<PAGE>


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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


    /x/          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934



                   For the quarterly period ended June 30, 1998


                                       OR


    / /          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)


                       For the transition period from     to      .
                                                     -----   -----

                         Commission file number 0-28656


                             KARRINGTON HEALTH, INC.
             (Exact name of registrant as specified in its charter)


                        OHIO                            31-1461482
           (State or other jurisdiction of             (IRS Employer
           incorporation or organization)           Identification No.)

                             919 OLD HENDERSON ROAD
                              COLUMBUS, OHIO 43220

                    (Address of principle executive offices)

                                 (614) 451-5151
              (Registrant's telephone number, including area code)

     Indicated by check mark whether registrant (1) has filed all reports 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 registrant was 
required to file such reports), and (2) has been subject to such filing 
requirements for the past 90 days.

                                             Yes    X      No
                                                --------      --------

     Shares of Registrant's common shares, without par value, outstanding at 
August 11, 1998 was 6,837,363.

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

<PAGE>


                             KARRINGTON HEALTH, INC.
                                AND SUBSIDIARIES
                                      INDEX



PART I.  FINANCIAL INFORMATION
                                       
<TABLE>
<CAPTION>
                                                                             PAGE
                                                                             ----
<S>                                                                          <C>
      Item 1. Financial Statements

               Consolidated Balance Sheets......................................3

               Consolidated Statements of Operations
               Three and Six Months Ended June 30, 1998 and 1997................4

               Consolidated Statements of Cash Flows
               Six Months Ended June 30, 1998 and 1997..........................5

               Notes to Consolidated Financial Statements.....................6-8

      Item 2.  Management's Discussion and Analysis of Financial Condition
               and Results of Operations.....................................9-14

PART II.  OTHER INFORMATION

      Item 4.  Submission of Matters to a Vote of Security Holders.............15

      Item 6.  Exhibits and Reports on Form 8-K................................15

               Signature Page..................................................16
</TABLE>

Note: Item 3 of Part I and Items 1 through 3 and 5 of Part II are omitted
      because they are not applicable.

                                      2

<PAGE>

PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS


                             KARRINGTON HEALTH, INC.
                                AND SUBSIDIARIES

                            CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                            JUNE 30,            DECEMBER 31,
                                                              1998                  1997
                                                          (UNAUDITED)
                                                        ---------------      -----------------
<S>                                                    <C>                   <C>
Current assets:
  Cash and cash equivalents ....................        $   1,161,282         $   4,370,488
  Receivables:
    Trade ......................................              897,128               482,597
    Due from REIT ..............................            7,831,096             4,330,981
    Affiliates .................................              379,090               649,172
  Prepaid expenses .............................              511,549               281,722
                                                        ---------------      -----------------
      Total current assets .....................           10,780,145            10,114,960
Property and equipment - net ...................          110,102,461           115,983,043
Cost in excess of net assets acquired - net ....            8,184,174             8,231,073
Other assets - net .............................           10,782,557             6,986,724
                                                        ---------------      -----------------
      Total assets .............................        $ 139,849,337         $ 141,315,800
                                                        ---------------      -----------------
                                                        ---------------      -----------------

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued liabilities .....        $   3,214,270         $   2,535,969
  Construction payables ........................            6,609,963             4,717,230
  Notes payable-banks ..........................            5,000,000             6,000,000
  Payroll and related taxes ....................            1,228,807             1,080,884
  Unearned resident fees .......................            1,037,736               861,266
  Interest payable .............................              481,065               614,919
  Current portion of long-term obligations .....              392,207               998,523
                                                        ---------------      -----------------
      Total current liabilities ................           17,964,048            16,808,791

Long-term obligations ..........................          100,076,429            97,507,467
Deferred income taxes ..........................              493,000               493,000
Minority interests .............................              652,000                   -
Shareholders' equity:
   Common shares ...............................           33,484,712            33,484,712
   Accumulated deficit .........................          (12,820,852)           (6,978,170)
                                                        ---------------      -----------------
     Total shareholders' equity ................           20,663,860            26,506,542
                                                        ---------------      -----------------
     Total liabilities and shareholders' equity.        $ 139,849,337         $ 141,315,800
                                                        ---------------      -----------------
                                                        ---------------      -----------------
</TABLE>
                             SEE ACCOMPANYING NOTES.

