<PAGE>



                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

(Mark One)
[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 1999
                                       or
[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the transition period from
                              to                   .          ------------------
         --------------------


                        COMMISSION FILE NUMBER 333-59037

                             LODESTAR HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)

                  DELAWARE                                  13-3903875
       (State or other jurisdiction of         (IRS Employer Identification No.)
        incorporation or organization)

    30 ROCKEFELLER PLAZA, SUITE 4225
            NEW YORK, NEW YORK                                  10112
  (Address of principal executive offices)                    (Zip Code)

                                 (606) 255-4006
              (Registrant's telephone number, including area code)



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.

                                [ X ] YES [ ] NO

Number of shares outstanding of each of the registrant's classes of common
stock, as of June 14, 1999:

COMMON STOCK, $1.00 PAR VALUE                                      1000


<PAGE>

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>

                                                                        PAGE NO.

<S>                                                                         <C>
TABLE OF CONTENTS                                                           1

PART I.  FINANCIAL INFORMATION


     ITEM 1 - FINANCIAL STATEMENTS

     Consolidated Balance Sheets
     April 30, 1999 and October 31, 1998                                    2

     Consolidated Statements of Operations
     Three Months Ended April 30, 1999 and 1998                             3

     Consolidated Statements of Operations
     Six Months Ended April 30, 1999 and 1998                               4

     Consolidated Statements of Cash Flows
     Six Months Ended April 30, 1999 and 1998                               5

     Notes To Consolidated Financial Statements                             6

     ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS                           8

PART II.  OTHER INFORMATION


     ITEM 1 - LEGAL PROCEEDINGS                                             15

     ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K                              16


SIGNATURE                                                                   17

</TABLE>



<PAGE>




PART I. - ITEM 1 FINANCIAL STATEMENTS

                            LODESTAR HOLDINGS, INC.
                                AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)
<TABLE>
<CAPTION>

                                                                 April 30,1999   October 31, 1998
                                                                 -------------   ----------------
                                 ASSETS                         (in thousands, except share data)
<S>                                                              <C>                 <C>
Current assets:
   Cash                                                          $   2,467           $  14,949
   Accounts receivable                                              23,391              29,874
   Inventories                                                      20,102               9,550
   Prepaid expensess and other current assets                        3,686               4,092
                                                                 ---------           ---------
            Total current assets                                    49,646              58,465

Property, plant and equipment, net                                 104,542              95,498
Coal and ash disposal contracts in excess of market, net of
   accumulated amortization of $6,372 and $5,058, respectively      40,437              41,750

Other assets                                                        18,194              18,065
                                                                 ---------           ---------
                                                                 $ 212,819           $ 213,778
                                                                 ---------           ---------
                                                                 ---------           ---------
            LIABILITIES AND STOCKHOLDER'S DEFICIT

Current liabilities:
   Current installments of long-term debt                        $     750           $       -
   Accounts payable                                                 26,536              25,161
   Accrued expenses                                                 27,974              32,411
                                                                 ---------           ---------
            Total current liabilities                               55,260              57,572

Long-term obligations, excluding current installments              158,854             150,000
Other non-current liabilities                                       44,433              40,789
                                                                 ---------           ---------
            Total liabilities                                      258,547             248,361
                                                                 ---------           ---------
Stockholder's  deficit:

   Common stock, $1.00 par value.  Authorized, issued and
    outstanding 1,000 shares                                             1                   1
   Additional paid-in capital                                        5,000               5,000
   Accumulated deficit                                             (49,573)            (38,428)
   Accumulated other comprehensive loss - minimum
    pension liability adjustment                                    (1,156)             (1,156)
                                                                 ---------           ---------
            Total stockholder's deficit                            (45,728)            (34,583)
                                                                 ---------           ---------
                                                                 $ 212,819           $ 213,778
                                                                 ---------           ---------
                                                                 ---------           ---------
</TABLE>


See accompanying notes to consolidated financial statements.



