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, 1995            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               37950-901       
-----------------------------------------------         ----------------------
   (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, 1995.



              Class                           Outstanding at December 31, 1995
------------------------------------          --------------------------------
     Common Stock, $1 Par Value                         935,220 Shares




                               BLUE DIAMOND COAL COMPANY

                                         INDEX

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

               Consolidated Condensed Balance Sheet
               December 31, 1995 (Unaudited) and 
               March 31, 1995 (Audited)......................................3

               Consolidated Condensed Statement of
               Income (Unaudited) - Three-Months and Nine-Months
               Ended December 31, 1995 and 1994..............................5

               Consolidated Condensed Statements of
               Changes in Cash Flows (Unaudited)
               Nine-Months Ended December 31, 1995 and 1994..................6

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


     Item 2.   Management's Discussion and Analysis of Results
               of Operations and Financial Condition.................,......11


PART II.  OTHER INFORMATION

     Item 6.   Exhibits and Reports on Form 8-K.............................12



                             PART I.  FINANCIAL INFORMATION
                       BLUE DIAMOND COAL COMPANY AND SUBSIDIARIES
                          CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
                                                  December 31       March 31
                                                      1995            1995
                                                 ------------     -----------
<S>                                               (Unaudited)
ASSETS
CURRENT ASSETS                                   <C>               <C>
  Cash                                          $      9,053     $    694,811
  Short Term Investments                                 -0-        1,112,100
  Accounts and Notes Receivable                   10,191,181        5,986,388
  Inventories - Coal                               3,122,369        1,938,886
  Inventories - Supplies                           1,815,543        1,716,129
  Other Current Assets                               648,537          554,146
                                                 -----------      -----------
    TOTAL CURRENT ASSETS                        $ 15,786,683     $ 12,002,460

PROPERTY, PLANT AND EQUIPMENT                    119,974,603      121,849,660
  Less:  Accumulated Depreciation & Depletion     50,365,955       49,637,733
                                                 -----------      -----------
    NET PROPERTY, PLANT & EQUIPMENT               69,608,648       72,211,927
Investments                                          651,735           15,966
Other Assets                                       1,737,486        1,823,333
                                                 -----------      -----------
    TOTAL ASSETS                                $ 87,784,552     $ 86,053,686
                                                 ===========      ===========


LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Notes Payable                                 $    320,025     $        -0-
  Current Notes Payable and Capital Leases         3,019,293        2,398,852
  Accounts Payable and Accrued Expenses           10,083,175        8,134,616
  Current Portion of Reorganization Liabilities      481,698        1,478,147
                                                 -----------      -----------
    TOTAL CURRENT LIABILITIES                     13,904,191       12,011,615

LONG-TERM LIABILITIES
  Long-term Debt                                  11,682,448       14,441,990
  Reserve for Health Care & Workers Compensation  27,602,755       29,137,187
  Reorganization Liabilities                       2,964,661        2,762,124
  Deferred Income Taxes                            1,935,000        1,935,000
  Other Liabilities                                  757,342          698,469
                                                 -----------      -----------
    TOTAL LONG-TERM LIABILITIES                   44,942,206       48,974,770

STOCKHOLDERS' EQUITY
  Common Stock - $1 Par Value, 1,000,000 Shares
    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 12/30 & 3/31  (2,197,420)      (2,197,420)
  Retained Earnings                                5,868,963        2,013,784
  Less:  Notes Receivable Secured by
         Common Stock of Company                           0          (15,675)
    TOTAL STOCKHOLDERS' EQUITY                    28,938,155       25,067,301
                                                 -----------      -----------
    TOTAL LIABILITIES & STOCKHOLDERS' EQUITY    $ 87,784,552     $ 86,053,686
                                                 ===========      ===========
</TABLE>

NOTE:   The Balance Sheet at March 31, 1995 has been derived from the Audited
        Financial Statements of that date.

See Notes to Consolidated Condensed Financial Statements.

                   BLUE DIAMOND COAL COMPANY AND SUBSIDIARIES
                   CONSOLIDATED CONDENSED STATEMENT OF INCOME
                                UNAUDITED

<TABLE>
<CAPTION>
                      Three Months Ended Dec. 31       Nine Months Ended Dec. 31
                      --------------------------       -------------------------
                          1995          1994                1995          1994  
                      -----------  ------------        -----------     ---------
<S>                    <C>          <C>                 <C>         <C>
REVENUES
 Net Product Sales     $24,171,052  $21,239,794       $65,786,896 $59,019,224
 Interest Income            31,567        7,304            56,105      37,019
 Gain (Loss) on Sale
   of Fixed Assets          12,030            0            33,012      (5,455)
                        ----------   ----------        ----------  ----------
   TOTAL REVENUES       24,214,649   21,247,098        65,876,013  59,050,788

