<PAGE>   1



                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                               -------------------

                                    FORM 10-K

                               -------------------

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the fiscal year ended December 31, 2000
                                       OR

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

                        Commission File Number 333-39643

                             ANKER COAL GROUP, INC.
             (Exact Name Of Registrant As Specified in Its Charter)

<TABLE>
<S>                                                                     <C>
                          Delaware                                                  52-1990183
--------------------------------------------------------------          ------------------------------------
(State or other jurisdiction of incorporation or organization)          (I.R.S. Employer Identification No.)
</TABLE>

                              2708 Cranberry Square
                         Morgantown, West Virginia 26508
                    ----------------------------------------
                    (Address Of Principal Executive Offices)

                                 (304) 594-1616
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

                  See Table of Additional Registrant Guarantors

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12 (g) of the Act:  None

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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

Aggregate market value of voting and non-voting common equity held by
non-affiliates of the registrant as of April 12, 2001: None.

The registrant has one class of common stock, par value $0.01 per share. The
number of shares of registrant's common stock outstanding as of April 12, 2001
was 7.083 after giving effect to a 1 for 1,000 reverse stock split completed on
April 12, 2001.

DOCUMENTS INCORPORATED BY REFERENCE: SEE PAGES 89 TO 91 FOR THE EXHIBIT INDEX.


<PAGE>   2



                    TABLE OF ADDITIONAL REGISTRANT GUARANTORS

<TABLE>
<CAPTION>
                                                  STATE OR OTHER                           ADDRESS INCLUDING ZIP CODE, AND TELEPHONE
                                                 JURISDICTION OF        I.R.S. EMPLOYER    NUMBER INCLUDING AREA CODE, OF REGISTRANT
     EXACT NAME OF REGISTRANT GUARANTOR          INCORPORATION OR        IDENTIFICATION                     GUARANTOR'S
        AS SPECIFIED IN ITS CHARTER                ORGANIZATION              NUMBER                 PRINCIPAL EXECUTIVE OFFICES
        ---------------------------                ------------              ------                 ---------------------------

<S>                                              <C>                    <C>                 <C>
Anker Energy Corporation                             Delaware              51-0217205       2708 Cranberry Square
                                                                                            Morgantown, West Virginia 26508
                                                                                            (304) 594-1616
Anker Group, Inc.                                    Delaware              13-2961732       2708 Cranberry Square
                                                                                            Morgantown, West Virginia 26508
                                                                                            (304) 594-1616
Anker Power Services, Inc.                        West Virginia            55-0700346       2708 Cranberry Square
                                                                                            Morgantown, West Virginia 26508
                                                                                            (304) 594-1616
Anker Virginia Mining Company, Inc.                  Virginia              54-1867395       2708 Cranberry Square
                                                                                            Morgantown, West Virginia 26508
                                                                                            (304) 594-1616
Anker West Virginia Mining Company, Inc.          West Virginia            55-0699931       2708 Cranberry Square
                                                                                            Morgantown, West Virginia 26508
                                                                                            (304) 594-1616
Bronco Mining Company, Inc.                       West Virginia            22-2094405       2708 Cranberry Square
                                                                                            Morgantown, West Virginia 26508
                                                                                            (304) 594-1616
Hawthorne Coal Company, Inc.                      West Virginia            55-0742562       2708 Cranberry Square
                                                                                            Morgantown, West Virginia 26508
                                                                                            (304) 594-1616
Heather Glen Resources, Inc.                      West Virginia            55-0746946       2708 Cranberry Square
                                                                                            Morgantown, West Virginia 26508
                                                                                            (304) 594-1616
Juliana Mining Company, Inc.                      West Virginia            55-0568083       2708 Cranberry Square
                                                                                            Morgantown, West Virginia 26508
                                                                                            (304) 594-1616
King Knob Coal Co., Inc.                          West Virginia            55-0488823       2708 Cranberry Square
                                                                                            Morgantown, West Virginia 26508
                                                                                            (304) 594-1616
Marine Coal Sales Company                            Delaware              13-3307813       645 West Carmel Drive
                                                                                            Carmel, Indiana  46032
                                                                                            (317) 844-6628
Melrose Coal Company, Inc.                        West Virginia            55-0746947       2708 Cranberry Square
                                                                                            Morgantown, West Virginia 26508
                                                                                            (304) 594-1616
New Allegheny Land Holding Company, Inc.          West Virginia            31-1568515       2708 Cranberry Square
                                                                                            Morgantown, West Virginia 26508
                                                                                            (304) 594-1616
Patriot Mining Company, Inc.                      West Virginia            55-0550184       2708 Cranberry Square
                                                                                            Morgantown, West Virginia 26508
                                                                                            (304) 594-1616
Simba Group, Inc.                                    Delaware              55-0753900       2708 Cranberry Square
                                                                                            Morgantown, West Virginia 26508
                                                                                            (304) 594-1616
Upshur Property, Inc.                                Delaware              95-4484172       2708 Cranberry Square
                                                                                            Morgantown, West Virginia 26508
                                                                                            (304) 594-1616
Vantrans, Inc.                                       Delaware              22-2093700       2708 Cranberry Square
                                                                                            Morgantown, West Virginia 26508
                                                                                            (304) 594-1616
Vindex Energy Corporation                         West Virginia            55-0753903       2708 Cranberry Square
                                                                                            Morgantown, West Virginia 26508
                                                                                            (304) 594-1616
</TABLE>


                                       ii
<PAGE>   3



                             ANKER COAL GROUP, INC.
                                    FORM 10-K
                      FOR THE FISCAL YEAR DECEMBER 31, 2000

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
PART I                                                                                                     PAGE

<S>                                                                                                        <C>
     Item 1     Business                                                                                     1
     Item 2     Properties                                                                                  14
     Item 3     Legal Proceedings                                                                           16
     Item 4     Submission of Matters to a Vote of Security Holders                                         16

PART II

     Item 5     Market for Registrant's Common Equity and Related Stockholder Matters                       17
     Item 6     Selected Financial Data                                                                     17
     Item 7     Management's Discussion and Analysis of Financial Condition and Results of Operation        18
     Item 7A    Quantitative and Qualitative Disclosures About Market Risk                                  37
     Item 8     Consolidated Financial Statements and Supplementary Data                                    39
     Item 9     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure        62

PART III

     Item 10    Directors and Executive Officers of the Registrant                                          63
     Item 11    Executive Compensation                                                                      64
     Item 12    Security Ownership of Certain Beneficial Owners and Management                              68
     Item 13    Certain Relationships and Related Transactions                                              68

PART IV

     Item 14    Exhibits, Financial Statement Schedules, and Reports on Form 8-K                            69
</TABLE>


                        ********************************


                           FORWARD-LOOKING DISCLAIMER


This report contains statements which constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements include statements regarding our intent, belief or current
expectations for performance, our ability to implement our business plan or
related industry developments. Readers are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. Readers are further cautioned that our actual results,
levels of activity, performance or achievements, or industry results may differ
materially from those described or implied in the forward-looking statements as
a result of various factors, many of which are beyond our control. These factors
include, but are not limited to: general economic and business conditions; our
ability to implement our business plan, achieve anticipated coal production
levels and maintain cost savings; the availability of liquidity and capital
resources; our ability to secure new mining permits; changes in the coal
production and electricity generation industries; weather; adverse geologic
conditions; variations in coal seam thickness; variations in rock and soil
overlying the coal deposit; risks inherent in mining; the ability of our
contract miners to perform their contractual obligations; a disruption in or an
increase in the cost of transportation services; early modification or
termination of our long-term coal supply contracts; renewal of coal supply
contracts; competition within the coal production and electricity generation
industries; government regulation and regulatory uncertainties; price
fluctuations; and labor disruptions. In addition to these factors, our business
is subject to other risks. For a description of these risks, please see Exhibit
99.2 to Form 8-K filed with the Securities and Exchange Commission on February
26, 2001.


                                      iii
<PAGE>   4


                                     PART I

ITEM 1.  BUSINESS

GENERAL

         We were organized as a corporation in August 1996 under the laws of the
State of Delaware. We were organized in order to effect a recapitalization of
our predecessor, Anker Group, Inc., which had been engaged in the production of
coal since 1975. To effect the recapitalization, First Reserve Corporation
purchased approximately 54.1% of our common stock and 10,000 shares of our Class
B preferred stock for $50.0 million in cash. In addition, senior management and
Anker Holding B.V. exchanged an aggregate of 7.5% of Anker Group, Inc.'s common
stock for shares of Anker Coal Group, Inc.'s common stock. Anker Coal Group,
Inc. then acquired the remaining 92.5% of Anker Group, Inc.'s common stock from
Anker Holding B.V. for approximately $87.0 million. We partially funded the
$87.0 million by issuing $25.0 million of Class A preferred stock to Anker
Holding B.V. We paid the remaining $62.0 million in cash, $12.0 million of which
we borrowed under our then existing credit agreement. That credit agreement was
replaced by our current credit facility on November 21, 1998. In addition, we
assumed $152.0 million of Anker Group, Inc.'s outstanding liabilities.

         We are a holding company for 18 direct and indirect wholly-owned
subsidiaries through which we produce, process and sell bituminous coal that is
used principally to generate electricity and to produce coke for use in making
steel. We currently own or control substantial coal reserves in West Virginia,
Maryland, Virginia and Kentucky. We currently operate seven deep mines, three
surface mines and four preparation plants located in West Virginia and Maryland.
In 1999, we changed from operating our deep mines with our own employees to
using contract miners to operate these deep mines for us. As more fully
described below in "Mining Operations - Coal Production", we have recently taken
over the operation of our Spruce Mine No. 1 and Sentinel Mine in Upshur and
Barbour Counties, West Virginia, respectively, as a result of the contract miner
notifying us that it was ceasing production at these deep mines. We have
employed supervisory employees of the contract miner and have entered into an
agreement with the contract labor force supplier so that we may continue to
operate these mines. We continue to operate our surface mines ourselves. Our
coal mines and reserves are located in close proximity to rail and water
transportation services or are within short trucking distances to our customers.

         We primarily market and sell our coal to electric utilities located in
the Northeast and mid-Atlantic states and to domestic coking facilities. All of
our revenues are attributable from within the United States and all of our
property and assets are located in the United States. The utilities that we
currently sell our coal to use modern generating processes that will allow them
to continue using our coal after implementation of Phase II of the Clean Air
Act. In addition to selling coal that we produce from our own mines, we sell
coal that we purchase from other producers, which is referred to as brokered
coal. We also arrange for coal that others produce to be sold to third parties,
which is referred to as commission coal.

         For a discussion of significant developments in 2000 and 2001,
including our recently completed exchange offer, see "Item 7 -- Management's
Discussion and Analysis of Financial Condition and Results of Operations."

         Our principal offices are located at 2708 Cranberry Square, Morgantown,
West Virginia 26508 and our telephone number is (304) 594-1616.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

         We are of the opinion that all of our material operations are within
one industry segment and that no information as to business segments is required
pursuant to Statement of Financial Accounting Standards No. 131 or Regulation
S-K.

MINING OPERATIONS

COAL PRODUCTION

         During 2000, we conducted mining operations at seven deep mines and
three surface mines in seven counties in West Virginia and in Garrett County,
Maryland. Approximately 79.2% of our production originated from our deep mines,
and approximately 20.8% of our production originated from our surface mines. The
following table presents the production, including coal purchased from third
parties for blending, from each of the counties in which we produced coal for
the previous five years:



                                       1
<PAGE>   5



<TABLE>
<CAPTION>
COUNTY, STATE                                        2000      1999      1998      1997     1996
--------------                                       ----      ----      ----      ----     ----
                                                               (TONS IN THOUSANDS)
<S>                                                 <C>       <C>         <C>       <C>    <C>
Upshur County, West Virginia                        2,021     1,406       960       204        -
Barbour County, West Virginia                         594       998     1,222     1,555    1,787
Monongalia County, West Virginia                      575       743     1,134     1,299    1,743
Garrett County, Maryland                              519       460       286       305      300
Raleigh County, West Virginia                         511       585       941     1,016      948
Grant County, West Virginia                           410       331       703       623        -
Harrison County, West Virginia                        361       350       316       725        -
Preston County, West Virginia                           9       173       512       694      886
Webster County, West Virginia                           -       451     1,271     2,012    1,998
Shelby County, Alabama(1)                               -         -         -       182        -
                                                    -----     -----     -----     -----    -----

          Total                                     5,000     5,497     7,345     8,615    7,662
                                                    =====     =====     =====     =====    =====
</TABLE>

----------

(1)      We indirectly owned a minority interest in Oak Mountain Energy, L.L.C.
         Oak Mountain operated a deep mine in Shelby County, Alabama. We sold
         our investment in Oak Mountain in the first quarter of 1998 and
         recorded an impairment loss of $8.3 million to adjust our investment to
         its fair market value as of December 31, 1997.

         The following is a description of our mining operations by county in
the order presented in the table above.

         UPSHUR COUNTY, WEST VIRGINIA. We own a deep mine complex in Upshur
County, West Virginia consisting of two deep mines and related coal preparation
and loading facilities. We commenced production in our first deep mine, known as
the Spruce Mine No. 1, in July 1997. This deep mine is in the Upper Freeport
seam, and as of December 31, 2000, had approximately 5.3 million tons of
recoverable reserves. The quality of the reserves at the Spruce Mine No. 1
averages 1.8 lbs.SO2/MMBtu, 9% ash, 13,000 Btu's per pound, 6.0% moisture and 33
volatility. We entered into a contract mining agreement for the operation of
this deep mine, and the contract miner began operations on June 1, 1999. The
contract miner produced approximately 1.1 million tons of coal from this deep
mine in 2000. On March 30, 2001, the contract miner advised us that it was
ceasing operations at this mine. As a result, we have taken steps to continue
the operation of this mine, including securing the employment of supervisory
employees of the contract miner and entering into an agreement with the labor
force supplier. Production resumed at this mine on April 2, 2001, after being
idled for two days. Consistent with our business plan to use contract miners in
our deep mines, we plan to evaluate securing a new contract miner for this deep
mine.

         In September 1999, a contract miner commenced production from a new
deep mine in the Kittanning seam in Upshur County. This deep mine, known as the
Spruce Mine No. 2, has approximately 16.0 million tons of recoverable reserves.
The quality of these reserves averages 1.90 lbs.SO2/MMBtu, 9% ash, 13,000 Btu
per pound and 33 volatility. The contract miner produced approximately 728,000
tons of coal from this deep mine in 2000.

         We purchased approximately 228,000 tons of coal during 2000 from third
parties which we used to supplement our production from our Upshur County deep
mines. During 2000, we sold approximately 95% of the shipments from our deep
mines in Upshur County to Potomac Electric Power Company, Pennsylvania Power &
Light, Baltimore Gas & Electric Company, and Lehigh Portland Cement.

         As previously disclosed, during 2000, the performance of both of our
deep mines in Upshur County was adversely affected by lower than expected clean
coal recovery. The clean coal recovery has been lower than expected from those
mines due to a variety of adverse geologic and mining conditions. It was also
impacted due to high employee attrition rates for our contract miners and a
shortage of qualified personnel in the labor market to fill skilled positions.
At our Spruce Mine No. 2 in Upshur County, the contract miner has been producing
coal from areas near the mine opening. Due to adverse geologic and mining
conditions in these areas, the clean coal recovery, and hence, total clean coal
production, from this mine have been lower than expected. The remainder of the
coal reserve for this deep mine lies on the other side of a stream which runs
across the surface of this reserve. Based on all available geologic and other
information relating to the coal reserves on the other side of the stream, we
believe that the geologic and mining conditions should improve and that the
clean coal recovery and production from this mine should increase as those
reserves are developed. The contract miner began efforts to add a third
production unit in the mine to begin mining under the stream in mid-2000.
However, the addition of this third unit was delayed for approximately four
months due to equipment availability problems and a severe labor shortage. The
manpower and equipment for this new production unit were finally acquired and
the work to mine under the stream began in November 2000. As expected, the
contract miner is experiencing adverse roof conditions in the areas under this
stream which are adversely affecting current recovery and production from this
mine. The contractor has recently reported that while the mining conditions have
been difficult, they are improving as the production unit advances to the other
side of the stream.


                                       2
<PAGE>   6



         As part of our Upshur County mining complex, we own and operate a
700-tons-per-hour preparation plant known as the Sawmill Run Plant. We acquired
the plant from a subsidiary of Pittston Coal Company, and have upgraded the
plant. We also own and operate a train loading facility on the CSX railroad
which is adjacent to the Sawmill Run Plant. The loading facility is a high-speed
unit train loading facility with an automatic sampling system. The total cost of
the plant and equipment associated with our Upshur County operations was
approximately $29.2 million at December 31, 2000, and its net book value was
approximately $21.8 million.

         We control approximately 63.7 million tons of recoverable reserves in
Upshur County. All of these reserves are steam coal, assigned reserves and are
classified as deep mineable. Assigned reserves consist of coal that could
reasonably be expected to be processed in existing coal preparation plants.

         In addition to the deep mines that we currently own in Upshur County,
we have been evaluating and are now pursuing a project that would utilize our
other assets in the county. See "Item 7 -- Management's Discussion and Analysis
of Financial Condition and Results of Operation -- Liquidity and Capital
Resources -- Our Business Plan to Improve Operating and Financial Performance --
Upshur County Power Project."

         BARBOUR COUNTY, WEST VIRGINIA. We own a deep mine complex in Barbour
County, West Virginia, known as the Sentinel Mine. The complex consists of a
deep mine in the Middle Kittanning seam and related coal preparation and loading
facilities. Coal from the Sentinel Mine's Middle Kittanning seam averages 2.0
lbs.SO2/MMBtu, 9% ash, 13,000 Btu per pound, 7.0% moisture and 33 volatility
on a fully-washed basis. In 1999, we entered into a contract mining agreement
for the operation of our Sentinel Mine, and the contract miner began operation
on June 1, 1999.

         In 2000, the contract miner produced approximately 456,000 tons of coal
from the Sentinel Mine. We sold approximately 94% of the 2000 shipments,
including purchased coal as described below, to Potomac Electric Power Company,
AES Corporation, Pennsylvania Power & Light and Logan Generating Company LP.

         In the third quarter of 1999, our contract miner moved the operating
sections in the Sentinel Mine from one area of the reserve to another. Since
that time, and through December 2000, our contract miner had been developing the
new area of the reserve for future production and had encountered significant
adverse roof conditions. As a result of the move, the development work and the
roof conditions, coal production from this mine was lower than expected in 1999
and 2000. Despite the contract miner having reported improved roof conditions in
the mine in December 2000, a substantial, unexpected roof fall occurred in the
mine on December 30, 2000. After a complete evaluation of the fall and the then
existing roof conditions, we decided to immediately begin the work to construct
an underground slope to access the Upper Kittanning seam from the existing mine
workings in the Middle Kittanning seam. We currently control approximately 20.4
million tons of recoverable coal in the Upper Kittanning seam, which lies
approximately 40 to 50 feet above our Middle Kittanning reserve. Preliminary
indications of coal quality from the Upper Kittanning seam average 2.9 lbs.
S02/MMBtu, 11.0% ash, 12,800 Btu per pound, 7.0% moisture and 33 volatility on a
fully-washed basis.

         We engaged our existing contract miner to construct the underground
slope. In order to begin producing coal from the Upper Kittanning seam as soon
as possible, the contract miner temporarily ceased coal production in the Middle
Kittanning seam and devoted its entire workforce to this project. The contract
miner has reached the Upper Kittanning seam and completed underground slope. Up
to March 30, 2001, the contract miner was in the process of performing the
necessary development work to prepare the seam for coal production. On March 30,
2001, the contract miner notified us that it was ceasing operations in this
mine. We took over the operation of the mine on April 2, 2001, and have secured
the employment of the contract miner's supervisory employees and entered into an
agreement with the contract labor force supplier. Consistent with our business
plan to use contract miners in our deep mines, we plan to evaluate securing a
new contract miner for this deep mine. Development work and production at this
mine resumed on April 2, 2001, after being idled for 2 days. We estimate that
the construction work to access the Upper Kittanning seam and the development
work to prepare that seam for mining will cost approximately $1.8 million. Once
coal production in the Upper Kittanning seam reaches acceptable levels, we will
evaluate resuming production in our Middle Kittanning reserve.

         While we believe that we can develop the Upper Kittanning seam from our
existing operation, the development and success in that seam, as in any coal
seam, are subject to numerous risks and uncertainties, many of which are beyond
our control. We cannot assure you that we will be able to successfully develop
and mine the Upper Kittanning seam. If we are unable to achieve expected
production levels, it could have a material adverse effect on our liquidity,
financial condition and results of operations.

         As of December 31, 2000, we had approximately 49.7 million tons of
recoverable reserves in Barbour County, including 20.4 million tons of
recoverable reserves in the Upper Kittanning seam. All of these recoverable
reserves are steam coal, assigned reserves and are classified as deep mineable.


                                       3
<PAGE>   7

         In addition to the mining operation, we have an on-site, 1,100
tons-per-hour preparation plant. The plant is fed from a 100,000 ton open
stockpile that facilitates the shipment of coal through an attached 3,000
tons-per-hour train loading facility. We also have an on-site laboratory that
provides sampling and blending capabilities. The total cost of our plant and
equipment associated with our Barbour County operations was approximately $14.9
million at December 31, 2000, and its net book value was approximately $6.9
million.

         We purchase coal from surrounding smaller producers to provide
additional sales of various qualities for our utility and industrial customers.
With our preparation plant capacity, blending ability, on-site laboratory and
large stockpile area, we have the ability to blend the purchased coal with the
production from the Sentinel Mine to serve a variety of customers. In 2000, we
blended approximately 138,000 tons of coal purchased from third parties with
production from the Sentinel Mine for shipment to customers.

         MONONGALIA COUNTY, WEST VIRGINIA. We own a surface mining operation in
the Waynesburg seam of coal in Monongalia County, West Virginia. In 2000, the
operation generally consisted of two surface mines which produced approximately
527,000 tons of coal. Approximately 20% of the 2000 coal shipments were shipped
by truck to the Morgantown Energy Associates power plant in Morgantown, West
Virginia, where it was blended with waste coal also supplied by us. The balance
of the coal production from the surface mining operation was shipped to our
nearby rail and river terminal located on the Monongahela River, known as Anker
Rail & River Terminal. This coal was blended with brokered coal and shipped by
rail and barge to various utilities. In 2000, the quality of coal shipments from
Anker Rail & River Terminal averaged 2.5 to 4.3 lbs.SO2/MMBtu, 14 to 16% ash
and 11,800 to 12,200 Btu per pound. In addition to these coal shipments, we
supplied waste coal to the Morgantown Energy Associates plant and a low Btu
blended fuel product to the Grant Town power plant located in Grant Town, West
Virginia.

         As of December 31, 2000, we controlled approximately 1.3 million tons
of recoverable reserves in the Waynesburg seam in Monongalia County with an
average quality of 3.7 lbs.SO2/MMBtu, 16.5% ash and 11,500 Btu per pound. All of
these reserves are steam coal, assigned reserves and are surface mineable.

         Anker Rail & River Terminal is designed to enable us to simultaneously
load trains of up to 100 cars, referred to as unit trains, on rail lines jointly
served by CSX Transportation, Inc. and Norfolk Southern Corporation at a rate of
1,500 tons per hour and onto barges on the Monongahela River at a rate of 1,200
tons per hour. The facility is equipped with crushing, screening and blending
equipment, as well as quality control and automated sampling systems. We operate
Anker Rail & River Terminal for coal from our surface mine and for third-party
brokered coal.

         We also own the Rosedale and Dippel river facilities. These facilities
are adjacent to the Anker Rail & River Terminal and are used for barge staging
and additional ground storage. The total cost of the plant and equipment
associated with our Monongalia County operations was approximately $2.1 million
at December 31, 2000, and its net book value was approximately $1.8 million.

         In 2000, we purchased approximately 48,000 tons of coal from third
parties which we used to blend with coal that we produced from our Monongalia
County surface mines.

         GARRETT COUNTY, MARYLAND. We own a deep mine in the Bakerstown seam in
Garrett County, Maryland, known as the Steyer Mine. The contract miner for this
deep mine produced 519,000 tons of coal in 2000. That coal was shipped by truck
to Mettiki Coal Corporation and to our Vindex Mine in Grant County, West
Virginia, where it was blended and shipped to Virginia Electric Power Company's
(VEPCO) Mount Storm Power Station. Coal mined from the Bakerstown seam averages
1.76 lbs.SO2/MMBtu, 25% ash, 10,200 Btu per pound, 5.0% moisture and 15
volatility. The Steyer Mine has approximately 10.4 million tons of recoverable
reserves. The total cost of the plant and equipment associated with the Steyer
Mine was approximately $2.2 million at December 31, 2000, and its net book value
was approximately $417,000.

         VEPCO's Mt. Storm Power Station is planning an outage during 2001 in
order to install pollution scrubbing equipment. As a result of this planned
outage, we anticipate producing approximately 105,000 fewer tons of coal in 2001
as compared to 2000 from our Garrett County, Maryland deep mine. We currently
anticipate that we will be able to sell a portion of the 105,000 tons in the
spot coal market. If we are successful in selling any of this coal, we will
adjust production accordingly.

         We control a total of approximately 22.0 million tons of coal reserves
in Garrett County. All of these reserves are steam coal reserves. Approximately
91.8% are assigned reserves. Approximately 12.5 million tons, or 56.7%, of these
reserves are deep mineable.



                                       4
<PAGE>   8

         RALEIGH COUNTY, WEST VIRGINIA. We own a deep mine complex in Raleigh
County, West Virginia. The complex consists of a deep mine in the Beckley seam
of coal, known as the Baybeck Mine, and related coal preparation and loading
facilities. In 2000, the contract miner for the Baybeck Mine produced
approximately 502,000 tons of premium quality, low volatility metallurgical
coal, which is used in coke production and is known as met coal. During 2000, we
also purchased approximately 9,000 tons of coal from third parties which we used
to supplement the production from the Baybeck Mine. We sold approximately 95% of
the 2000 shipments from this mine to AK Steel. Coal from the Baybeck Mine
averages 1.0 lbs.SO2/MMBtu, 5.5% ash, 6.0% moisture and 19 volatility.

         The Baybeck Mine has approximately 772,000 tons of recoverable
reserves. Depending upon mining conditions and the ability of our contract miner
to mine our remaining reserves, the coal reserves for this mine are expected to
be exhausted in the first or second quarter of 2002. We are currently evaluating
ways to extend the life of this mine. We are also working on plans to enable us
to continue using our preparation plant, rail loading and related facilities
after our coal reserves are depleted. These plans could involve, among other
things, purchasing coal from third party producers or providing processing and
loading services. We are currently buying some coal produced by another producer
and reselling it under our contract with AK Steel. Our ability to extend the
life of our mine or use our assets following depletion of our coal reserves is
subject to risks and uncertainties, many of which are beyond our control.
Therefore, we cannot assure you that we will be able to achieve either of these
goals on terms acceptable to us, if at all.

         In addition to our Beckley seam reserves, we also control approximately
29.5 million tons of coal in the Pocahontas #3 Seam. This is a low volatility
metallurgical coal reserve and is adjacent to our Baybeck Mine. This reserve is
jointly served by Norfolk Southern and CSX railroads. We are holding this
reserve for sale, and, accordingly, it has been adjusted to its estimated fair
market value.

         All of the reserves in Raleigh County are metallurgical coal, assigned
reserves and are classified as deep mineable.

         We own and operate, through a contractor, a 300-tons-per-hour
preparation plant, with an on-site train loading facility on the CSX railroad,
capable of fast-loading a unit train in four hours. The loading facility is fed
from a 150,000 ton open stockpile area adjacent to the preparation plant. The
total cost of the plant and equipment associated with our Raleigh County
operations was approximately $12.8 million at December 31, 2000, and its net
book value was approximately $4.1 million.

         GRANT COUNTY, WEST VIRGINIA. In 2000, we owned and operated a surface
mine, known as the Vindex Mine, in the Kittanning and Freeport seams in Grant
County, West Virginia. As previously disclosed, in 1999, the Vindex Mine was
idled because we had mined all of our then permitted coal reserves and were
unable to secure a new mining permit for our adjacent properties due to concerns
related to water quality issues. A new permit was subsequently issued on
December 17, 1999 after such water quality issues were resolved, and we resumed
production from this mine in May 2000. This mine produced approximately 96,000
tons during 2000. We purchased approximately 148,000 tons of coal from third
parties in 2000 to supplement our production and meet our obligations under our
coal supply contracts.

         In November 2000, we exhausted our permitted surface mining reserves in
Grant County, West Virginia and relocated the surface mine to additional
permitted reserves that we control in neighboring Allegany County, Maryland. The
Vindex Mine resumed coal production from these reserves in January 2001,
although an insignificant amount of coal was produced from the Allegany County,
Maryland surface mine in December 2000.

         We also own a deep mine, known as the Stony River Mine, in the
Bakerstown seam of coal in Grant County, West Virginia. A portion of the
production from this mine is blended with coal from the Vindex Mine and shipped
to VEPCO's Mount Storm Power Station. With the idling of the Vindex Mine in
December, 1998, we idled the Stony River Mine in February 1999. In anticipation
of resuming production at the Vindex Mine, we entered into a contract mining
agreement for the Stony River Mine, and the contract miner resumed coal
production in February 2000. The contract miner produced approximately 166,000
tons of coal from the Stony River Mine during 2000.

         The Grant County, West Virginia reserves for the Vindex Mine and the
Stony River Mine contain approximately 15.9 million tons of recoverable coal,
all of which are located within several miles of the Mount Storm Power Station.
The Allegany County, Maryland reserves which are currently being mined contain
approximately 4.1 million tons of recoverable reserves. All of the reserves in
Grant and Allegany Counties are steam coal, assigned reserves. Approximately 1.1
million tons, or 3.8%, of the reserves in Grant County are surface mineable. All
of the reserves in Allegany County are surface mineable reserves.




                                       5
<PAGE>   9

         We also own a 200-tons-per-hour preparation plant located at the Vindex
Mine in Grant County. The preparation plant processes coal from the Vindex,
Steyer and Stony River mines for shipment to VEPCO. The total cost of the plant
and equipment associated with our Grant County operations was approximately $5.8
million at December 31, 2000, and its net book value was approximately $1.0
million.

         As noted in the description of our Garrett County, Maryland operations,
VEPCO's Mt. Storm Power Station is planning an outage during 2001 in order to
install pollution scrubbing equipment. As a result of this planned outage, we
anticipate producing approximately 270,000 fewer tons of coal in 2001 as
compared to 2000 from our Grant and Allegany County operations. We currently
anticipate that we will be able to sell a portion of this 270,000 tons in the
spot coal market. If we are successful in doing so, we will adjust production
accordingly.

         In addition to the Grant County reserves for the Vindex Mine and the
Stony River Mine, we own or control an additional 13.7 million tons of reserves
in Grant County. All of these reserves are steam coal, assigned reserves and
deep mineable.

         HARRISON COUNTY, WEST VIRGINIA. We own 50% of a limited liability
company that operates a deep mine in the Pittsburgh seam of coal in Harrison
County, West Virginia, known as the Sycamore Mine. Production from the Sycamore
Mine began in May 1997. As of December 31, 2000, the Sycamore Mine had
approximately 4.2 million tons of recoverable reserves with an average of 5.8
lbs.SO2/MMBtu, 11% ash, 12,500 Btu per pound and 35 volatility.

         Coal mined from the Sycamore Mine is sold and delivered by truck to
Allegheny Power Service Corporation's nearby Harrison Power Station. The
Harrison Power Station, which burns more than 5.0 million tons of coal per year,
is equipped with a scrubber addition which allows it to burn the high sulfur
coal produced at the Sycamore Mine. In 2000, the Sycamore Mine produced
approximately 722,000 tons of coal.

         We control a total of approximately 55.7 million tons of reserves in
Harrison County, including the Sycamore Mine reserves. All of these reserves are
steam coal, assigned reserves and are classified as deep mineable.

         PRESTON COUNTY, WEST VIRGINIA. We operated one deep mine through a
contract miner in the Upper Freeport seam in Preston County, West Virginia. This
deep mine ceased production in January 2000 upon depletion of its reserves. This
mine produced a total of approximately 9,000 tons of coal in 2000, which was
sold to Potomac Electric Power Company and Logan Generating Company LP. Coal
produced from this deep mine averaged 2.3 lbs.SO2/MMBtu, 11% ash, 12,800 Btu per
pound, 6.0% moisture and 28 volatility on a fully-washed basis. We will serve
our customers previously supplied with coal produced from this deep mine with
coal produced from our Barbour and Upshur county mining operations.

         We own a 250-tons-per-hour preparation plant in Preston County where
the coal from our contract deep mine was processed. The plant has blending
capabilities, a sophisticated sampling system and a 1,200-tons-per-hour CSX unit
train loading facility. The plant has a 60,000 ton storage capacity.

         In July 1999, we sold substantially all of the coal reserves we
controlled in Preston County for approximately $1.3 million in cash plus
royalties on future production. As a part of this sale, we entered into call
agreements with the buyer under which we have the option to purchase up to
800,000 tons of coal per year through 2009 and 600,000 tons in 2010 produced by
the buyer from its existing coal mines at agreed upon prices. A gain of
approximately $500,000 from this sale was recognized in the third quarter of
1999. As a result of that sale, we now only control approximately 643,000 tons
in Preston County.

         The total cost of the plant and equipment associated with our Preston
County operations was approximately $1.0 million at December 31, 2000, and its
net book value was zero.

         WEBSTER COUNTY, WEST VIRGINIA. We previously operated a mining complex
in Webster County, West Virginia. The complex consisted of a multiple seam
surface mine, a deep mine in the Kittanning Seam operated by a contract miner,
and a computer-controlled, 500-tons-per-hour preparation plant located in close
proximity to the mines. Coal from the surface and deep mines was blended to make
two steam coal products. During the second half of 1998, the coal mined at the
surface operation began to thin and the quality began to deteriorate. As a
result, our cost of production began to rise and the prices for which we could
sell the coal began to decrease. Consequently, the surface operation became
uneconomic and we idled the surface mine in December 1998. In late 1998 and
early 1999, we reevaluated our coal reserves in Webster and Braxton counties.
Our ability to economically mine these reserves had been adversely affected by
rising production costs and decreasing coal prices, and we concluded that we
could not economically mine these reserves at that time. Consequently, we
impaired the entire carrying value of the properties in 1998 and had recorded
exit costs



                                       6
<PAGE>   10

associated with these operations. The deep mine continued to operate through
September 1999, at which time the reserves in the deep mine were exhausted. We
substantially completed reclamation of the surface mine properties during the
third quarter of 2000. We do not expect to resume operations in Webster County
in the foreseeable future.

         OTHER RESERVES. In addition to the reserves in connection with our
existing mining operations discussed above, we own or control substantial
additional reserves, including approximately 218.0 million tons of reserves in
Taylor County, West Virginia. All of the reserves in Taylor County are steam
coal, unassigned and are classified as deep mineable. They have an average
quality of 1.92 lbs.SO2/MMBtu, 10% ash, 13,000 Btu per pound and 31 volatility.
We are not currently producing coal from the Taylor County reserves and are
holding them for future production. Management periodically reviews the carrying
values of these assets as compared to fair market value and makes adjustments as
necessary. We also own and control substantial surface mineable coal deposits in
Upshur County, West Virginia. See "Item 7 -- Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Liquidity and
Capital Resources -- Our Business Plan to Improve Operating and Financial
Performance -- Upshur County Power Project" for a further discussion of these
coal deposits.