                                       2
<PAGE>


                             LODESTAR HOLDINGS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                          Three Months Ended
                                               April 30, 1999           April 30, 1998
                                               --------------           --------------
                                                           (in thousands)
<S>                                                   <C>                   <C>
Coal sales and related revenue                      $ 47,314                $ 64,650
                                                    --------                --------
Operating costs:
  Cost of revenues                                    38,707                  56,858
  Depreciation, depletion
   and amortization                                    7,183                   5,865
  Selling, general and administrative                  2,318                   2,310
                                                    --------                --------
                                                      48,208                  65,033
                                                    --------                --------
       Operating loss                                   (894)                   (383)
Interest expense, net                                 (4,811)                 (2,336)
                                                    --------                --------
  Loss before income taxes                            (5,705)                 (2,719)
Income tax benefit                                      --                     1,087
                                                    --------                --------
       Net loss                                     $ (5,705)               $ (1,632)
                                                    --------                --------
                                                    --------                --------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>


                            LODESTAR HOLDINGS, INC.
                                AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                Six Months Ended
                                      April 30, 1999       April 30, 1998
                                      --------------       --------------
                                                   (in thousands)

<S>                                    <C>                     <C>
Coal sales and related revenue         $ 104,744               $ 136,238
                                       ---------               ---------
Operating costs:

   Cost of revenues                       87,375                 114,644

   Depreciation, depletion
        and amortization                  14,152                  11,829
   Selling, general and administrative     4,862                   4,875
                                       ---------               ---------
                                         106,389                 131,348
                                       ---------               ---------

          Operating income (loss)         (1,645)                  4,890
Interest expense, net                     (9,501)                 (4,757)
                                       ---------               ---------
 Income (loss) before income taxes       (11,146)                    133

Income tax provision                        --                       (54)
                                       ---------               ---------
          Net income (loss)            $ (11,146)              $      79
                                       ---------               ---------
                                       ---------               ---------
</TABLE>


See accompanying notes to consolidated financial statements.


                                       4
<PAGE>


                            LODESTAR HOLDINGS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)



<TABLE>
<CAPTION>

                                                                      Six Months Ended
                                                            April 30, 1999    April 30, 1998
                                                            --------------    --------------
                                                                      (in thousands)
<S>                                                               <C>             <C>
 Cash flows from operating activities:
       Net income (loss)                                          $(11,146)       $     79
       Adjustments to reconcile net income (loss) to net cash
         provided by (used in) operating activities
            Depreciation, depletion and amortization                14,152          11,829
            Loss (gain) on sale/disposal of property plant
            and equipment                                               13             (75)
            Amortization of deferred financing fees                    549             327
            Imputed interest                                           284           1,062

         Changes in operating assets and liabilities:
            Accounts receivable                                      6,483           8,581
            Inventories                                            (10,203)           (390)
            Prepaid expenses and other current assets                  341          (1,252)
            Other assets                                              (884)         (1,006)
            Accounts payable                                         1,375          (3,257)
            Accrued expenses                                        (5,198)         (1,499)
            Other non-current liabilities                           (1,198)           (851)
                                                                  --------        --------
            Net cash provided by (used in) operating activities     (5,432)         13,548
                                                                  --------        --------
 Cash flows from investing activities:
            Cost of acquisitions, net of liabilities incurred       (5,384)           --
            Capital expenditures                                    (5,417)         (2,917)
            Proceeds from sales of property, plant and
               equipment                                                73             190
                                                                  --------        --------
            Net cash used in investing activities                  (10,728)         (2,727)
                                                                  --------        --------
 Cash flows from financing activities:
            Proceeds from long-term debt                             3,757            --
            Principal payments on long-term obligations                (79)         (8,473)
                                                                  --------        --------
            Net cash provided by (used in) financing activities      3,678          (8,473)
                                                                  --------        --------
            Net increase (decrease) in cash                        (12,482)          2,348
            Cash at beginning of period                             14,949           3,056
                                                                  --------        --------
            Cash at end of period                                 $  2,467        $  5,404
                                                                  --------        --------
                                                                  --------        --------
Supplemental cash flow disclosures:
            Interest paid                                         $  8,674        $  3,322
                                                                  --------        --------
                                                                  --------        --------
            Property, plant and equipment and inventory
              acquired through debt incurred and liabilities
              assumed                                             $ 11,246        $   --
                                                                  --------        --------
                                                                  --------        --------
</TABLE>