COSTS AND EXPENSES
 Operating Expenses
   & Purchased Products 17,670,256   15,584,135        46,724,959  43,835,252
 Other Operating Chgs.   4,024,404    2,691,308        10,863,337   7,077,589
 Adm., Selling &
  Transportation Exp.      400,000      500,000         1,355,000   1,420,000
 Interest Expense          972,526    1,078,774         3,032,817   3,202,340
 Other Expense              18,309       36,268            44,720      77,691
                        ----------   ----------        ----------  ----------
TOTAL COSTS & EXPENSES  23,085,495   19,890,485        62,020,833  55,612,872


Income Before
  Income Tax Expense     1,129,154    1,356,613         3,855,180   3,437,916
Income Tax Expense             000          000               000         000
                        ----------   ----------        ----------  ----------
   NET INCOME          $ 1,129,154  $ 1,356,613       $ 3,855,180 $ 3,437,916
                        ==========   ==========        ==========  ==========


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  $1.21        $1.45             $4.12       $3.68
                              ====         ====              ====        ====

Cash Dividends Declared
  and Paid                   $0.00        $0.00             $0.00       $0.00
                              ====         ====              ====        ====

</TABLE>


                  BLUE DIAMOND COAL COMPANY AND SUBSIDIARIES
          CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN CASH FLOWS
                                  UNAUDITED

<TABLE>
<CAPTION>
                                                 Nine Months Ended December 31
                                                 -----------------------------
                                                    1995                1994
<S>                                              -----------        ----------
OPERATING ACTIVITIES                             <C>              <C>
 Funds Provided (Used) from Operations,
   Adjusted for Depreciation and Gain on
   Sale of Fixed Assets                          $7,059,006        $5,699,370
 (Increase) Decrease in Accounts Receivables     (4,204,793)       (3,665,098)
 (Increase) Decrease in Inventories              (1,282,897)       (1,483,575)
 (Increase) Decrease in Prepaid Assets               (8,544)           51,407
 (Decrease) Increase in Accounts Payable           (320,912)       (1,277,292)
 Other Changes from Operations                      476,331           (20,894)
                                                   ---------        ----------

 NET CASH FLOW USED BY OPERATING ACTIVITIES      $1,718,191          (696,082)


FINANCING ACTIVITIES
 Issuance (Reduction) of Short-Term Debt-Net        320,025         1,809,972
 Issuance (Reduction) of Long-Term Debt-Net      (1,974,326)       (1,435,420)
 Addition (Reduction) in Capital Lease-Net         (164,775)         (153,666)
                                                  ---------        ----------
  CASH PROCEEDS FROM FINANCING ACTIVITIES        (1,819,076)          220,886


INVESTMENT ACTIVITIES
 Expenditures for Property, Plant
   and Equipment                                   (600,548)         (999,002)
 (Increase) Reduction of
 Employee Notes Receivable                           15,675            24,803
                                                  ---------         ---------
  NET CASH USED BY INVESTING ACTIVITIES            (584,873)         (974,199)
                                                  ---------         ---------

NET INCREASE (DECREASE) IN CASH
 & CASH EQUIVALENTS                                (685,758)       (1,449,395)
                                                  ---------        ----------
Cash and Cash Equivalents
 at Beginning of Period                             694,811         1,453,556
                                                 ----------        ----------
  CASH AND CASH EQUIVALENTS AT END OF PERIOD     $    9,053       $     4,161
                                                  =========        ==========

See Notes to Consolidated Condensed Financial Statements.


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

                             December 31, 1995


NOTE A -- FINANCIAL STATEMENTS

In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary to
present fairly the financial position as of December 31, 1995 and
March 31, 1995, the results of operations for the nine-month period
ended December 31, 1995 and 1994 and cash flows for the nine-month
period ended December 31, 1995 and 1994.

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, 1995 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, Blue Diamond Coal Company (the "Company") filed a
voluntary petition for reorganization under Chapter 11 of the Federal
Bankruptcy Code in the United States Bankruptcy Court for the Eastern
District of Tennessee (the "Bankruptcy Court").  The filing had been
preceded by a merger of all significant wholly-owned subsidiaries into
the Company.  This filing was precipitated by cash flow problems
resulting from extensive capital expenditures for new coal processing
facilities coupled with operating losses at existing mines.