                                       3

<PAGE>

                             KARRINGTON HEALTH, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                             THREE MONTHS ENDED                       SIX MONTHS ENDED
                                                                 JUNE 30,                                 JUNE 30,
                                                     --------------------------------       ---------------------------------
                                                         1998                1997                1998                 1997
                                                     -------------      -------------       ---------------      ------------
                                                    <C>                 <C>                 <C>                  <C>
Revenues:
  Residence operations ......................        $ 7,534,415         $ 4,230,302         $ 13,968,380         $ 7,169,790
  Development and management fees ...........            178,518             341,966              445,163             536,118
                                                     -------------      -------------       ---------------      ------------
      Total revenues ........................          7,712,933           4,572,268           14,413,543           7,705,908
Expenses:
  Residence operations ......................          5,954,133           3,098,597           10,968,587           5,173,795
  General and administrative ................          1,475,380             924,701            3,164,926           1,814,883
  Rent expense ..............................            884,216              51,939            1,045,095              99,531
  Depreciation and amortization .............          1,134,747             606,367            2,238,130             981,480
                                                     -------------      -------------       ---------------      ------------
      Total expenses ........................          9,448,476           4,681,604           17,416,738           8,069,689
                                                     -------------      -------------       ---------------      ------------
Operating loss ..............................         (1,735,543)           (109,336)          (3,003,195)           (363,781)

Interest expense ............................         (1,309,416)           (588,504)          (2,656,258)           (737,494)
Interest income .............................            117,753             118,289              157,118             273,349
Equity in net loss of unconsolidated entities           (128,507)            (19,223)            (340,346)            (43,174)
                                                     -------------      -------------       ---------------      ------------
Loss before income taxes ....................         (3,055,713)           (598,774)          (5,842,681)           (871,100)

Deferred income taxes .......................                -                35,000                  -               144,000
                                                     -------------      -------------       ---------------      ------------
Net loss ....................................        $(3,055,713)        $  (563,774)        $ (5,842,681)        $  (727,100)
                                                     -------------      -------------       ---------------      ------------
                                                     -------------      -------------       ---------------      ------------
Net loss per common share-basic and diluted          $     (0.45)        $     (0.08)        $      (0.85)        $     (0.11)
Weighted average common shares outstanding             6,837,400           6,792,000            6,837,400           6,746,000
</TABLE>
                             See accompanying notes.
                                   
                                       4

<PAGE>

                             KARRINGTON HEALTH, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     SIX MONTHS ENDED JUNE 30, 1998 AND 1997
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                     SIX MONTHS ENDED
                                                                          JUNE 30,
                                                            -------------------------------------
                                                                  1998                 1997
                                                            ----------------     ----------------
<S>                                                         <C>                  <C>
OPERATING ACTIVITIES
Net loss ............................................        $ (5,842,681)        $   (727,100)
Adjustments to reconcile net loss to net cash
      used in operating activities:
  Depreciation and amortization .....................           2,238,130              981,480
  Provision for terminated projects .................             675,000                  -
  Deferred income taxes .............................                 -               (144,000)
  Equity in net loss of unconsolidated entities .....             340,346               43,174
  Change in operating assets and liabilities:
     Accounts receivable ............................            (366,687)            (812,598)
     Prepaid expenses ...............................            (229,827)              (8,015)
     Accounts payable and accrued liabilities .......           1,278,903              912,351
     Other liabilities ..............................             208,459              575,662
                                                            ----------------     ----------------
  Net cash (used in) provided by operating activities          (1,698,357)             820,954

INVESTING ACTIVITIES
Purchase of property and equipment ..................         (29,434,259)         (20,874,145)
Proceeds from sale of property and equipment ........          30,895,125                  -
Decrease (increase) in restricted cash balances .....            (485,750)             680,984
Payments of pre-opening costs .......................          (1,537,420)            (548,678)
Payments for organization costs and other ...........             (39,908)             (92,580)
Acquisition of Kensington-net of cash acquired ......                 -             (2,785,468)
                                                            ----------------     ----------------
  Net cash used in investing activities .............            (602,212)         (23,619,887)

FINANCING ACTIVITIES
Proceeds from (repayment of) notes payable ..........          (1,000,000)           8,915,794
Proceeds from mortgages .............................          26,400,571            7,718,244
Repayment of mortgages ..............................         (26,533,953)            (141,856)
Minority interests equity contributions .............             652,000                  -
Payment for financing fees ..........................            (427,255)             (54,754)
Distributions from unconsolidated entity ............                 -                225,000
                                                            ----------------     ----------------
  Net cash (used in) provided by financing activities            (908,637)          16,662,428
                                                            ----------------     ----------------
Decrease in cash and cash equivalents ...............          (3,209,206)          (6,136,505)
Cash and cash equivalents at beginning of period ....           4,370,488           12,283,185
                                                            ----------------     ----------------
Cash and cash equivalents at end of period ..........        $  1,161,282         $  6,146,680
                                                            ----------------     ----------------
                                                            ----------------     ----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ..............................        $  2,590,165         $  1,776,818
                                                            ----------------     ----------------
                                                            ----------------     ----------------
</TABLE>
                             SEE ACCOMPANYING NOTES.