See accompanying notes to consolidated financial statements.


                                       5
<PAGE>


                            LODESTAR HOLDINGS, INC.
                                AND SUBSIDIARIES



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    Six Months ended April 30, 1999 and 1998
                           (Unaudited - in thousands)





(1)  Basis of Presentation


     The accompanying consolidated financial statements have been prepared from
     the accounting records of Lodestar Holdings, Inc. and its subsidiaries (the
     Company), without audit pursuant to the rules and regulations of the
     Securities and Exchange Commission. Lodestar Holdings, Inc. is a wholly
     owned subsidiary of The Renco Group, Inc. (Renco). The consolidated
     financial statements reflect all adjustments (consisting solely of normal
     recurring adjustments) which are, in the opinion of management, necessary
     for a fair statement of results for the interim periods presented. The
     results of operations presented for the three and six month periods ended
     April 30, 1999 are not necessarily indicative of the results to be expected
     for the full year.


(2)  Inventories


     Inventories consist of the following at April 30,1999 and October 31,1998:

<TABLE>
<CAPTION>

                                          April 30,             October 31,
                                            1999                   1998
                                          ----------           ------------

<S>                                        <C>                   <C>
Coal                                       $16,621               $ 6,067
Materials and  supplies                      3,481                 3,483
                                           -------               -------
                                           $20,102               $ 9,550
                                           -------               -------
</TABLE>




(3)  Acquisition of Assets of Colonial Coal Company, Inc.


     On January 15, 1999, Lodestar acquired coal inventory, mining rights,
     leases of real property, and equipment from Colonial Coal Company, Inc.
     (Colonial), a mining company in Eastern Kentucky. The consideration to
     Colonial was $5,384 in cash paid at the closing, periodic deferred payment
     obligations of $5,806, and the assumption of $5,440 in reclamation and
     other liabilities.



                                       6
<PAGE>


                             LODESTAR HOLDINGS, INC.
                                AND SUBSIDIARIES





(4)  Subchapter S Corporation Election


     On January 15, 1999, Renco filed an election with the consent of its
     shareholders with the Internal Revenue Service to change its taxable status
     from that of a subchapter C corporation to that of a subchapter S
     corporation, effective November 1, 1998. At the same time, Renco elected
     for the Company to be treated as a qualified subchapter S subsidiary
     (QSSS). Most states in which the Company operates will follow similar tax
     treatment. QSSS status requires the ultimate shareholders to include their
     pro rata share of the Company's income or loss in their individual tax
     returns. The Company will continue to provide for state and local income
     taxes for the taxing jurisdictions which do not recognize QSSS status;
     however, management believes this is not material to the Company.



(5)  Commitments and Contingencies


     A significant customer (the Customer) of the Company is involved in
     litigation, which is scheduled for trial in July 1999, with the utility for
     which the Customer generates power. The Customer is alleging underpayment
     by the utility pursuant to the contract in place. The Customer's ability to
     meet its financial obligations, including those under its contract with the
     Company, may be adversely affected to the extent the Customer is not
     successful in its litigation. As of April 30, 1999, the Company has
     receivables from the Customer totaling $9,549 ($4,248 of which is
     classified as current and $5,301 of which is classified long term). The
     Company also has contracts with the Customer to sell coal and dispose of
     coal ash. These contracts were part of the intangible asset recorded in
     connection with the March 14, 1997 purchase of the capital stock of Costain
     Coal Inc. and its subsidiaries (subsequently renamed Lodestar Energy, Inc.)
     by the Company. As of April 30, 1999, the net amount capitalized for these
     contracts with the Customer is $15,493. Management of the Company does not
     consider any loss with regard to these assets probable at this time.