As Debtor-in-Possession, the Company continued to operate its business
and formulated a business plan for future operations.  This plan
formed the basis for the Company's proposed plan of reorganization
that was intended to enable the Company to satisfy its pre-petition
obligations and emerge from Chapter 11.  This proposed plan of
reorganization developed into the Fourth Amended Plan of
Reorganization dated December 10, 1992 (as implemented and approved by
the Confirmation Order, the "Plan of Reorganization").  On December
11, 1992, the Bankruptcy Court entered an order confirming the Plan of final
decree that the Company's bankruptcy case is closed.


NOTE D -- WORKERS' COMPENSATION AND UMWA RETIREE HEALTHCARE BENEFITS

The Company is required under Federal and State legislation to pay
injury-related and pneumoconiosis (black lung) benefits to eligible
employees, certain former employees and dependents.  Effective
June 19, 1991, the Company obtained commercial insurance to cover
these State and Federal benefits.  Prior to that time, the Company was
self-insured and maintained a Workers' Compensation Benefit Trust (the
"Trust") through which the Company's portion of the ultimate payment
of claims was funded. 

The Company had letters of credit with a bank totaling $11,642,389 to
satisfy the statutory requirement of securing the payment of workers'
compensation benefits to employees.  As a result of the Company's 1991
bankruptcy filing, the Commonwealth of Kentucky revoked the Company's
self-insurance certificate and assumed responsibility for state
workers' compensation benefits related to claimants last employed by
the Company on and before June 18, 1991.  The State called a
$10,642,389 letter of credit, deposited the funds in an account of the
State and proceeded to pay benefits and defense costs of the benefit
claims assumed.  An insurance company also called a $1,000,000 letter
of credit due to the bank's refusal to renew the letter of credit
securing its bond; one-half of the proceeds are being held in escrow
on behalf of the Company, $500,000 having been returned to the Company
and, in turn, paid to the U.S. Department of Labor pursuant to an
agreement with the D.O.L.  The bank liquidated the assets of the Trust
and required the Company to sell other collateral to recover its
payments under these letters of credit.

With the liquidation of the Trust, the Office of Workers' Compensation
Programs of the DOL assumed responsibility for the payment of approved
federal claims of the Company.  During fiscal 1993, a settlement
agreement was reached with the DOL in connection with the Company's
Plan of Reorganization.

As a condition of a settlement agreement reached during 1993 between
the Company and the State of Kentucky, the Company is now responsible
for payments of claims commencing August 1, 1995.  Based on claims
settled, filed or expected to be filed, the Company performed an
internal valuation of the future liability and recorded a provision of
$7,604,179, which was the estimated present value of future payments
which will be made by the Company.  During 1995, the valuation was
updated and the reserve increased by $499,578 for interest expense
during the year.  The discount rate used in determining the reserve
was 7% in 1995 and 1994.  Due to cash payments exceeding interest
accruals, the reserve amount is $7,643,877 at December 31, 1995.



</TABLE>
<TABLE>
<CAPTION> workers' compensation claims which will be made by the Company were
summarized as follows:

     <S>                                                  <C>
     1996                                                 $ 1,500,000
     1997                                                   1,575,000
     1998                                                   1,275,000
     1999                                                   1,020,000
     2000                                                     960,000
     Thereafter                                             5,442,708
                                                           ----------
     Total Estimated Future Undiscounted Payments          11,772,708
     Amounts Representing Interest                          3,668,951
                                                           ----------
     Present Value of Estimated Future Payments
     (Including $1,010,206 Classified as Current)         $ 8,103,757
                                                           ==========
</TABLE>

During 1994, the Company received notice from the Social Security
Administration 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 under the newly-effective Coal Industry Retiree Health
Benefit Act of 1992 (the Coal Act).  The premiums are assessed
annually and relate to retired miners who are said to have worked for
the Company.  These payments should tend to diminish over time, but
could continue as long as there are eligible participants.

Based on information received from various sources and initial
actuarial assumptions and analysis, an extraordinary provision of
$26,624,737 (net of tax benefits totaling $1,493,366) was recorded in
1994 to reflect payments made during 1994 and the present value of the
estimated future payments ($25,634,851) related to this legislation,
in accordance with the conclusions of the Financial Accounting
Standards Board's Emerging Issues Task Force.  The tax benefit related
to this charge will be realized as these cash payments are made.

The reserve for coal miners retiree health care decreased from
$25,634,851 at March 31, 1994, to $23,346,874 at March 31, 1995, due
to payments made exceeding interest expense during the year.  The
reserve balance at December 31, 1995 was $22,557,900; however,
additional individuals have since been tentatively assigned to the
Company.