                                      5
<PAGE>

                             KARRINGTON HEALTH, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       FOR THE UNAUDITED THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997

1.   BASIS OF PRESENTATION

The consolidated financial statements as of June 30, 1998 and for the three 
and six months ended June 30, 1998 and 1997 are unaudited; however, in the 
opinion of management, all adjustments (consisting of normal recurring items) 
necessary for a fair presentation of the consolidated financial statements 
for these interim periods have been included. The results for the interim 
periods ended June 30, 1998 are not necessarily indicative of the results to 
be obtained for the full fiscal year ending December 31, 1998. Certain 
information and note disclosures which would duplicate the disclosures 
normally included in annual financial statements have been condensed or 
omitted pursuant to the rules and regulations of the Securities and Exchange 
Commission.

2.   NET LOSS PER COMMON SHARE

In February 1997, the FASB issued Statement No. 128, "Earnings Per Share," 
which eliminates the presentation of primary earnings per share (EPS) and 
requires the presentation of basic EPS, the principal difference being that 
common stock equivalents are not considered in the computation of basic EPS. 
It also requires dual presentation of basic and diluted EPS on the face of 
the income statement for all entities with complex capital structures. The 
Company was required to adopt Statement No. 128 for its year ended December 
31, 1997.

The net loss per common share-basic and diluted for the three and six months 
ended June 30, 1998 and 1997 is computed based on the weighted average number 
of shares outstanding during each period as the effect of including any 
common share equivalents would be antidilutive. Common share equivalents are 
comprised of outstanding stock options.

3.   INVESTMENTS IN UNCONSOLIDATED ENTITIES

The Company and Catholic Health Initiatives ("CHI") have entered into joint 
venture agreements to develop, own and operate six assisted living residences 
in Ohio, New Mexico and Colorado. Each project is owned jointly by the 
Company and CHI, with the Company owning 20-50% of the equity of each 
venture. As of June 30, 1998, the Company has guaranteed $1 million of joint 
venture debt financing.

Effective January 1, 1998, the Company entered into a joint venture agreement 
with a local hospital to operate an assisted living residence in Findlay, 
Ohio, which opened on December 31, 1997. The joint venture is owned 50% by 
the Company and is accounted for using the equity method of accounting.

                                6

<PAGE>

As of June 30, 1998, seven joint venture residences were open and three other 
potential joint venture sites were under development. Three joint venture 
residences were open at June 30, 1997. Summarized unaudited income statement 
information of these joint ventures is presented below.

<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED                      SIX MONTHS ENDED
                                                           JUNE 30,                                JUNE 30,
                                               ----------------------------------     ---------------------------------
                                                   1998                1997                1998                1997
                                               --------------      ------------       -------------      --------------
<S>                                           <C>                 <C>                 <C>                <C>

Residence revenues                             $ 2,664,154         $ 1,112,895         $ 4,953,919        $  2,182,150
Expenses:
  Operating expenses                             2,012,567             912,633           4,012,267           1,790,281
  Depreciation and amortization expense            518,467             195,592           1,024,225             390,134
  Interest expense                                 588,041             171,305           1,137,080             361,100
                                               --------------      ------------       -------------      --------------
      Total expenses                             3,119,075           1,279,530           6,173,572           2,541,515
                                               --------------      ------------       -------------      --------------
Net loss                                       $  (454,921)        $  (166,635)        $(1,219,653)       $   (359,365)
                                               --------------      ------------       -------------      --------------
                                               --------------      ------------       -------------      --------------
</TABLE>

4.   NOTES PAYABLE AND LONG-TERM OBLIGATIONS

In March 1997, the Company entered into a $5 million line of credit expiring 
May 1999. At June 30, 1998, there was $5 million outstanding under this 
agreement.