                                       7
<PAGE>


PART I. - ITEM 2



               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS



Lodestar Holdings, Inc. (the Company) was formed in August 1996 to acquire all
of the capital stock of Costain Coal Inc. from Costain America Inc. (the
Acquisition). The Acquisition, which was effective March 14, 1997, was accounted
for using the purchase method of accounting. After the Acquisition, Costain
Coal, Inc. was renamed Lodestar Energy, Inc. (Lodestar). On May 15, 1998, the
Company sold and issued (the Notes Offering) $150.0 million of 11.5% Senior
Notes due 2005 (the Notes).


Lodestar Holdings, Inc. is a holding company whose wholly-owned direct and
indirect subsidiaries include Lodestar Energy, Inc. (Lodestar), Eastern
Resources, Inc. and Industrial Fuels Minerals Company. These subsidiaries have
guaranteed the Notes. The assets, equity, income and cash flows of other
non-guarantor subsidiaries are inconsequential (I.E. individually and combined
less than 3% of the Lodestar Holdings, Inc. totals). Lodestar Holdings, Inc. has
no operations or assets separate from its investment in its subsidiaries.
Accordingly, separate financial information of the subsidiaries is not
considered necessary to include, as in management's opinion, it would not be
material to investors.


The Company, through its wholly-owned subsidiary, Lodestar, is engaged in the
mining and marketing of bituminous coal used principally for the generation of
electricity, as well as for other industrial applications. Lodestar's Western
Kentucky coal product is mid to high sulfur and competes primarily in the
regional utility market. Lodestar's Eastern Kentucky coal product, as compared
to its Western Kentucky coal product, is generally higher in energy (as measured
in British thermal units (Btu's)) content and lower in sulfur content and is
marketed in the Eastern, South Central and Great Lakes regions of the United
States. Lodestar also owns and operates an ash disposal facility in Eastern
Kentucky.


During fiscal year 1998, Lodestar closed a surface mining operation in the
Western Kentucky region and all mining operations located in West Virginia. As
of April 30, 1999, Lodestar controlled the mineral rights through lease or
ownership at sixteen active mines. Three of the active mines are in Western
Kentucky (all underground) and thirteen in Eastern Kentucky (eight underground
and five surface). The Eastern Kentucky operation includes one surface and four
underground mines acquired from Colonial in 1999, and referred to hereafter as
the Tug River properties.


During Lodestar's second quarter of fiscal year 1999, the coal industry
experienced soft market conditions which combined with Lodestar's voluntary
deferral of shipments on certain coal contracts resulted in a significant
increase in Lodestar's coal inventory. In an effort to mitigate this increase,
Lodestar temporarily suspended production at two of its five Eastern Kentucky
surface mines. Combined, these mines produced approximately 60,000 salable tons
of coal per month; contributing approximately 15% of the total monthly average
salable coal production. One of the mines has resumed production during the
third quarter of fiscal year 1999, while the other is expected to resume mining
before the end of calendar year 1999.


                                       8
<PAGE>

RESULTS OF OPERATIONS

THREE MONTHS ENDED APRIL 30, 1999 COMPARED WITH THREE MONTHS ENDED APRIL 30,
1998.

The following table summarizes the tons shipped by region and other operating
data for the Company for the periods presented.