CONTRACT MINING

         During 1999, we had converted from operating our deep mines ourselves
to using contract miners to operate these mines for us. In each case, the
contract miner is a third party that provides coal extraction services at our
mines. The contract miner uses its own employees and supplies to mine the coal
from our reserves. The contract miner is generally responsible for making all
capital expenditures to advance the mine workings and continue coal production.
As a service provider, the contract miner produces the coal for us. We own the
coal at all times.

         As previously mentioned, a contract miner serving our Spruce Mine No. 1
in Upshur County and our Sentinel Mine in Barbour County advised us on March 30,
2001, that it was ceasing operations at such mines. As a result, we took over
the operation of these mines on April 2, 2001. We have taken measures to
continue operating these mines ourselves by hiring supervisory employees of the
contract miner and entering into an agreement with the contract labor force
supplier.

COAL TRANSPORTATION

         Transportation costs will typically range from 10 to 15% of the cost of
a customer's coal for coal trucked to power plants located in coal fields. For
eastern utilities supplied by rail, on the other hand, transportation costs will
typically range from 25 to 40% of the cost of a customer's coal. Customers
receiving coal by truck usually purchase the coal on a delivered basis, freight
included. Customers receiving coal by rail, and generally by barge, are
responsible for transportation charges. As a result, the availability and cost
of transportation constitute important factors for the marketability of coal.

         In 2000, approximately 53.8% of our tonnage traveled by truck and
inland waterway barges with the remaining 46.2% traveling by rail on CSX.
Although all of our operating mines are currently served only by CSX, we believe
that the freight charges we pay are competitive with the charges that other coal
producers served by multiple railroads pay. The practices of, and rates set by,
the railroad serving a particular mine might affect, either adversely or
favorably, our marketing efforts with respect to coal produced from the relevant
mine.

COAL MARKETING AND SALES

         We currently conduct our marketing and sales operations primarily in
the eastern and mid-western United States. Our sales and marketing staff in
Morgantown, West Virginia focus on steam coal sales in the Northeast and
mid-Atlantic regions and on metallurgical coal sales to domestic coking plants.
Our sales and marketing staff in Carmel, Indiana focus on sales in the
mid-western United States.

         In 2000, we sold a total of 9.5 million tons of coal, including
approximately 4.4 million tons shipped under long-term contracts with utilities,
3.8 million tons under long-term contracts with independent power producers,
900,000 tons under long-term contracts with metallurgical, industrial and
commercial customers, and 400,000 tons under spot market contracts. These spot
market contracts are primarily with utility companies. We sold a total of 10.8
million tons of coal in 1999, and 12.3 million tons of coal in 1998.

         Anker Holding B.V., which currently owns all of our outstanding Class A
preferred stock and, as a result of the April 12, 2001 exchange offer, less than
1.0% of our common stock, has, through related parties, purchased coal from us
in the past for its



                                       7
<PAGE>   11

international trading operations. Anker Holding B.V. did not purchase any coal
from us in 2000 or 1999. However, coal purchases from Anker Holding B.V.
amounted to approximately $100,000 in 1998.

LONG-TERM COAL SUPPLY CONTRACTS

         During 2000, we supplied coal to approximately 18 different customers
on a regular basis. We have entered into various long-term coal supply contracts
with our customers, particularly with our regional utilities and independent
power producers. We have secured long-term coal supply contracts with an average
remaining life of approximately 5.1 years as of January 1, 2001. Our long-term
contracts have accounted for approximately 79% of our coal sales revenues from
1998 through 2000. Over the same period, we were successful in renewing in
excess of 90% of the annual tons covered by long-term contracts that were up for
renewal and that we desired to renew. In addition, over the same period, we
renewed or entered into new long-term contracts for 3.8 million tons of annual
coal shipments. We believe that customers enter into these long-term contracts
principally to secure a reliable source of coal at predictable prices. We enter
into these contracts to obtain stable sources of revenues required to support
the large expenditures we need to open, expand and maintain the mines servicing
the contracts. Our long-term contracts with companies related to AES Corporation
accounted for approximately 24% of our revenues in 2000, compared to 18% of our
revenues in 1999, and 18% of our revenues in 1998. We have done business with
AES Corporation and its related companies for 15 continuous years. Our shipments
to VEPCO accounted for approximately 16% of our revenues in 2000 compared to 11%
of our revenues in 1999 and 11% of our revenues in 1998. We have 9 continuous
years of service to VEPCO. In addition, our shipments to Potomac Electric Power
Company (PEPCO) accounted for approximately 20% of our revenues in 2000,
compared to 18% of our revenues in 1999 and 10% of our revenues in 1998. We have
served PEPCO for 18 continuous years. The loss of any of these customers, or of
any of our other long-term contracts, could have a material adverse effect on
our financial condition and results of operations.

         The following table sets forth information regarding our long-term coal
supply contracts as of January 1, 2001. Of our 17 long-term contracts, 12 expire
on the stated expiration date and do not have renewal provisions. Our contracts
with BG&E -- Crane Plant, Mettiki Coal Corp., ER&L/AES Thames Plant, MEA Plant
and Logan Generating Plant provide for extension upon mutual agreement. The
expiration dates listed below are the current expiration dates of our long-term
contracts and do not reflect any extensions or renewals. As noted above, during
the period from 1998 to 2000, we renewed approximately 90% of the annual tons
covered by long-term contracts that were up for renewal and that we desired to
renew. In addition, over the same period, we entered into new long-term
contracts for 3.8 million tons of annual coal shipments. We do not believe that
our renewal rate is dependent upon whether the contract includes renewal
provisions.

<TABLE>
<CAPTION>
                                                                CURRENT
                                                 EXPIRATION      ANNUAL           APPROXIMATE       CONTINUOUS
                                                   DATE OF      CONTRACT        TERM OF CURRENT      YEARS OF
                                                   CURRENT       TONNAGE           CONTRACT        SERVICE WITH
        CUSTOMER                                  CONTRACT   (IN THOUSANDS)    (NUMBER OF YEARS)     CUSTOMER
        --------                                  --------   --------------   ------------------     --------

<S>                                              <C>         <C>               <C>                 <C>
        Lehigh Portland-Union Bridge Plant...      06/30/01        80(1)               2                 2
        PP&L-Brunner Island Plant............      12/31/01       200                  3                 2
        VEPCO-Mt. Storm-Vindex Contract......      12/31/01       360                  3                 9
        AK Steel-Ashland & Middletown Plants.      12/31/01       480(1)               2                 4
        Allegheny Energy-Harrison Plant......      12/31/01       900                  2                10
        BG&E-Wagner Plant....................      12/31/02       100                  3                11
        BG&E-Crane Plant.....................      12/31/02       175                  3                 6
        VEPCO Mt. Storm Plant-Mastellar
        Contract.............................      12/31/02       432                  8                 9
        Mettiki Coal Corp....................      12/31/02       432                  7                 6
        PEPCO-Chalk Point & Morgantown Plants      12/31/02     1,500(2)               2                18
        Grant Town Power Plant...............      12/31/04       240                  5                 1
        ER&L/AES Thames Plant................      03/03/05       650(1)              16                12
        MEA Plant............................      09/14/07       120(1)              15                 9
        AES Shady Point Plant................      12/31/07       600(1)              18                10
        Logan Generating Plant...............      12/31/14       425(1)              21                 6
        AES Beaver Valley Plant..............      12/31/16       576(3)              20                15
        AES Warrior Run Plant................      02/10/20       650(1)              20                 1
</TABLE>

----------

(1)      Reflects shipments under a "total requirements" contract. Amounts are
         averages of what the customer has asked for and is expected to ask for
         in the future. A "total requirements" contract is a contract in which
         the seller agrees to supply all of the specific goods that the
         purchaser will need during a specified period at an agreed price, and
         the purchaser agrees to purchase all of those goods exclusively from
         the seller.

(2)      Reflects the annual contract tonnage for 2001. The annual contract
         tonnage to be supplied for 2002 is between 1,300 and 2,000 tons.

(3)      Reflects an agency agreement under which the customer pays us a fee for
         all coal delivered to the plant.

         The terms of long-term coal supply contracts are based on bidding
procedures and extensive negotiations with customers. Consequently, the terms of
these contracts typically vary significantly from one another in many respects,
including their price



                                       8
<PAGE>   12

adjustment features, price reopener terms, coal quality requirements, quantity
parameters, flexibility and adjustment mechanics, permitted sources of supply,
treatment of environmental constraints, options to extend, and force majeure,
termination and assignment provisions.

         Virtually all of our long-term coal supply contracts are subject to
price adjustment provisions. These price adjustment provisions provide for an
increase or decrease in the contract price at specified times to reflect changes
in market price indices or other economic indices, taxes and other charges. Two
of our long-term coal supply contracts also contain price reopener provisions.
These price reopener provisions provide for the contract price to be adjusted
upward or downward at specified times on the basis of market factors. Price
reopener provisions might specify an index or other market pricing mechanism on
which a new contract price is to be based. Frequently, customers send bid
solicitations to other suppliers to establish a new price or to establish a
right of first refusal. Some price reopener provisions contain limitations on
the magnitude of the price change permitted. Contract prices under long-term
coal supply agreements frequently vary from the price at which a customer could
acquire and take delivery of coal of similar quality in the spot market.

         Our long-term coal supply contracts specify Btu, sulfur, ash, moisture,
volatility and other quality requirements for the coal to be supplied. Most of
our contracts specify the approved seams and/or approved locations from which
the coal is to be mined.

         Our long-term coal supply contracts contain "force majeure" provisions
that allow us and/or the customer to suspend performance under the contract to
the extent necessary while events beyond the reasonable control of the affected
party are occurring.

         From time to time, we have become involved in contract disputes
relating to, among other things, coal quality, pricing, source of the coal and
quantity. While customer disputes, if unresolved, could result in the
termination or cancellation of the contracts to which they relate, our
experience has been that curative and/or dispute resolution measures decrease
the likelihood of termination or cancellation. In addition, our development of
long-term business relationships with many of our customers has generally
permitted us to resolve business disputes in a mutually acceptable manner.
Nonetheless, we have from time to time been involved in arbitration and other
legal proceedings regarding our long-term contracts, and we cannot assure you
that existing and future disputes can be resolved in a mutually satisfactory
manner.

         The operating profit margins we realize under our long-term coal supply
contracts vary from contract to contract and depend upon a variety of factors,
including price reopener and other price adjustment provisions, as well as our
production costs and the cost of brokered coal. Termination or suspension of
deliveries under a high-price contract could have a material adverse effect on
earnings and operating cash flows disproportionate to the percentage of
production that the contracted tonnage delivered represents.

COMPETITION

         The U.S. coal industry is highly competitive, with numerous producers
in all coal producing regions. Historically, we have competed primarily with
both large and small producers in our region. However, because of significant
consolidation in the coal industry over the past few years and other factors, we
are now also competing against producers in other regions of the country. In
addition, some of our larger competitors have both significantly greater reserve
bases and capital resources to utilize mining technologies we cannot use, which
gives them a production cost advantage over us.

         The markets in which we sell our coal are highly competitive and
affected by factors beyond our control. The coal markets are being affected by
numerous factors, including, but not limited to, environmental and other
governmental regulations, deregulation of electric utilities, consolidation
within the railroad industry, increased role of electricity-based futures
trading, reduction in the terms of long-term supply contracts and a greater
proportion of coal being purchased on a spot basis.

         In addition to these factors, other long-term factors will affect the
continued demand for coal and the prices that we will be able to achieve. These
long-term factors include, among others, the demand for electricity, coal
transportation costs, technological developments, availability and price of
alternative fuel sources, such as natural gas, oil, nuclear energy,
hydroelectric power and renewable energy sources, and increased production and
sale of synthetic fuel. As a result of these factors, competition and demand for
coal in our existing markets could be either positively or negatively affected.

REGULATION AND LAWS

         Federal, state and local authorities regulate the coal mining industry
on matters including employee health and safety, permitting and licensing
requirements, air quality standards, water pollution, the reclamation and
restoration of mining properties after mining is completed, the discharge of
materials into the environment, surface subsidence, which is the sinking or
settling of the earth's



                                       9
<PAGE>   13

surface from underground mining, and the effects that mining has on groundwater
quality and availability. In addition, significant legislation mandating
benefits for current and retired coal miners affects the industry. Mining
operations require numerous federal, state and local governmental permits and
approvals. We attempt to obtain all necessary permits within a time frame that
allows us to mine our reserves on an uninterrupted basis. We generally begin
preparing permit applications for areas we intend to mine sufficiently in
advance of their expected issuance date as regulatory authorities have
considerable latitude in the timing of the issuance of permits.

         Our independent operating subsidiaries endeavor to conduct mining
operations in compliance with all applicable federal, state and local laws and
regulations. However, because of extensive and comprehensive regulatory
requirements, violations during mining operations occur from time to time in the
industry. Notwithstanding compliance efforts, we do not believe these violations
can be completely eliminated.

         While it is not possible to quantify the costs of compliance with all
applicable laws, those costs have been and continue to be significant.

MINING HEALTH AND SAFETY STANDARDS

         Federal legislation has imposed stringent safety and health standards
since 1969, when Congress adopted the federal Coal Mine Health and Safety Act of
1969. The 1969 Coal Mine Health and Safety Act resulted in increased operating
costs and reduced productivity. The Federal Mine Safety and Health Act of 1977
significantly expanded the enforcement of health and safety standards. The 1977
Federal Mine Safety and Health Act imposes safety and health standards on all
mining operations. Regulations are comprehensive and affect numerous aspects of
mining operations, including training of mine personnel, mining procedures,
blasting, the equipment used in mining operations and other matters. The Mine
Safety and Health Administration monitors compliance with these federal laws and
regulations. The Black Lung Benefits Act of 1969 and the Black Lung Benefits
Reform Act of 1977 constitute parts of the 1969 Coal Mine Health and Safety Act
and the 1977 Federal Mine Safety and Health Act, respectively. In addition to
the federal framework, most of the states in which we operate impose regulatory
and legal parameters for mine safety and health.

         Although our employee base at December 31, 2000 is significantly lower
than it was in prior years, one of our long-term goals is to achieve excellent
health and safety performance for our employees, as measured by accident
frequency rates and other measures. We believe that our attainment of this goal
is inherently tied to our attainment of productivity and financial goals. We
seek to implement this goal by, among other measures

         o training our employees in safe work practices;

         o carrying out periodic safety audits at our operations;

         o openly communicating with our employees;

         o establishing, following and improving safety standards;

         o involving our employees in establishing safety standards; and

         o recording, reporting and investigating all accidents, incidents and
           losses at our operations to avoid recurrences.

         As evidence of the effectiveness of our safety program, the Mine Safety
and Health Administration awarded the Webster County surface mine and the Steyer
Mine the Pacesetter Award for lowest accident frequency for 1998. The State of
West Virginia awarded the preparation plant associated with the Sentinel Mine
the Mountain Guardian Award for lowest accident and violation frequency for
1998.

BENEFITS UNDER BLACK LUNG LEGISLATION

         In order to compensate miners who were last employed as miners prior to
1970, the Black Lung Benefits Revenue Act of 1977 and the Black Lung Benefits
Reform Act of 1977, as amended by the Black Lung Benefits Revenue Act of 1981
and the Black Lung Benefits Amendments of 1981, levy a tax on production of
$1.10 per ton for deep-mined coal and $0.55 per ton for surface-mined coal,
neither amount to exceed 4.4% of the sales price received for such production.
In addition, the 1981 Acts provide that some claims for which coal operators had
previously been responsible will be obligations of a government trust funded by
the tax. The Revenue Act of 1987 extended the termination date of the tax from
January 1, 1996 to the earlier of January 1, 2014 or the first January on which
the government trust becomes solvent. We maintain a fully-insured program
covering all black lung claims through



                                       10
<PAGE>   14

the West Virginia Workers Compensation and the West Virginia Coal Workers'
Pneumoconiosis Funds. We have not received any notice of claims for black lung
disease which the plans would not cover.

         The United States Department of Labor has adopted amendments to the
regulations implementing the federal black lung laws which, among other things,

         o expand the definition of coal works pneumoconiosis,

         o liberalize the standards for entitlement to living miners' and
           widows' benefits,

         o restrict the number of medical reports a party may use in defending a
           claim and

         o expand the types of medical conditions for which treatment must be
           provided.

         Implementation of the amended regulations was stayed by the United
States District Court for the District of Columbia on February 9, 2001, when a
preliminary injunction was issued in National Mining Association v. Chao.

         If and when the amendments go into effect, they could eventually have
an adverse impact on us to the extent that they result in the approval of
increased numbers of claims for benefits. If resulting benefit payments from the
Coal Workers' Pneumoconiosis Fund exceed the premium payments collected from
participating employers, it is possible that our premium assessments could be
increased.

COAL INDUSTRY RETIREE HEALTH BENEFIT ACT OF 1992

         Congress enacted the Coal Industry Retiree Health Benefit Act of 1992
(the Rockefeller Act) in October 1992 to provide for the funding of health
benefits for United Mine Workers of America retirees. The Rockefeller Act was
enacted to eliminate the funding deficits of the 1950 and 1974 UMWA Benefit
Plans. The Rockefeller Act created the Combined Fund and the 1992 UMWA Benefit
Plan to which former signatory operators or related persons are obligated to pay
annual premiums for assigned beneficiaries, together with a pro rata share for
unassigned beneficiaries who never worked for those employers. Signatory
operators include operators who were signatory to a coal wage agreement. Related
persons to signatories include entities that are members of a group of
corporations or entities that are under common control. We are a related person,
having at one time owned entities which were signatory operators.

         The 1992 UMWA Benefit Plan covers individuals who are not covered under
the Combined Fund, who would have been eligible for benefits under the 1950 and
1974 UMWA Benefit Plans (but for the enactment of the Rockefeller Act) based on
age and service as of February 1, 1993. The last signatory operator (and any
related person) is required to pay a monthly per beneficiary premium.

         In 2000, we paid approximately $602,000 in premiums to the Combined
Fund. We had paid approximately $343,000 and $352,000 in premiums to the
Combined Fund in 1999 and 1998, respectively. An additional $1.6 million was
paid to the Combined Fund in January, 2000, in connection with a lawsuit
concerning a dispute over the portion of premiums allegedly due to the Combined
Fund. In addition, as of December 31, 2000, we had a reserve in our consolidated
balance sheet for $573,000 for premiums and interest with respect to prior year
amounts due to the 1992 Benefit Plan. This amount is a component of the amount
recorded on our consolidated balance sheet at December 31, 2000. Of this amount,
we paid $280,000 in January, 2001 and have agreed to pay four additional
quarterly installments of approximately $73,000 beginning in April, 2001. See
"Item 3 -- Legal Proceedings" and Note 10 in "Part II, Item 8 -- Consolidated
Financial Statements".

         Finally, based upon independent actuarial estimates, we believe that
the amount of our obligation for future premiums under both the Combined Fund
and 1992 Benefit Plan is approximately $5.1 million as of December 31, 2000,
using a 7% discount rate. This amount is recorded in our consolidated balance
sheet at December 31, 2000. See "Item 3 -- Legal Proceedings" and "Part II, Item
8 -- Consolidated Financial Statements." We expect to fund amounts paid in
connection with this obligation with cash from operations or borrowings under
our credit facility.

ENVIRONMENTAL LAWS

         We are subject to various federal environmental laws, including the
Surface Mining Control and Reclamation Act, the Clean Air Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Clean Water Act and
the Resource Conservation and Recovery Act. We are also subject to state laws of
similar scope in each state in which we operate. These laws



                                       11
<PAGE>   15

require governmental approval of many aspects of coal mining operations. As a
result, both federal and state inspectors regularly visit our mines and other
facilities in order to assure compliance.

         SURFACE MINING CONTROL AND RECLAMATION ACT. The federal Surface Mining
Control and Reclamation Act of 1977, administered by the Office of Surface
Mining, establishes mining and reclamation standards for all aspects of surface
mining as well as many aspects of deep mining. The Surface Mining Control and
Reclamation Act and similar state statutes require, among other things, that
mined property be restored in accordance with specified standards and an
approved reclamation plan. In addition, the Abandoned Mine Lands Act, which is
part of the Surface Mining Control and Reclamation Act, imposes a tax on all
current mining operations. The proceeds of the tax are used to restore mines
closed before 1977. The maximum tax is $0.35 per ton on surface-mined coal and
$0.15 per ton on underground-mined coal.

         The Surface Mining Control and Reclamation Act also requires that we
meet comprehensive environmental protection and reclamation standards during the
course of, and upon completion of, mining activities. For example, the Surface
Mining Control and Reclamation Act requires that we restore a surface mine to
approximate original contour as contemporaneously as practicable. The mine
operator must submit a bond or otherwise secure the performance of these
reclamation obligations. We must obtain permits for surface mining operations
from the federal Office of Surface Mining Reclamation and Enforcement. On the
other hand, where state regulatory agencies have adopted federally approved
state programs under the Surface Mining Control and Reclamation Act, we must
obtain the permits from the appropriate state regulatory authority. We accrue
for the liability associated with all end of mine reclamation on a ratable basis
as the coal reserve is being mined. We periodically update the estimated cost of
reclamation, and the corresponding accrual, in our financial statements. The
earliest a reclamation bond can be released is five years after reclamation to
the approximate original contour has been achieved.

         All states in which our active mining operations are located have
achieved primary jurisdiction for Surface Mining Control and Reclamation Act
enforcement through approved state programs. Under the Surface Mining Control
and Reclamation Act, responsibility for any coal operator that is currently in
violation of the Act can be imputed to other companies that are deemed,
according to regulations, to "own or control" the coal operator. Sanctions can
include being blocked from receiving new permits and rescission or suspension of
existing permits. On December 18, 2000, the Office of Surface Mining Reclamation
and Enforcement promulgated new rules for determining ownership and control. The
new rules implements the permit-block provision of the Surface Mining Control
and Reclamation Act for coal mine permit applicants who own or control
operations with outstanding violations of the Act or other federal or state laws
or regulations pertaining to air or water environmental protection. The rules
also provide new definitions of ownership and control and clarifies the scope
and applicability of those definitions. In states where the Office of Surface
Mining maintains primary jurisdiction over the regulation of surface coal mining
and reclamation operations, the new rules took effect on January 18, 2001.

         The new rules are not immediately effective in states that have primary
jurisdiction over the regulation of surface coal mining and reclamation
operations, but the Act requires these state regulatory programs to carry out
the provisions and meet the purposes of the Act and be consistent with federal
regulations promulgated under the Act. Therefore, some states may be required to
revise their regulations relating to the permit block provision of the Act to be
consistent with the new federal ownership and control rules. In the preamble to
the new rules, the federal Office of Surface Mining Reclamation and Enforcement
stated that it would undertake a review of state programs to determine if
changes were necessary, and if so, notify the respective state of its
determination.

         On February 15, 2001, the National Mining Association filed an action
to challenge the new rules in the United States District Court for the District
of Columbia. This challenge is in its early stages and the outcome of this
litigation cannot be predicted. However, the Office of Surface Mining
Reclamation and Enforcement indicated that it would proceed with its evaluation
of state regulatory programs for consistency with the new ownership and control
rules.

         CLEAN AIR ACT. The Clean Air Act, including the Clean Air Act
Amendments, and corresponding state laws that regulate the emissions of
materials into the air, affect coal mining operations both directly and
indirectly. Coal mining and processing operations may be directly affected by
Clean Air Act permitting requirements and/or emissions control requirements
relating to particulate matter, such as fugitive dust. Coal mining and
processing may also be impacted by future regulation of fine particulate matter
measuring 2.5 micrometers in diameter or smaller. Regulations relating to
fugitive dust and coal emissions may restrict our ability to develop new mines
or require us to modify our existing operations. The Clean Air Act indirectly
affects coal mining operations by extensively regulating the air emissions of
coal-fueled electric power generating plants. Title IV of the Clean Air Act
Amendments places limits on sulfur dioxide emissions from electric power
generating plants. The limits set baseline emission standards for these
facilities. Reductions in these sulfur dioxide emissions will occur in two
phases. Phase I began in 1995. Phase II began in 2000 and applies to all
facilities, including those subject to the 1995 restrictions. The affected
utilities may be able to meet these requirements by, among other things,
switching to lower sulfur fuels, installing pollution control devices such as
scrubbers, reducing electricity generating



                                       12
<PAGE>   16

levels or by purchasing or trading pollution credits. Specific emissions sources
will receive these credits, which utilities and industrial concerns can trade or
sell to allow other units to emit higher levels of sulfur dioxide.

         The Clean Air Act Amendments also require that existing major sources
of nitrogen oxides in moderate or higher ozone non-attainment areas install
reasonably available control technology for nitrogen oxides, which are
precursors of ozone. The Environmental Protection Agency has promulgated a
stricter ozone ambient air quality standard which is expected to increase the
number of areas of the country that will be designated as non-attainment.
Although this standard (known as the "8-hour standard") was adopted in 1997,
through legal challenges and court-ordered remands, a significant delay is
expected in the implementation of the 8-hour standard.

         In September 1998, the EPA issued its final rule on regional nitrogen
oxide emission reductions directed at 22 eastern states and the District of
Columbia. This rule is intended to further reduce nitrogen oxide emissions by
the year 2003. In estimating the impact of this rule on emissions sources, the
EPA assumed reductions of approximately 85% from electric generating units,
although it is up to the individual states to determine how the reductions are
to be imposed on sources within their borders. In addition, in response to
petitions filed under Section 126 of the Clean Air Act Amendments, the EPA has
promulgated regulations to apply additional restrictions on nitrogen oxide
emissions from specified individual sources, including electric generating
facilities, in various states, including West Virginia. Because the EPA's
actions have been challenged, we do not know what the ultimate impact of these
actions will be. The installation of reasonably available control technology,
and any control measures beyond the reasonably available control technology that
the states and the EPA may require, will make it more costly to operate
coal-fired power plants. In addition, depending on the requirements of
individual state attainment plans and the development of revised new source
performance standards, the imposition of these measures by regulatory agencies
could make coal a less attractive fuel alternative in the planning and building
of power plants in the future. If coal's share of the capacity for power
generation were to be reduced, a material adverse effect on our financial
condition and results of operations could result. We cannot predict with
certainty the effect this legislation, regulatory action and pending litigation,
as well as other legislation that may be enacted in the future, could have on
the coal industry in general and on us in particular. We cannot assure you that
implementation of the Clean Air Act Amendments, new or revised ambient air
quality standards or any other current or future regulatory provision, will not
materially adversely affect us.

         COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT.
The federal Comprehensive Environmental Response, Compensation and Liability Act
and similar state laws may affect coal mining operations by imposing clean-up
requirements for threatened or actual releases of hazardous substances that may
endanger public health or welfare or the environment. Under the Comprehensive
Environmental Response, Compensation and Liability Act, joint and several
liability may be imposed on waste generators, site owners and operators and
others regardless of fault or the legality of the original disposal activity.
Waste substances generated by coal mining and processing are generally not
regarded as hazardous substances for purposes of the Comprehensive Environmental
Response, Compensation and Liability Act.

         CLEAN WATER ACT. Both the federal Clean Water Act and corresponding
state statutes affect coal mining operations by imposing restrictions on
discharges, including acid mine drainage, into surface waters, ground water and
wetlands. The Clean Water Act permitting requirements can impact coal mining
operations in two primary ways. First, under Section 404 of the Clean Water Act,
the dredging, filling or impoundment of waters of the United States requires a
permit from the U.S. Army Corps of Engineers. In addition, under Section 402 of
the Clean Water Act, a permit must be obtained for a discharge from any point
source into waters of the United States. State laws have similar permitting
requirements. Regular monitoring, as well as compliance with reporting
requirements and performance standards, are included under the Clean Water Act
and are preconditions for the renewal of required permits. In addition, to the
extent not otherwise regulated by applicable law, West Virginia's Groundwater
Protection Act may affect coal mining operations by imposing restrictions to
protect groundwater quality.

         A program for the remediation of water quality impaired streams may
impact Clean Water Act permitting requirements for our operations. Pursuant to
section 303 of the Clean Water Act, many of the streams into which our existing
operations discharge are listed as water quality impaired. The effect of this
listing is to require the appropriate regulatory agency, either EPA or the West
Virginia Division of Environmental Protection, to develop a Total Maximum Daily
Load (TMDL) for each listed stream. The TMDL will include a plan for reducing or
eliminating the source of contaminants in the stream. Depending on the TMDL and
its effect on our discharge permits, we may be required to incur additional
water treatment costs. Depending on the impact of the TMDL, these additional
costs could have a material adverse impact on our results of operations. The
TMDL for some of the streams into which we discharge have been established,
while the TMDL for other streams are either in the process of being completed or
are scheduled for completion at a future date. To date, none of our permits have
been reissued, amended or revised to take into account any of the TMDLs which
have been established to date. As a result, we are unable to estimate the
additional costs, if any, that we may incur as a result of the TMDL program.



                                       13
<PAGE>   17


         RESOURCE CONSERVATION AND RECOVERY ACT. The federal Resource
Conservation and Recovery Act, and corresponding state statutes, may affect coal
mining operations by imposing requirements for the treatment, storage and
disposal of hazardous wastes. Although many mining wastes are excluded from the
regulatory definition of hazardous waste, and coal mining operations covered by
Surface Mining Control and Reclamation Act permits are exempted from regulation
under the Resource Conservation and Recovery Act by statute, the EPA is studying
the possibility of expanding regulation of mining wastes under the Resource
Conservation and Recovery Act.

         TOXIC SUBSTANCES CONTROL ACT. The Toxic Substances Control Act
regulates, among other things, the use and disposal of polychlorinated
biphenyls, a substance that, in the past, was commonly found in coolants and
hydraulic fluids that the mining industry utilized. The penalties imposed under
the Toxic Substances Control Act for the improper disposal of polychlorinated
biphenyls can be significant.

EMPLOYEES AND LABOR RELATIONS

         In 1999, we changed from operating our deep mines ourselves to
utilizing contract miners to operate these mines for us. As a result, our
employee base has been significantly reduced from 668 employees as of December
31, 1998 to 162 employees as of December 31, 1999, and 164 employees as of
December 31, 2000. As a result of our recent takeover of the Spruce Mine No. 1
and Sentinel Mine, we have added six supervisory employees to our employee base.

         We are not a party to any collective bargaining agreement. We consider
our relations with our employees to be good. If some or all of our currently
non-union operations were to become unionized, we could incur higher labor costs
and an increased risk of work stoppages. We cannot assure you that our workforce
will not unionize in the future.

         The labor force for our contract miners is also currently not
unionized. If some or all of our contract miners' employees were to become
unionized, the contract miners could also incur higher labor costs and have an
increased risk of work stoppages, which could adversely affect our business and
results of operations.

ITEM 2.  PROPERTIES

GENERAL

         Our headquarters are located in leased office space in Morgantown, West
Virginia. The descriptions of properties used for coal production set forth
above in "Item 1 -- Business -- Mining Operations," are hereby incorporated into
this Item 2 by reference.

COAL RESERVES

         As of December 31, 2000, we owned or controlled approximately 518.0
million tons of recoverable coal. Of the 518.0 million tons, approximately 16.8%
consists of low sulfur coal (91.8% of which is compliance coal), 69.1% of medium
sulfur coal and 14.1% consists of high sulfur coal. Approximately 96.6% of these
reserves are classified as deep, and 3.4% are classified as surface mineable.
Moreover, steam coal represents approximately 457.0 million tons, or 88.2%, of
our reserves. Premium quality metallurgical coal, on the other hand, constitutes
approximately 61.0 million tons, or 11.8%, of our reserves. Assigned reserves,
which consist of coal that could reasonably be expected to be processed in
existing plants, represent approximately 46.1% of our reserves. Unassigned
reserves, which consist of coal for which significant additional expenditures
will be required for processing facilities, represent the remaining 53.9% of our
reserves. We have approximately 218.0 million tons of reserves in Taylor County,
West Virginia, from which we are not currently producing coal but which is being
held for future production.

         Our engineers and geologists prepare estimates of our recoverable coal
reserves. These estimates are periodically reviewed and updated to reflect new
data and developments affecting our coal reserves. Accordingly, reserve
estimates will change from time to time in response to mining activities, new
engineering and geological data, acquisition or divestiture of reserves,
modification of mining plans or mining methods, market conditions and other
factors. In 1999, we engaged Marshall Miller & Associates, an independent mining
and geological consultant, to audit our estimates of our coal reserves as of
October 1, 1999. Marshall Miller & Associates were also engaged during 2000 to
audit our reserves in the Upper Kittanning seam at our Sentinel Mine in Barbour
County. The following table summarizes our coal reserves as of December 31,
2000. Estimates of measured, indicated and total recoverable reserves were
prepared by our engineers and geologists, based on the October 1, 1999 reserve
audit by Marshall Miller & Associates, and have been updated by us to take into
account subsequent production and the factors identified above.



                                       14
<PAGE>   18


      ESTIMATES OF MEASURED, INDICATED AND TOTAL RECOVERABLE COAL RESERVES

<TABLE>
<CAPTION>
                                            UNDERGROUND                                   TOTAL
                                              (UG) OR                                  RECOVERABLE
COUNTY, STATE                                SURFACE(S)     MEASURED(1)  INDICATED(2)    RESERVES     SURFACE     UNDERGROUND
-------------                                ----------     -----------  ------------    --------     -------     -----------
                                                                           (TONS IN MILLIONS)

<S>                                         <C>             <C>          <C>           <C>            <C>         <C>
Upshur County, West Virginia                     UG             38.89         24.77        63.66           -         63.66
Barbour County, West Virginia                    UG             38.86         10.86        49.72           -         49.72
Monongalia County, West Virginia                 S               1.32             -         1.32        1.32             -
Garrett County, Maryland                        S/UG            18.78          3.26        22.04        9.55         12.49
Raleigh County, West Virginia                    UG             17.45         12.82        30.27           -         30.27
Grant County, West Virginia                     S/UG            15.98         13.66        29.64        1.12         28.52
Harrison County, West Virginia                   UG             17.66         38.02        55.68           -         55.68
Preston County, West Virginia                    UG              0.64             -         0.64           -          0.64
Allegany County, Maryland                        S               3.97          0.11         4.08        4.08             -
Tazewell County, Virginia                       S/UG            24.56         10.38        34.94        0.90         34.04
Muhlenberg County, Kentucky                     S/UG             7.18          0.83         8.01        0.44          7.57
Taylor County, West Virginia                     UG             73.58        144.40       217.98           -        217.98
                                                                -----        ------       ------       -----        ------

                                   Totals                      258.87        259.11       517.98       17.41        500.57
                                                               ======        ======       ======       =====        ======
</TABLE>

------------

(1)      "Measured" refers to coal tonnages computed from seam measurements as
         observed and recorded in drill holes, mine workings, and/or seam
         outcrop prospect openings. The sites for measurement are so closely
         spaced and the geologic character so well-defined that the thickness,
         areal extent, size, shape and depth of coal are well-established. The
         maximum acceptable distance for projection from seam data points varies
         with the geologic nature of the coal seam being studied, but generally
         a radius of 1/4 mile is recognized as the standard. Losses for
         extraction recovery and wash recovery have been factored into measured
         reserves.

(2)      "Indicated" refers to coal tonnages computed by projection of data from
         available seam measurements for a distance beyond coal classified as
         measured. The assurance, although lower than for measured, is high
         enough to assume continuity between points of measurement. The maximum
         acceptable distance for projection of indicated tonnage is 1/4 to 3/4
         mile from points of observation. Further exploration is necessary to
         place these reserves in a measured category. Losses for extraction
         recovery and wash recovery have been factored into indicated reserves.

