                                 1997              1996
<S>                                           ----------       ------------
OPERATING ACTIVITIES                          <C>              <C>
 Funds Provided (Used) from Operations,
   Adjusted for Depreciation and Gain on
   Sale of Fixed Assets                       $6,163,976        $5,724,018
 (Increase) Decrease in Accounts Receivables    (673,075)        2,043,457
 (Increase) Decrease in Inventories            2,242,530          (754,081)
 (Increase) Decrease in Prepaid Assets          (237,983)          566,658
 (Decrease) Increase in Accounts Payable      (1,492,454)       (2,112,840)
 Other Changes from Operations                         0                 0
                                               ---------        ----------
NET CASH FLOW PROVIDED (USED)
 BY OPERATIONS ACTIVITIES                     $6,002,994        $5,467,212

FINANCING ACTIVITIES
 Issuance (Reduction) of Short-Term Debt-Net     (37,512)       (1,201,630)
 Issuance (Reduction) of Long-Term Debt-Net   (4,200,606)       (3,002,337)
 Addition (Reduction) in Capital Lease-Net      (189,459)         (176,686)
                                               ---------        ----------
  CASH PROVIDED (USED)
   BY FINANCING ACTIVITIES                    (4,427,577)       (4,380,653)

INVESTMENT ACTIVITIES
 Expenditures for Property, Plant
   and Equipment                              (1,656,982)         (991,350)
 (Increase) Reduction of
   Employee Notes Receivable                           0                 0
                                               ---------        ----------
  NET CASH USED BY INVESTING ACTIVITIES       (1,656,982)         (991,350)
                                               ---------        ----------

NET INCREASE (DECREASE) IN CASH
 & CASH EQUIVALENTS                              (81,565)           95,209
                                               ---------        ----------
Cash and Cash Equivalents
 at Beginning of Period                           98,657           304,815
                                               ---------        ----------
  CASH AND CASH EQUIVALENTS AT END OF PERIOD  $   17,092       $   400,024
                                               =========        ==========
</TABLE>

See Notes to Consolidated Condensed Financial Statements.

<PAGE>
<PAGE>  7

                BLUE DIAMOND COAL COMPANY AND SUBSIDIARIES
           NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                             December 31, 1997


NOTE A -- FINANCIAL STATEMENTS

In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary to
present fairly its financial position as of December 31, 1997 and
March 31, 1997, the results of operations for the three-month and
nine-month periods ended December 31, 1997 and 1996 and cash flows for
the nine-month periods ended December 31, 1997 and 1996.

While the Company believes that the disclosures presented are adequate
to make the information not misleading, it is suggested that these
condensed financial statements be read in conjunction with the
financial statements and related notes included in the Company's
March 31, 1997 Annual Report on Form 10-K.


NOTE B -- INCOME TAXES

Due to the Company's net operating loss and investment tax credit
carry-forward position, no provision for federal income tax is
required for the current fiscal year.


NOTE C -- CHAPTER 11 REORGANIZATION PROCEEDINGS

On May 17, 1991, the Company filed a voluntary petition for
reorganization under Chapter 11 of the Federal Bankruptcy Code.

On December 11, 1992, the Bankruptcy Court entered an order confirming
the Company's Plan of Reorganization and on April 6, 1995 entered a
final decree that the Company's bankruptcy case was closed.  In
accordance with AICPA SOP 90-7, the Company reports liabilities
payable under the Plan of Reorganization at the present value of
amounts to be paid, using a 7% discount.


NOTE D -- WORKERS' COMPENSATION LIABILITY

In conjunction with the Company's Reorganization Plan, the Office of
Workers' Compensation Programs of the United States Department of
Labor (DOL) has assumed responsibility for the Company's pre-June,
1991 federal black lung claims.  The Company is responsible for
payment of claims and expenses related to pre-petition Kentucky
Workers' compensation liabilities.  The Company carries commercial
insurance to cover its current State and Federal workers' compensation
liabilities.

<PAGE>   8


NOTE E -- UMWA RETIREE HEALTHCARE BENEFITS LIABILITY

During 1994, the Company received notice from the Social Security
Administration (SSA) claiming the Company is responsible for health
care and death benefit premiums for certain retired coal miners who
were members of the United Mine Workers of America (UMWA) and their
beneficiaries pursuant to the Coal Industry Retiree Health Benefit Act
of 1992 (the Coal Act).


NOTE F -- CONTINGENT GAINS

Since the Company has not had a contractual relationship with the UMWA
since 1964 and never bargained for nor guaranteed any health care or
death benefits, a lawsuit was filed which challenges the
constitutionality of the Act discussed in the preceding note.  During
1995, this lawsuit was dismissed by the Federal District Court;
however, an appeal was filed.  During 1996, the United States Court of
Appeals upheld the Federal District Court decision; however a petition
for rehearing was then filed.  During 1997, the petition was dismissed
by the United States Court of Appeals and the Company's petition to
the United States Supreme Court was rejected.  Accordingly, all
appeals related to this lawsuit have been exhausted.

The Company has also made requests to the Social Security
Administration for relief based on an administrative review of the
assigned individuals.  A number of review decisions have been received
with some being positive and some negative.  The Company filed a
Complaint against the Social Security Administration in June 1997,
asking for judicial review of the agency's final decisions.  This
matter could cause future payments under the Act to be reduced
significantly.  The ultimate outcome is uncertain at the present time.