<TABLE>
<CAPTION>

                                          Three Months Ended
                                    April 30, 1999     April 30, 1998
                                    --------------     --------------
                                           (TONS IN THOUSANDS)
<S>                                    <C>              <C>
REGION

Brokered                                       101                --
Eastern Kentucky                               917               932
Western Kentucky                               903             1,607
West Virginia                                   --                47
                                       ------------     ------------
                     Total                   1,921             2,586
                                       ------------     ------------

OTHER OPERATING DATA:
Coal sales and related revenue per
   ton shipped                         $      24.63     $      25.00
Cost of coal sales and related
   revenues per ton shipped            $      20.15     $      21.99
Coal sales revenues per
   ton shipped                         $      23.85     $      22.97
Cost of coal sales revenues per
   ton shipped                         $      19.95     $      20.15

</TABLE>


COAL SALES AND RELATED REVENUE for the three months ended April 30, 1999 (the
1999 Quarter) were $47.3 million, a decrease of $17.3 million, or 26.8%,
compared to the three months ended April 30, 1998 (the 1998 Quarter). The
related revenue component was $1.5 million in the 1999 Quarter and $5.2 million
in the 1998 Quarter, representing $3.7 million of the total $17.3 million
decrease. This decrease is attributable to the completion of a contract mining
operation in Eastern Kentucky. Coal sales revenue decreased by $13.6 million,
which primarily was the result of a 25.7% decrease in the volume of tons
shipped.


Due to a generally soft coal market resulting from the relatively mild winter
weather during the 1998-1999 season, Lodestar elected to reduce spot market coal
sales until prices stabilize. Despite the increased production from the recently
acquired Tug River properties, coal production was negatively impacted by
reduced production levels at the Western Kentucky Smith underground operation,
the closure of the Western Kentucky Smith surface operation and the West
Virginia mining operations (both in fiscal year 1998), and the temporary idling
of two of the Company's Eastern Kentucky surface operations during the 1999
Quarter. Finally, shipment volumes in the Western Kentucky region were reduced
by approximately 168,000 tons when Lodestar voluntarily agreed to accept a
shipment deferral request from a significant customer. As a result of the
aforementioned, total coal shipped during the 1999 Quarter was 665,000 tons less
than during the 1998 Quarter resulting in a corresponding increase of 453,000
tons of coal inventory. Coal sales revenue per ton shipped was $23.85 in the
1999 Quarter compared to $22.97 in the 1998 Quarter. This increase of $.88 per
ton shipped is the result of fewer spot market shipments, higher prices
associated with the Tug River coal sales, and a greater ratio of Eastern
Kentucky coal sales to Western Kentucky coal sales during the 1999 Quarter.



                                       9
<PAGE>

COST OF REVENUES for the 1999 Quarter was $38.7 million, a decrease of $18.2
million, or 31.9%, compared to the 1998 Quarter. The $18.2 million reduction in
cost is primarily the result of 665,000 fewer tons shipped during the 1999
Quarter combined with an overall decrease in the cost per ton shipped of $1.84
compared to the 1998 Quarter. The 1999 Quarter cost of revenues reflects the
benefit of a $2.8 million reduction in equipment lease expense associated with
the buyout of those obligations with the proceeds of the Notes. Adjusted for
such benefit, cost of revenues was $.76 per ton less during the 1999 Quarter.
The most significant factor contributing to the decreased cost per ton was the
reduction in cost related to contract mining revenue in the 1999 Quarter. Due to
improved geological conditions and operating factors, productivity increased
during the 1999 Quarter at the Western Kentucky operations reducing cost of
revenues by approximately $2.10 per ton. The cost per ton shipped at the Eastern
Kentucky operations were approximately $2.34 higher in the 1999 Quarter
primarily due to higher mining ratios (overburden removed to salable tons of
coal produced), encountered at certain surface operations.


DEPRECIATION, DEPLETION, AND AMORTIZATION for the 1999 Quarter increased from
the 1998 Quarter by $1.3 million. The primary reason for this increase was
depreciation as a result of capital equipment additions during the interim
twelve months including $27.5 million, which was capitalized in conjunction with
the buyout of leases with the proceeds of the Notes.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES during the 1999 Quarter were
relatively unchanged when compared to the 1998 Quarter. Increased costs
associated with year 2000 compliance efforts have been offset by favorable
variances in other administrative areas.