         We own approximately 60.8% of our total reserves and lease the
remaining 39.2% from third parties. Our reserve leases with third parties
generally have terms of between 10 to 20 years. We generally have the right to
renew the leases for a stated period or to maintain the lease in force until the
exhaustion of mineable and merchantable coal. These leases provide that we must
pay royalties to the lessor, either as a fixed amount per ton or as a percentage
of the sales price. The fixed amount per ton and the percentage of the sales
price that we pay as royalties under our leases vary from lease to lease and
from region to region. Generally, however, the royalty that takes the form of a
fixed amount per ton ranges from between $0.75 and $2.50 per ton, with an
average of approximately $1.50 per ton. The royalty that is a percentage of the
sales price generally ranges from between 3% and 10% of the sales price, with an
average of approximately 5% of the sales price. Many leases also require us to
pay advance minimum royalties. These royalties are usually paid in periodic
installments over the life of the lease. In most cases, the minimum royalty
payments are credited against future production royalties.

         Consistent with industry practices, we conduct limited investigation of
title to third-party coal properties prior to our leasing of these properties.
The title of the lessors or grantors and the boundaries of our leased properties
are not fully verified until we prepare to mine the reserves. If defects in
title or boundaries of undeveloped reserves arise in the future, our control of
and right to mine these reserves could be materially affected.

         Our reported coal reserves are those that could be economically and
legally extracted or produced at the time of their determination. In determining
whether our reserves meet this standard, we take into consideration numerous
factors including, but not limited to, our ability to obtain a mining permit,
estimated future costs of mining, quantity and quality of the coal and any
potential variations therein, and levels of supply and demand for coal of
similar quality. We are not currently aware of any matters which would
significantly affect our ability to obtain future mining permits with respect to
our reserves.



                                       15
<PAGE>   19



ITEM 3.  LEGAL PROCEEDINGS

         In 1998, two of our subsidiaries, Anker Energy Corporation and King
Knob Coal Co., Inc., sued Consolidation Coal Company, known as Consol, the
Social Security Administration, which is the administrator of the Coal Industry
Retiree Health Benefit Act of 1992, and the Trustees of the United Mine Workers
of America Combined Benefit Fund in the U.S. District for the Western District
of Pennsylvania. Our subsidiaries claimed that (i) Consol is responsible for
paying approximately one-third of the subsidiaries' 1992 Coal Act premiums that
relate to employees affected by Consol's breach of several contract mining
agreements in the early 1980's; (ii) the Social Security Administration should
be prohibited from continuing to invoice Anker Energy and King Knob for these
payments, which Consol should have made; and (iii) the 1992 Coal Act is
unconstitutional.

         The trustees filed a counterclaim against Anker Energy and King Knob
for the amount of premiums they have failed to pay as a result of their claim
against Consol. The trial court granted the trustees' motion for summary
judgment on this counterclaim, as well as the motions to dismiss that Consol and
the Social Security Administration filed. Anker Energy and King Knob appealed to
the U.S. Court of Appeals for the Third Circuit. The appeals court reversed the
trial court's ruling with respect to Consol but affirmed all of the trial
court's other rulings. As a result, Anker Energy and King Knob could pursue
their claim for reimbursement against Consol, but they were required to pay the
disputed portion of their 1992 Coal Act premiums while the claim was pending.
The disputed portion of premiums, including interest and penalties, was
approximately $1.6 million. On August 12, 1999, Anker Energy and King Knob filed
for a writ of certiorari to the U.S. Supreme Court. The court of appeals'
judgment was stayed pending the Supreme Court's disposition of the writ. On
November 16, 1999, the Supreme Court denied the writ of certiorari, and Anker
Energy and King Knob paid the disputed premiums, which amounted to approximately
$1.6 million including interest and penalties, in January 2000. We fully accrued
the entire judgment in prior years. Anker Energy and King Knob funded the
judgment from borrowings under our revolving credit facility.

         In 1999, the Trustees of the United Mine Workers of America 1992
Benefit Plan, referred to as the 1992 Benefit Plan, sued Anker Energy and King
Knob to collect unpaid premiums under the 1992 Benefit Plan. The Trustees
contend that Anker Energy and King Knob are responsible for premiums under the
1992 Benefit Plan for 21 beneficiaries. The Trustees are seeking approximately
$400,000 in total damages in this case. In January 2001, we reached a settlement
with the Trustees of the 1992 Benefit Plan for past premiums and interest
related to these unpaid amounts. The settlement required a payment of $280,000
in January, 2001 and four quarterly installments of approximately $73,000 each,
including interest, beginning in April 2001. We have adjusted our liability at
December 31, 2000 to reflect the full settlement.

         Cave Run, Inc. ("Cave Run") and Pardee & Curtin Lumber Company ("Pardee
& Curtin") co-owned a tract of coal property in Webster County, West Virginia,
which they jointly leased to our subsidiary, Juliana Mining Company, Inc.
("Juliana"). On July 16, 1999, Cave Run initiated an arbitration proceeding
against Juliana under the terms of the lease. Generally, Cave Run claims that
Juliana failed to mine and remove approximately two million tons of mineable and
merchantable coal from the leased property. Cave Run also contends that Juliana
miscalculated certain royalty payments, failed to obtain the highest realization
for coal mined from the leased property, and caused Cave Run to cut timber from
the leased property that should not have been cut. Cave Run has yet to reveal
its alleged damages in the arbitration proceeding. However, before initiating
arbitration, Cave Run made a $1.4 million settlement demand, which was rejected
by Juliana. Pardee & Curtin, the co-owner of the leased property, has not
pursued similar claims against Juliana and it has released Juliana from the
claims made by Cave Run in the arbitration proceeding. Juliana believes that
Cave Run's claims against it have no merit and intends to vigorously defend
these claims.

         We and our subsidiaries are also involved in various other legal
proceedings incidental to our normal business activities. Our management does
not believe that the outcome of any of these proceedings will have a material
adverse effect on our financial condition, results of operations or liquidity.

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

         No matters were submitted to a vote of our stockholders during the
fourth quarter of 2000.



                                       16
<PAGE>   20

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         There is no established public trading market for our common stock. As
of March 31, 2001, there were 19 holders of record of our common stock.

         On April 12, 2001, we issued 34,207 shares of our Class E convertible
preferred stock in exchange for $34.2 million in principal amount of our
outstanding 14.25% notes. The outstanding Class E convertible preferred stock is
convertible into 99.99% of our fully diluted common stock. Dividends accrue on
the Class E preferred stock at a rate of 14.25% per annum and are payable
quarterly in arrears in cash or, at our option, Class E shares at the
liquidation value of such shares. The Class E convertible preferred stock was
issued in a transaction exempt from registration under the Securities Act
pursuant to Section 3(a)(9) thereof.

         We have not declared or paid dividends on our common stock. Our ability
to pay dividends is restricted by the agreements governing our long-term
indebtedness.

ITEM 6.  SELECTED FINANCIAL DATA

         The following table is a summary of our historical consolidated
financial data for the five years ended December 31, 2000. The unaudited
adjusted combined statements of operations data and other data for the year
ended December 31, 1996 combine the audited results of operations of our
predecessor, Anker Group, Inc., for the period January 1, 1996 to July 31, 1996,
and of us for the period August 1, 1996 to December 31, 1996. You should read
the following information together with "Item 7 -- Management's Discussion and
Analysis of Financial Condition and Results of Operation" and "Item 8 --
Consolidated Financial Statements and Supplementary Data."

<TABLE>
<CAPTION>
                                             Anker Coal Group, Inc.                   Adjusted       Anker Coal    Anker Group, Inc.
                                  ---------------------------------------------       Combined       Group, Inc.   (Our Predecessor)
                                                   Year Ended                          For the     August 1, 1996   January 1, 1996
                                                  December 31                         Year Ended         To                To
                                  ---------------------------------------------      December 31,   December 31,        July 31,
                                    2000         1999          1998        1997         1996            1996              1996
                                    ----         ----          ----        ----         ----            ----              ----
                                                                                     (unaudited)
STATEMENT OF OPERATIONS DATA:                                     (Dollars in thousands)

<S>                               <C>          <C>          <C>          <C>         <C>           <C>             <C>
Coal sales and related revenue    $225,964     $229,913     $ 290,356    $321,876     $289,650        $122,974         $166,676
Operating expenses:
Cost of operations and selling
  expenses                         201,109      209,681       276,469     295,387      259,579         110,215          149,364
Depreciation, depletion and
  amortization                      18,090       18,166        18,150      17,470       14,319           6,437            7,882
General and administrative           8,390        6,999         9,076       9,462        7,534           3,738            3,796
Loss on impairment of investment
  and restructuring charges           (556)       6,226        90,717       8,267           --              --               --
Financial restructuring fees           542        3,277            --          --           --              --               --
Unusual charges                        158           --            --          --           --              --               --
Stock compensation and related
  expenses                              --           --            --          --        2,969              --            2,969
                                  --------     --------     ---------    --------     --------        --------         --------
   Operating (loss) income          (1,769)     (14,436)     (104,056)     (8,710)       5,249           2,584            2,665
Interest expense, net              (16,884)     (15,070)      (13,066)    (10,042)      (4,886)         (2,090)          (2,796)
Other income, net                    5,063        4,460         3,875       3,186        1,985             645            1,340

Life insurance proceeds                 --           --            --      15,000           --              --               --
                                  --------     --------     ---------    --------     --------        --------         --------
   (Loss) income before income
   taxes and extraordinary item    (13,590)     (25,046)     (113,247)       (566)       2,348           1,139            1,209

Income tax provision (benefit)         625       (8,916)       (7,643)     (1,242)         351             485             (134)
                                  --------     --------     ---------    --------     --------        --------         --------
   (Loss) income before
   extraordinary item              (14,215)     (16,130)     (105,604)        676        1,997             654            1,343

Extraordinary item (1)                  --           --           965       3,849           --              --               --
                                  --------     --------     ---------    --------     --------        --------         --------
   Net (loss) income               (14,215)     (16,130)     (106,569)     (3,173)       1,997             654            1,343
Preferred stock dividends and
  accretion (2)                     (2,077)      (2,008)       (1,937)     (1,876)        (891)           (775)            (116)
Common stock available for
  repurchase accretion(2)               --         (421)           --          --           --              --               --
                                  --------     --------     ---------    --------     --------        --------         --------
   Net (loss) income available
   to common stockholders         $(16,292)    $(18,559)    $(108,506)   $ (5,049)    $  1,106        $   (121)        $  1,227
                                  ========     ========     =========    ========     ========        ========         ========
</TABLE>



                                       17
<PAGE>   21


<TABLE>
<CAPTION>
                                             Anker Coal Group, Inc.                   Adjusted       Anker Coal    Anker Group, Inc.
                                  ---------------------------------------------       Combined       Group, Inc.   (Our Predecessor)
                                                   Year Ended                          For the     August 1, 1996   January 1, 1996
                                                  December 31,                        Year Ended         To                To
                                  ---------------------------------------------      December 31,   December 31,        July 31,
                                    2000         1999          1998        1997         1996            1996              1996
                                    ----         ----          ----        ----         ----            ----              ----
                                                                                     (unaudited)
                                                                        (Dollars in thousands)
<S>                              <C>          <C>            <C>         <C>         <C>            <C>            <C>
OTHER DATA:
Adjusted EBITDA(3)               $ 21,528     $ 19,086(4)    $  8,686    $ 20,213     $ 24,522        $  9,666          $ 14,856

CASH FLOW DATA:
Net cash provided by (used in)
  operating activities              2,883        4,790         (5,465)     (5,047)      18,458            (564)           19,022
Net cash (used in) provided by
 investing activities              (7,025)      (3,110)        (8,134)    (47,025)     (86,732)        (84,968)           (1,764)
Net cash provided by (used in)
  financing activities              4,140       (1,688)        13,614      51,516       56,293          86,088           (29,795)

BALANCE SHEET DATA
  (AT PERIOD END):

Working capital (deficit)             917        1,375         (4,262)     21,499                        7,410
Total assets                      167,192      178,953        201,720     304,650                      259,683
Total long-term debt (5)          172,925      163,798        142,711     133,599                       88,029
Mandatorily redeemable
  preferred stock                  28,673       26,596         24,588      22,651                       20,775
Common stock available for
  repurchase (5)                       --           --         10,000          --                           --

Total stockholder's (deficit)
  equity                          (78,141)     (61,849)       (47,876)     75,730                       80,779
</TABLE>


(1)  Represents the write-off of unamortized debt issuance costs related to our
     credit facility in 1997 and our amended and restated credit facility in
     1998.

(2)  Represents accrued and unpaid dividends and accretion on Class A
     mandatorily redeemable preferred stock and accretion on common stock
     available for repurchase.

(3)  Adjusted EBITDA represents our earnings before interest, taxes,
     depreciation, depletion, amortization, non-cash stock compensation and
     non-recurring related expenses, loss on impairment of investment and
     restructuring charges, life insurance proceeds, financial restructuring
     fees, unusual charges and extraordinary items. Adjusted EBITDA should not
     be considered as an alternative to operating earnings (loss) or net income
     (loss), as determined in accordance with generally accepted accounting
     principles, as a measure of our operating performance. Nor should it be
     considered as an alternative to net cash provided by operating, investing
     and financial activities, as determined in accordance with generally
     accepted accounting principles, as a measure of our ability to meet cash
     needs. We have included Adjusted EBITDA because we use Adjusted EBITDA to
     assess our financial performance and some of the covenants in our loan
     agreement and indenture are tied to similar measures. Since all companies
     and analysts do not necessarily calculate Adjusted EBITDA in the same
     fashion, Adjusted EBITDA as presented in this report may not be comparable
     to similarly titled measures that other companies report.

(4)  Adjusted for $1.4 million of expense recorded in connection with the 1992
     Coal Act.

(5)  Includes current portion. See our consolidated financial statements
     included in Item 8.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION

LIQUIDITY AND CAPITAL RESOURCES

         THE 1999 RESTRUCTURING

         In response to poor operating and financial performance in 1998 and
1999, on October 28, 1999, we consummated a private restructuring of our then
outstanding 9 3/4% senior notes due 2007, a private placement to raise
additional capital and a private stockholder exchange. In the private
restructuring transactions, holders of approximately 86.8% of the 9 3/4% notes
exchanged $108.5 million in principal amount of the 9 3/4% notes they held for
$86.8 million in principal amount of our 14.25% Series A Second Priority Senior
Secured Notes due 2007 (paid in kind through April 1, 2000), which represented
$800 in aggregate principal amount of our 14.25% Series A notes for each $1,000
aggregate principal amount of 9 3/4% notes exchanged. Exchanging noteholders
waived their



                                       18
<PAGE>   22

right to receive the October 1, 1999 interest payment on the 9 3/4% notes, and
they also received warrants to purchase an aggregate of 20% of our fully diluted
common stock at an initial exercise price of $0.01 per share. In connection with
the private exchange, the exchanging holders also consented to amendments to the
indenture governing the 9 3/4% notes, which, among other things, modified or
eliminated various covenants of that indenture.

         In the private placement, we raised $11.2 million in cash through the
sale to Rothschild Recovery Fund, L.P., also one of the exchanging noteholders,
of $13.2 million principal amount of our 14.25% Series A notes and warrants to
purchase 10% of our fully diluted common stock at an initial exercise price of
$0.01 per share. Also, in a private stockholder exchange, we issued $6.0 million
in aggregate principal amount of our 14.25% Series A notes to JJF Group Limited
Liability Company, a limited liability company controlled by the estate of John
J. Faltis, our former Chairman and Chief Executive Officer who was killed in a
helicopter accident in October 1997. The Series A notes were issued to JJF Group
in exchange for cancellation of the shares of our common stock that JJF Group
owned and JJF Group's relinquishment of its right to require us to buy that
stock over time for approximately $10.6 million, including accrued interest. As
a part of the restructuring transactions, Rothschild agreed to purchase
additional Series A notes to fund up to $6.3 million of the October 1, 2000
interest payment on the 14.25% Series A notes.

         In February 2000, we commenced a registered exchange of our 14.25%
Series B notes for the Series A notes issued in the transactions described
above. The 14.25% Series B notes were substantially identical to the previously
issued Series A notes, but were free of the transfer restrictions that applied
to the Series A notes. On March 16, 2000, the exchange offer was completed and
100% of the Series A notes were tendered for a like amount of our Series B
notes.

         In February 2000, we commenced a public exchange offer of 14.25% Series
B notes for our 9 3/4% notes that were still outstanding after completion of the
transactions described above. In that transaction we offered to exchange up to
approximately $12.3 million in principal amount of our 14.25% Series B notes for
approximately $16.5 million in principal amount of our outstanding 9 3/4% notes.
On March 16, 2000, the exchange offer was completed and 100% of the 9 3/4% notes
were exchanged for our Series B notes. As a result of these exchanges, we no
longer have any 9 3/4% notes or 14.25% Series A notes outstanding.

         In accordance with the terms and conditions of our Series B notes, the
interest payment due on April 1, 2000 was paid in kind by the issuance of
approximately $8.4 million principal amount of additional Series B notes. After
the issuance of those notes, the outstanding principal balance of our Series B
notes was approximately $126.7 million.

         As noted above, with respect to the October 1, 2000 interest payment,
we had the option to sell additional notes to Rothschild to fund up to $6.3
million of that interest payment. In lieu of exercising that option, we entered
into an amendment to our loan agreement with Foothill to provide us with a
supplemental term loan in the amount of $6.3 million. The supplemental term loan
did not increase the maximum borrowing amount of $55.0 million under our loan
agreement. The supplemental term loan was subsequently funded, and the October
1, 2000 interest payment was made on its due date.

         PERFORMANCE IN 2000

         As reflected in this report and our Form 10-K for the year ended
December 31, 1999, we have improved our operating and financial performance as
compared to prior periods. However, our performance in 2000 has been adversely
impacted by lower coal production from, and substantial unplanned capital
expenditures for, our underground mining operation in Barbour County, West
Virginia. In addition, our performance in 2000 has been adversely affected by
lower than expected clean coal recovery from our underground mines in Upshur
County, West Virginia. The clean coal recovery has been adversely impacted by a
variety of adverse geologic and mining conditions, high employee attrition rates
for our contract miners and a shortage of qualified personnel in the labor
market to fill skilled positions. Although the profitability of our other mining
operations as a group exceeded expectations, the better than expected
performance at those mines was not enough to offset the poor performance of our
deep mines in Barbour and Upshur Counties.

         Our operating and financial performance for 2000 suffered a further
setback on December 30, 2000 as a result of a substantial, unexpected roof fall
at our Barbour County underground mining operation. After a complete evaluation
of the fall and the then existing roof conditions, we decided to immediately
begin work to construct an underground slope to access the Upper Kittanning seam
from the existing mine workings in the Middle Kittanning seam. We engaged our
existing contract miner to perform this construction work. In order to begin
producing coal from the Upper Kittanning seam as soon as possible, the contract
miner temporarily ceased coal production in the Middle Kittanning seam and
devoted its entire workforce to this project. The contract miner



                                       19
<PAGE>   23
successfully reached the Upper Kittanning seam and completed the underground
slope. Up to March 30, 2001, the contract miner was in the process of performing
the necessary development work to prepare the seam for coal production. As
discussed above in "Item 1 -- Business -- Mining Operations -- Coal Production
-- Barbour County", we took over the operation of this mine on April 2, 2001,
after our contract miner notified us that it was ceasing operations on March 30,
2001. We took the steps necessary to continue the operations in this mine and
minimize the disruption during this transition. As a result, we were able to
resume the development work and production at this mine on April 2, 2001, after
being idled for 2 days. We estimate that the construction work to access the
Upper Kittanning seam and the development work to prepare that seam for mining
will cost approximately $1.8 million. Once coal production in the Upper
Kittanning seam reaches acceptable levels, we will evaluate resuming production
in our Middle Kittanning reserve.

         As noted in "Item 1, Business -- General" and "Mining Operations --
Coal Production", we have recently taken over the operation of two of our deep
mines as a result of the contract miner notifying us that it was ceasing
operation at the mines. As a result of this situation, we have evaluated the
collectibility of notes receivables and advances that we had made to our
contract miner while it was advancing through the adverse geologic conditions it
had encountered in these mines. Our evaluation has resulted in the provision of
a $1.7 million reserve against such notes and advances since the ultimate
collectibility of these amounts is uncertain.

         THE EXCHANGE OFFER

         In January, 2001, we were contacted by WL Ross & Co. LLC, an investment
manager of WLR Recovery Fund L.P. (formerly known as Rothschild Recovery Fund,
L.P.) to discuss a possible exchange of a portion our 14.25% Series B notes. WLR
Recovery Fund L.P. owns approximately 40% of our notes. As a result of those
discussions, and the occurrence of the events described above and their expected
effect on our performance in 2001 and beyond, we initiated an offer, on February
23, 2001, to exchange up to $38.0 million aggregate principal amount of our
notes (30% of the $126.7 million principal amount of notes then outstanding) for
new preferred stock. Under the terms of the exchange offer, each share of
preferred stock has a liquidation preference of $1,000. The Class E preferred
stock is convertible into 99.99% of our fully diluted common stock. The holders
of the Class E preferred stock will have the right to vote, on an as-converted
basis, on any matters upon which the common stockholders are entitled to vote.
Dividends will accrue on the Class E preferred stock at a rate of 14.25% per
annum. Dividends are payable quarterly in arrears in cash or, at our option, in
shares of Class E preferred stock valued at the liquidation value of such
shares. The need to make interest payments under our notes has significantly
limited our liquidity and operating flexibility, and has substantially reduced
our ability to grow or replenish our production base. The purpose of the
exchange offer was to strengthen our balance sheet and improve our cash flow
with potential savings of up to $5.4 million of interest expense per year.

         On April 12, 2001, we completed the exchange offer. Holders of our
outstanding 14.25% notes tendered $34.2 million in aggregate principal amount of
our notes in exchange for 34,207 shares of our Class E convertible preferred
stock. In accordance with the terms of the exchange offer, we

         o        entered into an amendment to our Foothill Loan Agreement under
                  which Foothill and the other senior lenders (i) consented to
                  the transactions contemplated by the exchange offer and (ii)
                  reduced the excess availability requirement for making
                  advances to pay interest on the notes from $5.0 million to
                  $2.5 million for the period from March 13, 2001 through
                  November 1, 2001. Under the amendment, Foothill and the other
                  senior lenders also imposed an additional temporary EBITDA
                  covenant. Under this covenant, our EBITDA, as defined in the
                  loan agreement, at the end of June, July, August, September
                  and October 2001 for the immediately preceding three months
                  must equal or exceed the amounts set forth below:

                                                           Preceding
                                                          Three Month
                      Month Ending                          EBITDA
                      ------------                          ------

                      June 30, 2001                       $3,435,000
                      July 31, 2001                       $4,005,000
                      August 31, 2001                     $4,381,000
                      September 30, 2001                  $4,721,000
                      October 31, 2001                    $4,882,000

         o        paid, on April 12, 2001, the interest that had accrued since
                  October 1, 2000 on all of the notes that were tendered in the
                  exchange offer;

         o        paid, on April 12, 2001, the interest payment previously due
                  on April 2, 2001 with respect to the unexchanged notes;



                                       20
<PAGE>   24

         o        amended and restated our certificate of incorporation to
                  increase our authorized capital stock, established the Class E
                  convertible preferred stock and effected a 1 for 1,000 reverse
                  stock split of our outstanding common stock;

         o        amended and restated the certificates of designation for our
                  Class A preferred stock, Class B preferred stock and Class D
                  preferred stock; and

         o        cancelled our Class C preferred stock.

         THE IMPACT OF THE EXCHANGE OFFER AND FUTURE DEBT SERVICE REQUIREMENTS

         As a result of the consummation of the exchange offer, $34.2 million of
our 14.25% notes were exchanged for 34,207 shares of our Class E convertible
preferred stock. Dividends are payable on this preferred stock at a rate of
14.25% per annum, quarterly in arrears, in cash or, at our option, in shares of
Class E preferred stock at the liquidation value of such shares. In addition, as
a result of this exchange, our annual interest expense will decline by
approximately $3.5 million in 2001 and approximately $4.9 million per year
beginning in 2002.

         Even after giving effect to the exchange offer, we will continue to
have significant future debt service requirements, including an October 1, 2001
interest payment under our remaining 14.25% notes in the amount of $6.6 million.
Our debt service in 2001 under our 14.25% notes and the Foothill loan agreement
will be approximately $20.0 million. In 2002, we will be required to make debt
service payments related to our 14.25% notes and the Foothill loan agreement in
excess of $18.4 million (excluding a $6.6 million balloon payment due at the
maturity of the original term loan on December 1, 2002, as discussed in " --
Long Term Debt" below). In order to meet these debt service obligations, we plan
to continue to implement our business plan. See "-- Our Business Plan to Improve
Operating and Financial Performance" for a discussion of our business plan. Our
only capital resources to make these debt service payments will be the Foothill
loan agreement, cash from operations and asset sales, if any. Our ability to
make our debt service payments is subject to risks and uncertainties, including
the risks and uncertainties identified at the outset of this report.

         CASH FLOWS DURING 2000

         Our cash and cash equivalents remained relatively constant from
December 31, 1999 to December 31, 2000. During 2000, we generated cash from our
operations of approximately $2.9 million. These funds were provided primarily
from collections of accounts receivable of $3.0 million and $5.6 million of net
income before depreciation, depletion and amortization and the non-cash
provision for doubtful accounts. These amounts were partially offset by payments
of royalties of $1.5 million, payments of accounts payable and other of $1.3
million and amortization of unrealized gain on debt restructuring of $2.9
million.

         We used $7.0 million in our investing activities primarily for the
purchase of $8.5 million of property, plant and equipment, including $5.1
million of mine development costs. The $8.5 million of purchased property, plant
and equipment excludes $3.2 million of such assets acquired through capital
lease and other financing arrangements. We also issued approximately $609,000 of
notes receivable, net of collections of approximately $186,000 on notes
receivable. Cash used in our investing activities was partially offset by $2.1
million generated from the sale of property, plant and equipment that was no
longer useful in our operations.

         We generated $4.1 million from our financing activities. Included in
this amount is the $6.3 million supplemental term loan provided by Foothill
Capital Corporation and which was used to fund, in part, the October, 2000
interest payment on our 14.25% notes of approximately $9.0 million. We received
other proceeds under our revolving credit facility of approximately $900,000.
These funds were used for investing and operating activities in addition to
making required principal and interest payments of $2.1 million on our original
term loan with Foothill and paying $1.0 million of debt issuance costs
associated with our March 2000 financial restructuring.





                                       21
<PAGE>   25

         LONG-TERM DEBT

         We have two long-term debt facilities. The first is a loan and security
agreement dated November 21, 1998 with Foothill Capital Corporation, as agent,
and other lenders. Our loan agreement with Foothill provides us with a credit
facility of up to $55.0 million. This facility consists of a commitment for a
$40.0 million working capital revolver and a term loan with an original
principal amount of $15.0 million. Commitments under the credit facility will
expire in 2005. The Foothill credit facility is secured by substantially all of
our present and future assets.

         In September 2000, we entered into an amendment to the Foothill credit
facility under which the lenders agreed to provide us with a $6.3 million
supplemental term loan to be used to fund, in part, the October 1, 2000 interest
payment due on our 14.25% notes. We elected to use this supplemental facility to
fund the October 1, 2000 interest payment rather than exercising our option to
issue additional 14.25% notes to WLR Recovery Fund L.P. (successor to Rothschild
Recovery Fund, L.P.). This supplemental term loan was provided to us within the
$40.0 million limit of the working capital revolver, and did not increase the
maximum borrowing amount of $55.0 million under the Foothill loan agreement.
Accordingly, the maximum amount of the working capital revolver has been reduced
by $6.3 million from $40.0 million to $33.7 million. The maximum amount of the
revolver will be restored as principal payments under the supplemental term loan
are made. The supplemental term loan was advanced to us on October 2, 2000, the
date on which the October 1, 2000 interest payment was due under our 14.25%
notes.

         Borrowing availability under the working capital revolver is limited to
85% of eligible accounts receivable and 65% of eligible inventory. Borrowings
under the revolver bear interest, at our option, at either 1% above the prime
interest rate or at 3 3/4% above the adjusted Eurodollar rate. The original term
loan bears interest at 2 1/2% above the prime interest rate. This term loan is
payable in monthly installments of principal of approximately $179,000, plus
interest, through November 2002 and in a final balloon payment due on December
1, 2002 in an amount that will equal the then remaining principal balance of the
term loan (which we estimate will be approximately $6.6 million). The
supplemental term loan bears interest at 2 1/2% above the prime interest rate
and is payable in monthly installments of principal and interest starting on
January 1, 2001 and continuing through December 1, 2003. The scheduled monthly
principal payment under the supplemental term loan is $140,000 from January 1,
2001 through June 1, 2002 and $210,000 from July 1, 2002 through December 1,
2003.

         The following table sets forth the amounts outstanding and borrowing
availability under our loan agreement with Foothill as of the dates shown below:

<TABLE>
<CAPTION>
                                              SUPPLEMENTAL       REVOLVING            REVOLVING
                             ORIGINAL             TERM            CREDIT               CREDIT
              DATE           TERM LOAN            LOAN          BORROWINGS          AVAILABILITY
              ----           ---------            ----          ----------          ------------
                                              (DOLLARS IN MILLIONS)
<S>                          <C>              <C>               <C>                 <C>
            12/31/99           $12.9              $   -           $   -                 $17.2
            03/31/00            12.3                  -               -                  14.1
            06/30/00            11.8                  -             1.0                  15.3
            09/30/00            11.3                  -               -                  16.7
            12/31/00            10.7                6.3               -                  13.8
            03/30/01            10.2                5.9             2.3                  13.1
            04/11/01            10.0                5.7            12.1                   3.4 (estimate)
</TABLE>

         The decrease in the outstanding principal balance of the original term
loan and supplemental term loan resulted from making the scheduled monthly
installment payments. Revolving credit availability declined from December 31,
1999 through March 30, 2001 primarily due to lower coal production and coal
shipments which resulted in lower balances of accounts receivable and inventory
which form the basis for the revolving credit availability. The increase in
revolving credit borrowings and decline in revolving credit availability from
March 30, 2001 to April 11, 2001 were primarily due to the borrowings we made to
fund the interest payment on our 14.25% notes. Future changes in coal production
and the resulting changes in coal inventory and accounts receivable will impact
future revolving credit availability. The reduced borrowing base materially
reduces our liquidity.

         The loan agreement with Foothill contains covenants that, among other
matters, restrict or limit our ability to pay interest and dividends, incur
indebtedness, acquire or sell assets and make capital expenditures. In
particular, the loan agreement requires that we


                                       22
<PAGE>   26

maintain specified minimum levels of earnings before interest, taxes,
depreciation and amortization, referred to as EBITDA, as defined in the loan
agreement, during the term of the loan. Beginning with the fiscal quarter ending
March 31, 2000, and for each subsequent fiscal quarter, we must have EBITDA of
at least $12.0 million at the end of each fiscal quarter for the immediately
preceding four fiscal quarters. For the four fiscal quarters ended December 31,
2000, our EBITDA, as defined in the loan agreement, was $24.1 million. We are
also required to meet an additional temporary EBITDA requirement that was added
to the loan agreement pursuant to the amendment entered into in connection with
the exchange offer. See "--The Exchange Offer" above for a description of this
temporary EBITDA covenant.

         In addition to the EBITDA requirements, the loan agreement with
Foothill prohibits us from making capital expenditures in any fiscal year in
excess of $12.0 million. The loan agreement also provides that, in order to
advance funds to the guarantors and us, the borrowers under the loan agreement
must have borrowing availability of at least $5.0 million after giving effect to
the advances and for the 30 days immediately preceding the advances. The
borrowing availability must be at least $10.0 million if the advanced funds are
to be used to prepay or purchase our 14.25% notes. The amendment entered into in
connection with the exchange offer temporarily reduced the $5.0 million
borrowing availability requirement to $2.5 million. The temporary reduction in
the borrowing availability requirement is in effect for the period from March
13, 2001 through November 1, 2001. As of April 11, 2001, borrowing availability
under the loan agreement, after the April 2001 semi-annual interest payment on
our notes was made, was approximately $3.4 million. Thus, the maximum amount
which the borrowers could have advanced to us on that date, based on the
temporary reduction relating to the excess availability requirement, was
approximately $900,000.

         With respect to the original term loan, in addition to regularly
scheduled installment principal and interest payments, the loan agreement
requires that we apply the first $5.0 million of proceeds from designated asset
sales to the repayment of the original term loan. As of March 31, 2001, no
amounts had been applied to this requirement. Proceeds used to repay the
original term loan cannot be reborrowed.

         Our second long-term debt facility is the indenture governing our
14.25% notes. As of December 31, 2000, the principal amount outstanding under
our 14.25% notes was approximately $126.7 million, which was unchanged from the
principal amount outstanding at December 31, 1999. After giving effect to the
exchange offer, as of April 12, 2001, the principal balance outstanding under
our 14.25% notes was approximately $92.5 million. The indenture contains
covenants that restrict or limit our ability to, among other things, sell
assets, pay dividends, redeem stock and incur additional indebtedness. Under the
indenture, we may not sell assets unless we receive fair market value and at
least 75% of the consideration is in cash or assets to be used in our coal
mining business. The indenture also limits our ability to use asset sale
proceeds. Specifically, the indenture permits us to use the first $1.0 million
of asset sale proceeds for general corporate purposes. We may use proceeds in
excess of $1.0 million for permitted purposes, including retiring senior secured
debt and making capital expenditures. To the extent we do not use asset sale
proceeds in excess of $1.0 million for permitted purposes, we must use 60% of
those proceeds to redeem notes at a purchase price equal to the principal amount
thereof plus accrued and unpaid interest and liquidated damages, if any. We may
use the remaining 40% for general corporate purposes. The indenture also
prohibits us from making restricted payments, such as cash dividends and stock
redemptions, unless several requirements are met. Except for permitted debt,
which includes senior debt up to $55.0 million, debt existing as of October 1,
1999, indebtedness represented by capital lease obligations, mortgage financings
or purchase money obligations, and other specified debt, the indenture prohibits
us from incurring additional indebtedness unless we meet a fixed charge ratio
test.

         We are currently in compliance with the covenants and restrictions in
the loan agreement with Foothill, as discussed above, as well as the indenture
governing the 14.25% notes. In the event we were to fail to be in compliance
with any one or more of the covenants under our loan agreement with Foothill,
Foothill would have various rights and remedies which it could exercise,
including the right to (1) prohibit us from borrowing under the revolving credit
facility, (2) accelerate all outstanding borrowings and (3) foreclose on the
collateral securing the loan. Similarly, if we were not in compliance with the
covenants in the indenture, if we defaulted on a payment of our other senior
secured indebtedness or if our other senior secured indebtedness were
accelerated as a result of a default under that indebtedness, including the loan
agreement with Foothill, the trustee and the noteholders would have various
rights and remedies, including the right to call our outstanding notes and,
except as limited by the intercreditor agreement with Foothill, to foreclose on
the collateral that secures the 14.25% notes.

         During the fourth quarter of 2000, we entered into various financing
arrangements with respect to certain mining equipment used in our operations.
These financing arrangements included purchase money and capital lease
obligations. This equipment was bought out under then existing operating lease
arrangements. A total of approximately $3.2 million of equipment was financed
under these arrangements during the fourth quarter of 2000. Interest rates on
these transactions range from approximately 6.9% to 10.8%



                                       23
<PAGE>   27
 over terms ranging from 36 to 48 months. Approximately $1.6 million of capital
lease obligations were outstanding as of December 31, 2000, of which $1.3
million is included in our long-term debt. Approximately $1.5 million of
purchase money obligations were outstanding as of December 31, 2000, of which
$1.1 million was included in long-term debt at December 31, 2000.