The Company entered into non-binding financing commitment letters with 
Meditrust Mortgage Investments, Inc. ("MMI"), an affiliate of Meditrust (a 
large health care REIT). Under the letters, MMI is to provide up to 
approximately $100 million in financing for approximately 14 residences, 
subject to various terms and conditions. The financings, which may be 
mortgage or lease financings, are to be entered into on a 
residence-by-residence basis, and are to be for terms of up to 14 years (with 
two additional five-year extension periods for the lease transactions). As of 
June 30, 1998, the Company has completed mortgage agreements for four 
residences totaling $22.4 million and six operating lease transactions 
totaling $46.2 million.

On April 30, 1997, the Company entered into a $27.6 million promissory note 
in conjunction with its acquisition of Kensington. The amount outstanding 
under the agreement was approximately $19.9 million as of June 30, 1998. The 
remaining funds will be received in two phases prior to April 30, 1999, 
subject to certain Rochester, Minnesota cottages achieving specified debt 
service coverage ratios.

In September 1997, the Company entered into a $7.5 million promissory note 
with JMAC, Inc. (JMAC), a 34% shareholder of the Company. Interest is payable 
monthly and accrues at a bank=s prime rate. The note expires on January 2, 
2000. At June 30, 1998, $7.5 million was outstanding under this agreement.

On October 17, 1997, the Company entered a $14 million construction loan 
agreement for the development and construction of assisted living residences 
in the State of Ohio. As of June 30, 1998, the Company has completed mortgage 
agreements for three residences totaling $12.0 million.

In April 1998, the Company sold four assisted living residences for 
approximately $23.3 million and leased them back under a 20-year master lease 
agreement which includes two ten-year renewal 

                                 7

<PAGE>

options. The transaction resulted in a gain of approximately $8.8 million, 
which was deferred and will be amortized over the initial lease period. The 
proceeds of the transaction were used to repay mortgage debt of $15.6 million 
and short-term debt of $3.5 million. The balance of the proceeds will be used 
for future development activities and working capital needs.

In May and June 1998, the Company sold an additional two assisted living 
residences for $16.1 million and leased them back under the same 20-year 
master lease agreement as the residences sold in April. All six home leases 
will be co-terminus and option periods must be exercised for all or none of 
the residences. These two residences opened shortly after completion of the 
sale-leaseback transaction. The transactions resulted in a gain of 
approximately $600,000, which was deferred and will be amortized over the 
lease period. The proceeds of the transaction were used to repay mortgage 
debt of $10.6 million. The balance of the proceeds will be used to pay 
retainage and project start-up losses, and general working capital needs. 
Approximately $2.4 million of the net proceeds was received subsequent to 
June 30, 1998 and accordingly was recorded as a receivable as of June 30, 
1998.

In April 1998, the Company entered into a $4 million construction mortgage 
for the completion of five Karrington Cottages expiring on April 30, 1999. 
Interest is payable monthly and accrues at a rate of prime plus 1%.

                               8

<PAGE>

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

The following discussion of results of operations and financial condition 
contains forward-looking information that involves risks and uncertainties. 
The Company's actual results could differ materially from those anticipated. 
Factors that could cause or contribute to such differences include, but are 
not limited to, development activity and construction process risks, 
availability of financing for development or construction, government 
regulations, competition, and the challenge to manage rapid growth and 
business expansion.

OVERVIEW

The Company is an operator and owner of licensed, assisted living residences 
which provides quality, professional, personal and health-care services, 
including an emphasis on Alzheimer's care, for individuals needing assistance 
with activities of daily living. These activities include bathing, dressing, 
meal preparation, housekeeping, taking medications, transportation, and other 
activities that, because of the resident's condition, are difficult for 
residents to accomplish in an independent living setting. The Company offers 
its customers a dignified residential environment focused on quality of life. 
The Company also provides development, support and management services to its 
joint venture residences. As of June 30, 1998, the Company had 36 residences, 
including joint ventures, open in nine states with a capacity of 
approximately 1,970 residents and 10 additional residences under construction 
(6) or completed and being readied for occupancy (4) in six states with a 
capacity of 655 residents.

The Company derives its revenues primarily from two sources: (i) resident 
fees for the delivery of basic assisted living care services (80% of total 
revenues in 1998) and (ii) resident fees for extended and special needs care 
services and community fee revenue (17% of total revenues in 1998). Resident 
fees include revenue derived from basic assisted living care, community fees, 
extended and special needs care, Alzheimer's care and other sources. 
Community fees are one-time fees generally payable by a resident upon 
admission, and extended care and Alzheimer's care fees are paid by residents 
who require personal care in excess of services provided under the basic care 
program.