NOTE G:  POTENTIAL SALE OF COMPANY

On December 16, 1997, Hamilton Holdings, Ltd. (Hamilton), the current
owner of 50.2% of the outstanding shares of the Company, and James
River Coal Company (James River) announced the execution of a Proxy
and Option Agreement whereby Hamilton granted James River an option to
purchase all its shares for $60.413 in cash.  James River has also
announced its intent to purchase the entire Company for $60.413 per
share in cash.
<PAGE>
<PAGE>   9

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
         AND FINANCIAL CONDITION

Results of the Company's coal operations for the three-month and
nine-month periods ended December 31, 1997 and 1996 are summarized as
follows:

<TABLE>
<CAPTION>
                             Three-Months Ended Dec. 30      Nine-Months Ended
Dec. 30
                             --------------------------     
-------------------------
                                 1997         1996              1997         1996
                             -----------   ----------       ----------- 
-----------
<S>                          <C>        <C>                <C>          <C>
Net Product sales            $23,031,562  $22,029,064       $70,490,202 
$68,159,660
Operating expenses and
  purchased products          16,816,758   16,317,487        53,198,179  
50,176,949
Other operating expense        3,586,512    3,841,477        10,683,861  
11,696,834
Adm. Selling and
 Transportation expenses         395,000      377,803         1,260,000   
1,307,699
                              ----------   ----------        ----------  
----------

 Total Expenses               20,798,270   20,536,767        65,142,040  
63,181,482
                              ----------   ----------        ----------  
----------
INCOME FROM COAL
 OPERATIONS                  $ 2,233,292  $ 1,492,297       $ 5,348,162  $
4,978,178
                              ==========   ==========        ==========  
==========

Tons sold                        783,681      778,287         2,385,099   
2,345,388

Sales per ton                     $29.39       $28.31            $29.55      
$29.06
Cost of sales per ton              26.54        26.39             27.31       
26.94
                                   -----        -----             -----       
-----
 Margin per ton                   $ 2.85       $ 1.92            $ 2.24       $
2.12
                                   =====        =====             =====       
=====
</TABLE>

The Company's coal operations have consistently generated quarterly
income as shown below:

<TABLE>
<CAPTION>
                                   FISCAL YEARS ENDED MARCH 31
                             ----------------------------------------
                               1996            1997           1998
                             ----------     ----------     ----------
<S>                          <C>            <C>            <C>
April to June                $2,340,400     $  929,300     $2,004,500
July to September             2,426,800      1,644,400      1,110,400
October to December           2,076,400      1,492,300      2,233,300
January to March               (878,100)     2,487,400               
                              ---------      ---------      ---------
Fiscal Year's Total          $5,965,500     $6,553,400     $5,348,200
                              =========      =========      =========
Tons Sold                     3,008,400      3,075,300      2,385,100

Margin per ton                    $1.98          $2.13          $2.24
/TABLE
<PAGE>
<PAGE>   10

Interest expense accrued has been incurred as shown below:

<TABLE>
<CAPTION>
                                   Fiscal Years Ended
                                     March 31st                       1998
                                 -----------------------     
----------------------
                                     1997         1996        9 Months   
Annualized
                                 ----------   ----------      --------   
----------
<S>                              <C>          <C>             <C>         <C>
Bank Debt                        $1,786,800   $1,281,000      $  716,000  $ 
954,700
Coal Act Healthcare               1,598,600    1,269,200         935,200  
1,247,000
Kentucky Workers' Compensation      558,400      619,600         426,300    
568,400
                                  ---------    ---------        -------   
---------
                                 $3,943,800   $3,169,800      $2,077,500 
$2,770,100
                                  =========    =========       =========  
=========

</TABLE>

Management anticipates similar future results; however, a proposal to
merge the Company with James River Coal Company is being considered by
the Company's Board of Directors.  Such a merger could significantly
affect operations as well as interest expense.  Management anticipates
a deregistration of the Company with the Securities and Exchange
Commission and hopefully awaits the elimination of filing requirements
for annual and quarterly reports under Section 13 or 15(d) of the
Securities Exchange Act of 1934.


FINANCIAL CONDITION AND LIQUIDITY

The Company's working capital ratio was 1.43 at December 31st,
compared to 1.30 at the preceding March 31st.  Capital expenditures of
$1,657,000 for nine months compare to a $2,600,000 projected total for
the year.

Pre-petition Kentucky Workers' Compensation payments declined to less
than $300,000 for the current quarter, compared to a quarterly average
of $353,700, $346,600 and $432,200 for the six-month periods ended
9/30/97, 3/31/97 and 9/30/96, respectively.  Coal Act payments
amounted to $619,000 for the current quarter compared to a quarterly
average of $385,900, $417,200 and $793,200 for the above six-month
periods, respectively.

No dividends were paid or declared during the quarter.


                              PART II.  OTHER INFORMATION

ITEM 6.  Exhibits and Reports on Form 8-K

    (a)   Exhibits - Exhibit 27, Financial Data Schedule

    (b)   Reports on Form 8-K - No current reports were filed during
          the quarter ended December 31, 1997.

<PAGE>   11

                                      SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.




                                            BLUE DIAMOND COAL COMPANY
                                           ---------------------------
                                                    Registrant



Date:  February 10, 1998                           Ted B. Helms
                                           ---------------------------
                                                   Ted B. Helms
                                                    President



Date:  February 10, 1998                          W. S. Lyon, III      
                                           ---------------------------
                                                  W. S. Lyon, III
                                                    Treasurer