         CAPITAL EXPENDITURES AND OTHER COMMITMENTS AND CONTINGENCIES

         We budgeted approximately $6.7 million for capital expenditures for
2000. For the year ended December 31, 2000, we made capital expenditures of
approximately $11.7 million. Of the $5.0 million by which we exceeded our
budget, $3.9 million was related to the unexpected mine development costs at our
Barbour County operations for accessing and developing the western portion of
our Middle Kittanning reserves.

         Capital expenditures in 2000 were lower than in prior years resulting
from the use of contract miners at our deep mines, since the contract miners are
generally responsible for routine mine maintenance and development capital
expenditures. Our future capital expenditures will be incurred for new mine
acquisitions or development, surface mining equipment, surface facilities and
maintenance or improvement of existing processing and loading facilities.
Assuming we are able to find replacement contract miners for our Spruce Mine No.
1 and Sentinel Mine, we expect to make capital expenditures of approximately
$6.0 million in 2001, $4.5 million in 2002, and $2.6 million in 2003, $5.4
million in 2004, and $1.4 million in 2005. However, if we are unable to secure
replacement contract miners for these mines, our future capital expenditures
will likely exceed these amounts. Such expenditures are exclusive of buyouts of
leased equipment of approximately $3.2 million in 2001 and $800,000 in 2002. The
capital expenditures in these years relate primarily to expected mine
development costs. We expect to be able to make such expenditures with cash from
operations and existing credit and financing arrangements.

         In January 2001, we reached a settlement with the Trustees of the
United Mine Workers of America 1992 Benefit Plan regarding premiums and interest
allegedly due for beneficiaries under that Plan for prior years. See "Item 3 --
Legal Proceedings" for a description of this matter. Under the settlement, we
paid $280,000 in January, 2001 and are required to pay four equal quarterly
installments of approximately $73,000 beginning in April 2001. We expect to fund
these installments, as well as required monthly premiums due under the
Rockefeller Act, with cash from operations or borrowings under our revolving
credit facility as they become due.

         We are required to pay advance minimum royalties under our coal leases.
Advance minimum royalties represent payments that we make in advance of mining
as the coal lessee to landowners for the right to mine coal from the landowners'
property. We made royalty payments, including production and advance minimum
royalties of approximately $7.5 million in 2000, $9.4 million in 1999 and $12.3
million during 1998. Advance minimum royalty payments required to be made under
our current leases are: $3.3 million in 2001; $2.4 million in 2002; $2.4 million
in 2003; $2.4 million in 2004 and $2.4 million in 2005.

         We have various office and mining equipment operating lease agreements.
Total rent expense was approximately $4.1 million for the year ended December
31, 2000, $7.8 million for the year ended December 31, 1999, and $12.5 million
for the year ended December 31, 1998. Our rent expense has declined in 1999 and
in 2000 primarily as a result of using contract miners to operate our deep
mines, but also due to expirations of certain operating lease agreements which
were not renewed. Future minimum annual rentals for office space and office and
mining equipment, including amounts accrued for leasehold termination costs, are
projected to be approximately $2.2 million in 2001; $1.7 million in 2002;
$413,000 in 2003; $267,000 in 2004 and zero in 2005.

         OUR BUSINESS PLAN TO IMPROVE OPERATING AND FINANCIAL PERFORMANCE

              IMPROVING OUR BARBOUR AND UPSHUR COUNTY OPERATIONS

         In addition to our efforts to improve our financial position through
the exchange offer and the amendment to the Foothill loan agreement, we plan to
improve our operating and financial performance by completing the development
work and beginning full production from the Upper Kittanning seam at the
Sentinel Mine in Barbour County as soon as possible. In addition to maximizing
production from this mine, we plan to evaluate resuming production in the Middle
Kittanning seam as soon as coal production reaches acceptable levels in the
Upper Kittanning seam.

         In addition to our efforts in Barbour County, we will continue to work
aggressively to improve the clean coal production from our deep mines in Upshur
County. At our Spruce Mine No. 2 in Upshur County, the contract miner has been
producing coal from



                                       24
<PAGE>   28

areas near the mine opening. Due to adverse geologic and mining conditions in
these areas, the clean coal recovery, and hence, total clean coal production,
from this mine have been lower than expected. The remainder of the coal reserve
for this deep mine lies on the other side of a stream which runs across the
surface of this reserve. Based on all available geologic and other information
relating to the coal reserves on the other side of the stream, we believe the
geologic and mining conditions should improve and that the clean coal recovery
and production from this mine should increase as those reserves are developed.
The contract miner began efforts to add a third production unit in the mine to
begin mining under the stream in mid-2000. However, the addition of this third
unit was delayed for approximately four months due to equipment availability
problems and a severe shortage of qualified coal miners. The manpower and
equipment for this new production unit was finally acquired and the work to mine
under the stream began in November 2000. As expected, the contract miner is
experiencing adverse roof conditions in the areas under this stream which are
adversely affecting current recovery and production from this mine. The
contractor has recently reported that while the mining conditions have been
difficult, they are improving as the production unit advances to the other side
of the stream.

         As discussed in "Item 1 -- Business -- Mining Operations -- Coal
Production", we recently took over the operation of the Sentinel Mine in Barbour
County and the Spruce Mine No. 1 in Upshur County from a contract miner. The
contract miner ceased operations at both mines on March 30, 2001. We took
immediate steps to continue the operation of these mines and resumed production
from both mines on April 2, 2001. We will continue to work with our customers,
the work force and critical suppliers to ensure that these mining operations
continue in the ordinary course. As discussed in " -- Results of Operations"
below, in accordance with our business plan to use contract miners for our deep
mines, we plan to evaluate securing new contract miners for these operations.

                  OTHER MINING OPERATIONS

         In 2000, the profitability of our other mining operations exceeded
budgeted expectations as a group. In addition to our efforts to improve our
operating performance at our Barbour and Upshur County underground mines, we
will continue to evaluate ways to improve the future performance at our other
mining operations as well. We plan to review ways to reduce costs, to increase
production and to sell any excess production in new or existing markets to take
advantage of recent price increases in the spot coal markets.

         We currently operate a deep mine in the Beckley seam of coal in Raleigh
County, West Virginia. This mine produces premium quality, low-volatility
metallurgical coal, and is used to produce coke for use in steel production. One
hundred percent of the production from this mine for the year 2001 is committed
under a contract with AK Steel. Depending on mining conditions and the ability
of our contract miner to mine our remaining reserves, the coal reserves for this
mine are expected to be exhausted in the first or second quarter of 2002. We are
currently evaluating ways to extend the life of this mine. We are also working
on plans to enable us to continue using our preparation plant, rail loading and
related facilities after our coal reserves are depleted. These plans could
involve, among other things, purchasing coal from third party producers or
providing processing and loading services. We are currently buying some coal
produced by another producer and reselling it under our contract with AK Steel.
Our ability to extend the life of our mine or use our assets following depletion
of our coal reserves is subject to risks and uncertainties, many of which are
beyond our control.

         We are also planning to open a new deep mine in Upshur County in a coal
reserve that we currently own and control. This new mine will be located in the
Kittanning seam and will be adjacent to our existing Spruce Mine No. 2. We have
submitted applications for the necessary mining permits for this new mine. If we
are successful in obtaining these permits, we will attempt to commence
production from this mine in the second or third quarter of 2002.

                  MARKETING

         During the course of 2001, coal supply contracts for approximately 2.0
million tons of coal are scheduled to expire. Depending on our production
estimates, coal prices and other factors, we expect to seek to renew the
majority of this business for 2002. Based on the current markets for these
coals, we believe that prices for this business will be at, or above, our
current contract prices.

         In recent months, there have been price increases for coal in spot
markets in the eastern United States. Because most of our production for 2001 is
committed under long-term contracts and because we have encountered production
problems at some of our underground mines, we have had limited opportunities to
take advantage of these spot market price increases. However, we will continue
to evaluate ways to maximize the amount of coal we have available for sale in
the spot market.




                                       25
<PAGE>   29

                  UPSHUR COUNTY POWER PROJECT

         In addition to efforts to improve our existing mining operations, we
have been pursuing a project that would utilize other assets that we currently
own in Upshur County, West Virginia. Specifically, we currently own and control
substantial surface mineable coal deposits in this county. We acquired these
coal deposits in 1995 along with substantial neighboring deep mineable coal
reserves, a coal preparation plant and related facilities, all located in Upshur
County. One of our contract miners is currently operating our Spruce Mine
No. 2 in the deep mineable reserves that we acquired in that transaction. The
surface mineable deposits are not included in the estimate of our recoverable
coal reserves set forth above in "Item 2 -- Properties -- Coal Reserves."

         In the mid-1980s, the prior owner had conducted surface mining
operations on this property. However, these operations produced substantial
amounts of acid mine drainage. Because our predecessor was unable to surface
mine these coal reserves without creating substantial amounts of acid mine
drainage, it was unable to secure new mining permits and the operation was
eventually closed. There have been no surface mining operations on the property
since 1986.

         After several years of research and development, we believe that we
have developed a technique to surface mine these coal deposits and reclaim the
property without creating acid mine drainage. The process will require the
construction and operation of a coal-fired power generating facility on a site
near the deposits. The ash generated in the combustion process will be used in
reclaiming the property and will assist in neutralizing any remaining acid
producing material.

         In December 1999, we filed an application for a permit to surface mine
this property. Because of concerns expressed by regulatory agencies and
environmental stakeholders regarding acid mine drainage, we applied for a one
acre permit to test our mining and reclamation technique. The one acre test
permit was issued in September 2000. We have completed coal removal operations
on the one acre site and are in the process of reclaiming this property. The
fuel mined from this site was burned in a nearby power plant, and ash from that
plant is being used in the reclamation of that site. This plant uses the same
technology that would be used by the power generating facility that is planned
for the site. Thus, our mining and reclamation of the one acre test site are
practically identical to the mining and reclamation techniques that are planned
for the project.

         Once reclamation on the one acre test site are completed, we will
monitor the post-mining water discharge at the site to determine if acid mine
drainage is being produced. If we are successful in mining and reclaiming the
site without creating acid mine drainage, we plan to prosecute our pending
application for a larger surface mining permit. If a permit is issued, we expect
that it will be conditioned on, among other things, the construction and
operation of a power plant on the site.

         In March 2000, we constructed a tower on our property to collect
meteorological data that will be required to support an application for an
emissions permit for the power plant. We must have a minimum of 12 months of
meteorological data for the permit application. We are continuing to collect the
data and have engaged a third party consulting firm to assist in the data
collection and analysis. We anticipate completing the data collection and
analysis in the second quarter of 2001.

         Because this project will require the construction and operation of a
power generating facility, we have been discussing the project and negotiating a
transaction with a number of third parties for the past 12 to 18 months. We have
not entered into any definitive agreements for the project. However, if a
definitive agreement is reached, we anticipate that it will involve, among other
things, a commitment (i) by a third party to design, finance, construct, own and
operate the power generating facility and (ii) by us to enter into a long-term
fuel supply and ash disposal agreement.

         As previously disclosed, this project will require various federal,
state and local permits and approvals, including permits for the surface mining
operation and the power generating facility. In addition, the project will
involve a substantial capital investment to be made by a third party. Because of
these and other significant requirements and conditions for the project, we
cannot assure you that we will be able to complete the project on terms
acceptable to us, if at all.

                  ASSET SALES

         As part of our business plan for the past several years, we have been
attempting to sell various non-operating assets. We are holding these
non-operating properties for sale because they either require substantial
capital to develop or have significant holding costs.



                                       26
<PAGE>   30

         In July 1999, we sold selected coal reserves in Preston and Taylor
Counties, West Virginia for net proceeds of approximately $1.3 million plus
royalties on future production. In connection with this transaction, we also
entered into call agreements under which we have the option to purchase coal
produced by the buyer at agreed upon prices as more fully described under "Item
1 -- Business -- Mining Operations -- Coal Production -- Preston County, West
Virginia". We have continued to market our other properties that are being held
for sale. However, we believe that our efforts to market these properties over
the past several years have been hampered by our financial condition, depressed
coal markets, regulatory uncertainties affecting the coal industry, and other
factors beyond our control. In recent months, there have been increases in the
price of coal being sold in spot coal markets. If these price increases are
sustained, we believe this could have a positive impact on our efforts to
dispose of the assets we are holding for sale. However, we cannot assure you
that asset sales will be completed on terms acceptable to us, if at all.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999

         COAL SALES AND RELATED REVENUES. Coal sales and related revenues
decreased 1.7% from $229.9 million for the year ended December 31, 1999 to
$226.0 million for the year ended December 31, 2000. Approximately 59% of the
2000 decrease in coal sales and related revenues was due to pricing changes, as
discussed below, and 41% was the result of lower production levels.

         Coal sales volume decreased 12.0% from 10.8 million tons for the year
ended December 31, 1999 to 9.5 million tons for the year ended December 31,
2000. This decrease in coal sales volume was primarily due to 1.1 million fewer
commission tons having been sold in 2000 compared to 1999 and, to a lesser
extent, reduced coal production. These decreases were slightly offset by
approximately 300,000 more brokered coal tons having been sold in 2000 than in
1999. The following table presents the coal production, including coal
purchased from third parties for blending, from each of the counties in which we
produced coal in 2000.

                                                       YEAR ENDED DECEMBER 31,
         COUNTY, STATE                                   2000           1999
         -------------                                   ----           ----
                                                        (TONS IN THOUSANDS)

         Upshur County, West Virginia                    2,021         1,406
         Barbour County, West Virginia                     594           998
         Monongalia County, West Virginia                  575           743
         Garrett County, Maryland                          519           460
         Raleigh County, West Virginia                     511           585
         Grant County, West Virginia                       410           331
         Harrison County, West Virginia                    361           350
         Preston County, West Virginia                       9           173
         Webster County, West Virginia                       -           451
                                                         -----         -----
           Total                                         5,000         5,497
                                                         =====         =====


         The decrease in coal production for the year ended December 31, 2000,
as compared to the same period for 1999 was primarily due to the following:

         o        In December 1998, we discontinued our Webster County surface
                  mining operation because our reserves had become uneconomic.
                  See "Item 1 -- Business -- Mining Operations -- Coal
                  Production -- Webster County" for a description of the events
                  that lead to the discontinuance of this operation. In
                  addition, we completed operations at the contract deep mine in
                  Webster County in the third quarter of 1999 upon exhaustion of
                  the deep mine's reserve. Accordingly, we had no production
                  from this operation in 2000. We do not anticipate resuming
                  operations in Webster County in the foreseeable future.

         o        In the third quarter of 1999, our contract miner moved the
                  operating sections in the Barbour County mine from one area of
                  our Middle Kittanning reserve to another. Since that time, our
                  contract miner for this mine has been developing the new area
                  of this reserve for future production and has encountered
                  significant adverse roof control conditions. As a result of
                  the move, the development work and the roof conditions, coal
                  production during 2000 from the Middle Kittanning seam in this
                  mine declined and was significantly lower than expected. We
                  fulfilled our sales commitments in 2000 by supplementing our
                  production with coal we purchased from third parties.



                                       27
<PAGE>   31

                  In early January 2001, our contract miner began constructing
                  an underground slope to access our Upper Kittanning coal
                  reserve which lies approximately 40 to 50 feet above the
                  Middle Kittanning seam. See "Item 1 -- Business -- Mining
                  Operations -- Coal Production -- Barbour County" and "--
                  Liquidity and Capital Resources -- Performance in 2000" above
                  for a description on the status of our Barbour County deep
                  mine operations. We currently expect to produce approximately
                  485,000 tons of coal from this mine in 2001. If necessary, we
                  will supplement this production with coal purchased from third
                  parties and, if possible, coal produced from our other mines
                  in order to meet our sales commitments. If we are unable to
                  achieve this production level, continued lower-than-expected
                  coal production could have a material adverse effect on our
                  liquidity, financial condition and results of operations.

         o        We reduced our production schedule at our Monongalia County
                  surface operations in 1999 in response to poor market
                  conditions and the quality of our remaining reserves. In 2000,
                  we secured new sales contracts for our Monongalia County
                  operations. We currently anticipate that coal production from
                  these operations in 2001 will remain relatively stable as
                  compared to coal production in 2000. In addition to our coal
                  production, we also mine and produce a low Btu blended fuel
                  product which consists of a blend of coal and waste product.
                  This fuel is sold and shipped by truck to the Grant Town Power
                  Plant located in Grant Town, West Virginia.

         o        In January 2000, production at our remaining contract deep
                  mine in Preston County ceased as a result of the depletion of
                  the mine's reserve. We will replace coal produced in this
                  county with coal from our deep mines in Upshur County.

         While we experienced lower production at the mines described above,
tonnage levels during 2000 as compared to the same period for 1999 increased at
our deep mines in Upshur, Grant and Harrison counties, West Virginia and at our
deep mine in Garrett County, Maryland. These increases partially offset the
decreases described above in 2000. VEPCO's Mt. Storm Power Station is planning
an outage during 2001 in order to install pollution control equipment. As a
result of this planned outage, we anticipate, and have planned for, producing a
total of approximately 375,000 fewer tons of coal in 2001 as compared to 2000
from our Garrett County, Maryland and Grant County, West Virginia deep mines and
our Allegany County, Maryland surface mine. We currently anticipate that we will
be able to sell a portion of the 375,000 tons in the spot coal market and, if we
are successful in doing so, we will increase our production accordingly.

         Coal sales and related revenues consist of sales of company-produced
coal, brokered coal and other revenue. The revenues attributable to each for
2000 are as follows:

                                                      YEAR ENDED DECEMBER 31,
              DESCRIPTION                               2000           1999
              -----------                               ----           ----
                                                      (DOLLARS IN MILLIONS)
              Company-Produced Sales                 $ 127.9        $ 145.2
              Brokered Coal Sales                       92.5           81.7
              Other Revenue                              5.6            3.0
                                                     -------        -------
                                                     $ 226.0        $ 229.9
                                                     =======        =======


         The average selling price per ton sold of company-produced sales
decreased 2.8% from $26.10 for the year ended December 31, 1999 to $25.37 for
the year ended December 31, 2000. This decrease was primarily related to a
decline in the quality and price of the coal sold by our Monongalia County, West
Virginia operations.

         The average selling price per ton sold of brokered coal sales increased
1.5% from $29.42 for the year ended December 31, 1999 to $29.85 for the year
ended December 31, 2000. This increase was primarily related to contractual
price increases on some of our long-term contracts supplied with brokered coal.

         Other revenue, which is generated from ash disposal services and
shipments of waste coal and blended fuel from our Monongalia County operations,
increased 86.7% from $3.0 million in 1999 to $5.6 million in 2000. The increase
in other revenues resulted primarily from increased tonnages and, to a lesser
extent, increased prices for these services and products.

         As discussed under "Item 1 -- Business -- Coal Marketing and Sales," a
substantial majority of our coal is sold under long-term contracts. Over the
past several years, we have been successful in renewing in excess of 90% of the
annual tons covered by long-



                                       28
<PAGE>   32

term contracts that were up for renewal and that we desired to renew. Most
recently, we renewed our contract with PEPCO's Chalk Point and Morgantown
Plants. This contract was scheduled to expire at the end of 2000, and PEPCO had
the unilateral right to extend the contract for one additional year. We entered
into two contracts with PEPCO, one contract for the supply of 1.5 million tons
of coal to the Chalk Point, Morgantown and Dickerson plants in 2001 and the
second contract to supply between 1.3 and 2.0 million tons of coal to these
plants for 2002. We elected to commit fewer tons under these contracts than we
had in 2000 based on market considerations as well as other factors at the time
of the renewal. We have six long-term contracts set to expire during 2001 as
more fully detailed under "Item 1 -- Business -- Long-Term Coal Supply
Contracts". The total annual contract tonnage expiring in 2001 is approximately
2.0 million tons. The average continuous years of service with the six customers
whose contracts expire in 2001 is in excess of 6 years. If these customers, or
any one of them, do not renew their contracts with us, we would attempt to sell
the coal at equivalent prices, but we cannot assure you that we would be
successful in doing so. If these customers, or any one of them, do not renew and
we are unable to sell the coal at substantially equivalent prices, our
liquidity, financial condition and results of operations could be materially
adversely affected.

         Some of our long-term contracts are at above-market prices. We estimate
that for the year ended December 31, 2000, a total of approximately $8.8 million
of our pre-tax cash flow was attributable to the extent by which our contract
prices exceeded current market prices for coal of comparable quality.

         Cost of Operations and Selling Expenses. The cost of operations and
selling expenses decreased 4.1% from $209.7 million for the year ended December
31, 1999 to $201.1 million for the year ended December 31, 2000. The per ton
cost of operations and selling expenses for company-produced and brokered coal
decreased 1.4% from $25.14 per ton shipped for the year ended December 31, 1999
to $24.78 per ton shipped for the year ended December 31, 2000. The decrease
resulted from the change, over the course of 1999, to the use of contract miners
at our deep mines and to cost savings at our Monongalia County operations where
we were able to ship more raw coal in 2000 as compared to 1999. We do not
anticipate that we will achieve further decreases in per ton costs of operations
and selling expenses in the near term. As a result of taking over the operation
of the Sentinel Mine in Barbour County and the Spruce Mine No. 1 in Upshur
County on April 2, 2001, we are evaluating the impact on our per ton costs of
operations. Although we cannot assure you that our costs of operations will not
increase, we believe that, among other things, the use of the same labor force
supplier that our contract miner had used should mitigate the risk of an
increase in the costs of operations at these mines.

         General and Administrative Expenses. General and administrative
expenses increased 20.0% from $7.0 million for the year ended December 31, 1999
to $8.4 million for the year ended December 31, 2000. As discussed above in "--
Liquidity and Capital Resources -- Performance in 2000," this increase was the
result of a charge recorded as an allowance for doubtful notes receivable and
advances of $1.7 million. Absent this charge, general and administrative
expenses decreased 4.3% as a result of continued cost reductions in corporate
overhead. We expect that our general and administrative expenses in 2001,
excluding costs associated with the April 2001 exchange offer, will remain
relatively constant with 2000 after adjusting for the $1.7 million provision for
doubtful accounts.

         Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization remained relatively constant at $18.1 million for the year ended
December 31, 2000, as compared to $18.2 million for the year ended December 31,
1999. As a result of the restructuring of our mining operations that took place
in 1998, we reviewed the carrying value of long-lived assets to determine
whether that value was recoverable from future undiscounted operating cash
flows. Based on the results of that review, we impaired various assets in 1998
and adjusted prospectively, the remaining asset life based on the cash flow
analysis. Accordingly, the useful life of goodwill was prospectively reduced
from 40 years to a period ranging from 3 to 20 years, and the useful life of
various fixed assets was also reduced. These reductions resulted in higher
depreciation, depletion and amortization and are offset by a reduction in
amortization and depletion resulting from lower production levels in 2000 as
compared to 1999.

         Loss on Impairment of Investment and Restructuring Charges. As part of
our normal policies and procedures, we review our long-lived assets and our
identifiable intangible assets for impairment whenever there is an event or a
change in the circumstances relating to the specific asset that indicates that
the carrying value of such asset may not be recoverable. Our review analyzes
several factors, however, the primary focus is placed on the anticipated future
cash flows which are then compared to our carrying value.




                                       29
<PAGE>   33



         The significant components of loss on impairment of investment and
restructuring charges for the years ended December 31, 2000 and 1999 were as
follows:

          DESCRIPTION                                 2000              1999
          -----------                                 ----              ----
                                                      (DOLLARS IN THOUSANDS)
          Impairment of properties and investment    $ 343            $ 4,169
          Exit costs                                    --                931
          Equipment leasehold termination costs       (899)             1,126
                                                     -----            -------
                                                     $(556)           $ 6,226
                                                     =====            =======

         Based on changes in mining operations, the salvage value of leased
equipment and a fair market valuation of our non-operating properties, we
determined that additional impairment charges were necessary, as described
below.

         Impairment of Properties and Investment:

         Our 2000 impairment charge of approximately $343,000 related to our
properties and investment is an adjustment made to the value of our coal
preparation plant and loading facility in Upshur County, West Virginia. This
facility was acquired in 1995 and was being held idle for future use in
connection with our Upshur County operations. We had entered into a synthetic
fuel project with a third party in 1998 that we anticipated would provide for
capital improvements for these facilities and would result in the use of this
facility. At the end of 1998, when the project was deemed unsuccessful, an
impairment charge was recorded to reflect the then current appraised value of
the facility in its existing condition. In 2000, we received an updated
appraisal, performed by an independent third party, of certain of our personal
property and fixed assets. As a result of the appraisal, in the fourth quarter
of 2000, we made a downward adjustment in the carrying value of this facility to
reflect the value contained in the third party appraisal.

         The components of the 1999 impairment charges related to our properties
and investment were as follows:

                                     PROPERTY, PLANT    ADVANCE
                                          AND           MINIMUM
        DESCRIPTION                    EQUIPMENT       ROYALTIES        TOTAL
        -----------                    ---------       ---------        -----
                                                (DOLLARS IN THOUSANDS)
Barbour County, WV                      $   617         $    --        $   617
Tazewell County, VA                         957           2,000          2,957
Monongalia County, WV                     1,078              --          1,078
Preston and Taylor Counties, WV            (483)             --           (483)
                                        -------         -------        -------
                                        $ 2,169         $ 2,000        $ 4,169
                                        =======         =======        =======

         Barbour County. In the third quarter of 1999, the operating sections of
our Barbour County deep mine were moved from one area of the operation to
another. As a result of the move, certain unamortized assets totaling
approximately $617,000 were no longer useful in the mining operation. Other
unamortized assets associated with this area of the Barbour County operation
totaling $1.7 million were not impaired because we believe these assets will be
used for future mining activities.

         Tazewell County. The carrying value and future mining plans for our
Tazewell County non-operating properties were reviewed during 1999. Based on an
independent third party valuation and an assessment of our future mining plans,
we determined that the carrying value of the properties and advance minimum
royalties were impaired by $1.0 million and $2.0 million, respectively. Based on
current market conditions, we do not presently intend to further develop the
non-operating properties in Tazewell County.

         Monongalia County. We also reviewed the carrying value of internally
developed inventory and production computer software during the second quarter
of 1999. We determined that, in connection with the use of contract miners at
our deep mines, this software would no longer be utilized. As a result, we
recorded an impairment loss of $1.1 million.

         Preston and Taylor Counties. In the third quarter of 1999, we sold
assets previously classified as assets held for sale. The proceeds of the sale
exceeded the carrying value of the assets by approximately $483,000. This
resulted in an income offset to the impairment charge for 1999.

         Exit Costs:

         We did not record any exit costs in 2000.




                                       30
<PAGE>   34

         During the second quarter of 1999, in connection with the close down of
our operations in Webster County, we recorded approximately $931,000 of
additional charges for reclamation and other close down costs to be incurred
over the remaining phases of the reclamation process. As of December 31, 2000,
approximately $514,000 of such costs had been paid resulting in a remaining
reserve of $417,000 for such costs. The most significant component of the charge
was a change in the cost per bank cubic yard as a result of a change in the
reclamation contractor utilized at the site.

         Equipment Leasehold Termination Costs:

         In 2000, we reversed $899,000 of equipment leasehold termination costs
recorded in prior years, as discussed below.

         In 1999, we expected to incur losses on equipment covered by operating
leases. These losses were estimated by comparing lease buyout costs with the
expected fair market value of the leased equipment. We recorded an expected loss
of approximately $1.1 million for the year ended December 31, 1999 as equipment
leasehold termination costs. As these operating leases expire, the equipment is
either purchased and sold if it is not expected to be used in our operations or
it is leased for an additional period under either a capital or operating lease.
Accordingly, as these leases expire, the estimated loss may change. During the
fourth quarter of 2000, we reviewed our accrual for leasehold termination costs
and, as a result of the conversion of operating leases to capital leases and the
sale of certain equipment that was purchased under buyout provisions of
operating leases, we have reversed approximately $899,000 of equipment leasehold
termination costs which had been recorded as a loss on impairment in previous
years.

         Interest Expense. Interest expense increased 11.9% from $15.1 million
for the year ended December 31, 1999 to $16.9 million for the year ended
December 31, 2000. The increase in interest expense was due to an increase in
our average outstanding indebtedness which resulted from the supplemental term
loan obtained under the Foothill loan agreement in October, 2000, and an
increase in the average effective interest rate from the periods in 1999
compared to the same periods in 2000. As a result of the consummation of the
exchange offer, we expect interest expense in the future to decrease by
approximately $4.9 million annually. See "-- Liquidity and Capital Resources --
Impact of the Exchange Offer and Future Debt Service Requirements" above and
"Item 7A -- Quantitative and Qualitative Disclosures About Market Risks" below.

         Other Income And Expense. Other income increased 13.3% from $4.5
million for the year ended December 31, 1999 to $5.1 million for the year ended
December 31, 2000. The increase in other income was attributable primarily to
$531,000 of additional income from the sale of real property and mining
equipment that was no longer useful in our business in 2000 compared to 1999.

         Income Taxes. An income tax provision of $625,000 was recorded for the
year ended December 31, 2000. This tax provision was the result of a change in
valuation allowance of $1.4 million to reflect revised expectations as to our
ability to utilize those assets and was offset by $809,000 of deferred federal
and state tax benefits for 2000. In 1999, we recognized an income tax benefit of
$8.9 million. This was due primarily to a $15.7 million change in the valuation
allowance of our deferred tax assets, a $13.4 million reduction in those
deferred tax assets resulting from the use of net operating losses to reduce
cancellation of indebtedness income generated by the private restructuring and
the public exchange and additional tax benefits recognized as a result of our
taxable loss in 1999, which replaced substantially all of the net operating
losses utilized.

         Net Loss. Our net loss decreased $1.9 million, or 11.8%, from $16.1
million for the year ended December 31, 1999 to $14.2 million for the year ended
December 31, 2000. The decrease in net loss was the result of a reduction of
$8.6 million of cost of operations and selling expenses offset by a decline in
revenues of $3.9 million, a decrease in loss on impairment of investment and
restructuring charges of $6.8 million, a reduction in financial restructuring
fees and unusual charges of $2.6 million and an increase in other income of
$603,000. These reductions of our net loss were offset by higher interest
expense of $1.8 million, increased general and administrative expenses of $1.4
million (resulting from a charge for an allowance for doubtful notes receivable
and advances of $1.7 million) and a $9.6 million reduced tax benefit (resulting
from the difference between the $8.9 million tax benefit in 1999 and the
$625,000 tax provision in 2000).





                                       31
<PAGE>   35



YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998

         COAL SALES AND RELATED REVENUES. Coal sales and related revenues
decreased 20.8 % from $290.4 million for the year ended December 31, 1998 to
$229.9 million for the year ended December 31, 1999. Approximately 89% of the
1999 decrease in coal sales and related revenues was due to lower production
levels and 11% was due to pricing changes, as discussed below.

         Coal sales volume decreased 12.2% from 12.3 million tons for the year
ended December 31, 1998 to 10.8 million tons for the year ended December 31,
1999. These decreases in coal sales volume were due to reduced coal production.
The following table presents the coal production, including coal purchased from
third parties for blending, from each of the counties in which we produced coal
in 1999.


                                                     YEAR ENDED DECEMBER 31,
          COUNTY, STATE                                1999          1998
                                                       ----          ----
                                                       (TONS IN THOUSANDS)
          Upshur County, West Virginia                 1,406           960
          Barbour County, West Virginia                  998         1,222
          Monongalia County, West Virginia               743         1,134
          Raleigh County, West Virginia                  585           941
          Garrett County, Maryland                       460           286
          Webster County, West Virginia                  451         1,271
          Harrison County, West Virginia                 350           316
          Grant County, West Virginia                    331           703
          Preston County, West Virginia                  173           512
                                                       -----         -----
            Total                                      5,497         7,345
                                                       =====         =====


         The decrease in coal production for the year ended December 31, 1999 as
compared to the same period for 1998 was primarily due to the following:

         o        We idled our Webster County surface mine in December 1998. In
                  addition, we completed operations at the contract deep mine in
                  Webster County in the third quarter of 1999 upon exhaustion of
                  the mine's reserve base. We do not expect to resume operations
                  in Webster County in the foreseeable future. We fulfilled our
                  sales commitments with coal we produced from other mines and
                  coal we purchased from third parties. We expect to replace a
                  portion of the production lost from the closing of this
                  operation from new coal mines that we have opened in Upshur
                  County, West Virginia.

         o        In the third quarter of 1999, our contract miner moved the
                  operating sections in the Barbour County mine from one area of
                  the reserve to another. Since that time, our contract miner
                  for this mine has been developing the new area of the reserve
                  for future production and has encountered adverse roof control
                  conditions. As a result of the move, the development work and
                  the roof conditions, coal production from this mine declined,
                  and was lower than expected in 1999.

         o        We reduced our production schedule at our Monongalia County
                  surface operations in 1999 in response to poor market
                  conditions and the quality of our remaining reserves. We have
                  recently completed new sales contracts for our Monongalia
                  County operations and anticipate that production from these
                  operations will increase from 1999 levels.

         o        We implemented a reduced production schedule at our Raleigh
                  County deep mine during 1999. We reduced production in
                  response to changing geological and market conditions and to
                  more effectively mine the remaining reserves. The Raleigh
                  County deep mine is expected to produce at a reduced tonnage
                  level for its remaining life.

         o        We completed one contract mining operation in Preston County
                  during the fourth quarter of 1998. Production at the remaining
                  contract deep mine in Preston County ceased in January 2000
                  because the mine's reserve base was depleted.

         o        We idled the Grant County surface mine in December 1998. This
                  surface mine was idled because we had mined all of its then
                  permitted reserves, and we were not able to obtain a new
                  mining permit for the adjacent properties until December 1999.
                  With the idling of the surface mine at Grant County, we were
                  unable to sell the portion of



                                       32
<PAGE>   36

                  production from the Grant County deep mine that had previously
                  been blended with coal from the idled surface mine. As a
                  result of this and other factors, we idled the deep mine in
                  February 1999, which caused an additional decline in coal
                  production. With the permit for the surface mine secured in
                  December 1999, coal production resumed in May 2000. We also
                  resumed operations in the deep mine with the use of a contract
                  miner in February 2000.

         While we experienced lower production at the mines described above,
tonnage levels during 1999 as compared to the same period for 1998 increased at
our deep mines in Upshur and Harrison counties, West Virginia and at our deep
mine in Garrett County, Maryland. These increases partially offset the decreases
described above.

         Coal sales and related revenues consist of sales of company-produced
coal, brokered coal and other revenue. The revenues attributable to each are as
follows:

                                                  YEAR ENDED DECEMBER 31,
              DESCRIPTION                           1999           1998
              -----------                           ----           ----
                                                  (DOLLARS IN MILLIONS)
              Company-Produced Sales             $ 145.2        $ 207.1
              Brokered Coal Sales                   81.7           80.2
              Other Revenue                          3.0            3.1
                                                 -------        -------
                                                 $ 229.9        $ 290.4
                                                 =======        =======

         The average selling price per ton sold on company-produced sales
decreased 5.3% from $27.57 for the year ended December 31, 1998 to $26.10 for
the year ended December 31, 1999. The decrease was primarily related to a
reduction in the proportionate share of sales of our higher priced metallurgical
coal to total sales and a decline in spot market prices for steam coal. Our
metallurgical coal is produced entirely in Raleigh County, West Virginia.

         The average selling price per ton sold on brokered coal sales increased
1.9% from $28.86 for the year ended December 31, 1998 to $29.42 for the year
ended December 31, 1999. This increase was related to an increase in brokered
tonnage and to contractual price increases on some of our long-term contracts
supplied with brokered coal.

         Some of our long-term contracts are at above-market prices. We estimate
that for the year ended December 31, 1999, a total of approximately $7.5 million
of our cash flow was attributable to the extent by which our contract prices
exceeded current market prices for coal of comparable quality.