The following table sets forth certain information regarding Karrington 
residences as of June 30, 1998:

<TABLE>
<CAPTION>

                                       COMPANY                 JOINTLY OWNED                 TOTAL
                                      RESIDENCES                 RESIDENCES                  SYSTEM
                              -------------------------   ------------------------   -------------------------
                              RESIDENCES   UNITS  BEDS    RESIDENCES  UNITS   BEDS   RESIDENCES  UNITS   BEDS
<S>                           <C>         <C>    <C>     <C>         <C>     <C>     <C>        <C>     <C>

Open                                29     1,242  1,528     7          369    438      36        1,611   1,966

Under Construction                  10       526    655     -            -      -      10          526     655

In Development:
  Under Contract & Zoned             8       539    622     1           67     75       9          606     697
  Under Contract & In Zoning         2       165    188     -            -      -       2          165     188
</TABLE>

                                           9

<PAGE>

RESULTS OF OPERATIONS

The following table sets forth certain data from the respective consolidated 
statements of operations as a percentage of total revenues:

<TABLE>
<CAPTION>

                                    THREE MONTHS ENDED       SIX MONTHS ENDED
                                         JUNE 30,                 JUNE 30,
                                   --------------------   --------------------
                                     1998       1997         1998        1997
                                   ---------   --------   ---------  ---------
<S>                                 <C>         <C>        <C>        <C>

Total revenues                         100.0%     100.0%      100.0%     100.0%
Expenses:
  Residence operations                  77.2       67.8        76.1       67.1
  General and administrative            19.1       20.2        22.0       23.6
  Rent expense                          11.5        1.1         7.3        1.3
  Depreciation and amortization         14.7       13.3        15.4       12.7
                                   ---------   --------   ---------  ---------
Total expenses                         122.5      102.4       120.8      104.7
                                   ---------   --------   ---------  ---------
Operating income (loss)                (22.5)%     (2.4)%     (20.8)%     (4.7)%
                                   ---------   --------   ---------  ---------
                                   ---------   --------   ---------  ---------
End of period (a):
  Number of residences                    29         15          29         15
  Number of units                      1,242        593       1,242        593
</TABLE>

     (a) Excludes residences jointly owned by the Company accounted for by 
the equity method.

THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997

Total revenue increased $3.1 million, or 69%, to $7.7 million in the second 
quarter of 1998 from $4.6 million in the second quarter of 1997 primarily due 
to the opening of new residences ($2.3 million), the acquisition of 
Kensington Management Group, Inc. and affiliates ("Kensington") on April 30, 
1997 ($0.6 million) and the increased occupancy of residences in the fill-up 
phase in 1997.

Average occupancy for the 13 stabilized residences for the three months ended 
June 30, 1997 was 93%. For the three months ended June 30, 1998, the average 
occupancy for 17 stabilized residences was 84%. Excluding an older 66-unit 
hotel conversion acquired in the Kensington transaction which averaged 70% 
occupancy and one Indianapolis location opened in March 1997 which averaged 
43% occupancy, the remaining 15 stable residences averaged 91% occupancy for 
the second quarter. Comparing the same 13 stabilized residences in each 
quarter, average occupancy decreased from 93% to 88% or approximately 24 
occupied units over 13 residences. The Company defines stabilized residences 
as those residences (72 units or less) that have been operated by the Company 
for 12 months or more as of the beginning of the period presented or that has 
achieved occupancy of 95%.

Residence operating expenses increased $2.9 million, or 92%, to $6.0 million 
in the second quarter of 1998 from $3.1 million in the second quarter of 
1997. As a percentage of residence operating revenues, residence operating 
expenses increased from 73% in the second quarter of 1997 to 79% in the 
second quarter of 1998 which resulted in a residence net operating income 
margin (NOI) of 27% in 1997 and 21% in 1998. The decrease in NOI resulted 
from start-up losses associated with residences open less than one year and 
in the fill-up period. (12 residences in 1998 vs. 2 residences in 1997)

General and administrative expenses increased $0.6 million, or 60%, to $1.5 
million in the second quarter of 1998 from $0.9 million in the second quarter 
of 1997. This increase was primarily due to a provision for 

                              10

<PAGE>

terminated projects of $0.3 million (largely due to the abandonment of one 
site) and an increase in uncapitalized construction and development costs of 
$0.2 million. The Company expects general and administrative expenses will 
continue to decrease as a percentage of total revenues due to anticipated 
economies of scale resulting from an increase in the number of open 
residences.