<TABLE>
<CAPTION>

As of March 31, 1995, estimated future undiscounted payments for coal
miners retiree health care were summarized as follows:

     <S>                                                  <C>
     1997                                                   2,393,000
     1998                                                   2,283,000
     1999                                                   2,178,000
     2000                                                   2,078,000
     Thereafter                                            24,209,157
                                                           ----------
     Total Estimated Future Undiscounted Payments          36,035,264
     Amounts Representing Interest                         12,688,390
                                                           ----------
     Present Value of Estimated Future Payments
     (Including $1,303,238 Classified as Current)         $23,346,874
                                                           ==========
</TABLE>


NOTE E -- 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 has been filed.  If the Company prevails in this
lawsuit, its obligations under the Act would be eliminated.  The
Company has also made a request to the Social Security Administration
for relief based on an administrative review of approximately
one-third of the assigned individuals.  This matter could cause future
payments under the Act to be reduced.

The ultimate outcome of each of these proceedings is uncertain at the
present time.



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, 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
                      Three-Months Ended Dec 31      Nine-Months Ended Dec. 31
                      -------------------------      --------------------------
                      1995         1994              1995         1994 
                      -------------  ----------      -----------  -----------
<S>                   <C>        <C>                   <C>          <C>
Net Product sales     $24,171,052  $21,239,794        $65,786,896  $59,019,224
Operating expenses
& purch. products      17,670,256   15,584,135         46,724,959   43,835,252
Other operating exp.    4,024,404    2,691,308         10,863,337    7,077,589
Adm. Selling and
 Transportation Exp.      400,000      500,000          1,355,000    1,420,000
                       ----------   ----------         ----------   ----------

 Total Expenses        22,094,660   18,775,443         58,943,296   52,332,841
                       ----------   ----------         ----------   ----------

INCOME FROM COAL
 OPERATIONS           $ 2,076,392  $ 2,464,351        $ 6,843,600  $ 6,686,383
                       ==========   ==========          ==========   ==========

Tons sold                 821,320      723,568          2,191,341    2,032,307

Sales per ton              $29.43       $29.35             $30.02       $29.04
Cost of sales per ton       26.90        25.95              26.90        25.75
                            -----        -----              -----        -----
 Margin per ton            $ 2.53       $ 3.40             $ 3.12       $ 3.29
                            =====        =====              =====        =====

</TABLE>

The Company's coal operations have generated $2,340,400, $2,426,800
and $2,076,400 during the first, second and third quarters,
respectively, of the current fiscal year.  These results compare with
$2,181,600, $2,040,400 and $2,464,400 for the same quarters of the
preceding fiscal year.  Annual shipped tons are anticipated to
increase to approximately 3,000,000 from last years shipments of
2,634,200.  Continued market pressures have required the Company to
ship higher quality, higher cost, coal with no corresponding increase
in selling price, thus reducing margins.  These pressures will
continue and will require careful selection of additional coal markets
and a mix of production capacity.  The Company and its contract
producers have been able to obtain Workers' Compensation coverage in
the voluntary market at favorable rates; however, Kentucky Workers'
Compensation costs continue to pose serious challenges.

Interest expense accrued for the nine months ended December 31, 1995
and 1994 was as follows:

<TABLE>
<CAPTION>
                                 1995          1994         Change
                              ----------    ----------    ---------
    <S>                       <C>           <C>           <C>
      UMWA Coal Act           $1,204,800    $1,292,300    $(87,500)
      Workers Compensation       426,500       371,700      54,800
      Bank Debt                1,401,500     1,538,300    (136,800)
                               ---------     ---------     -------
        TOTAL                 $3,032,800    $3,202,300   $(169,500)
                               =========     =========    ========

</TABLE>

Lower bank debt interest reflects more favorable terms in the current
year.  Other changes in interest expense were reflections of changes
in balances of reserve.


FINANCIAL CONDITION AND LIQUIDITY

Nine months of current year operating activities have generated
$7,100,000, but have required $5,341,000, reflecting an increase inactivity
for the period.  Capital expenditures of $600,500 compare
with an annual projection of $1,100,000.  The Company has paid
$1,993,800 in governmental imposed Coal Act premiums and $923,900 in
assumed Kentucky Workers' Compensation obligations during the nine
months ended December 31, 1995.  Coal Act premiums and Kentucky
Workers' Compensation payments are expected to continue at current
levels and challenge the Company's future liquidity.


                              PART II.  OTHER INFORMATION


ITEM 6.  Exhibits and Reports on Form 8-K

    (a)   Exhibits - None

    (b)   Reports on Form 8-K - No current reports were filed
          during the quarter ended December 31, 1995.



                                      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 13, 1996                          Ted B. Helms
     -----------------------               --------------------------
                                                  Ted B. Helms
                                                    President



Date:  February 13, 1996                          W. S. Lyon, III
     -----------------------               --------------------------
                                                  W. S. Lyon, III
                                                     Treasurer