         Cost of Operations and Selling Expenses. The cost of operations and
selling expenses decreased 24.2% from $276.5 million for the year ended December
31, 1998 to $209.7 million for the year ended December 31, 1999. The per ton
cost of operations and selling expenses for company-produced and brokered coal
decreased 7.8% from $26.87 per ton shipped for the year ended December 31, 1998
to $24.78 per ton shipped for the year ended December 31, 1999. The decrease
resulted from our use of contract miners at our deep mines and from the idling
of some of our higher cost mines.

         General and Administrative Expenses. General and administrative
expenses decreased 23.1% from $9.1 million for the year ended December 31, 1998
to $7.0 million for the year ended December 31, 1999. The decrease was primarily
a result of reduced corporate overhead and reduced engineering costs related to
potential projects and properties.

         Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization remained constant at $18.2 million for the years ended December 31,
1998 and 1999. As a result of the restructuring of our mining operations that
took place in 1998, we reviewed the carrying value of long-lived assets to
determine whether that value was recoverable from future undiscounted operating
cash flows. Based on the results of that review, we impaired various assets in
1998 and adjusted prospectively, the remaining asset life based on the cash flow
analysis. Accordingly, the useful life of goodwill was prospectively reduced
from 40 years to a period ranging from 3 to 20 years, and the useful life of
various fixed assets was also reduced. These reductions resulted in higher
depreciation, depletion and amortization and are offset by a reduction in
amortization and depletion resulting from lower production levels in 1999 as
compared to 1998.



                                       33
<PAGE>   37

         Loss on Impairment of Investment and Restructuring Charges. The
significant components of loss on impairment of investment and restructuring
charges for the years ended December 31, 1999 and 1998 were as follows:


         DESCRIPTION                                   1999              1998
         -----------                                   ----              ----
                                                       (DOLLARS IN THOUSANDS)
         Impairment of properties and investment     $ 4,169          $ 44,416
         Exit costs                                      931            25,411
         Assets to be disposed                             -            15,983
         Equipment leasehold termination costs         1,126             3,957
         Other                                             -               950
                                                     -------          --------
                                                     $ 6,226          $ 90,717
                                                     =======          ========


         During the fourth quarter of 1998, we initiated a comprehensive new
business plan as the basis for our future direction and operations. The
development of the business plan was necessary based on several factors,
including (1) the overall deterioration of operating performance and financial
position, (2) a decline in the coal market and (3) the changes in senior
operational management. Most of the new senior operational managers joined us in
early 1998. By the beginning of the fourth quarter of 1998, all senior
operational management changes had been completed, and the new management was
sufficiently knowledgeable to prepare performance forecasts. The forecasts were
eventually used to develop five-year cash flow forecasts and our new business
plan. The business plan resulted in a significant shift in the long-term
operating strategy. Through the development of the new business plan, we
determined that the estimated future undiscounted cash flows were below the
carrying value of some properties, that some properties were to be exited and
that other assets were to be sold.

         During 1999, we continued to evaluate both our operating and
non-operating long-lived assets for possible impairment. Based on changes in
mining operations, the salvage value of leased equipment and a fair market
valuation of our non-operating properties, we determined that additional
impairment charges were necessary. The fundamentals of the business plan
developed in 1998 remain intact, however, we continue to monitor the carrying
value of our long-lived assets in conjunction with our current operations.

         Impairment of Properties and Investment:

         The components of the 1999 impairment charges related to our properties
and investment were as follows:

                                          PROPERTY, PLANT   ADVANCE
                                                AND         MINIMUM
        DESCRIPTION                          EQUIPMENT     ROYALTIES     TOTAL
        -----------                          ---------     ---------     -----
                                                    (DOLLARS IN THOUSANDS)
        Barbour County, WV                    $   617       $     -     $   617
        Tazewell County, VA                       957         2,000       2,957
        Monongalia County, WV                   1,078             -       1,078
        Preston and Taylor Counties, WV          (483)            -        (483)
                                              -------       -------     -------
                                              $ 2,169       $ 2,000     $ 4,169
                                              =======       =======     =======

         Barbour County. In the third quarter of 1999, the operating sections of
our Barbour County deep mine were moved from one area of the operation to
another. As a result of the move, certain unamortized assets totaling
approximately $617,000 were no longer useful in the mining operation. Other
unamortized assets associated with this area of the Barbour County operation
totaling $1.7 million were not impaired because we believe these assets will be
used for future mining activities.

         Tazewell County. The carrying value and future mining plans for our
Tazewell County non-operating properties were reviewed during 1999. Based on an
independent third party valuation and an assessment of our future mining plans,
we determined that the carrying value of the properties and advance minimum
royalties were impaired by $1.0 million and $2.0 million, respectively. Based on
current market conditions, we do not presently intend to further develop the
non-operating properties in Tazewell County.

         Monongalia County. We also reviewed the carrying value of internally
developed inventory and production computer software during the second quarter
of 1999. We determined that, in connection with the use of contract miners at
our deep mines, this software would no longer be utilized. As a result, we
recorded an impairment loss of $1.1 million.



                                       34
<PAGE>   38

         Preston and Taylor Counties. In the third quarter of 1999, we sold
assets previously classified as assets held for sale. The proceeds of the sale
exceeded the carrying value of the assets by approximately $483,000. This
resulted in an income offset to the impairment charge for 1999.

         The components of the 1998 impairment charges related to our properties
and investments were as follows:

<TABLE>
<CAPTION>
                                                   PROPERTY, PLANT    ADVANCE
                                                         AND          MINIMUM
DESCRIPTION                                           EQUIPMENT      ROYALTIES      GOODWILL         TOTAL
-----------                                           ---------      ---------      --------         -----
                                                                    (DOLLARS IN THOUSANDS)
<S>                                                <C>               <C>            <C>             <C>
Raleigh County, WV                                     $    --        $    --        $ 5,705        $ 5,705
Upshur County, WV                                        6,036             --             --          6,036
Grant County, WV and Garrett County, MD                 11,113          7,009             --         18,122
Monongalia and Preston Counties, WV                      2,652          2,895          9,006         14,553
                                                       -------        -------        -------        -------
                                                       $19,801        $ 9,904        $14,711        $44,416
                                                       =======        =======        =======        =======
</TABLE>


         Raleigh County. The impairment relating to Raleigh County, West
Virginia, was a result of a change in the expected future production from this
property. We controlled additional reserves adjacent to the current mine that
would have required additional investment to mine. In late 1998, we decided not
to make that additional investment due to an insufficient expected return on
investment, and subsequently surrendered the reserves. As a result, the life of
the mine was shortened and the expected future cash flows were reduced, which
created the $5.7 million impairment.

         Upshur County. The impairment relating to Upshur County, West Virginia,
was an adjustment in the value of a coal preparation plant and loading facility
that was acquired in 1995. This facility was held idle for future use in
connection with Upshur County coal operations. In early 1998, we entered into a
synthetic fuel project with a third party. We expected that the project would
provide capital improvements for these facilities and that the facilities would
be used in connection with the production and sale of the synthetic fuel. By the
end of 1998, the synthetic fuel project was not successful, and we no longer
expected the capital improvements to be made. Without the project and the
expected capital improvements, the facility would remain idle indefinitely. As a
result, we recorded the impairment listed above. The amount of the impairment
represented the difference between the carrying amount and a third-party
appraisal performed in connection with the loan agreement with Foothill. The
appraisal valued the facilities in their current state.

         Grant and Garrett Counties. The impairments relating to Grant County,
West Virginia and Garrett County, Maryland are combined because mines in these
neighboring counties serve the same coal market. These impairments relate to the
cancellation of a coal sales contract and the delay in obtaining a new mining
permit which was subsequently received in December, 1999.

         In 1998, we operated three coal mines in these two counties. Two of
these mines were acquired and developed in 1997. In connection with the
acquisition of one of these mines, we acquired two coal sales contracts.
However, one of these contracts was subsequently cancelled, and we were unable
to sell the coal that would have been sold under the cancelled contract. As a
result, mining operations were adjusted for a lower production level and we
still believed it could achieve the same level of performance through a
reduction in the cost of mining. During 1998, we evaluated various operating
plans for these mines to improve their financial performance. By the end of
1998, we determined that the remaining operating plans would result in lower
than expected operating performance for the future.

         In addition, at the same time, we were forced to idle our surface mine
in Grant County because we were unable to secure a new mining permit that was
necessary to continue the surface mine operation. Although we assumed we could
secure the permit, which was in fact issued in December 1999, the delay resulted
in significantly lower cash flows on a present value basis. As a result of the
cancellation of the contract and the delay in the permit issuance, we recorded
the loss of impairment as shown above.

         Monongalia and Preston Counties. The impairment for Monongalia and
Preston counties, West Virginia relates to the mining operations conducted by
one of our subsidiaries in those two counties. Of the total $14.6 million
impairment, $14.2 million relates to the subsidiary's operations in Monongalia
County and the remaining $400,000 of the impairment relates to its operations in
Preston County.

         The impairment for Monongalia County relates primarily to reductions in
the price expected to be received for the high sulfur coal produced from these
operations. Although a substantial portion of our total production is sold under
long-term contracts, a



                                       35
<PAGE>   39

significant portion of the production in Monongalia County is sold on a
short-term basis or in the spot market. As a result, these operations are
subject to price fluctuations. For several years leading up to and including
1998, the prices for this coal had deteriorated. These price reductions caused
us to lower production levels and analyze various operating strategies. The
results of the analyses coupled with the market changes lowered estimated future
cash flows from this property and, when compared with the carrying values for
the property, generated this impairment.

         The $400,000 impairment for Preston County, West Virginia relates to
the active operations in this county which ceased in January 2000. The most
significant portion of this adjustment is the result of our decision not to mine
additional coal reserves in this county. As a result of this decision, we were
left with carrying amounts on a preparation plant and loading facility that were
expected to be used with new operations without a useful life beyond early 2000.
As a result, the expected carrying value beyond early 2000 was fully impaired.
The remaining reserves were sold during 1999. The proceeds received from the
sale of the reserves were approximately $483,000 greater than the carrying
value, resulting in an income offset to the 1999 impairment charge.

         Exit Costs:

         During the second quarter of 1999, in connection with the close down of
our operations in Webster County, we recorded approximately $931,000 of
additional charges for reclamation and other close down costs to be incurred
over the remaining phases of the reclamation process. As of December 31, 2000,
approximately $514,000 of such costs had been paid resulting in a remaining
reserve of $417,000 for such costs. The most significant component of the charge
was a change in the cost per bank cubic yard as a result of a change in the
reclamation contractor utilized at the site.

         During 1998, we decided to exit our investment in Webster and Braxton
counties in West Virginia. This decision was based on then current market
conditions and expected future mining costs. Although we still own or control
assets in these counties, no operations are expected in the future and all
active operations will be reclaimed. At December 31, 2000, the balance of the
$5.1 million reclamation accrual that was established in 1998 was zero since we
had incurred and paid $5.1 million of costs associated with the reclamation of
these properties in 1999 and 2000. We attempted to sell these assets, but were
unsuccessful and are permanently reclaiming the active operations. Previously,
our financial statements included coal reserves that extended beyond Webster
County and into Braxton County. Although the reserves were in two counties, all
coal mined in either county would have been returned to our processing plant and
loading facility in Webster County. Accordingly, these reserves constituted one
coal property. The exit charges associated with the investment in these counties
consist of the following:

               ASSET CATEGORY                                AMOUNT
               --------------                                ------
                                                      (DOLLARS IN THOUSANDS)
               Property, plant and equipment                $ 13,569
               Reclamation accrual                             5,100
               Advance minimum royalties                       1,651
               Goodwill                                        4,896
               Other                                             195
                                                            --------
                                                            $ 25,411
                                                            ========

         Assets to be Disposed:

         During 1998, as part of our liquidity planning, some assets had been
identified to be held for sale. These assets were reclassified to a separate
asset account and were adjusted to their fair market value. Fair market values
were based on current offers, third party appraisals and other information we
believe was relevant to establish these values. The charges for assets held for
sale consist of the following:

                             PROPERTY, PLANT
                                  AND        ADVANCE MINIMUM
         DESCRIPTION           EQUIPMENT        ROYALTIES       ADJUSTMENT TOTAL
         -----------           ---------        ---------       ----------------
                                        (DOLLARS IN THOUSANDS)
         Raleigh County         $ 1,353          $ 2,419            $ 3,772
         Preston County           7,721            4,026             11,747
         Other Property             464               --                464
                                -------          -------            -------
         Total                  $ 9,538          $ 6,445            $15,983
                                =======          =======            =======



                                       36
<PAGE>   40

         The assets held for sale in Raleigh County consist of undeveloped coal
reserves. The undeveloped coal reserves are separate from active operations and
related coal processing and loading facilities in those counties. In the third
quarter of 1999, we sold substantially all of our undeveloped coal reserves in
Preston County for approximately $1.3 million in cash plus royalties on future
production and options to purchase up to 800,000 tons of coal per year produced
from these reserves for a ten-year period.

         Equipment Leasehold Termination Costs:

         In conjunction with the mining operational changes described above, we
expect to incur losses on equipment currently covered by operating leases. These
losses were estimated by comparing lease buyout costs with the expected fair
market value of the underlying equipment. These differences of approximately
$1.1 million and $4.0 million for the years ended December 31, 1999 and 1998,
respectively, have been recorded as equipment leasehold termination costs.

         Interest Expense. Interest expense increased 15.3% from $13.1 million
for the year ended December 31, 1998 to $15.1 million for the year ended
December 31, 1999. The increase was due to an increase in the average
outstanding indebtedness and average effective interest rate from the periods in
1998 compared to the same periods in 1999.

         Other Income And Expense. Other income increased 15.4% from $3.9
million for the year ended December 31, 1998 to $4.5 million for the year ended
December 31, 1999. The increase in other income was attributable primarily to
$600,000 of income from the sale of real property and mining equipment that was
no longer useful in our business and $300,000 of income we received for services
we rendered under a fuel agency agreement.

         Income Taxes. The income tax benefit increased 11.3% from $8.0 million
for the year ended December 31, 1998 to $8.9 million for the year ended December
31, 1999. The increase in the income tax benefit is due to the change in our
valuation allowance of $15.7 million related to the recognition of net operating
losses to reduce the debt cancellation income through the private restructuring
and public exchange. These net-operating losses had been fully reserved for in
prior years. This benefit was partially offset by a tax provision of $13.4
million related to our debt restructuring costs.

         Net Loss. Our net loss decreased $90.5 million from $106.6 million for
the year ended December 31, 1998 to $16.1 million for the year ended December
31, 1999. The decrease in net loss was the result of $9.2 million of improved
margins resulting from the reduction of operating and selling expenses discussed
above and $84.5 million of lower loss on impairment and restructuring charges
taken in 1999 as compared to 1998. These improvements were slightly offset by
$1.2 million of increased general and administrative expenses and financial
restructuring fees and $2.0 million of interest expense.

DIVIDEND RESTRICTIONS AFFECTING SUBSIDIARIES

         As of December 31, 2000, there were no restrictions affecting the
ability of the subsidiaries guaranteeing our 14.25% notes to make distributions
to us or other subsidiaries, except for restrictions in our loan agreement with
Foothill and those restrictions provided by law generally, such as the
requirement of adequate capital to pay dividends under corporate law. The loan
agreement with Foothill provides that, in order to advance funds to us, the
borrowers under the loan agreement must have excess availability of at least
$5.0 million on the date of the advance and for the 30 days preceding the date
of the advance, after giving effect to the advance (or $10.0 million if advances
are for prepayment or purchases of our 14.25% notes). In connection with the
exchange offer, the Foothill loan agreement was amended to reduce the excess
availability requirement from $5.0 million to $2.5 million for the period
beginning March 13, 2001 through November 1, 2001. Thereafter, the excess
availability requirement returns to $5.0 million. As of April 11, 2001,
revolving credit availability under the loan agreement, after the April 2001
semi-annual interest payment on our notes was made, was approximately $3.4
million. Thus, the maximum amount which the borrowers could have advanced to us
on that date, based on the temporary reduction relating to excess availability,
was approximately $900,000.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

INTEREST RATE RISK

          We are exposed to market risk from financial instruments that could
occur upon adverse changes in interest rates. We do not currently use derivative
financial instruments to manage this risk. At December 31, 2000, we had
fixed-rate long-term debt with a



                                       37
<PAGE>   41


carrying value of $155.7 million and variable rate borrowings of $17.2 million
outstanding. Assuming an adverse change in interest rates with no change in the
average or outstanding amounts of our long-term debt, the fair value of our
fixed rate debt could decrease materially. However, we do not expect that those
debt obligations could be settled or repurchased in the open market at the lower
amount, in the ordinary course of business. Our fixed rate debt is comprised
primarily of our 14.25% notes which have a face value of $126.7 million ($92.5
million following the April 12, 2001 exchange offer). Interest is paid
semi-annually on April 1 and October 1 on the outstanding balance of the notes.
These notes mature on September 1, 2007. We also would incur additional interest
expense each year on our variable rate borrowings. For example, assuming a 100
basis-point increase in the average interest rate for our variable rate
borrowings with no change in the average or outstanding amounts of those
borrowings from December 31, 2000, we would incur approximately $172,000 of
additional interest expense. In the event of a material increase in interest
rates, we would attempt to mitigate our interest rate exposure. However,
depending on our financial condition at the time, we may have limited or no
ability to do so.

DISCLOSURE OF LIMITATIONS

         As the above information incorporates only the exposures that exist at
December 31, 2000, it does not consider any exposures or positions which could
arise subsequent to such date. As a result, our ultimate realized gain or loss
with respect to interest rate fluctuations will depend on exposures that arise
during any given period and interest rates at such time.




                                       38
<PAGE>   42



ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA







                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors of
Anker Coal Group, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheet of Anker Coal Group,
Inc. and subsidiaries as of December 31, 2000, and the related consolidated
statement of operations, stockholders' equity (deficit) and cash flows for the
year ended December 31, 2000. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Anker Coal Group, Inc. and
subsidiaries as of December 31, 2000, and the results of its operations and its
cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.




/s/ KPMG LLP
Pittsburgh, Pennsylvania


March 16, 2001, except for Notes 16 and 20
which are dated April 12, 2001.







                                       39
<PAGE>   43



                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors of
Anker Coal Group, Inc. and Subsidiaries:


In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows present fairly, in all material respects, the financial position of Anker
Coal Group, Inc. and its subsidiaries (the Company) at December 31, 1999, and
the results of their operations and their cash flows for each of the two years
in the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 14, to the consolidated financial statements, the Company
had significant losses from operations during 1999 and 1998 and faces
significant future debt service payments beginning in 2001.


/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania


March 3, 2000, except for Note 18,
which is dated March 16, 2000




                                       40
<PAGE>   44



                     ANKER COAL GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                       ASSETS
                                                                                             2000              1999
                                                                                             ----              ----
<S>                                                                                       <C>               <C>
Current assets:
     Cash and cash equivalents                                                            $       5         $       7
     Accounts receivable:
          Trade                                                                              18,753            21,696
          Affiliates                                                                              2                41
     Inventories                                                                              2,183             3,169
     Current portion of long-term notes receivable                                            1,616               608
     Prepaid expenses and other                                                               2,949             2,593
     Deferred income taxes                                                                    1,326             2,801
                                                                                          ---------         ---------
          Total current assets                                                               26,834            30,915

Property, plant and equipment:
     Coal lands and mineral rights                                                           67,728            62,135
     Machinery and equipment                                                                 74,825            72,199
                                                                                          ---------         ---------
                                                                                            142,553           134,334
     Less allowances for depreciation, depletion and amortization                            51,379            37,956
                                                                                          ---------         ---------
                                                                                             91,174            96,378
Other assets:
     Assets held for sale                                                                     9,000             9,000
     Advance minimum royalties                                                                7,828             6,122
     Goodwill, net of accumulated amortization of $5,852 and $4,094 in
          2000 and 1999, respectively                                                        18,237            19,995
     Other intangible assets, net of accumulated amortization of $2,535 and $1,614
          in 2000 and 1999, respectively                                                      4,686             5,298
     Notes receivable                                                                         2,167             3,102
     Other assets                                                                             3,870             5,597
     Deferred income taxes                                                                    3,396             2,546
                                                                                          ---------         ---------
          Total assets                                                                    $ 167,192         $ 178,953
                                                                                          =========         =========


                                        LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
     Accounts payable:
          Trade                                                                           $   8,890         $   9,932
          Affiliates                                                                            533               667
     Cash overdraft                                                                           1,317                83
     Accrued interest                                                                         4,698               537
     Accrued expenses and other                                                               5,036             8,784
     Accrued leasehold termination                                                               --             3,726
     Accrued reclamation expenses                                                               786             3,502
     Current maturities of long-term debt                                                     4,286             2,309
     Current maturities of capital lease obligations                                            371                --
                                                                                          ---------         ---------
          Total current liabilities                                                          25,917            29,540

Long-term debt
     Long-term debt                                                                         167,008           161,489
     Capital lease obligations                                                                1,260                --
                                                                                          ---------         ---------
          Total long-term debt                                                              168,268           161,489

Other liabilities:
     Accrued reclamation expenses                                                            16,960            16,913
     Other                                                                                    5,515             6,264
                                                                                          ---------         ---------
          Total other liabilities                                                            22,475            23,177

Commitments and contingencies                                                                    --                --

Mandatorily redeemable preferred stock                                                       28,673            26,596

Stockholders' deficit:
     Preferred stock                                                                         23,000            23,000
     Common stock                                                                                --                --
     Paid-in capital                                                                         52,486            52,486
     Paid-in capital - common stock warrants                                                     --                --
     Accumulated deficit                                                                   (148,527)         (132,235)
     Treasury stock, at cost                                                                 (5,100)           (5,100)
                                                                                          ---------         ---------
          Total stockholders' deficit                                                       (78,141)          (61,849)
                                                                                          ---------         ---------
          Total liabilities and stockholders' deficit                                     $ 167,192         $ 178,953
                                                                                          =========         =========
</TABLE>

                     The accompanying notes are an integral
                 part of the consolidated financial statements.



                                       41
<PAGE>   45




                     ANKER COAL GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                 (IN THOUSANDS)




<TABLE>
<CAPTION>
                                                                          2000              1999              1998
                                                                          ----              ----              ----

<S>                                                                    <C>               <C>               <C>
Coal sales and related revenue                                         $ 225,964         $ 229,913         $ 290,356

Expenses:
     Cost of operations and selling expenses                             201,109           209,681           276,469
     Depreciation, depletion and amortization                             18,090            18,166            18,150
     General and administrative                                            8,390             6,999             9,076
     Loss on impairment of investment and restructuring charges             (556)            6,226            90,717
     Financial restructuring fees                                            542             3,277                --
     Unusual charges                                                         158                --                --
                                                                       ---------         ---------         ---------

          Total expenses                                                 227,733           244,349           394,412

          Operating loss                                                  (1,769)          (14,436)         (104,056)

Interest, net of $386 capitalized in 1998                                (16,884)          (15,070)          (13,066)
Other income, net                                                          5,063             4,460             3,875
                                                                       ---------         ---------         ---------

          Loss before income taxes and extraordinary item                (13,590)          (25,046)         (113,247)

Income tax provision (benefit)                                               625            (8,916)           (7,643)
                                                                       ---------         ---------         ---------

          Loss before extraordinary item                                 (14,215)          (16,130)         (105,604)

Extraordinary loss, net of taxes of $375 in 1998                              --                --               965
                                                                       ---------         ---------         ---------

           Net loss                                                      (14,215)          (16,130)         (106,569)

Less mandatorily redeemable preferred stock dividends                     (1,477)           (1,408)           (1,337)
Less mandatorily redeemable preferred stock accretion                       (600)             (600)             (600)
Less common stock available for repurchase accretion                          --              (421)               --
                                                                       ---------         ---------         ---------

          Net loss available to common stockholders                    $ (16,292)        $ (18,559)        $(108,506)
                                                                       =========         =========         =========
</TABLE>






                     The accompanying notes are an integral
                 part of the consolidated financial statements.




                                       42
<PAGE>   46



                     ANKER COAL GROUP, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                 (IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                                  PAID-IN
                                                                                  CAPITAL
                                                                                  COMMON
                                               PREFERRED   COMMON     PAID-IN     STOCK      ACCUMULATED    TREASURY
                                                 STOCK     STOCK      CAPITAL    WARRANTS      DEFICIT       STOCK         TOTAL
                                                 -----     -----      -------    --------      -------       -----         -----


<S>                                            <C>         <C>       <C>         <C>         <C>            <C>         <C>
Balance at December 31, 1997                    $23,000    $   --    $ 57,900     $   --     $  (5,170)     $    --     $  75,730

Net loss                                             --        --          --         --      (106,569)          --      (106,569)
Mandatorily redeemable preferred stock
     dividends                                       --        --          --         --        (1,337)          --        (1,337)
Mandatorily redeemable preferred stock
     accretion                                       --        --          --         --          (600)          --          (600)
Reclassification of Class A common stock to
     common stock available  for  repurchase         --        --     (15,000)        --            --           --       (15,000)
Repurchase of Class A common  stock                  --        --       5,000         --            --       (5,000)           --
Repurchase of Class C preferred stock                --        --          --         --            --         (100)         (100)
                                                -------    ------    --------     ------     ---------      -------     ---------

Balance at December 31, 1998                    $23,000    $   --    $ 47,900     $   --     $(113,676)     $(5,100)    $ (47,876)

Net loss                                             --        --          --         --       (16,130)          --       (16,130)
Mandatorily redeemable preferred stock
     dividends                                       --        --          --         --        (1,408)          --        (1,408)
Mandatorily redeemable preferred stock
     accretion                                       --        --          --         --          (600)          --          (600)
Common stock available for  repurchase
     accretion                                       --        --          --         --          (421)          --          (421)
Excess of common stock available  for
     repurchase redeemed over  debt  issued          --        --       4,586         --            --           --         4,586
                                                -------    ------    --------     ------     ---------      -------     ---------

Balance at December 31, 1999                    $23,000    $   --    $ 52,486     $   --     $(132,235)     $(5,100)    $ (61,849)

Net loss                                             --        --          --         --       (14,215)          --       (14,215)
Mandatorily redeemable preferred stock
     dividends                                       --        --          --         --        (1,477)          --        (1,477)
Mandatorily redeemable preferred stock
     accretion                                       --        --          --         --          (600)          --          (600)
                                                -------    ------    --------     ------     ---------      -------     ---------

Balance at December 31, 2000                    $23,000    $   --    $ 52,486     $   --     $(148,527)     $(5,100)    $ (78,141)
                                                =======    ======    ========     ======     =========      =======     =========
</TABLE>








                     The accompanying notes are an integral
                 part of the consolidated financial statements.





                                       43
<PAGE>   47

                     ANKER COAL GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                 (IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                             2000              1999              1998
                                                                             ----              ----              ----

<S>                                                                       <C>               <C>               <C>
Cash flows from operating activities:
    Net loss                                                              $ (14,215)        $ (16,130)        $(106,569)
    Adjustments to reconcile net loss to net
         cash provided by (used in) operating activities:
    Extraordinary item, net of taxes                                             --                --               965
    Loss on impairment of investment and restructuring charges                 (556)            6,226            90,717
    Depreciation, depletion and amortization                                 18,090            18,166            18,150
    Amortization of discount on senior notes                                    253                63                --
    Amortization of unrealized gain on debt restructuring                    (2,864)             (608)               --
    Deferred taxes                                                              625            (9,906)           (8,018)
    Gain on sale of property, plant and equipment                              (933)             (437)             (302)
    Debt issuance costs related to debt restructuring                           542             2,990                --
    Tax refund received                                                          --                --               722
    Provision for doubtful accounts                                           1,704                --                --
    Changes in operating assets and liabilities (net of assets and
         liabilities acquired and disposed of):
         Accounts receivable                                                  2,982             6,150             3,365
         Inventories, prepaid expenses and other                               (474)            2,103             5,105
         Advance minimum royalties                                           (1,513)           (1,702)           (2,915)
         Accounts payable, accrued expenses and other                        (1,290)           (3,151)           (6,186)
         Other assets                                                         1,281                --                --
         Other liabilities                                                     (749)               (8)             (499)
                                                                          ---------         ---------         ---------
              Net cash provided by (used in) operating activities             2,883             3,756            (5,465)
                                                                          ---------         ---------         ---------

Cash flows from investing activities:
     Purchases of property, plant and equipment                              (8,493)           (6,061)          (11,795)
     Proceeds from sales of property, plant and equipment                     2,077             2,290             2,535
     Issuance of notes receivable                                              (795)               --               (38)
     Payments received on notes receivable                                      186               661             1,164
     Other assets                                                                --             1,034                --
                                                                          ---------         ---------         ---------
              Net cash used in investing activities                          (7,025)           (2,076)           (8,134)
                                                                          ---------         ---------         ---------

Cash flows from financing activities:
     Proceeds from revolving line of credit and long-term debt               62,566           217,712           155,698
     Principal payments on revolving line of credit and
          long-term debt                                                    (58,575)         (222,400)         (146,586)
     Proceeds from issuance of senior notes                                      --            11,219                --
     Principal payments on capital leases                                       (47)               --                --
     Cash overdraft                                                           1,234            (5,028)            1,192
     Payment of debt issuance costs                                          (1,038)           (3,191)           (1,590)
     Purchase of treasury stock                                                  --                --            (5,100)
     Proceeds received from life insurance                                       --                --            10,000
                                                                          ---------         ---------         ---------
               Net cash provided by (used in) financing activities            4,140            (1,688)           13,614
                                                                          ---------         ---------         ---------

(Decrease) increase in cash and cash equivalents                                 (2)               (8)               15

Cash and cash equivalents at beginning of the year                                7                15                --
                                                                          ---------         ---------         ---------
Cash and cash equivalents at end of the year                              $       5         $       7         $      15
                                                                          =========         =========         =========
</TABLE>


                     The accompanying notes are an integral
                  part of the consolidated financial statements




                                       44
<PAGE>   48



                     ANKER COAL GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)

1.  ORGANIZATION AND BASIS OF PRESENTATION

         Anker Coal Group, Inc. (the "Company") was formed in August 1996 under
the laws of the State of Delaware. The Company was organized in order to effect
a recapitalization of its predecessor, Anker Group, Inc., which had been engaged
in the production of coal since 1975. To effect the recapitalization, First
Reserve Corporation purchased approximately 54.1% of the Company's common stock
and 10,000 shares of its Class B preferred stocks for $50,000 in cash. In
addition, senior management and Anker Holding B.V. exchanged an aggregate of
7.5% of Anker Group, Inc.'s common stock for shares of Anker Coal Group, Inc.'s
common stock. Anker Coal Group, Inc. then acquired the remaining 92.5% of Anker
Group, Inc.'s common stock from Anker Holding B.V. for approximately $87,000.
The Company partially funded the $87,000 by issuing $25,000 of Class A preferred
stock to Anker Holding B.V. The Company paid the remaining $62,000 in cash,
$12,000 of which was borrowed under its then existing credit agreement. That
credit agreement was replaced by the Company's current credit facility on
November 12, 1998. In addition, the Company assumed $152,000 of Anker Group,
Inc.'s outstanding liabilities. The acquisition of was accounted for using the
purchase method of accounting as prescribed under Accounting Principles Bulletin
No. 16, "Accounting for Business Combinations."

         The operations of the Company and its subsidiaries, which are
principally located in West Virginia and Maryland, consist of mining and selling
coal from mineral rights which it owns and/or leases, as well as brokering coal
from other producers.


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION:

         The consolidated financial statements include the accounts of Anker
Coal Group, Inc. and its wholly and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS:

         The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents. The Company must maintain a lockbox
account and direct all cash receipts to this account. Control of this account
has been transferred to Foothill Capital Corporation, as agent, under the
Company's Loan Agreement.

INVENTORIES:

         Coal inventories are stated at the lower of average cost or market and
amounted to approximately $1,994 and $2,928 at December 31, 2000 and 1999,
respectively. Supply inventories are stated at the lower of average cost or
market and amounted to approximately $189 and $241 at December 31, 2000 and
1999, respectively.

INCOME TAXES:

         Deferred tax assets and liabilities are determined based on temporary
differences between the consolidated financial statements and the tax basis of
assets and liabilities using enacted tax rates in effect for the years in which
the differences are expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized.

PROPERTIES:

         Properties are recorded at cost, which includes the allocated purchase
price for the acquisition described in Note 1.

         Coal lands represent the investment in land and related mineral and/or
surface rights, including capitalized mine development costs, which are being
mined or will be mined. Mine development costs of approximately $25,171 and
$22,626 at December 31, 2000 and 1999, respectively, represent expenditures
incurred, net of amortization, in the development of coal mines until coal
production commences. Depletion and amortization of coal lands is computed on a
tonnage basis calculated to amortize its costs fully over the estimated
recoverable reserves.

         Provisions for machinery and equipment depreciation are based upon the
estimated useful lives of the respective assets, ranging from three to forty
years, and are computed under the straight-line method.

         Upon sale or retirement of properties, the cost and related accumulated
depreciation or depletion are removed from the respective accounts, and any gain
or loss is included in other non-operating income.





                                       45
<PAGE>   49



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

ADVANCE MINIMUM ROYALTIES:

         Advance minimum royalties represent payments made by the Company to
landowners in advance of mining for the right to mine coal from the landowners'
property. Generally, advance minimum royalties are recoupable against future
production royalties. Some of the Company's leases have limits on the recoupment
of advance minimum royalties. These royalties are initially capitalized then
expensed over future production for active mines. For mining properties that
have been classified as held for sale, those royalties are expensed at the time
they are considered held for sale.

GOODWILL AND OTHER INTANGIBLE ASSETS:

         Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired related to the acquisition described in Note 1.
Due to the restructuring of the Company's mining operations in 1998, goodwill
previously amortized over 40 years was adjusted in 1999 to be amortized over 3
to 20 years consistent with the expected useful lives of existing mineral rights
and sales contracts. The pro forma effect on loss before income taxes and
extraordinary item and net loss available to common stockholders of the change
in the amortization period approximated a loss of $1,200 in 1998.

         Other intangible assets consist of debt issuance costs which are being
amortized using the straight line method over the life of the associated debt,
which approximates the effective interest method.

ACCRUED RECLAMATION EXPENSES:

         Provisions to reclaim disturbed acreage remaining after production has
been completed and related mine closing costs are accrued during the life of the
mining operation or recorded in conjunction with the acquisition of related
properties. The annual provision included in cost of operations is made at a
rate per ton equivalent to the estimated end-of-mine-life reclamation cost
divided by the estimated tonnage to be mined. The estimated liability of the
Company is not discounted to a present value.

REVENUE RECOGNITION:

         Coal mining revenue includes sales to customers of company-produced
coal and coal purchased from third parties. Brokered coal revenue represents
revenue generated from the sale of coal purchased from third parties. The
Company recognizes revenue from the sale of company-produced coal and brokered
coal at the time title passes to the customer, which is either upon shipment or
upon customer receipt of coal, based on contractual terms. Other revenue is
generated from ash disposal services and shipments of waste coal and blended
fuel, and are recognized as revenue as services are performed and shipments are
made, respectively.

IMPAIRMENT OF LONG-LIVED ASSETS:

         The Company periodically reviews the carrying value of long-lived
assets, based on whether they are recoverable from expected future undiscounted
operating cash flows and recognizes impairments when the expected future
operating cash flow derived from such long-lived assets is less than their
carrying value. See Note 14 for the results of the current year review.

USE OF ESTIMATES:

         The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements. Estimates also affect the amounts of revenues
and expenses during the reporting periods. Actual results could differ from
those estimates.