Rent expense increased $0.8 million to $0.9 million in the second quarter of 
1998 due to the opening of three leased residences in the first quarter of 
1998 and six residences sold pursuant to sale-leaseback transactions in the 
second quarter of 1998.

Depreciation and amortization increased $0.5 million, or 87%, to $1.1 million 
in the second quarter of 1998 from $0.6 million in the second quarter of 1997 
primarily due to the opening of new residences ($0.7 million) offset by lower 
depreciation and amortization resulting from six residences sold pursuant to 
sale-leaseback transactions in the second quarter of 1998.

Interest expense increased $0.7 million, or 122%, to $1.3 million in the 
second quarter of 1998 from $0.6 million in the second quarter of 1997 
primarily due to the opening of new residences ($0.5 million), the 
acquisition of Kensington ($0.2 million) and the increased use of the 
Company's line of credit, offset by lower interest expense resulting from six 
residences sold pursuant to sale-leaseback transactions in the second quarter 
of 1998.

The equity in net loss of unconsolidated entities increased due to four joint 
venture residences in the fill-up phase during the second quarter of 1998 
compared to no joint venture residences in the fill-up phase during the 
second quarter of 1997.

No deferred tax benefit was recorded in the second quarter of 1998 due to 
limitations associated with the recognition of operating loss carryforwards 
and other tax assets.

SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997

Total revenue increased $6.7 million, or 87%, to $14.4 million in the first 
six months of 1998 from $7.7 million in the first six months of 1997 
primarily due to the opening of new residences ($3.7 million), the 
acquisition of Kensington ($2.2 million) and the increased occupancy of 
residences in the fill-up phase in 1997.

Average occupancy for the 12 stabilized residences for the six months of 1997 
was 93%. For the six months ended June 30, 1998, the average occupancy for 16 
stabilized residences was 90%. Excluding an older 66-unit hotel conversion 
acquired in the Kensington transaction which averaged 71% for the first six 
months of 1998, the remaining 15 stabilized residences averaged 91% occupancy.

Residence operating expenses increased $5.8 million, or 112%, to $11.0 
million in the first six months of 1998 from $5.2 million in the first six 
months of 1997. As a percentage of residence operating revenues, residence 
operating expenses increased from 72% in the first six months of 1997 to 79% 
in the first six months of 1998 which resulted in a residence NOI of 28% in 
1997 and 21% in 1998. The decrease in NOI resulted from start-up losses 
associated with residences open less than one year and in the fill-up period. 
(13 residences in 1998 vs. 3 residences in 1997)

General and administrative expenses increased $1.4 million, or 74%, to $3.2 
million in the first six months of 1998 from $1.8 million in the first six 
months of 1997, primarily due to an increase in the number of employees and 
associated payroll, including the acquisition of Kensington, which was $0.3 
million, a provision for terminated projects of $0.7 million (largely due to 
the abandonment of one site 

                                11

<PAGE>

and the potential sale of two additional sites) and an increase in 
uncapitalized construction and development costs of $0.2 million. The Company 
expects general and administrative expenses will continue to decrease as a 
percentage of total revenues due to anticipated economies of scale resulting 
from the Company's forward home expansion.

Rent expense increased $0.9 million to $1.0 million in the first six months 
of 1998 due to the opening of three leased residences in the first quarter of 
1998 and six residences sold pursuant sale-leaseback transactions in the 
second quarter of 1998.

Depreciation and amortization increased $1.2 million, or 128%, to $2.2 
million in the first six months of 1998 from $1.0 million in the first six 
months of 1997 primarily due to the opening of new residences ($1.2 million) 
and the acquisition of Kensington, offset by lower depreciation and 
amortization resulting from six residences sold pursuant to sale-leaseback 
transactions in the second quarter of 1998.

Interest expense increased $2.0 million, or 260%, to $2.7 in the first six 
months of 1998 from $0.7 million in the first six months of 1997 primarily 
due to the opening of new residences ($1.0 million). The acquisition of 
Kensington ($0.6 million) and the increased use of the Company's lines of 
credit, offset by lower interest expense resulting from six residences sold 
pursuant to sale-leaseback transactions in the second quarter of 1998.