EARNINGS PER SHARE:

         The presentation of earnings per share is not required as the Company's
stock is not publicly traded.






                                       46
<PAGE>   50



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

NEW ACCOUNTING PRONOUNCEMENTS:

         The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (as amended by Statement No. 137, Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133) which becomes effective on January 1, 2001. SFAS 133, as
amended, establishes accounting and reporting standards requiring that
derivative instruments be recorded in the balance sheet as either an asset or
liability, measured at its fair value. SFAS 133 requires that changes in such
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. Under SFAS 133, certain contracts that were not formerly
considered derivative instruments may now meet the definition of a derivative.
Management has concluded that there are no transition adjustments to record, as
of January 1, 2001, for the adoption of SFAS 133.

RECLASSIFICATION:

         Certain amounts in prior year consolidated financial statements have
been reclassified to conform to the current year presentation.

3.  COAL SALES AND RELATED REVENUE

         Coal sales and related revenue consists of the following for the years
ending December 31:

                                                  2000       1999       1998
                                                  ----       ----       ----
                                                        (IN THOUSANDS)

        Coal mining revenue                     $127,843   $145,234   $207,102
        Brokered coal revenue                     92,518     81,652     80,150
        Ash disposal and waste fuel revenue        5,603      3,027      3,104
                                                ---------  ---------  ---------
                                                $225,964   $229,913   $290,356
                                                =========  =========  =========

         Included in revenue are sales to unconsolidated affiliated companies
aggregating approximately $0, $0 and $100 for the years ended December 31, 2000,
1999 and 1998, respectively.

4.  FEDERAL EXCISE TAXES

         Federal excise taxes, included in cost of operations and selling
expenses, amounted to $4,024, $4,222 and $5,786 for the years ended December 31,
2000, 1999 and 1998, respectively.

5.  LONG-TERM DEBT

     Long-term debt, excluding capital lease obligations, consists of the
following as of December 31:

<TABLE>
<CAPTION>
                                                                              2000            1999
                                                                              ----            ----
                                                                                 (IN THOUSANDS)
<S>                                                                         <C>             <C>
9 3/4% Unsecured Senior Notes, face amount of $0 and $16,500 at
    December 31, 2000 and 1999, respectively, due 2007                      $     --        $ 16,500
14.25% Series A Second Priority Senior Secured Notes, face amount
    of $0 and $106,000 at December 31, 2000 and 1999, due 2007                    --         130,463
14.25% Series B Second Priority Senior Secured Notes, face amount of
    $126,685 and $0 at December 31, 2000 and 1999, due 2007                  152,778              --
Accrued interest on Notes, paid in kind April 2000                                --           3,812
Foothill Loan Agreement                                                       17,014          12,857
Notes payable to seller                                                           --             166
Notes payable - other                                                          1,502              --
                                                                            --------        --------
                                                                             171,294         163,798

Less current maturities of long-term debt                                      4,286           2,309
                                                                            --------        --------
                                                                            $167,008        $161,489
                                                                            ========        ========
</TABLE>




                                       47
<PAGE>   51


              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

5.  LONG-TERM DEBT, CONTINUED

         The aggregate undiscounted maturities of long-term debt, excluding
capital lease obligations, as of December 31, 2000, are as follows:

         YEAR ENDING DECEMBER 31,                      AMOUNT
         ------------------------                      ------
                                                   (IN THOUSANDS)

                2001                                  $  4,286
                2002                                    11,185
                2003                                     3,045
                2004                                        --
                2005                                        --
                Thereafter                             152,778
                                                      --------
                                                       171,294
Less current maturities of long-term debt                4,286
                                                      --------
Long-term debt, excluding current installments        $167,008
                                                      ========

9 3/4% SENIOR UNSECURED NOTES:

         On September 25, 1997, the Company issued $125,000 principal amount of
9 3/4% senior unsecured notes due 2007. In connection therewith, the Company
repaid all outstanding indebtedness together with accrued interest and fees
associated with such repayment under the Company's existing credit agreement.
The Company incurred a loss on the refinancing of approximately $3,900, net of
income taxes of $1,500. The loss has been classified as an extraordinary item in
the consolidated financial statements in 1997. Interest on the 9 3/4% notes was
payable semiannually on April 1 and October 1 of each year, commencing April 1,
1998. The 9 3/4% notes were redeemable by the Company, in whole or in part, at
any time on or after October 1, 2002 at the redemption price as specified in the
agreement plus accrued and unpaid charges. At any time on or prior to October 1,
2000, the Company had the right to redeem up to 35%, through an initial public
offering, of the aggregated principal amount of the 9 3/4% notes originally
issued at a redemption price equal to 109.75% of the principal amount plus
accrued and unpaid charges. On October 28, 1999, the Company consummated a
private exchange transaction in which approximately 86.8% of the outstanding 9
3/4% notes were tendered in exchange for newly issued 14.25% Series A Second
Priority Senior Secured Notes due 2007. On March 16, 2000, the Company completed
a public exchange offer of Series B Second Priority Senior Secured Notes Due
2007 for the 9 3/4% notes that were still outstanding after the consummation of
the private exchange transaction. As a result of this public exchange, the
Company no longer has any outstanding 9 3/4% notes.

14.25% SERIES A SECOND PRIORITY SENIOR SECURED NOTES DUE 2007:

         On October 28, 1999, the Company completed a private restructuring of
the 9 3/4% notes ("Old Notes"). In the transaction, a limited number of
qualified noteholders ("Exchanging Noteholders") exchanged $108,500 of their Old
Notes for $86,800 of 14.25% Series A Second Priority Senior Secured Notes due
2007 (paid in kind through April 1, 2000) ("New Secured Notes"). The New Secured
Notes were secured by a lien on substantially of all of the Company's assets and
were guaranteed by all of the Company's subsidiaries. Exchanging Noteholders
relinquished their right to receive the October 1, 1999 interest payment of
$5,300 on the Old Notes. Under the exchange agreement, Exchanging Noteholders
also received warrants to purchase 20% of the common stock of the Company at a
nominal exercise price. In connection with the private exchange, Exchanging
Noteholders consented to amendments to the indenture for the Old Notes that,
among other things, modified or eliminated various covenants. The transaction
was accounted for under Statement of Financial Accounting Standards No. 15
"Accounting by Debtors and Creditors for Troubled Debt Restructurings" (SFAS No.
15). Under SFAS No. 15, this transaction is considered a modification of terms
and requires that the carrying amount of the long-term debt remain unchanged.
The difference between the carrying amount of the Old Notes exchanged plus
accrued interest and the face value of the New Secured Notes will be amortized
over the term of the New Secured Notes using the effective interest method. The
effective interest rate is approximately 8.8%. The amount amortized each period
will be recorded as a reduction of interest expense for that period.

         In conjunction with the private exchange of Old Notes for New Secured
Notes, the Company also raised $11,200 in cash through the sale to Rothschild
Recovery Fund L.P. ("RRF") in a private placement of $13,200 principal amount of
New Secured Notes and




                                       48
<PAGE>   52

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

5.  LONG-TERM DEBT, CONTINUED

warrants to purchase 10% of the common stock of the Company at a nominal
exercise price. The funds raised in the private placement were used to reduce
the revolving credit facility under the Foothill Loan Agreement. The issuance of
the New Secured Notes for cash in the private placement resulted in a discount
on notes payable of $2,000 being recognized in the consolidated balance sheet.
The discount will be amortized over the term of the New Secured Notes using the
straight line method, which approximates the effective interest method.

         The Company also issued $6,000 of New Secured Notes to JJF Group
Limited Liability Company ("JJF Group"), a shareholder of the Company controlled
by the estate of John J. Faltis, the former Chairman and Chief Executive Officer
of the Company. The New Secured Notes were issued to JJF Group in exchange for
cancellation of JJF Group's common stock in the Company and its right to require
the Company to buy that stock for approximately $10,600 under a Put Agreement
dated as of August 25, 1998 (the "Put Agreement"). The Company recorded the New
Secured Notes issued at their face value, and the difference between the New
Secured Notes and the common stock available for repurchase (including the
current portion) increased paid-in-capital.

14.25% SERIES B SECOND PRIORITY SENIOR SECURED NOTES DUE 2007:

         In February 2000, the Company commenced a registered exchange of its
14.25% Series B Second Priority Senior Secured Notes Due 2007 for the Series A
notes issued in the transactions described above. The 14.25% Series B notes were
substantially identical to the previously issued Series A notes, but were free
of the transfer restrictions that applied to the Series A notes. On March 16,
2000, the exchange offer was completed and 100% of the Series A notes were
tendered for a like amount of the Company's Series B notes.

         In February 2000, the Company commenced a public exchange offer of
Series B notes for its 9 3/4% notes that were still outstanding after completion
of the transactions described above. In that transaction the Company offered to
exchange up to approximately $12,300 in principal amount of its 14.25% Series B
notes for approximately $16,500 in principal amount of its outstanding 9 3/4%
notes. On March 16, 2000, the exchange offer was completed and 100% of the 9
3/4% notes were exchanged for the Company's Series B notes. As a result of these
exchanges, the Company no longer has any 9 3/4% notes or 14.25% Series A notes
outstanding.

         Interest on the 14.25% notes is payable semi-annually in cash on April
1, and October 1, commencing October 1, 2000. All debt issuance costs associated
with the issuance of the New Secured Notes have been expensed in accordance with
SFAS No. 15.

          The carrying value at December 31, 2000 of the 14.25% notes is
          comprised of the following:

<TABLE>
<CAPTION>
                                             9 3/4% SENIOR       PRIVATE         SHAREHOLDER
                                                 NOTES          PLACEMENT       EXCHANGE WITH
                                               EXCHANGED        WITH RRF          JJF GROUP           TOTAL
                                               ---------        --------          ---------           -----
                                                                     (IN THOUSANDS)
<S>                                          <C>                <C>             <C>                <C>
Face amount issued                             $  99,059        $  13,200         $   6,000        $ 118,259
April 1, 2000 interest paid in kind                7,058              941               427            8,426
October 1, 1999 accrued interest on Old
     Notes                                         5,290               --                --            5,290
Unamortized gain on 9 3/4% Senior Notes
     Exchanged                                    22,468               --                --           22,468
Unamortized discount on notes issued
     To RRF                                           --           (1,665)               --           (1,665)

                                               ---------        ---------         ---------        ---------
Carrying value at December 31, 2000            $ 133,875        $  12,476         $   6,427        $ 152,778
                                               =========        =========         =========        =========
</TABLE>


FOOTHILL LOAN AGREEMENT::

         On November 21, 1998, the Company and Foothill Capital Corporation, as
agent, entered into a loan and security agreement whereby the senior lenders
provided the Company with a $55,000 credit facility (the "Foothill Loan
Agreement"). The Foothill Loan Agreement originally consisted of a $40,000
working capital revolver and a $15,000 term loan. The Foothill Loan Agreement
has been amended from time to time. Commitments under the amended Foothill Loan
Agreement currently expire in 2005. The Foothill Loan Agreement is secured by a
first lien on substantially all of the Company's present and future assets.




                                       49
<PAGE>   53

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

5.  LONG-TERM DEBT, CONTINUED

         Borrowings under the revolver are based on 85% of eligible accounts
receivable and 65% of eligible inventory and bear interest, at the Company's
option, at either 1% above the prime interest or at 3 3/4% above the adjusted
Eurodollar rate. For the years ended December 31, 2000, 1999 and 1998, the
average interest rate was approximately 9.9%, 9.5% and 8.8%, respectively. As of
December 31, 2000 and 1999, there was no outstanding indebtedness under the
revolver.

         The term loan bears interest at 2 1/2% above the prime interest rate
and is payable in monthly installments of principal of $179 plus interest
through November, 2002 with a final balloon payment due on December 1, 2002 in
an amount equal to the then remaining principal balance which is estimated to be
$6,607. The average interest rate for the term loan for the years ended December
31, 2000, 1999 and 1998 was approximately 11.9%, 11.0% and 10.3%, respectively.
As of December 31, 2000 and 1999, the outstanding indebtedness under the term
loan was approximately $10,700 and $12,900, respectively.

         In September, 2000, the Company entered into an amendment to the
Foothill Loan Agreement under which the lenders provided the Company with a
$6,300 supplemental term loan to be used to fund, in part, the October 1, 2000
interest payment due on the Company's 14.25% notes. The supplemental term loan
bears interest at 2 1/2% above the prime interest rate and is payable in monthly
installments of $140 from January 1, 2001 through June 1, 2002 and $210 from
July 1, 2002 through December 1, 2003. The average interest rate for the
supplemental term loan for the period outstanding in 2000 was 12.0%. As of
December 31, 2000, the outstanding indebtedness under the supplemental term loan
was $6,300.

AMENDED AND RESTATED CREDIT FACILITY:

         The Amended and Restated Credit Facility, which was repaid with
proceeds under the Foothill Loan Agreement, provided for a line of credit up to
$71,000. The average interest rate on borrowings under the Amended and Restated
Credit Facility was 8.1% in 1998. The Company incurred a loss on the refinancing
of approximately $965, net of income taxes of $375. The loss has been classified
as an extraordinary item in 1998.

NOTES PAYABLE TO SELLER:

         In conjunction with an acquisition, the Company assumed an outstanding
note payable, which bears interest at approximately 7.5% and was payable in
monthly installments through April 1, 2000.

NOTES PAYABLE - OTHER:

         In the fourth quarter of 2000, the Company purchased various mining
equipment that was subject to operating leases that were expiring. The equipment
purchase was financed through purchase money obligations which are payable in
monthly installments under terms ranging from 36 to 60 months and bear interest
ranging from 1.0% below the prime interest rate to 10.8%.

6.  COMMON STOCK, PREFERRED STOCK, MANDATORILY REDEEMABLE PREFERRED STOCK AND
    TREASURY STOCK

         Common stock, preferred stock, mandatorily redeemable preferred stock
and treasury stock as of December 31 consist of the following:





                                       50
<PAGE>   54



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

6.  COMMON STOCK, PREFERRED STOCK, MANDATORILY REDEEMABLE PREFERRED STOCK AND
    TREASURY STOCK, CONTINUED


<TABLE>
<CAPTION>
             DESCRIPTION                          2000          1999           PAR VALUE        2000            1999
---------------------------------------           ----          ----           ---------        ----            ----
                                                   NUMBER OF SHARES                                (IN THOUSANDS)
                                                AUTHORIZED, ISSUED AND
                                                      OUTSTANDING

<S>                                              <C>            <C>            <C>             <C>             <C>
Common stock                                      7,083          7,108         $  0.01         $    --         $    --
                                                 ======         ======                         =======         =======

Preferred stock:
    Class B                                      10,000         10,000         $ 1,000         $10,000         $10,000
    Class C                                       1,000          1,000         $13,000          13,000          13,000
                                                 ------         ------                         -------         -------
                                                 11,000         11,000                         $23,000         $23,000
                                                 ======         ======                         =======         =======

Mandatorily redeemable preferred stock:
    Class A                                      10,000         10,000         $ 2,500         $31,010         $29,533
    Class D                                       1,000          1,000         $ 7,000           7,000           7,000
    Less preferred stock discount                    --             --                          (9,337)         (9,937)
                                                 ------         ------                         -------         -------
                                                 11,000         11,000                         $28,673         $26,596
                                                 ======         ======                         =======         =======

Treasury stock:
    Common stock                                 (1,013)        (1,013)        $ 4,936         $(5,000)        $(5,000)
    Preferred stock Class C                      (1,000)        (1,000)        $   100            (100)           (100)
                                                 ------         ------                         -------         -------
                                                 (2,013)        (2,013)                        $(5,100)        $(5,100)
                                                 ======         ======                         =======         =======
</TABLE>


COMMON STOCK WARRANTS:

         At December 31, 2000 and 1999, 3,047 common stock warrants were
outstanding. The warrants are exercisable at anytime within 10 years from the
issuance date, which was October 28, 1999, at an exercise price of $0.01 per
share which was the approximate fair value on such date.

PREFERRED STOCK:

         Class B preferred stock is nonvoting, with no dividends, redeemable at
$1,375 per share upon the event of liquidation or other action described in the
preferred stock certificate of designation. Class B stockholders shall be
entitled to receive liquidation distributions senior to common stockholders.

         Class C preferred stock is nonvoting with cumulative dividends payable
based on 4% of the gross realization from certain coal sales, redeemable at par
value upon the event of liquidation or other action described in the preferred
stock agreement. During 1998, the Company repurchased all of the outstanding
Class C preferred stock for $100 per share.

MANDATORILY REDEEMABLE PREFERRED STOCK:

         Class A preferred stock is nonvoting with 5% cumulative dividends,
mandatorily redeemable at par value plus dividends over ten years beginning May
31, 2006. Payment of dividends are restricted by the Company's long-term debt
facilities. Dividends in arrears as of December 31, 2000 and 1999 amounted to
$6,010 and $4,533, respectively, in the aggregate and $601 and $453,
respectively, per share. With regard to rights to receive distributions upon
liquidation of the Company, Class A shares rank junior to Class D preferred
stockholders and senior to Class B preferred and common stockholders. Upon a
public offering by the Company of its common stock, each holder of Class A
preferred stock shall have the right to convert each Class A share to common
shares based on a formula specified in the Class B certificate of designation.

         Class D preferred stock is nonvoting with 2 1/2% cumulative dividends
through 2011, reducing to 1 1/2% cumulative dividends thereafter, calculated on
the gross realization from coal mined and sold from a specified reserve,
redeemable at par value over five years beginning December 31, 2006, if
aggregate dividends paid on or before December 31, 2005 are less than $5,000;
otherwise mandatorily redeemable at par value plus dividends over five years
beginning December 31, 2011. With regard to rights to receive distributions upon
liquidation of the Company, Class D stockholders rank senior to Class A, Class B
and common stockholders.

         The mandatorily redeemable preferred stock was recorded at estimated
fair market value, which is less than redemption value. This difference of
$12,000 is being accreted over the remaining life of the preferred stock.




                                       51
<PAGE>   55

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

7.   COMMON STOCK AVAILABLE FOR REPURCHASE AND LIFE INSURANCE PROCEEDS

         On October 12, 1997, John Faltis ("Faltis"), the Company's President,
Chief Executive Officer and Chairman of the Board of Directors, was killed in a
helicopter accident in West Virginia. In accordance with the Stockholders'
Agreement, dated as of August 12, 1996, among the Company, Faltis, JJF Group,
and others (the "Stockholders' Agreement") the Company maintained key man life
insurance on the life of Faltis in the amount of $15,000. For the year ended
December 31, 1997, $15,000 was included within the consolidated statement of
operations. In accordance with the Stockholders' Agreement, the Company was to
use proceeds received from the insurance policy to repurchase common stock owned
by JJF Group.

         In lieu of certain provisions in the Stockholders' Agreement regarding
the purchase and sale of the Company's common stock owned by JJF Group upon the
death of Faltis, the Company and JJF Group entered into a Put Agreement dated as
of August 25, 1998 (the "Put Agreement") pursuant to which the Company granted
to JJF Group the right to require the Company to purchase such common stock. The
Put Agreement also required the Company to pay interest on the outstanding
balance of the total purchase price at the "blended annual rate" established by
the Internal Revenue Service. For the years ended December 31, 1999 and 1998,
the interest rate for the Put Agreement was 5.6%.

         The Put Agreement and amounts remaining to be repurchased, including
the accrued interest, were cancelled in exchange for the Company's issuance of
$6,000 of New Secured Notes to JJF Group on October 28, 1999. The amount
outstanding under the Put Agreement, including accrued interest, at the time of
the exchange was $10,600. The difference between the amount of New Secured Notes
issued to JJF Group and the amount outstanding under the Put Agreement was
recorded as an increase in paid-in-capital.

8.  INCOME TAXES

         The income tax provision, or benefit, for the years ended December 31
is comprised of the following:

<TABLE>
<CAPTION>
                                                  2000            1999             1998
                                                  ----            ----             ----
                                                              (IN THOUSANDS)

<S>                                              <C>            <C>              <C>
Current:
     Federal provision                           $   --         $    990         $     --
Deferred:
    Change in valuation allowance                 1,421          (15,739)          26,147
    Federal and state                              (796)           5,833          (15,597)
     Tax benefit from net operating losses           --               --          (18,568)
                                                 ------         --------         --------
Total tax provision (benefit)                    $  625         $ (8,916)        $ (8,018)
                                                 ======         ========         ========
</TABLE>


         The reconciliation of the federal statutory tax rate to the
consolidated effective tax rate for the years ended December 31 is as follows:

<TABLE>
<CAPTION>
                                                    2000             1999            1998
                                                    ----             ----            ----
                                                                (IN THOUSANDS)

<S>                                              <C>              <C>              <C>
Federal statutory tax rate                       $ (4,621)        $ (8,516)        $(38,992)
Goodwill                                              598              536              377
Non-deductible amortization of impairment
  of goodwill                                          --               --            6,667
Percentage depletion                                  105              178               85
Change in valuation allowance                       1,421          (15,739)          26,147
Other                                                  88               52              265
Gain on debt forgiveness                              625           13,408               --
Non-deductible interest expense                     2,548               --               --
State taxes                                          (139)           1,165           (2,567)
                                                 --------         --------         --------
                                                 $    625         $ (8,916)        $ (8,018)
                                                 ========         ========         ========
</TABLE>





                                       52
<PAGE>   56


              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

8.  INCOME TAXES, CONTINUED

         The financial statement components that give rise to the net deferred
tax assets and liabilities as of December 31 are as follows:

                                                2000             1999
                                                ----             ----
                                                    (IN THOUSANDS)

Accounts receivable                           $     30         $     30
Notes receivable                                   138              (97)
Prepaid expenses and other                         453               --
Inventory                                           14               17
Other current liabilities                          535              316
Current reclamation                                156            1,007
Accrued leasehold termination                       --            1,528
                                              --------         --------

 Total current                                $  1,326         $  2,801
                                              ========         ========

Property, plant and equipment                 $(12,584)        $(13,539)
Advance minimum royalties                        5,002            5,001
Long-term and other assets                         892              833
Notes receivable                                  (525)            (674)
Accrued expenses and other                       1,880            2,097
Accrued reclamation                              1,178            1,154
Long-term debt                                  11,380           10,816
Capital loss carryforward                        1,436            1,436
Alternative minimum tax credit carryforward      2,184            2,184
Contribution carryforward                           20               --
Net operating loss carryforward                 10,882           10,166
                                              --------         --------
                                                21,745           19,474
Valuation allowance                            (18,349)         (16,928)
                                              --------         --------

 Total long-term                              $  3,396         $  2,546
                                              ========         ========
 Total deferred tax assets                    $  4,722         $  5,347
                                              ========         ========

         The Company has federal regular tax and alternative minimum tax net
operating loss carryforwards of approximately $55,574 and $28,779, respectively,
that are available to offset future taxable income beginning in 2001 and will
begin to expire in 2012. In addition, the Company has alternative minimum tax
credit carryforwards of approximately $2,184 as of December 31, 2000.

         The Company received a federal tax refund of $722 in 1998 through the
utilization of previously unrecognized net operating loss carryforwards. This
refund was allocated directly to goodwill.

         In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during
the periods in which temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment.

9.  BENEFIT PLANS

DEFINED CONTRIBUTION PLANS

         The Company has a contributory defined contribution retirement plan
covering all employees who meet eligibility requirements. The plan provides for
employer contributions representing 5% of compensation. The Company's
contributions amounted to $372, $789 and $1,452 for the years ended December 31,
2000, 1999 and 1998, respectively.

         The Company also has a 401(k) savings plan for all employees who meet
eligibility requirements. The plan provides for mandatory employer contributions
to match 50% of employee contributions of up to a maximum of 2% of each
participant's compensation. In addition, the Company may make discretionary
contributions of up to 5% of employee compensation. The Company's contributions
amounted to $122, $230 and $473 for the years ended December 31, 2000, 1999 and
1998, respectively.




                                       53
<PAGE>   57

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

9.  BENEFIT PLANS, CONTINUED

         In addition, the Company has a 401(h) savings plan for the purpose of
providing retiree health care benefits. The plan is a defined contribution plan
for all employees who meet eligibility requirements and provides for mandatory
employer contributions between .237% and 1.66% of each participant's
compensation, based on years of service. The Company's contributions amounted to
$103, $169 and $309 for the years ended December 31, 2000, 1999 and 1998,
respectively.

STOCK BENEFIT PLAN


         In May 1997, the Company's Board of Directors approved a Stock
Incentive Plan (the Plan) which provides for grants of restricted common stock
and nonqualified, compensatory common stock options to key employees of the
Company and its affiliates. No shares of restricted stock were issued in 2000.
During 1998, 199 shares of restricted stock were granted at par value, which
approximated fair value. The Company cancelled 25 shares of common stock issued
under the Plan in 2000 and 52 shares in 1999.

10.  COMMITMENTS AND CONTINGENCIES

COAL INDUSTRY RETIREE HEALTH BENEFIT ACT:

         Current and projected operating deficits in the United Mine Workers of
America Benefit Trust Funds resulted in the Coal Industry Retiree Health Benefit
Act of 1992 (the "Rockefeller Act"). The Rockefeller Act created a
multi-employer benefit plan called the Combined Benefit Fund (the "Combined
Fund") which provides medical and death benefits for all beneficiaries of the
earlier trust who were actually receiving benefits as of July 20, 1992. Under
the Combined Fund, beneficiaries are assigned to former employers and an
allocation of any unassigned beneficiaries (referred to as "orphans") is made to
all companies using a formula set forth in the Rockefeller Act. Responsibility
for funding benefits under the Combined Fund is assigned to "signatory
operators" who are signatory to the current or prior National Bituminous Coal
Wage Agreements (the "Agreement"). "Related persons" include entities that were
at one time owned by signatory operators. Although the Company does not
currently have any operations which are signatory to the Agreement, it is
subject to liabilities as a result of being signatory to a prior agreement.
Under the Combined Fund, a company's annual cost of benefits is based on the
number of beneficiaries assigned to the company plus a percentage of the cost of
unassigned beneficiaries, which is a function of the number of orphans times the
per-beneficiary premium.

         The Rockefeller Act also created the 1992 Benefit Plan. The 1992
Benefit Plan covers individuals who are not covered under the Combined Fund who
would have been eligible for benefits from earlier trusts (but for the enactment
of the Rockefeller Act) based on age and service as of February 1, 1993. Last
signatory operators and any related person are required to pay a monthly per
beneficiary premium for each beneficiary they are assigned in the 1992 Benefit
Plan.

         The Company has a recorded liability of approximately $5,667 to
recognize the anticipated unfunded obligations under the Combined Fund and 1992
Benefit Plan. The Company paid $602, $343 and $352, respectively, for the years
ended December 31, 2000, 1999 and 1998 to the Combined Fund, excluding the
settlement with the Combined Fund described below.

         In 1997, the Company brought suit against the Combined Fund for
continuing to charge the Company premiums which the Company believed should have
been paid by Consolidated Coal Company ("Consol"). The Combined Fund filed a
counterclaim for the amount of premiums that the Company has refused to pay, as
well as penalties and interest. As noted above, the Company has previously
recorded all anticipated unfunded obligations under the Rockefeller Act,
including the premiums, interest and penalties under dispute. Penalties and
interest were accrued until the final resolution of this matter with the
Combined Fund in the fourth quarter of 1999. The Company paid the final
settlement to the Combined Fund of approximately $1,600 in January 2000. The
Company is still pursuing a claim against Consol for approximately one-third
of the Combined Fund premiums that relate to employees affected by Consol's
alleged breach of several contract mining agreements. See "Item 3 -- Legal
Proceedings" for a description of this matter.

         Of the $5,667 the Company has recorded as a liability, $1,401 relates
to beneficiaries they have been assigned in the 1992 Benefit Plan. The Company
has reached a settlement for past premiums and interest related to the 1992
Benefit Plan. The settlement required a payment of $280 in January, 2001 and
four quarterly installments of $73 each, including interest at 7.0%, beginning
April, 2001. Additionally, the Company will make regular monthly payments
beginning January, 2001, for its on-going liability under both the Combined Fund
and the 1992 Benefit Plan.




                                       54
<PAGE>   58

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

10.  COMMITMENTS AND CONTINGENCIES, CONTINUED

ROYALTIES:

         The Company made production and advance minimum royalty payments of
approximately $7,536, $9,405 and $12,254 during 2000, 1999 and 1998,
respectively. Required advance minimum royalty payments, over the next five
years, under the Company's existing leases are: $3,333 in 2001; $2,443 in 2002;
$2,445 in 2003; $2,401 in 2004; and $2,434 in 2005.

CONTINGENCIES:

         Cave Run, Inc. ("Cave Run") and Pardee & Curtin Lumber Company ("Pardee
& Curtin") co-owned a tract of coal property in Webster County, West Virginia,
which they jointly leased to our subsidiary, Juliana Mining Company, Inc.
("Juliana"). On July 16, 1999, Cave Run initiated an arbitration proceeding
against Juliana under the terms of the lease. Generally, Cave Run claims that
Juliana failed to mine and remove approximately two million tons of mineable and
merchantable coal from the leased property. Cave Run also contends that Juliana
miscalculated certain royalty payments, failed to obtain the highest realization
for coal mined from the leased property, and caused Cave Run to cut timber from
the leased property that should not have been cut. Cave Run has yet to reveal
its alleged damages in the arbitration proceeding. However, before initiating
arbitration, Cave Run made a $1,400 settlement demand, which was rejected by
Juliana. Pardee & Curtin, the co-owner of the leased property, has not pursued
similar claims against Juliana and it has released Juliana from the claims made
by Cave Run in the arbitration proceeding. Juliana believes that Cave Run's
claims against it have no merit and intends to vigorously defend these claims.

         The Company is a party to various other lawsuits and claims incidental
to its business. While it is not possible to predict accurately the outcome of
these matters, management believes that none of these actions will have a
material effect on the Company's consolidated financial position, results of
operations or cash flows.

11.  LEASES

         The Company is obligated under capital leases for various mining
equipment that expire in 2004. As of December 31, 2000 and 1999, the gross
amount of equipment recorded under capital leases was $1,656, and the
accumulated depreciation related to this equipment was $0.

         The Company also has office and mining equipment under operating lease
agreements. Total rent expense under non-cancelable operating leases during the
years ended December 31, 2000, 1999 and 1998 were $4,095, $7,807 and $12,467,
respectively. The leases expire at various dates through 2003.

         Future minimum equipment lease payments under non-cancelable operating
leases and capital lease obligations as of December 31, 2000, are as follows:




                                       55
<PAGE>   59



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

11.  LEASES, CONTINUED

YEAR ENDING DECEMBER 31,                     CAPITAL LEASES    OPERATING LEASES
------------------------                     ----------------------------------
                                                       (IN THOUSANDS)

2001                                             $  480             $2,491
2002                                                480              1,882
2003                                                480                413
2004                                                446                267
                                                 ------             ------
                                                 $1,886             $5,053

Less amount representing imputed interest
   at rates ranging from 6.9% to 9.2%               255
                                                 ------
Present value of net minimum capital
   lease obligations                              1,631
Less current maturities of capital lease
   obligations                                      371
                                                 ------

Capital lease obligations, excluding current
   maturities                                    $1,260
                                                 ======

12.  SUBSIDIARY GUARANTEES

         The Company is a holding company with no assets other than its
investments in its subsidiaries. The Company's outstanding 14.25% notes are
guaranteed by all subsidiaries of the Company (collectively, the "Guarantor
Subsidiaries"). The Guarantor Subsidiaries are wholly owned by the Company and
have fully and unconditionally guaranteed the 14.25% notes on a joint and
several basis. In conjunction with the debt restructuring on October 28, 1999
(see Note 5), the indenture governing the Company's Old Notes was amended to,
among other things, require the Company's non-guarantor subsidiaries to
guarantee the Old Notes. Due to this amendment, the Company has determined that
the presentation of condensed financial information as of December 31, 2000 and
1999 is not material to investors because all subsidiaries are now guarantor
subsidiaries. The net loss for the non-guarantor subsidiaries for the period
ended October 28, 1999 was approximately $200. The non-guarantor subsidiaries
also had cash used in operations and experienced a net decrease in cash of
approximately $200 for the period ended October 28, 1999.

         The following tables summarize the results of operations and cash flows
for the Company, the Guarantor Subsidiaries and the subsidiaries of the Company
which did not guarantee the Old Notes for the year ended December 31, 1998.

<TABLE>
<CAPTION>
                                                                                 AS OF AND FOR THE YEAR
                                                                                 ENDED DECEMBER 31, 1998
                                                         ------------------------------------------------------------------------
                                                                                      (IN THOUSANDS)
                                                                                                                         ANKER COAL
                                                         ANKER COAL     GUARANTOR     NON-GUARANTOR       CONS.            GROUP
                                                           GROUP           SUBS.          SUBS.          ADJUST.           CONS.
                                                           -----           -----          -----          -------           -----

<S>                                                      <C>             <C>             <C>            <C>             <C>
STATEMENT OF OPERATIONS
Coal sales and related revenues                          $      --       $ 290,356       $   --         $     --        $ 290,356
Cost of operations and operating expenses                       --         393,637          775               --          394,412
                                                         ---------       ---------       ------         --------        ---------
Operating loss                                                  --        (103,281)        (775)              --         (104,056)
Other expense (income)                                       2,302           7,605         (716)              --            9,191
                                                         ---------       ---------       ------         --------        ---------
          Loss before taxes and extraordinary item          (2,302)       (110,886)         (59)              --         (113,247)
Income tax benefit                                          (7,643)             --           --               --           (7,643)
                                                         ---------       ---------       ------         --------        ---------
          Income (loss) before extraordinary item            5,341        (110,886)         (59)              --         (105,604)
Extraordinary item, net of tax of $1,497                        --             965           --               --              965
                                                         ---------       ---------       ------         --------        ---------
          Net income (loss)                              $   5,341       $(111,851)      $  (59)        $     --        $(106,569)
                                                         =========       =========       ======         ========        =========

STATEMENT OF CASH FLOWS
Net cash provided by (used in) operating
     activities                                          $   5,255       $ (10,565)      $ (155)        $     --        $  (5,465)
                                                         =========       =========       ======         ========        =========

Net cash used in investing activities                    $      --       $  (8,134)      $   --         $     --        $  (8,134)
                                                         =========       =========       ======         ========        =========

Net cash (used in) provided by financing activities      $  (5,255)      $  18,714       $  155         $     --        $  13,614
                                                         =========       =========       ======         ========        =========
</TABLE>




                                       56
<PAGE>   60


              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

13.  RELATED PARTIES

         In February 1998, the Company sold its investment in Oak Mountain
Energy, LLC to an affiliate for one dollar. The Company tried unsuccessfully to
sell its investment to other unrelated parties during 1997 and early 1998. An
impairment loss was recorded in 1997 to adjust the Company's investment to its
fair market value less the cost to sell such investment.

14.  LOSS ON IMPAIRMENT OF INVESTMENT AND RESTRUCTURING CHARGES

         The significant components of loss on impairment of investment and
restructuring charges for the years ended December, 31 were as follows:


<TABLE>
<CAPTION>
                                                 2000           1999            1998
                                                 ----           ----            ----
                                                            (IN THOUSANDS)

<S>                                            <C>             <C>            <C>
Impairment of properties and investment        $   343         $ 4,169        $44,416
Exit costs                                          --             931         25,411
Assets to be disposed                               --              --         15,983
Equipment leasehold termination costs             (899)          1,126          3,957
Other                                               --              --            950
                                               -------         -------        -------
                                               $  (556)        $ 6,226        $90,717
                                               =======         =======        =======
</TABLE>


         During the fourth quarter of 1998, the Company initiated a
comprehensive new business plan as the basis for its future direction and
operations. The development of the business plan was necessary based on several
factors, including (1) the overall deterioration of operating performance and
financial position, (2) a decline in the coal market and (3) the changes in
senior operational management. Most of the new senior operational managers
joined the Company in early 1998. By the beginning of the fourth quarter of
1998, all senior operational management changes had been completed, and the new
management was sufficiently knowledgeable to prepare performance forecasts. The
forecasts were eventually used to develop five-year cash flow forecasts and the
Company's new business plan. The business plan resulted in a significant shift
in the long-term operating strategy. Through the development of the new business
plan, the Company determined that the estimated future undiscounted cash flows
were below the carrying value of some properties, that some properties were to
be exited and that other assets were to be sold.