The equity in net loss of unconsolidated entities increased due to four joint 
venture residences in the fill-up phase during the first six months of 1998 
compared to no joint venture residences in the fill-up phase during the first 
six months of 1997.

No deferred tax benefit was recorded in the first six months of 1998 due to 
limitations associated with the recognition of operating loss carryforwards 
and other tax assets.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its initial growth through a combination of mortgage 
financing, sale/leasebacks, a development bond, subordinated borrowings from 
JMAC and its affiliates, bank lines-of-credit, equity contributions and 
proceeds from the initial public offering in 1996. The Company's mortgage and 
construction mortgage financings mature in the next one to thirteen years, 
bear interest at various fixed and fluctuating rates and are secured by 
substantially all of the assets of the Company. The Company expects to 
refinance such amounts as they mature.

The Company has entered into non-binding financing commitment letters with 
Meditrust Mortgage Investments, Inc. ("MMI"), an affiliate of Meditrust (a 
large health care REIT). Under the letters, MMI is to provide up to 
approximately $100 million in financing for approximately 14 residences, 
subject to various terms and conditions. The financings, which may be 
mortgage or lease financings, are to be entered into on a 
residence-by-residence basis, and are to be for terms of up to 14 years (with 
two additional five-year extension periods for the lease transactions). As of 
June 30, 1998, the Company has completed mortgage agreements for four 
residences totaling $22.4 million and six operating lease transactions 
totaling $46.2 million.

On April 30, 1997, the Company entered into a $27.6 million promissory note 
in conjunction with its acquisition of Kensington. The amount outstanding 
under the agreement was approximately $19.9 million as of June 30, 1998. The 
remaining funds will be received in two phases prior to April 30, 1999, 
subject to certain Rochester, Minnesota cottage homes achieving specified 
debt service coverage ratios. 

                                12

<PAGE>

On October 17, 1997, the Company entered a $14 million construction loan 
agreement for the development and construction of assisted living residences 
in the State of Ohio. As of June 30, 1998, the Company has completed mortgage 
agreements for three residences totaling $12.0 million. 

As of June 30, 1998, the Company had a line of credit totaling $5.0 million 
of which $5.0 million was outstanding and had restricted cash of 
approximately $1.6 million recorded in other assets on the consolidated 
balance sheet.

In 1998 and 1999, the Company plans to open approximately 28 new Company and 
jointly owned residences. The 28 planned openings does not include any 
cottage homes beyond the 5 cottages open or completed and ready to open on 
the Rochester, Minnesota campus. The Company is currently evaluating 
potential and existing relationships with hospitals and clinics in order to 
evaluate additional alternative, broader uses of its cottage model. As a 
result of these evaluations, the Company's final plan for 1999 cottages will 
be announced at a later date. To date, the Company has opened 9 of these 
residences, has 4 cottage homes completed and being readied to open, has 6 
residences under construction, has obtained zoning approval for an additional 
9 residences and has entered into contracts to purchase 2 additional sites. 
The Company has been, and will continue to be, dependent on third party 
financing for its acquisition and development program. The Company estimates 
that newly developed residences will generally range in cost from $5.0 to 
$11.0 million, with the development cycle taking up to 24 months from site 
identification and zoning through construction and residence opening. There 
can be no assurance that financing for the Company's development program will 
be available to the Company on acceptable terms, if at all. Moreover, to the 
extent the Company opens properties that do not generate positive cash flow, 
the Company may be required to seek additional capital for working capital 
and liquidity purposes.

Additional financing will be required to develop and construct residences 
opening in 1999 and beyond and to refinance certain existing indebtedness. As 
of June 30, 1998, the Company had unused commitments of approximately $35 
million from existing debt and lease agreements. In the second quarter 1998, 
the Company completed sale/leaseback transactions for six residences 
generating approximately $13 million in net proceeds after associated 
mortgage repayment. The Company is currently evaluating and negotiating with 
various lenders with respect to traditional mortgages, sale/leaseback 
transactions and other forms of off-balance sheet financing. The Company has 
existing financing in place in the form of loans or leases for the 10 
residences which are currently completed and ready to open or under 
construction.

The Company has an availability of funds for working capital related to home 
project financing already in place. At this time, the Company expects to draw 
on 11 home project mortgage and lease financings to support the Company's 
working capital needs in the third and fourth quarters of 1998. In addition, 
the Company has entered into two sale agreements to sell two parcels of land 
in California for a total of $3.5 million to a major West Coast assisted 
living operator. The land sales are contingent on normal due diligence review 
procedures which must be completed on or before October 2, 1998. The net 
proceeds to the Company are estimated at $2.5 million after paying off a 
related note payable of approximately $1.0 million. The net proceeds are 
expected to provide additional funds to support the Company's working capital 
needs through the balance of 1998.