         During both 2000 and 1999, the Company continued to evaluate both its
operating and non-operating long-lived assets for possible impairment. Based on
changes in mining operations, the salvage value of leased equipment and a fair
market valuation of the Company's non-operating properties, it was determined
that additional impairment charges were necessary.

IMPAIRMENT OF PROPERTIES AND INVESTMENT:

         The Company's 2000 impairment charge of $343 related to its properties
and investment and is an adjustment made to the value of its coal preparation
plant and loading facility in Upshur County, West Virginia. This facility was
acquired in 1995 and was being held idle for future use in connection with its
Upshur County operations. The Company had entered into a synthetic fuel project
with a third party in 1998 that it anticipated would provide for capital
improvements for these facilities and would result in the use of this facility.
At the end of 1998, when the project was deemed unsuccessful, an impairment
charge was recorded to reflect the then current appraised value of the facility
in its existing condition. In May, 2000, the Company received an updated
appraisal, performed by an independent third party, of certain of its personal
property and fixed assets. As a result of the appraisal, in the fourth quarter
of 2000, the Company made a downward adjustment in the carrying value of this
facility to reflect the value contained in the third party appraisal.

         The components of the 1999 impairment charges related to the Company's
properties and investment were as follows:

                                       PROPERTY,       ADVANCE
                                       PLANT AND       MINIMUM
           DESCRIPTION                 EQUIPMENT      ROYALTIES        TOTAL
           -----------                 ---------      ---------        -----
                                                    (IN THOUSANDS)

Barbour County, WV                     $   617         $    --        $   617
Tazewell County, VA                        957           2,000          2,957
Monongalia County, WV                    1,078              --          1,078
Preston and Taylor Counties, WV           (483)             --           (483)
                                       -------         -------        -------
                                       $ 2,169         $ 2,000        $ 4,169
                                       =======         =======        =======




                                       57
<PAGE>   61



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

14.  LOSS ON IMPAIRMENT OF INVESTMENT AND RESTRUCTURING CHARGES, CONTINUED

         Barbour County. In the third quarter of 1999, the operating sections of
the Company's Barbour County deep mine were moved from one area of the operation
to another. As a result of the move, certain unamortized assets totaling $617
were no longer useful in the mining operation. Other unamortized assets
associated with this area of the Barbour County operation totaling $1,700 were
not impaired because the Company believes these assets will be used for future
mining activities.

         Tazewell County. The carrying value and future mining plans for the
Company's Tazewell County non-operating properties were reviewed during 1999.
Based on an independent third party valuation and an assessment of the Company's
future mining plans, it was determined that the carrying value of the properties
and advance minimum royalties were impaired by $957 and $2,000, respectively.
Based on current market conditions, the Company does not presently intend to
further develop the non-operating properties located in Tazewell County.

         Monongalia County. The Company reviewed the carrying value of
internally developed inventory and production computer software during the
second quarter of 1999. The Company determined that, in connection with the use
of contract miners at the Company's deep mines, that this software would no
longer be utilized. As a result, the Company recorded an impairment loss of
$1,078.

         Preston and Taylor Counties. In the third quarter of 1999, the Company
sold assets previously classified as assets held for sale. The proceeds of the
sale exceeded the carrying value of the assets by $483. This resulted in an
income offset to the impairment charge for 1999.

         The components of the 1998 impairment charges related to the Company's
properties and investments were as follows:


<TABLE>
<CAPTION>
                                              PROPERTY,       ADVANCE
                                              PLANT AND       MINIMUM
             DESCRIPTION                      EQUIPMENT      ROYALTIES      GOODWILL         TOTAL
             -----------                      ---------      ---------      --------         -----
                                                                (IN THOUSANDS)

<S>                                           <C>            <C>            <C>             <C>
Raleigh County, WV                             $    --        $    --        $ 5,705        $ 5,705
Upshur County, WV                                6,036             --             --          6,036
Grant County, WV and Garrett County, MD         11,113          7,009             --         18,122
Monongalia and Preston Counties, WV              2,652          2,895          9,006         14,553
                                               -------        -------        -------        -------
                                               $19,801        $ 9,904        $14,711        $44,416
                                               =======        =======        =======        =======
</TABLE>


         Raleigh County. The impairment relating to Raleigh County, West
Virginia, was a result of a change in the expected future production from this
property. The Company controlled additional reserves adjacent to the current
mine that would have required additional investment to mine. In late 1998, the
Company decided not to make that additional investment due to an insufficient
expected return on investment, and subsequently surrendered the reserves. As a
result, the life of the mine was shortened and the expected future cash flows
were reduced, which created the $5,705 impairment.

         Upshur County. The impairment relating to Upshur County, West Virginia,
was an adjustment in the value of a coal preparation plant and loading facility
that was acquired in 1995. This facility was held idle for future use in
connection with Upshur County coal operations. In early 1998, the Company
entered into a synthetic fuel project with a third party. The Company expected
that the project would provide capital improvements for these facilities and
that the facilities would be used in connection with the production and sale of
the synthetic fuel. By the end of 1998, the synthetic fuel project was not
successful, and the Company no longer expected the capital improvements to be
made. Without the project and the expected capital improvements, the facility
will remain idle indefinitely. As a result, the Company recorded the impairment
listed above. The amount of the impairment represented the difference between
the carrying amount and a third-party appraisal performed in connection with the
loan agreement with Foothill. The appraisal valued the facilities in their
current state.

         Grant and Garrett Counties. The impairments relating to Grant County,
West Virginia and Garrett County, Maryland are combined because mines in these
neighboring counties serve the same coal market. These impairments relate to the
cancellation of a coal sales contract and the delay in obtaining a new mining
permit which was subsequently received in December, 1999.





                                       58
<PAGE>   62



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

14.  LOSS ON IMPAIRMENT OF INVESTMENT AND RESTRUCTURING CHARGES, CONTINUED

         In 1998, the Company operated three coal mines in these two counties.
Two of these mines were acquired and developed in 1997. In connection with the
acquisition of one of these mines, the Company acquired two coal sales
contracts. However, one of these contracts was subsequently cancelled, and the
Company was unable to sell the coal that would have been sold under the
cancelled contract. As a result, mining operations were adjusted for a lower
production level and the Company still believed it could achieve the same level
of performance through reductions in the cost of mining. During 1998, the
Company evaluated various operating plans for these mines to improve their
financial performance. By the end of 1998, the Company determined that the
remaining operating plans would result in lower than expected operating
performance for the future.

         In addition, at the same time, the Company was forced to idle its
surface mine in Grant County because it was unable to secure a new mining permit
that was necessary to continue the surface mine operation. Although the Company
assumed it could secure the permit, which was in fact issued in December 1999,
the delay resulted in significantly lower cash flows on a present value basis.
As a result of the cancellation of the contract and the delay in the permit
issuance, the Company recorded the loss of impairment as shown above.

         Monongalia and Preston Counties. The impairment for Monongalia and
Preston Counties, West Virginia relates to the mining operations conducted by
one of the Company's subsidiaries in those two counties. Of the total $14,553
impairment, $14,153 relates to the subsidiary's operations in Monongalia County
and the remaining $400 of the impairment relates to its operations in Preston
County.

         The impairment for Monongalia County relates primarily to reductions in
the price expected to be received for the high sulfur coal produced from these
operations. Although a substantial portion of the Company's total production is
sold under long-term contracts, a significant portion of the production in
Monongalia County is sold on a short-term basis or in the spot market. As a
result, these operations are subject to price fluctuations. For several years
leading up to and including 1998, the prices for this coal had deteriorated.
These price reductions caused the Company to lower production levels and analyze
various operating strategies. The results of the analyses coupled with the
market changes lowered estimated future cash flows from this property and, when
compared with the carrying values for the property, generated this impairment.

         The $400 impairment for Preston County, West Virginia relates to the
active operations in this county which are expected to cease in early 2000. The
most significant portion of this adjustment is the result of the Company's
decision not to mine additional coal reserves in this county. As a result of
this decision, the Company was left with carrying amounts on a preparation plant
and loading facility that were expected to be used with new operations without a
useful life beyond early 2000. As a result, the expected carrying value beyond
early 2000 was fully impaired. The remaining reserves were sold during 1999. The
proceeds received from the sale of the reserves were $483 greater than the
carrying value, resulting in an income offset to the 1999 impairment charge.

EXIT COSTS:

         During the second quarter of 1999, in connection with the close down of
the Company's operations in Webster County, the Company recorded $931 of
additional charges for reclamation and other close down costs to be incurred
over the remaining phases of the reclamation process as a result of a change in
the Company's estimates. As of December 31, 2000, approximately $514 of such
costs had been paid resulting in a remaining reserve of $417 for such costs. The
most significant component of change in estimate was an increase in the cost per
bank cubic yard as a result of a change in the reclamation contractor utilized
at the site.

         During 1998, the Company decided to exit its investment in Webster and
Braxton counties in West Virginia. This decision was based on then current
market conditions and expected future mining costs. Although the Company still
owns or controls assets in these counties, no operations are expected in the
future and all active operations will be reclaimed. At December 31, 2000, the
balance of the $5,100 reclamation accrual was zero since we had incurred and
paid such costs associated with the reclamation of these properties in 1999 and
2000. The Company attempted to sell these assets, but was unsuccessful and is
permanently reclaiming the active operations. The exit charges associated with
the investment in these counties consist of the following:

               ASSET CATEGORY                  AMOUNT
               --------------                  ------
                                          (IN THOUSANDS)

         Property, plant and equipment        $13,569
         Reclamation accrual                    5,100
         Advanced minimum royalties             1,651
         Goodwill                               4,896
         Other                                    195
                                              -------
                                              $25,411
                                              =======





                                       59
<PAGE>   63



              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

14.  LOSS ON IMPAIRMENT OF INVESTMENT AND RESTRUCTURING CHARGES, CONTINUED

ASSETS TO BE DISPOSED:

         During 1998, as part of the Company's liquidity planning, some assets
were identified as being held for sale. These assets had been reclassified to a
separate asset account and were adjusted to their fair market value. Fair market
values were based on current offers, third party appraisals and other
information the Company believes was relevant to establish these values. The
charges for assets held for sale consist of the following:

                         PROPERTY,       ADVANCE
                         PLANT AND       MINIMUM       ADJUSTMENT
    DESCRIPTION          EQUIPMENT      ROYALTIES        TOTAL
    -----------          ---------      ---------        -----
                                     (IN THOUSANDS)

Raleigh County, WV        $ 1,353        $ 2,419        $ 3,772
Preston County, WV          7,721          4,026         11,747
Other Property                464             --            464
                          -------        -------        -------
Total                     $ 9,538        $ 6,445        $15,983
                          =======        =======        =======


         The assets held for sale in Raleigh County consist of undeveloped coal
reserves. The undeveloped coal reserves are separate from active operations and
related coal processing and loading facilities in those counties. In the third
quarter of 1999, the Company sold substantially all of its undeveloped coal
reserves in Preston County for $1,250 in cash plus royalties on future
production and options to purchase up to 800,000 tons of coal per year produced
from these reserves for a ten-year period.

EQUIPMENT LEASEHOLD TERMINATION COSTS:

         In conjunction with the mining operational changes described above, the
Company expects to incur losses on equipment currently covered by operating
leases. The Company recorded losses that could potentially result from these
leases. These losses were estimated by comparing lease buyout costs with the
expected fair market value of the underlying equipment. An expected loss of
$1,126 was reflected for the year ended December 31, 1999, and had been recorded
as equipment leasehold termination costs. As these operating leases expire, the
equipment is, because of its heavy use and condition from being operated in
connection with its business, either purchased and sold if it is not expected to
be used further in its operations, or it is leased for an additional period
under either a capital or operating lease based on several economic factors.
Accordingly, as these leases expire, the estimated loss may change and, in the
case of conversion to a capital lease arrangement or an outright purchase of the
equipment, the potential liability for loss from the lease termination is
eliminated. During the fourth quarter of 2000, the Company reviewed its accrual
for leasehold termination costs and, as a result of the conversion of operating
leases to capital leases and the sale of certain equipment that was purchased
under buyout provisions of operating leases, the Company had reversed
approximately $899 of such costs which had been recorded as a loss on impairment
in previous years. Approximately $1,126 and $3,957 had been recorded as
leasehold termination costs for the years ended December 31, 1999 and 1998,
respectively.

15.  CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

         The Company principally markets steam coal to electric utilities and
independent power producers in the Northeast and mid-Atlantic states and
metallurgical coal to domestic coking plants. As of December 31, 2000, 1999 and
1998, accounts receivable from electric utilities and independent power
producers were $13,872, $15,587 and $18,898, respectively. Credit is extended
primarily based on an evaluation of the customer's financial condition and
collateral is generally not required. Receivables are generally due within 30 to
45 days. Credit losses have historically been minimal.

         The Company is committed under several long-term contracts to supply
coal that meets certain quality requirements at specified prices. Price
adjustments, either positive or negative, may be made for quality fluctuations
based on contractual terms. Quantities sold under some of these contracts may
vary from year to year within certain limits at the option of the customer.
These contracts range from one to twenty-one years with fixed base prices which
may change based on certain industry or government indices.

         Coal sales to the Company's largest customer, AES Corporation, were
$53,674, $42,485 and $52,500 for years ended December 31, 2000, 1999 and 1998,
respectively. Accounts receivable from AES Corporation were $2,336, $1,559 and
$6,028 at December 31, 2000, 1999 and 1998, respectively.




                                       60
<PAGE>   64

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

15.  CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS, CONTINUED

         Sales to the Company's three largest customers, each of whom accounted
for 10% or more of its total revenues on an individual basis, represented 59.5%,
47.8% and 39.7% of total revenues for the years ended December 31, 2000, 1999
and 1998, respectively.

16.  FINANCIAL CONDITION OF THE COMPANY

         For the year ended December 31, 2000, the Company incurred an operating
loss of $1,769, and a net loss available to common stockholders of $16,292. For
the years ended December 31, 1999 and 1998, the Company had incurred significant
operating losses of $14,436 and $104,056, respectively, and net losses available
to common stockholders for the years ended December 31, 1999 and 1998 of $18,559
and $108,506, respectively. Included in these operating losses were loss on
impairment of investment and restructuring charges of $(556), $6,226 and $90,717
in 2000, 1999 and 1998, respectively. As noted in the consolidated balance sheet
and in Note 5, the Company is highly leveraged and recently completed troubled
debt restructuring in April 2001 and October 1999. The October 1999 debt
restructuring provided additional liquidity and the ability to defer one
interest payment on the 14.25% notes by issuing additional long-term debt
instead of making a cash payment at that time. In addition, the Company obtained
a supplemental term loan of $6,300 in October 2000, to fund, in part, the $9,027
interest payment due under its 14.25% notes. The April 2001 exchange offer was
made to strengthen the Company's balance sheet and improve its cash flow by
reducing long-term debt and interest expense. In 2001, the Company will face
debt service payments related to its 14.25% notes and Foothill Loan Agreement of
approximately $20,000 with the only capital resources being the Foothill Loan
Agreement, cash from operations and asset sales. In 2002, the Company will face
debt service payments related to its 14.25% notes and Foothill Loan Agreement of
approximately $18,350, excluding a $6,607 balloon payment due on December 1,
2002 under the original term loan. Management believes that the $12,667
reduction in operating loss achieved during 2000 through the use of contract
miners at its deep mines and other cost reductions, the reduction in interest
expense as a result of the April 2001 exchange offer and the implementation of
the business plan to improve operating and financial performance, will provide
the necessary operating cash flow to fund near term debt service payments.

17.  SUPPLEMENTAL CASH FLOW INFORMATION

         Supplemental cash flow information for the years ended December 31:

<TABLE>
<CAPTION>
                                                                  2000            1999             1998
                                                                  ----            ----             ----
                                                                             (IN THOUSANDS)

<S>                                                            <C>              <C>              <C>
Cash paid for interest                                         $(10,719)        $ (9,170)        $(13,617)
Cash (paid for) received from taxes                            $   (359)        $    200         $    722

Non cash activities:
     Redeemable preferred stock dividends and
          accretion                                            $  2,077         $  2,008         $  1,937
     Common stock available for repurchase accretion                 --              421               --
     Assets acquired under capital leases and other
          financing arrangements                                  3,181               --               --
     Accrued interest reclassified to long-term debt              8,426            5,290               --
     Common stock available for repurchase reclassified
          to long-term debt                                          --            6,000               --
     Common stock available for repurchase reclassified
           to paid-in capital                                        --            4,586               --
</TABLE>


18.  FAIR VALUE OF FINANCIAL INSTRUMENTS

         The fair value of the financial instruments disclosed below is not
necessarily representative of the amount that could be realized or settled, nor
does the fair value consider the tax consequences of realization or settlement.
The following summarizes the carrying value and approximate fair value of the
Company's financial instruments at December 31:






                                       61
<PAGE>   65

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

18.  FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED

<TABLE>
<CAPTION>
                                           2000                            1999
                                 ------------------------        ------------------------
                                    FAIR         CARRYING           FAIR         CARRYING
                                   VALUE           VALUE           VALUE           VALUE
                                   -----           -----           -----           -----
                                                      (IN THOUSANDS)

<S>                              <C>             <C>             <C>             <C>
Cash and cash equivalents        $      5        $      5        $      7        $      7
Long-term debt                     71,238         167,008         101,894         161,489
</TABLE>


         The carrying amount of cash and cash equivalents approximates fair
value at December 31, 2000 and 1999.

         At December 31, 2000 and 1999, the fair value of the Company's senior
notes is estimated based on a value established by a recent trading price of the
Company's notes and on quoted market prices, respectively. The carrying value of
the Company's other borrowings approximate the fair value of those instruments.

19.  QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)

         The following is a summary of the unaudited quarterly results of
operations for 2000 and 1999:

<TABLE>
<CAPTION>
               2000                             1ST QUARTER     2ND QUARTER      3RD QUARTER       4TH QUARTER
               ----                             -----------     -----------      -----------       -----------
                                                                       (IN THOUSANDS)

<S>                                             <C>             <C>              <C>               <C>
Coal sales and related revenue                   $ 57,663         $ 54,717         $ 58,358         $ 55,226
Loss before extraordinary items                    (2,205)          (2,776)          (3,027)          (6,207)
Net loss                                           (2,205)          (2,776)          (3,027)          (6,207)
Net loss available to common stockholders          (2,725)          (3,294)          (3,547)          (6,726)


               1999
               ----
Coal sales and related revenue                   $ 56,636         $ 57,117         $ 59,958         $ 56,202
(Loss) income before extraordinary items           (2,544)          (8,784)          (4,946)             144
Net (loss) income                                  (2,544)          (8,784)          (4,946)             144
Net loss available to common stockholders          (3,046)          (9,285)          (5,590)            (638)
</TABLE>


20.  SUBSEQUENT EVENTS

         On April 12, 2001, the Company completed an exchange offer whereby
holders of its outstanding 14.25% notes tendered $34,207 in aggregate principal
amount of such notes in exchange for 34,207 shares of Class E convertible
preferred stock.

         As part of this exchange, the Company entered into an amendment of the
Foothill Loan Agreement under which the lenders (i) consented to the
transactions contemplated by the exchange and (ii) reduced the excess
availability requirement for making advances to pay interest on the notes from
$5,000 to $2,500 for the period from March 13, 2001 through November 1, 2001.
The amendment also imposed an additional temporary EBITDA covenant upon the
Company for the three month periods ending June 30, 2001 through October 31,
2001.

          The Company also, as part of the exchange, took the following actions
prior to, or coincident with, the exchange offer; (i) cancelled its Class C
preferred stock; (ii) amended and restated its certificate of incorporation to
increase its authorized capital stock, established the Class E convertible
preferred stock and effected a 1 for 1,000 reverse stock split of its
outstanding common stock; (iii) amended and restated its certificates of
designation for its Class A, Class B and Class D preferred stock; (iv) paid the
interest that had accrued since October 1, 2000 on all notes tendered in the
exchange; and (v) paid the interest previously due on April 2, 2001 with respect
to the unexchanged notes.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.




                                       62
<PAGE>   66

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         As of March 30, 2001 the names, ages and positions of the Company's
executive officers and the executive officers of the Company's subsidiary, Anker
Energy Corporation, are as follows:

<TABLE>
<CAPTION>
              NAME                                AGE         POSITION
              ----                                ---         --------

<S>                                               <C>         <C>
              William D. Kilgore, Jr.             65          Chairman of the Board and Chief Executive Officer
              P. Bruce Sparks                     45          Director and President
              John A. H. Shober                   67          Director
              Willem H. Hartog                    38          Director
              Richard B. Bolen                    52          Senior Vice President - Sales, Anker Energy Corporation
              Gerald D. Peacock                   47          Vice President of Operations, Anker Energy Corporation
              David D. Struth                     39          Treasurer and Chief Financial Officer
              B. Judd Hartman                     37          Secretary
              James A. Walls                      38          Assistant Secretary
</TABLE>


         The term of each of the directors expires annually upon the election
and qualification of a successor at the annual meeting of our stockholders. The
executive officers serve in their capacity until a successor is duly elected and
qualified or until their earlier death, resignation or removal.

MANAGEMENT BIOGRAPHIES

         WILLIAM D. KILGORE, JR. Mr. Kilgore was named Chairman of the Company's
Board and the Company's Chief Executive Officer, as well as Chief Executive
Officer of Anker Energy Corporation, the Company's subsidiary, on May 1, 1999.
Mr. Kilgore has over 40 years experience in the coal industry. Over the past
five years, Mr. Kilgore has also served as a consultant to Kanawha Eagle, LLC,
Double Eagle, LLC, New Eagle, LLC and Mossy Eagle, LLC, all of which are Central
Appalachian coal companies. Mr. Kilgore served as President/Chief Executive
Officer and Director of Agipcoal from 1989 to 1994 and as Vice President/General
Manager of Enoxy Coal, Inc. from 1985 to 1989.

         P. BRUCE SPARKS. Mr. Sparks has been the Company's President since
October 28, 1997, and he has been a stockholder since 1996. From 1988 to October
1997, he was Executive Vice President of Anker and the Company's predecessor,
Anker Group, Inc. Mr. Sparks was the Vice President of Administration and Chief
Financial Officer of Anker Group from 1985 until 1988. A 1976 business graduate
from Concord College, he spent seven years in various management positions with
CoalARBED, Inc., a coal company, the last of which was as Vice President and
Chief Financial Officer before joining us. Mr. Sparks has been with the Company
for 15 years.

         JOHN A. H. SHOBER. Mr. Shober was elected Chairman of the Board on
October 28, 1997, and he served as Chairman until June 8, 1999. He has served as
one of the Company's Directors since 1996. Mr. Shober is a private investor and
corporate director. Mr. Shober serves as a director of Penn Virginia
Corporation, a natural resources company; Airgas, Inc., a distributor of
industrial gas and industrial gas supplies; Hercules, Inc., a manufacturer of
performance chemicals; C&D Technologies, Inc., a manufacturer of stored power
systems; Ensign-Bickford Industries, Inc., a manufacturer of detonation devices;
and MIBRAG mbH, a German coal mining and power company. He serves as a member of
the Advisory Board of First Reserve Corporation, which oversees the investment
activities and decisions of First Reserve acting in its capacity as manager for
the First Reserve Funds' investment portfolios.

         WILLEM H. HARTOG. Mr. Hartog was elected one of the Company's Directors
on December 31, 1998. Mr. Hartog has been Senior Vice President Finance and
Administration of Anker Holding B.V. and various of its subsidiaries since 1998
and has worked for Anker Holding B.V. in various capacities since 1994. Prior to
joining Anker Holding, Mr. Hartog was employed by KPMG as a member of its audit
staff.

         RICHARD B. BOLEN. Mr. Bolen has been Senior Vice President-- Sales of
Anker Energy Corporation since June 8, 1998. Mr. Bolen joined an affiliate of
Anker Energy Corporation in 1979 and served as its President from 1980 through
1994. In 1994, he became President of another affiliate, and, in 1995, he
assumed the additional duties of Vice President Operations, Southern Region, for
Anker Energy Corporation. From October 1996 to June 1998, Mr. Bolen was Senior
Vice President of Operations of Anker Energy Corporation. Mr. Bolen is a 1970
graduate of Virginia Polytechnic Institute with a degree in Mining Engineering.
Prior to joining Anker Energy, he served in various management capacities with
Consolidation Coal Company, Virginia Electric and Power Company, Jewell
Smokeless Coal Corporation and Jno. McCall Coal Company.




                                       63
<PAGE>   67

         GERALD D. PEACOCK. Mr. Peacock joined Anker Energy Corporation in June
1998, as Vice President of Operations. He graduated from Southern Illinois
University with a Bachelor of Science Degree in Mechanical Engineering in 1976.
Prior to June, 1998, he was employed by Arch Mineral Corporation for 20 years,
serving in several senior positions, including President and Vice President of
Catenary Coal Holdings, Inc., one of Arch's operating subsidiaries.

         DAVID D. STRUTH. Mr. Struth joined Anker Coal Group, Inc. in March
2000, as Treasurer and Chief Financial Officer. He also serves as Vice President
of Finance and Administration of Anker Energy Corporation. Prior to March, 2000,
he was employed by Herr-Voss Industries, Inc. (formerly Salem Corporation) for
14 years in various accounting and tax positions, and most recently served as
its Controller and Secretary from November 1997 to December 1999. Mr. Struth
graduated from Indiana University of Pennsylvania with a Bachelor of Science in
Business Administration in 1983. He also earned a Master of Science in Taxation
from the Graduate School of Business at Robert Morris College in 1988. Mr.
Struth is a Certified Public Accountant and a member of the American and
Pennsylvania Institutes of Certified Public Accountants and the West Virginia
Society of Certified Public Accountants.

         B. JUDD HARTMAN. Mr. Hartman has been the Company's Secretary since
November 1, 1997. He also serves as Vice President of Legal Affairs of Anker
Energy Corporation. Prior to joining us, Mr. Hartman was a partner with the law
firm of Spilman, Thomas & Battle in Charleston, West Virginia, a firm that he
joined in 1989 as an associate. Mr. Hartman graduated from Washington and Lee
University in 1985 with a Bachelor of Arts degree in Economics and received his
Juris Doctorate degree in 1989 from Wake Forest University School of Law. Mr.
Hartman has been with the Company for three years.

         JAMES A. WALLS. Mr. Walls has been the Company's Assistant Secretary
since 1993. He also serves as General Counsel of Anker Energy Corporation. He
graduated from West Virginia University with a Bachelor of Science/Bachelor of
Arts and Juris Doctorate degree in 1989. Prior to March of 1993, he was employed
by Spilman, Thomas & Battle in Charleston, West Virginia. Mr. Walls has been
with the Company for eight years.

ITEM 11.  EXECUTIVE COMPENSATION

         The following table presents summary information of the compensation
that the Company paid or accrued for services rendered in all capacities for the
last three completed fiscal years for our Chief Executive Officer and each of
the four other most highly compensated executive officers of us or Anker Energy
Corporation, determined as of December 31, 2000.

<TABLE>
<CAPTION>
                                                              SUMMARY COMPENSATION TABLE
                           ---------------------------------------------------------------------------------------------------------
                                         ANNUAL COMPENSATION                    LONG-TERM COMPENSATION AND AWARDS
                           --------------------------------------------------   ---------------------------------
                                                                                              SECURITIES
                                                                                              UNDERLYING
                                                                                RESTRICTED     OPTIONS/
NAME AND                   FISCAL                              OTHER ANNUAL       STOCK          SARS      LTIP        ALL OTHER
PRINCIPAL POSITION          YEAR      SALARY       BONUS      COMPENSATION(1)     AWARDS          (#)    PAYMENTS   COMPENSATION (2)
------------------          ----      ------       -----      ---------------     ------          ---    --------   ----------------

<S>                         <C>      <C>          <C>         <C>               <C>           <C>        <C>        <C>
William D. Kilgore, Jr      2000     $315,000     $112,839              --           --            --       --        $  8,903
Chairman of the Board       1999      212,019           --        $  6,097           --            --       --              --
& Chief Executive           1998           --           --              --           --            --       --              --
Officer(3)

P. Bruce Sparks             2000      276,554      129,283              --           --            --       --          14,722
President                   1999      271,842       13,700              --           --            --       --          13,856
                            1998      267,404       15,000           2,391           --            --       --          13,856

Richard B. Bolen            2000      150,000       20,000              --           --            --       --          14,722
Senior Vice President       1999      150,000           --              --           --            --       --          12,990
- Sales (Anker Energy)      1998      172,115           --             761           25(4)         --       --          13,856

Gerald D. Peacock(5)        2000      150,000       30,000              --           --            --       --          12,706
Vice President of           1999      150,000           --              --           --            --       --           7,834
Operations                  1998       93,654       15,000              --           20(4)         --       --             448
(Anker Energy)

B. Judd Hartman             2000      140,000       40,000              --           --            --       --          13,109
Secretary                   1999      131,827           --              --           --            --       --           9,853
                            1998      127,500           --          28,059(6)        25(4)         --       --           2,879
</TABLE>

------------

(1)      Unless otherwise indicated, perquisites and other personal benefits do
         not exceed the lesser of $50,000 or 10% of the total annual salary and
         bonus compensation reported for the named executive officer.

(2)      All other compensation includes annual Company contributions to 401(k)
         and money purchase pension defined contribution plans.



                                       64
<PAGE>   68

(3)      Mr. Kilgore was named Chief Executive Officer and Chairman of the
         Company's board of directors on May 1, 1999. See "-- Employment
         Agreements" below for a description of Mr. Kilgore's compensation
         arrangements.

(4)      On October 1, 1998, Mr. Bolen, Mr. Peacock and Mr. Hartman received
         restricted stock awards of common stock under the Company's 1997
         Omnibus Stock Incentive Plan. Awards were valued for purposes of the
         plan at the par value of the common stock, which is $0.01 per share.

(5)      Anker Energy Corporation hired Mr. Peacock on May 11, 1998. The listed
         amounts for 1998 represent only compensation he received from May 11,
         1998 through December 31, 1998. The Company estimate that his annual
         compensation for 1998 would have been: salary, $150,000; bonus,
         $15,000; and other annual compensation, $0.

(6)      Includes moving expenses, tax and medical reimbursements, stock award
         and country club membership. The amount of moving expenses included is
         $14,707.

BOARD COMPENSATION

         All directors are reimbursed for their usual and customary expenses
incurred in attending all board and committee meetings. Each director who is not
also an officer receives an aggregate annual fee of $12,000 for serving on the
Company's board of directors.

EMPLOYMENT AGREEMENTS

         Mr. Sparks has an employment agreement with us and the Company's
subsidiaries, Anker Group, Inc., Anker Energy Corporation and Simba Group, Inc.
The agreement with Anker Energy Corporation is dated as of August 1, 1996 and
expires on July 31, 2002. The agreement with Anker Energy Corporation provides
for Mr. Sparks' employment as an executive officer of Anker Energy Corporation
at an annual salary of:

         o        $250,000 for the period August 1, 1996 through July 31, 1997

         o        $257,500 for the period August 1, 1997 through July 31, 1998

         o        $265,200 for the period August 1, 1998 through July 31, 1999

         o        $273,200 for the period August 1, 1999 through July 31, 2000

         o        $281,200 for the period August 1, 2000 through July 31, 2001
                  and

         o        $289,600 for the period August 1, 2001 through July 31, 2002.

         The agreement with Anker Energy Corporation also provides for a
quarterly bonus of $3,750 for each calendar quarter during its duration, and a
yearly bonus based on the Company's financial performance. Mr. Sparks may
terminate his employment upon 30 days' notice. In the event Anker Energy were to
terminate Mr. Sparks other than for cause at any time on or after August 1,
2000, Mr. Sparks would have the option to receive either

         o        250% of his then current annual salary or

         o        the compensation, bonuses and other benefits he would have
                  been entitled to receive under the agreement with Anker Energy
                  Corporation, had Anker Energy Corporation not terminated him,
                  for a period of two years. In addition, Mr. Sparks is entitled
                  to participate in any of Anker Energy Corporation's pension
                  plans for which he is eligible. Mr. Sparks' agreement with
                  Anker Energy Corporation also requires him not to compete with
                  Anker Energy Corporation during the employment term and for a
                  period of one year following the termination of the agreement.
                  Mr. Sparks also has employment agreements, each without
                  compensation, with us, Anker Group, Inc. and Simba Group,
                  Inc., providing for his seat on the board of directors of
                  those companies and his employment as an executive officer of
                  those companies.

         Mr. Kilgore also has an employment agreement with us and Anker Energy
Corporation, dated as of May 1, 1999. The term of the agreement ends on December
31, 2002. The agreement provides for Mr. Kilgore's employment as Chief Executive
Officer and Chairman of the Board of Directors at an annual salary of $315,000.
Mr. Kilgore is entitled to participate in any of Anker Energy Corporation's
benefits plans for which he is eligible and may be reimbursed for costs of
relocating his residence, not to exceed $125,000. Mr. Kilgore also may receive
cash bonuses, at Anker Energy Corporation's discretion, and an incentive bonus
in the event




                                       65
<PAGE>   69

the Company undergoes a change of control. The incentive bonus, which would be
calculated based on specified financial tests' being met, can be as much as $2.5
million.

         In the event that Anker Energy Corporation were to terminate Mr.
Kilgore's employment other than for cause on or before May 1, 2001, Mr. Kilgore
would be entitled to receive, in addition to the salary and bonus he had earned
to that date, the amount of his annual salary he would have received for an
additional 36 months less the number of months that have elapsed since Mr.
Kilgore's employment. In the event that Anker Energy Corporation were to
terminate Mr. Kilgore's employment other than for cause after May 1, 2001 but
before May 1, 2002, Mr. Kilgore would be entitled to the annual salary he would
have received for an additional year had he not been terminated. In the event
that Anker Energy Corporation were to terminate Mr. Kilgore's employment other
than for cause after December 31, 2002, Mr. Kilgore would be entitled to the
annual salary he would have received for an additional year had he not been
terminated. Mr. Kilgore's agreement with Anker Energy Corporation also requires
him not to compete with Anker Energy Corporation during the employment term and
for a period of two years following the termination of the agreement.

         None of the Company's other employees has an employment contract with
us or any of the Company's subsidiaries.

1997 OMNIBUS STOCK INCENTIVE PLAN

         GENERAL

         The Company's 1997 Omnibus Stock Incentive Plan provides for the
issuance of restricted stock awards or stock options to designated officers and
key employees of us or the Company's affiliates of up to a maximum of 0.300
shares, after giving effect to the reverse stock split on April 12, 2001,
of authorized but unissued or reacquired shares of the Company's common stock.
The plan is intended to motivate, reward and retain participants in the plan for
contributing to the Company's long-term success. It does so by providing an
opportunity for meaningful capital accumulation linked to the Company's future
success and appreciation in shareholder value.

         The Company's president is responsible for administering the plan.
Subject to the approval of the Company's board of directors, the president has
the authority to designate who may participate in the plan and the number of
shares of common stock subject to each restricted stock award or stock option.
Awards and options are granted based on the fair market value of the common
stock as of the date of the award or option. Fair market value is determined by
the board of directors.