The Company does not presently have financing commitments in place for future 
home project development. The Company has about $9 million invested in nine 
home projects staged for a construction start during 1998 that is now 
awaiting construction or lease financing. Investments in future projects will 
be limited until future financing commitments are obtained.

                                  13

<PAGE>

The Company believes its existing financing commitments, together with 
additional anticipated financing, will be sufficient to fund its development, 
construction and working capital needs through 1998. 

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD

In April 1998, the Accounting Standards Executive Committee issued SOP 98-5, 
"Reporting on the Costs of Start-Up Activities" which requires that the costs 
of start-up activities and organization costs be expensed as incurred. SOP 
98-5 is effective for fiscal years beginning after December 15, 1998 with 
earlier application encouraged. Management believes it will apply the 
provisions of the SOP in 1999. The application of SOP 98-5 will require the 
Company to write-off all existing deferred preopening and organization costs 
(for example, $1.3 million at January 1, 1998) and expense all such items as 
incurred on a prospective basis.

IMPACT OF YEAR 2000

The Company has completed its review of the impact of the Y2K issue on its 
information and financial systems and is in the process of spending about 
$700,000 to upgrade hardware and software to be Year 2000 compliant. The 
Company is implementing a Year 2000 compliant home administrative information 
system which will provide better and faster information, particularly 
regarding resident history, service needs, and associated billing. This 
upgrade and implementation is expected to be completed beginning in the 
fourth quarter of 1998 through the second quarter of 1999 and will be 
financed from working capital. 


The Company is in the process of its review of all mechanical equipment 
(i.e., telephone systems, elevators, security systems, HVAC systems, 
vehicles, etc.) which shall be completed by the end of the third quarter of 
1998. The Company believes its review is approximately 50% complete and 
to-date has not identified any problems or issues which would require a 
significant investment of time or capital. 

The above effort should provide the Company with an internal solution to the 
Y2K issue, but the Company remains cautious and continues to review external 
issues that may impact the business or flow of funds. The Company's payroll 
is processed by an independent third party that has assured the Company it 
will be Year 2000 compliant. The Company will make contingent plans to resort 
to manual operations if certain external interfaces fail. The Company is 
continuing its review of Y2K issues.

                               14

<PAGE>

II.  OTHER INFORMATION

Items 1 through 3 and 5 are not applicable.

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

On May 12, 1998, the Company held its 1998 annual meeting of shareholders at 
the Wyndham Dublin Hotel in Dublin, Ohio. The only matter voted on at the 
annual meeting was the election of four directors for terms of three years 
each.

The following table sets forth the names of the directors elected at the 
annual meeting and the number of votes cast for and withheld for each 
director:

<TABLE>
<CAPTION>
                                               WITHHELD
             DIRECTOR          FOR        AUTHORITY TO VOTE
             --------          ---        -----------------
    <C>                     <C>               <C>
     John S. Christie        5,108,006         833,650
     David H. Hoag           5,308,006         633,650
     Charles H. McCreary     5,307,806         633,650
     James V. Pickett        5,307,506         634,150
</TABLE>

Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits

<TABLE>
<CAPTION>

     Exhibit Number        Description
     --------------        ------------
    <S>                   <C>
             27            Financial Data Schedule, which is submitted 
                           electronically to the Securities and Exchange 
                           Commission for information only and not filed.
</TABLE>

(b)  Reports on Form 8-K

             No reports on Form 8-K were filed for the three-month period 
ended June 30, 1998.

                                  15

<PAGE>

SIGNATURES

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

Dated August 14, 1998

KARRINGTON HEALTH, INC.
(Registrant)

 /s/ RICHARD R. SLAGER
------------------------------------------
Richard R. Slager
Chief Executive Officer

 /s/ THOMAS J. KLIMBACK
------------------------------------------
Thomas J. Klimback
Chief Financial Officer

                                     16

<PAGE>

                              INDEX TO EXHIBITS

<TABLE>
<CAPTION>

       Exhibit Number        Description
       --------------        -----------
       <S>                   <C>

             27               Financial Data Schedule, which is submitted
                              electronically to the Securities and Exchange 
                              Commission for information only.
</TABLE>

                                     17