         As long as the Company's common stock is not publicly traded, the plan
provides that the Company have a call right. This means that the Company has the
right to purchase at fair market value any vested option and any shares that a
participant in the plan owns as a result of the exercise of an option or the
grant of an award. The Company also has a right of first refusal with respect to
these shares.

         The board of directors has the authority to amend the plan, including
with respect to the acceleration of vesting of options and awards. No
modification will become effective, however, without the prior approval of the
participants in the plan if the approval is necessary to comply with any tax or
regulatory requirement or rule of any exchange or system on which the stock may
be listed. In addition, no amendment may, without a participant's consent,
adversely affect any rights that a participant has under any award or grant that
is outstanding at the time the amendment is made.

         RESTRICTED STOCK AWARDS

         When a participant in the 1997 Omnibus Stock Incentive Plan is granted
a restricted stock award, he or she must sign a restricted stock award
agreement. Under the agreement and the plan, the shares of common stock subject
to the award will be nontransferable, other than by will or the laws of descent
and distribution, and subject to forfeiture until the shares are vested. Unless
the board of directors accelerates the vesting period, the shares subject to an
award will become fully vested on the sixth anniversary of the award if the
participant in the plan has been in our continuous employ during that six-year
period. Vesting will be accelerated upon the termination of the participant's
employment due to:

         o        death, disability or retirement

         o        the involuntary termination of the participant's employment
                  during the 90-day period following the Company's merger with
                  another entity

         o        the voluntary termination of the participant's employment at
                  any time after one year following the Company's merger with
                  another entity or




                                       66
<PAGE>   70

         o        a change of control.

         Under the plan, a change of control is deemed to occur if any person or
group that is not a beneficial owner of the Company's voting securities as of
the date of the adoption of the plan becomes the beneficial owner, directly or
indirectly, of the Company's securities that represent in the aggregate 75% or
more of the total combined voting power of all classes of the Company's
then-outstanding securities. Once vested, the shares of common stock are no
longer subject to forfeiture and may be transferred. However, the shares will
continue to be subject to the Company's call rights and right of first refusal.

         STOCK OPTIONS

         When a participant in the 1997 Omnibus Stock Incentive Plan is granted
a stock option, he or she must sign a stock option grant agreement. Under the
agreement and the plan, the participant's options would become fully vested on
the third anniversary of the date the option is granted if the participant has
been in the Company or an affiliate's continuous employ during that three-year
period. Vesting for an option will be accelerated on the same basis as vesting
is accelerated for restricted stock awards, as discussed above. Once an option
is vested, a participant may exercise the option as provided in the plan.
Options granted under the plan will expire on the tenth anniversary of the
option. After common stock is purchased pursuant to an option, the shares will
continue to be subject to the Company's call rights and right of first refusal.

         OUTSTANDING AWARDS AND OPTIONS

         As of April 12, 2001, a total of 0.122 shares of common stock were
outstanding under the plan, after giving effect to the 1 for 1,000 reverse stock
split. Eleven participants hold these shares, and these shares are fully vested.
The Company has not granted any options under the plan.

MANAGEMENT INCENTIVE BONUSES

         Designated members of the Company's and the Company's subsidiaries'
management, including the executive officers set forth under "-- Directors and
Executive Officers of the Registrant" above, are entitled to receive cash
bonuses in addition to their annual salary compensation. These bonuses are based
on the Company's financial performance and that of the Company's subsidiaries.
In addition, Mr. Kilgore and Mr. Sparks are entitled to incentive bonuses as
described previously under "-- Employment Agreements."

DEFINED CONTRIBUTION PLANS

         The Company has a defined contribution money purchase pension plan
covering all employees who meet eligibility requirements. The plan provides for
employer contributions representing 5% of compensation. This plan also contains
a 401(h) provision under which the Company contributes a specified percentage of
salary, up to 1.66%, depending on the employees' years of service. This account
can only be used for medical expenses upon attainment of retirement age. The
Company also has a 401(k) savings plan for all employees who meet eligibility
requirements. The plan provides for mandatory employer contributions to match
50% of employee contributions up to a maximum of 2% each participant's
compensation. In addition, the Company may also make discretionary contributions
up to 5% of employee compensation.

         The Company made various amendments to its plans effective January 1,
2001. These amendments were made to adopt a safe harbor 401(k) plan design which
will match dollar for dollar the first 3% of compensation deferred by employees
to this plan plus one-half of the next 2%. The Company's maximum contribution
under the 401(k) plan is 4% of eligible compensation, subject to governmental
limits. The discretionary contribution provision of this plan was changed to 1%.
The 401(h) provision of the money purchase pension plan was frozen and the
benefit was replaced with the increased 401(k) matching formula. It is
anticipated that while the overall cost to the Company of these plan changes may
increase, such increase will not be significant.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         At a meeting of the Company's board of directors on May 22, 1997, a
compensation committee was established. Mr. Macaulay, a former director of Anker
Coal Group, Inc., and Mr. Shober were appointed members of the committee. Mr.
Shober is currently the only member of the compensation committee. The
compensation committee did not hold any meetings in 1999 or 2000. Other than Mr.
Sparks, no current or former executive officer or employee of us or any of the
Company's subsidiaries participated in deliberations of the board of directors
concerning executive officer compensation. Messrs. Sparks and Kilgore's
compensation is established in accordance with his respective employment
agreement. See "-- Employment Agreements" above.



                                       67
<PAGE>   71

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth information concerning the ownership of
our common stock and, where indicated in the notes to the table, our Class E
preferred stock on an as-converted basis as of April 12, 2001, after giving
effect to the 1 for 1,000 reverse stock split effected on April 12, 2001 by:

         o        each person known by us to own beneficially more than 5% of
                  our outstanding voting securities;

         o        each person who is a director or a nominee of Anker Coal
                  Group, Inc.;

         o        each person who is identified on the executive compensation
                  table above; and

         o        all of our directors and executive officers as a group.

         Our Class E preferred stock votes, on an as-converted basis, on all
matters upon which the holders of our common stock are entitled to vote. The
percentage of beneficial ownership of our voting securities is based on 7.083
shares of common stock and 732,922.281 shares of common stock issuable upon
conversion of the 34,207 shares of Class E preferred stock outstanding as of
April 12, 2001.

<TABLE>
<CAPTION>
                                                                           AMOUNT AND
                                                                            NATURE OF
                                                                           BENEFICIAL            PERCENT
      NAME AND ADDRESS OF BENEFICIAL OWNER                                  OWNERSHIP           OF SHARES
      ------------------------------------                                  ---------           ---------
<S>                                                                        <C>                  <C>
      W.L. Ross & Co. L.L.C.
           101 East 52nd Street, 19th Floor,
           New York, New York 10022(1)                                     341,340.564             46.572%
      William D. Kilgore, Jr.                                                    1.520              *
      John A. H. Shober                                                         --                  --
      Willem H. Hartog                                                          --                  --
      P. Bruce Sparks(2)                                                          .859              *
      Richard B. Bolen                                                            .100              *
      Gerald Peacock                                                              .100              *
      B. Judd Hartman                                                             .043              *
      All executive officers and directors as a group (7 persons)                1.869              *
      All other holders of Class E Preferred Stock as a group (3)          391,583.232             53.427%
</TABLE>


*        Less than 1.0%

(1)      Includes 341,339.049 shares of common stock issuable upon conversion of
         15,931 shares of Class E preferred stock and 1.515 shares of common
         stock issuable upon exercise of warrants.

(2)      Mr. Sparks may be deemed to share beneficial ownership of shares of
         common stock owned by PPK Group Limited Liability Company, a limited
         liability company controlled by Mr. Sparks. Mr. Sparks has the sole
         authority to exercise all rights and remedies of PPK Group and all
         voting rights of the shares owned by PPK Group.

(3)      We issued 34,207 shares of Class E preferred stock on April 12, 2001 in
         the closing of the exchange offer described above in "Item 7 --
         Management's Discussion and Analysis of Financial Condition and Results
         of Operation -- Liquidity and Capital Resources -- The Exchange Offer".
         The Class E preferred stock is currently convertible into 732,922.281
         shares of our common stock, or 99.99% of our common stock. We are not
         aware at this time of the identity of the beneficial owners of the
         Class E preferred stock other than W.L. Ross & Co. L.L.C.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In April 2001, we completed an exchange offer of Class E convertible
preferred stock for a portion of our 14.25% notes. WLR Recovery Fund, one of the
noteholders who participated in the exchange, owned warrants to purchase 20% of
our common stock before the exchange. In the exchange, WLR Recovery Fund
exchanged approximately $15.9 million of notes for approximately 15,931 shares
of Class E convertible preferred stock.





                                       68
<PAGE>   72



                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)      Documents filed as part of this report

         (1)      Financial Statements

         The following consolidated financial statements for us and the
Company's subsidiaries are included in Part II, Item 8:

         Report of Independent Accountants

         Consolidated Balance Sheets at December 31, 2000 and 1999

         Consolidated Statements of Operations for the Years Ended December 31,
         2000, 1999 and 1998

         Consolidated Statements of Stockholders' Equity (Deficit) for the Years
         Ended December 31, 2000, 1999 and 1998

         Consolidated Statements of Cash Flows for the Years Ended December 31,
         2000, 1999 and 1998

         Notes to Consolidated Financial Statements


         (2)      Financial Statement Schedules

         Financial statement schedules not listed are omitted because of the
absence of the conditions under which they are required or because all material
information is included in the Consolidated Financial Statements or notes
thereto.

         (3)      Exhibits

         The exhibits filed as part of, or incorporated by reference in, this
report are listed in the accompanying Exhibit Index. Exhibits 10.2 through 10.5
listed in the accompanying Exhibit Index identify management contracts or
compensatory plans or arrangements.

(b)      Reports on Form 8-K

         The Company filed one report on Form 8-K in the fourth quarter of 2000.
The date of each report, the items reported and the financial statements filed
with each report are listed below:

<TABLE>
<CAPTION>
Date                     Items Reported                                             Financial Statements
----                     --------------                                             --------------------

<S>                      <C>                                                        <C>
November 10, 2000        Press release regarding financial results for third        None
                         quarter and year to date 2000
</TABLE>




                                       69
<PAGE>   73




SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Morgantown, state of West Virginia, on April 12, 2001

                                                    ANKER COAL GROUP, INC.


                                                    By:      /s/ P. Bruce Sparks
                                                          ----------------------
                                                             Title:  President



         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
         Signature                                   Title                              Date


<S>                                         <C>                                     <C>
   /s/ William D. Kilgore, Jr.              Chairman of the Board and Chief         April 12, 2001
------------------------------------        Executive Officer (Principal
William D. Kilgore, Jr.                     Executive Officer)


    /s/ P. Bruce Sparks                     President and Director (Principal       April 12, 2001
------------------------------------        Executive Officer)
P. Bruce Sparks


   /s/ David D. Struth                      Treasurer (Principal Financial and      April 12, 2001
-----------------------------------         Accounting Officer)
David D. Struth


   /s/ John A. H. Shober                    Director                                April 12, 2001
------------------------------------
John A. H. Shober


   /s/ Willem H. Hartog                     Director                                April 12, 2001
------------------------------------
Willem H. Hartog
</TABLE>




                                       70
<PAGE>   74




         Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Morgantown, state of West Virginia, on April 12, 2001.



                                   ANKER ENERGY CORPORATION


                                   By:      /s/ David D. Struth
                                         ----------------------
                                         Title:  Treasurer and Vice President of
                                                 Finance and Administration

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.


<TABLE>
<CAPTION>
         Signature                                     Title                            Date


<S>                                           <C>                                  <C>
   /s/ William D. Kilgore, Jr.                Chairman of the Board and Chief      April 12, 2001
------------------------------------          Executive Officer (Principal
William D. Kilgore, Jr.                       Executive Officer)


   /s/ P. Bruce Sparks                        President and Director               April 12, 2001
------------------------------------          (Principal Executive Officer)
P. Bruce Sparks


  /s/ David D. Struth                         Treasurer, Vice President of         April 12, 2001
------------------------------------          Finance and Administration and
David D. Struth                               Director (Principal Financial
                                              and Accounting Officer)
</TABLE>




                                       71
<PAGE>   75





         Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Morgantown, state of West Virginia, on April 12, 2001.



                                               ANKER GROUP, INC.


                                               By:   /s/ P. Bruce Sparks
                                                    --------------------------
                                                     Title:  President



         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.


<TABLE>
<CAPTION>
          Signature                                  Title                        Date


<S>                                         <C>                               <C>
    /s/ P. Bruce Sparks                     President and Director            April 12, 2001
------------------------------------        (Principal Executive Officer)
 P. Bruce Sparks


   /s/ David D. Struth                      Treasurer and Director            April 12, 2001
-----------------------------------         (Principal Financial and
 David D. Struth                            Accounting Officer)
</TABLE>





                                       72
<PAGE>   76




         Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Morgantown, state of West Virginia, on April 12, 2001.


                                                ANKER POWER SERVICES, INC.


                                                By:   /s/ David D. Struth
                                                    --------------------------
                                                      Title:  Treasurer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.


<TABLE>
<CAPTION>
          Signature                                     Title                        Date


<S>                                            <C>                               <C>
    /s/ Richard B. Bolen                       President and Director            April 12, 2001
 --------------------------------------        (Principal Executive Officer)
 Richard B. Bolen


   /s/ David D. Struth                         Treasurer and Director            April 12, 2001
 ------------------------------------          (Principal Financial and
 David D. Struth                               Accounting Officer)
</TABLE>





                                       73
<PAGE>   77




         Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Morgantown, state of West Virginia, on April 12, 2001.


                                             ANKER VIRGINIA MINING COMPANY, INC.



                                             By:      /s/ David D. Struth
                                                   ----------------------
                                                     Title:  Treasurer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.


<TABLE>
<CAPTION>
         Signature                                     Title                        Date


<S>                                           <C>                               <C>
  /s/ Gerald Peacock                          President and Director            April 12, 2001
-------------------------------------         (Principal Executive Officer)
Gerald Peacock


  /s/ David D. Struth                         Treasurer and Director            April 12, 2001
------------------------------------          (Principal Financial and
David D. Struth                               Accounting Officer)
</TABLE>





                                       74
<PAGE>   78





         Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Morgantown, state of West Virginia, on April 12, 2001.

                                       ANKER WEST VIRGINIA MINING COMPANY, INC.


                                       By:      /s/ David D. Struth
                                             ----------------------
                                               Title:  Treasurer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.


<TABLE>
<CAPTION>
         Signature                                     Title                        Date

<S>                                           <C>                               <C>
   /s/ Gerald Peacock                         President and Director            April 12, 2001
------------------------------------          (Principal Executive Officer)
Gerald Peacock


  /s/ David D. Struth                         Treasurer and Director            April 12, 2001
------------------------------------          (Principal Financial and
David D. Struth                               Accounting Officer)
</TABLE>




                                       75
<PAGE>   79


         Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Morgantown, state of West Virginia, on April 12, 2001.


                                      BRONCO MINING COMPANY, INC.



                                      By:     /s/ David D. Struth
                                             --------------------------
                                              Title:  Treasurer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.


<TABLE>
<CAPTION>
         Signature                                     Title                         Date


<S>                                           <C>                               <C>
   /s/ P. Bruce Sparks                        President and Director            April 12, 2001
------------------------------------          (Principal Executive Officer)
P. Bruce Sparks


  /s/ David D. Struth                         Treasurer (Principal Financial    April 12, 2001
------------------------------------          and Accounting Officer)
David D. Struth
</TABLE>





                                       76
<PAGE>   80





         Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Morgantown, state of West Virginia, on April 12, 2001.


                                          HAWTHORNE COAL COMPANY, INC.


                                          By:     /s/ David D. Struth
                                               ----------------------------
                                                  Title:  Treasurer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.


<TABLE>
<CAPTION>
         Signature                                     Title                         Date


<S>                                           <C>                               <C>
  /s/ Charles C. Dunbar                       President and Director            April 12, 2001
------------------------------------          (Principal Executive Officer)
Charles C. Dunbar


  /s/ David D. Struth                         Treasurer and Director            April 12, 2001
------------------------------------          (Principal Financial and
David D. Struth                               Accounting Officer)
</TABLE>




                                       77
<PAGE>   81




         Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Morgantown, state of West Virginia, on April 12, 2001.


                                               HEATHER GLEN RESOURCES, INC.


                                               By:     /s/ David D. Struth
                                                    -------------------------
                                                       Title:  Treasurer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.


<TABLE>
<CAPTION>
          Signature                                     Title                         Date


<S>                                            <C>                               <C>
    /s/ Jeffrey P. Kelly                       President and Director            April 12, 2001
 ------------------------------------          (Principal Executive Officer)
 Jeffrey P. Kelley


    /s/ David D. Struth                        Treasurer and Director            April 12, 2001
 ------------------------------------          (Principal Financial and
 David D. Struth                               Accounting Officer)
</TABLE>





                                       78
<PAGE>   82




         Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Morgantown, state of West Virginia, on April 12, 2001.


                                              JULIANA MINING COMPANY, INC.


                                              By:     /s/ David D. Struth
                                                   ---------------------------
                                                      Title:  Treasurer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.


<TABLE>
<CAPTION>
         Signature                                     Title                         Date


<S>                                           <C>                               <C>
   /s/ Gerald Peacock                         President and Director            April 12, 2001
-------------------------------------         (Principal Executive Officer)
Gerald Peacock


   /s/ David D. Struth                        Treasurer and Director            April 12, 2001
------------------------------------          (Principal Financial and
David D. Struth                               Accounting Officer)
</TABLE>



                                       79
<PAGE>   83




         Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Morgantown, state of West Virginia, on April 12, 2001.


                                                  KING KNOB COAL CO., INC.


                                                  By:      /s/ David D. Struth
                                                        ----------------------
                                                          Title:  President


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.


<TABLE>
<CAPTION>
         Signature                                     Title                         Date


<S>                                           <C>                               <C>
   /s/ David D. Struth                        President, Treasurer and          April 12, 2001
------------------------------------          Director (Principal Executive,
David D. Struth                               Financial and Accounting
                                              Officer)
</TABLE>




                                       80
<PAGE>   84




         Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Morgantown, state of West Virginia, on April 12, 2001.


                                                 MARINE COAL SALES COMPANY


                                                 By:      /s/ David D. Struth
                                                       ----------------------
                                                         Title:  Treasurer



         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
         Signature                                     Title                        Date


<S>                                           <C>                               <C>
   /s/ Larry Kaelin                           President and Director            April 12, 2001
------------------------------------          (Principal Executive Officer)
Larry Kaelin


   /s/ P. Bruce Sparks                        Director                          April 12, 2001
------------------------------------
P. Bruce Sparks


   /s/ David D. Struth                        Treasurer and Director            April 12, 2001
------------------------------------          (Principal Financial and
David D. Struth                               Accounting Officer)
</TABLE>





                                       81
<PAGE>   85




         Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Morgantown, state of West Virginia, on April 12, 2001.


                                               MELROSE COAL COMPANY, INC.


                                               By:      /s/ David D. Struth
                                                     ----------------------
                                                       Title:  President


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.


<TABLE>
<CAPTION>
         Signature                                     Title                         Date


<S>                                           <C>                               <C>
   /s/ David D. Struth                        President, Treasurer and          April 12, 2001
------------------------------------          Director (Principal Executive,
David D. Struth                               Financial and Accounting
                                              Officer)


   /s/ B. Judd Hartman                        Secretary and Director            April 12, 2001
------------------------------------
B. Judd Hartman
</TABLE>





                                       82
<PAGE>   86




         Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Morgantown, state of West Virginia, on April 12, 2001.


                                       NEW ALLEGHENY LAND HOLDING COMPANY, INC.


                                       By:      /s/ David D. Struth
                                             ----------------------
                                               Title:  President


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.


<TABLE>
<CAPTION>
         Signature                                     Title                        Date


<S>                                           <C>                               <C>
   /s/ David D. Struth                        President, Treasurer and          April 12, 2001
------------------------------------          Director (Principal Executive,
David D. Struth                               Financial and Accounting
                                              Officer)


   /s/ B. Judd Hartman                        Secretary and Director            April 12, 2001
------------------------------------
B. Judd Hartman
</TABLE>





                                       83
<PAGE>   87





         Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Morgantown, state of West Virginia, on April 12, 2001.


                                              PATRIOT MINING COMPANY, INC.


                                              By:      /s/ David D. Struth
                                                    ----------------------
                                                      Title:  Treasurer




         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
         Signature                                     Title                         Date


<S>                                           <C>                               <C>
   /s/ Gerald Peacock                         President and Director            April 12, 2001
------------------------------------          (Principal Executive Officer)
Gerald Peacock


   /s/ David D. Struth                        Treasurer and Director            April 12, 2001
------------------------------------          (Principal Financial and
David D. Struth                               Accounting Officer)
</TABLE>




                                       84
<PAGE>   88





         Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Morgantown, state of West Virginia, on April 12, 2001.


                                                SIMBA GROUP, INC.


                                                By:      /s/ David D. Struth
                                                      ----------------------
                                                        Title:  Treasurer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.


<TABLE>
<CAPTION>
         Signature                                     Title                         Date


<S>                                           <C>                               <C>
   /s/ P. Bruce Sparks                        President and Director            April 12, 2001
-------------------------------------         (Principal Executive Officer)
P. Bruce Sparks


   /s/ William D. Kilgore, Jr.                Director                          April 12, 2001
------------------------------------
William D. Kilgore, Jr.


   /s/ David D. Struth                        Treasurer and Director            April 12, 2001
------------------------------------          (Principal Financial and
David D. Struth                               Accounting Officer)
</TABLE>



                                       85
<PAGE>   89



         Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Morgantown, state of West Virginia, on April 12, 2001.


                                                  UPSHUR PROPERTY, INC.


                                                  By:      /s/ David D. Struth
                                                        ----------------------
                                                         Title:  Treasurer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.


<TABLE>
<CAPTION>
         Signature                                     Title                         Date


<S>                                           <C>                               <C>
   /s/ Jeffrey P. Kelley                      President and Director            April 12, 2001
------------------------------------          (Principal Executive Officer)
Jeffrey P. Kelley


   /s/ David D. Struth                        Treasurer and Director            April 12, 2001
------------------------------------          (Principal Financial and
David D. Struth                               Accounting Officer)
</TABLE>




                                       86
<PAGE>   90




         Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Morgantown, state of West Virginia, on April 12, 2001.


                                                 VANTRANS, INC.


                                                 By:      /s/ David D. Struth
                                                       ----------------------
                                                         Title:  President


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.


<TABLE>
<CAPTION>
         Signature                                     Title                         Date


<S>                                           <C>                               <C>
   /s/ P. Bruce Sparks                        Director                          April 12, 2001
--------------------------------
P. Bruce Sparks


   /s/ David D. Struth                        President, Treasurer and          April 12, 2001
--------------------------------              Director (Principal Executive,
David D. Struth                               Financial and Accounting
                                              Officer)
</TABLE>




                                       87
<PAGE>   91





         Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Morgantown, state of West Virginia, on April 12, 2001.


                                                  VINDEX ENERGY CORPORATION


                                                  By:      /s/ David D. Struth
                                                        ----------------------
                                                          Title:  Treasurer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.


<TABLE>
<CAPTION>
         Signature                                     Title                         Date


<S>                                           <C>                               <C>
   /s/ Gerald Peacock                         President and Director            April 12, 2001
------------------------------------          (Principal Executive Officer)
Gerald Peacock


   /s/ David D. Struth                        Treasurer and Director            April 12, 2001
------------------------------------          (Principal Financial and
David D. Struth                               Accounting Officer)
</TABLE>




                                       88
<PAGE>   92


                             ANKER COAL GROUP, INC.
                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit
No.                                                                    Description
---------               ------------------------------------------------------------------------------------------------------------
<S>                     <C>



3.1                     Second Amended and Restated Certificate of Incorporation of Anker Coal Group, Inc. (Anker) (including
                        certificates of designation for Class A, B, D and E Preferred Stock)
3.2                     Second Amended and Restated Bylaws of Anker
3.7                     Certificate of Incorporation of Anker Group, Inc. (b)
3.8                     Bylaws of Anker Group, Inc. (b)
3.9.1                   Certificate of Incorporation of Anker Energy Corporation (b)
3.9.2                   Certificate of Ownership and Merger merging Anker Mining and Development Co., Inc. into Anker Energy
                        Corporation (b)
3.9.3                   Certificate of Merger of Energy Resource Management Services, Inc. into Anker Energy Corporation (b)
3.10                    Bylaws of Anker Energy Corporation (b)
3.11                    Articles of Incorporation of Bronco Mining Company, Inc. (b)
3.12                    Bylaws of Bronco Mining Company, Inc. (b)
3.13                    Articles of Incorporation of Anker Power Services, Inc. (b)
3.14                    Bylaws of Anker Power Services, Inc. (b)
3.15.1                  Articles of Incorporation of Anker West Virginia Mining Company, Inc. (b)
3.15.2                  Articles of Merger of Anker West Virginia Mining Company, Inc. and Advantage Energy Corporation (b)
3.15.3                  Articles of Merger of Anker West Virginia Mining Company, Inc. and Beckley Smokeless Limited Liability
                        Company (b)
3.15.4                  Articles of Merger of Anker West Virginia Mining Company, Inc. and Pine Valley Coal Company, Inc. (b)
3.15.5                  Articles of Merger of Anker West Virginia Mining Company, Inc. and Spruce Fork Coal Company, Inc. (b)
3.16                    Bylaws of Anker West Virginia Mining Company, Inc. (b)
3.17                    Articles of Incorporation of Juliana Mining Company, Inc. (b)
3.18                    Bylaws of Juliana Mining Company, Inc. (b)
3.19.1                  Articles of Incorporation of King Knob Coal Co., Inc. (b)
3.19.2                  Articles of Merger of Brook Coal Company into King Knob Coal Co., Inc. (b)
3.19.3                  Articles of Merger of King Aviation Inc. into King Knob Coal Co., Inc. (b)
3.19.4                  Articles of Merger of Peaser Branch Coal Company into King Knob Coal Co., Inc. (b)
3.19.5                  Articles of Merger of Sparta Mining Company, Inc. into King Knob Coal Co., Inc. (b)
3.20                    Bylaws of King Knob Coal Co., Inc. (b)
3.21                    Certificate of Incorporation of Vantrans, Inc. (b)
3.22                    Bylaws of Vantrans, Inc. (b)
3.23                    Articles of Incorporation of Melrose Coal Company, Inc. (b)
3.24                    Bylaws of Melrose Coal Company, Inc. (b)
3.25.1                  Certificate of Incorporation of Marine Coal Sales Company (b)
3.25.2                  Certificate of Merger of Leflore Energy Corporation into Marine Coal Sales Company (b)
3.26                    Bylaws of Marine Coal Sales Company (b)
3.27                    Articles of Incorporation of Hawthorne Coal Company, Inc. (b)
3.28                    Bylaws of Hawthorne Coal Company, Inc. (b)
3.29                    Certificate of Incorporation of Upshur Property, Inc. (b)
3.30                    Bylaws of Upshur Property, Inc. (b)
3.31                    Articles of Incorporation of Heather Glen Resources, Inc. (b)
3.32                    Bylaws of Heather Glen Resources, Inc. (b)
3.33                    Articles of Incorporation of New Allegheny Land Holding Company, Inc. (b)
3.34                    Bylaws of New Allegheny Land Holding Company, Inc. (b)
3.35.1                  Articles of Incorporation of Patriot Mining Company, Inc. (b)
</TABLE>





                                       89
<PAGE>   93

<TABLE>
<CAPTION>
Exhibit
No.                                                                    Description
---------               ------------------------------------------------------------------------------------------------------------
<S>                     <C>
3.35.2                  Articles of Merger of Ajax Mining Company, Inc. into Patriot Mining Company, Inc. (b)
3.35.3                  Articles of Merger of Sandy Creek Land Company, Inc. into Patriot Mining Company, Inc. (b)
3.36                    Bylaws of Patriot Mining Company, Inc. (b)
3.37                    Articles of Incorporation of Vindex Energy Corporation (b)
3.38                    Bylaws of Vindex Energy Corporation (b)
3.39                    Articles of Incorporation of Anker Virginia Mining Company, Inc. (b)
3.40                    Bylaws of Anker Virginia Mining Company, Inc. (b)
3.41                    Articles of Incorporation of Simba Group, Inc. (g)
3.42                    Bylaws of Simba Group, Inc. (g)
4.1                     Indenture for 14.25% Second Priority Senior Secured Notes Due 2007 (paid in kind through April 1, 2000),
                        dated as of October 1, 1999, including form of Notes (g)
4.2                     Payment and Guarantee Agreement dated April 12, 2001 by the subsidiaries of Anker Coal Group, Inc. to the
                        holders of the Class E preferred stock.
10.2                    Employment Agreement between P. Bruce Sparks, Anker Energy Corporation and Anker Coal Group, dated August
                        1, 1996 (b)
10.3                    Anker Coal Group, Inc. Omnibus Stock Incentive Plan (b)
10.4                    Form of Restricted Stock Award Agreement (b)
10.5                    Form of Stock Option Grant Agreement (b)
10.6                    Asset Purchase Agreement among Oak Mountain Energy, L.L.C., Oak Mountain Energy Corporation, *Boone
                        Resources, Inc., Kodiak Coal,  Inc., Cahaba Coal Engineering & Land Surveying, Inc., Coal Handling and
                        Processing, Inc., Mountaineer Management, Inc. and Jimmie R. Ryan and Duane Stranahan, Jr., dated February
                        20, 1997 (b)
10.11                   Loan and Security Agreement dated as of November 21, 1998, among certain subsidiaries of Anker Coal Group,
                        Inc., Foothill Capital Corporation and others (c)
10.12                   Amendment No. 1 to Loan Documents dated as of August 4, 1999 amending the Loan and Security Agreement,
                        dated as of November 21, 1998 by and among certain Subsidiaries of Anker Coal Group, Inc., certain
                        financial institutions party thereto and Foothill Capital Corporation, as agent  (e)
10.13                   Amendment No. 2 to Loan Documents dated as of August 26, 1999, amending the Loan and Security Agreement,
                        dated as of November 21, 1998, by and among certain Subsidiaries of Anker Coal Group, Inc., certain
                        financial institutions party thereto and Foothill Capital Corporation, as agent. (d)
10.14                   Amendment No. 4 to Loan Documents and Waiver dated as of September 26, 2000 among certain Subsidiaries of
                        Anker Coal Group, Inc., as borrowers, certain financial institutions party thereto and Foothill Capital
                        Corporation, as agent.
10.15                   Amendment No. 5 to Loan Documents and Consent dated as of March 16, 2001 by and among certain Subsidiaries
                        of Anker Coal Group, Inc., certain financial institutions party thereto and Foothill Capital Corporation, as
                        agent.
10.19                   Form of Stock Purchase Warrant(g)
10.20                   Warrant Agreement, dated as of October 26, 1999, by and between Anker and The Bank of New York, as Warrant
                        Agent (g)
10.21                   Common Stock Registration Rights Agreement, dated as of October 26, 1999, by and among Anker and the
                        Exchanging Noteholders and Purchaser signatory thereto (g)
10.22                   Investor Agreement, dated as of October 26, 1999, by and among Anker and the Holders of Warrant Shares
                        named therein (g)
10.23                   Intercreditor Agreement, dated as of October 1, 1999, by and between Foothill Capital Corporation
                        (Foothill) and The Bank of New York, as Collateral Agent (g)
10.24                   Consent and Amendment No. 3 to Loan Documents, dated as of October 1, 1999 by Foothill, the Borrowers and
                        the Lender Group (g)
10.25                   Option Agreement, dated as of October 1, 1999, between Foothill Capital Corporation and Rothschild
                        Recovery Fund L.P. (g)
10.26                   General Security Agreement, dated as of October 1, 1999, by and among Anker, The Bank of New York, as
                        Trustee and Collateral Agent, and the Guarantors signatory thereto (g)
10.27                   Pledge and Security Agreement, dated as of October 1, 1999, among the entities set forth on Schedule A
                        thereto, in favor of The Bank of New York, as Trustee (g)
10.28                   Pledge and Security Agreement, dated as of October 1, 1999, by Anker West Virginia Mining Company, Inc. in
                        favor of The Bank of New York, as Trustee (g)
10.29                   Contract Mining Agreement dated as of June 25, 1999 by and between Anker West Virginia Mining Company,
                        Inc. ("AWVMC") and Baylor Mining, Inc. for contract mining services to be provided at the underground coal
                        mining operation and related surface facilities in Raleigh County, West Virginia, known as the "BayBeck
                        Mine."* (e)
10.30                   Contract Mining Agreement dated as of June 24, 1999 by and between AWVMC and BJM Coal Company for contract
                        mining services to be provided in connection with coal reserves in the Middle Kittanning seam in Upshur
                        County, West Virginia.* (e)
</TABLE>

--------

* A portion of the exhibit, as indicated therein, has been redacted pursuant to
a request for confidential treatment filed with the Commission.



                                       90
<PAGE>   94

<TABLE>
<CAPTION>
Exhibit
No.                                                                    Description
---------               ------------------------------------------------------------------------------------------------------------
<S>                     <C>
10.31                   Contract Mining Agreement dated as of April 9, 1999 by and between AWVMC and Steyer Fuel, Inc. for
                        contract mining services to be provided at the underground mining operation in the Bakerstown seam of coal
                        in Garrett County, Maryland, known as the "Steyer Mine."* (e)
10.34                   Employment Agreement dated as of May 1, 1999 by and between Anker Energy Corporation and William D.
                        Kilgore (e)
10.34.1                 Amendment No. 1 Employment Agreement between Anker Energy Corporation and William D. Kilgore, Jr., dated
                        as of July 25, 2000 (h)
10.36                   Coal Sales Agreement, dated as of October 22, 1999, by and between Anker Energy Corporation and AK Steel
                        Corporation* (g)
10.37                   Coal Supply Agreement by and among Anker Energy Corporation, AWVMC, Juliana Mining Company, Inc. and
                        Potomac Electric Power Company* (g)
10.38                   Coal Sales Agreement dated as of September 15, 1989 by and between Anker Energy Corporation and Morgantown
                        Energy Associates* (g)
10.39                   Coal Supply Agreement dated April 1, 1992 between Anker Energy Corporation and Keystone Energy Service
                        Company, L.P.* (g)
10.40                   Coal Supply and Services Agreement dated as of December 1, 1990 between Anker Energy Corporation and ER&L
                        Thames, Inc.* (g)
10.41                   Form of Compensation Letter (h)
21                      List of Subsidiaries of Anker (g)
</TABLE>


(a)      Incorporated by reference from the registrant's Amendment No. 1 to
         Registration Statement on Form S-4 (File No. 333-39643) first filed
         with the Commission on January 12, 1998.
(b)      Incorporated by reference from the registrant's Amendment No. 2 to
         Registration Statement on Form S-4 (File No. 333-39643) first filed
         with the Commission on February 10, 1998.
(c)      Incorporated by reference from the registrant's Form 8-K filed with the
         Commission on December 10, 1998.
(d)      Incorporated by reference from the registrant's Form 8-K filed with the
         Commission on August 27, 1999.
(e)      Incorporated by reference from the registrant's Form 10-Q filed with
         the Commission on August 16, 1999.
(f)      Incorporated by reference from the registrant's Form 10-Q filed with
         the Commission on November 15, 1999.
(g)      Incorporated by reference from the registrant's Registration Statement
         on Form S-4 (File No. 333-92067) first filed with the Commission on
         December 3, 1999.
(h)      Incorporated by reference from the registrant's Form 10-Q filed with
         the Commission on August 14, 2000.





                                       91