OPERATING LOSS increased from $.4 million during the 1998 Quarter to $.9 million
during the 1999 Quarter, primarily as a result of the impact of reduced
shipments during the 1999 Quarter.

INTEREST EXPENSE, NET was $4.8 million for the 1999 Quarter, an increase of $2.5
million over the 1998 Quarter, which reflects the impact of interest on the
Notes.


INCOME TAXES for the 1999 Quarter were $0 as compared to a $1.1 million tax
benefit recorded during the 1998 Quarter. Due to the Company's change in tax
status (See Note 4 of Notes to Consolidated Financial Statements), the Company
is no longer subject to income taxes, and accordingly, no provision or credit
for income taxes has been recorded during the 1999 Quarter.


NET LOSS increased from $1.6 million during the 1998 Quarter to $5.7 million
during the 1999 Quarter as a result of the factors described above.


                                       10
<PAGE>


SIX MONTHS ENDED APRIL 30, 1999 COMPARED WITH SIX MONTHS ENDED APRIL 30, 1998.

The following table summarizes the tons shipped by region and other operating
data for the Company for the periods presented.

<TABLE>
<CAPTION>

                                                Six Months Ended
                                        April 30, 1999       April 30, 1998
                                        --------------       --------------
                                                (TONS IN THOUSANDS)
<S>                                     <C>                        <C>
REGION
Brokered                                     117                          -
Eastern Kentucky                           1,819                      1,979
Western Kentucky                           2,207                      3,231
West Virginia                                  -                        199
                                        --------                   --------
                         Total             4,143                      5,409
                                        --------                   --------
OTHER OPERATING DATA:
Coal sales and related revenue per
   ton shipped                          $  25.28                   $  25.19
Cost of coal sales and related
  revenues per ton shipped              $  21.09                   $  21.20

Coal sales revenue per ton shipped      $  23.60                   $  23.13
Cost of coal sales revenues per
   ton shipped                          $  20.25                   $  19.47
</TABLE>


COAL SALES AND RELATED REVENUE for the six months ended April 30, 1999 (the 1999
Period) were $104.7 million, a decrease of $31.5 million, or 23.1%, compared to
the six months ended April 30, 1998 (the 1998 Period). The related revenue
component was $7.0 million in the 1999 Period and $11.1 million in the 1998
Period, representing $4.1 million of the total $31.5 million decrease. This
decrease is primarily attributable to the completion of the contract mining
operation in Eastern Kentucky.

Coal sales revenue decreased by $27.4 million, which primarily was the result of
a 23.4% decrease in the volume of tons shipped. Coal sales revenue per ton
shipped was $23.60 in the 1999 Period compared to $23.13 in the 1998 Period,
increasing as a result of less spot market shipments as well as a greater ratio
of Eastern Kentucky coal sales to Western Kentucky coal sales. The 1.3 million
ton decline in coal shipped for the 1999 Period versus the 1998 Period is the
result of Lodestar's decision to reduce spot shipments during a weak coal
market, the reduced production levels at certain mine sites in both the Western
and Eastern Kentucky operations during the second quarter of 1999, the closure
of mines during fiscal year 1998, and the deferral of certain contracted
customer shipments.


COST OF REVENUES for the 1999 Period was $87.4 million, a decrease of $27.3
million, or 23.8%, compared to the 1998 Period. The $27.3 million reduction in
cost of revenues is primarily the result of fewer sold tons during the 1999
Period. Additionally, a $5.7 million reduction in cost of revenues due to the
completion of the contract mining operation in Eastern Kentucky benefited the
1999 Period. Cost of coal sales revenue increased $.78 per ton shipped primarily
due to lower salable yield from the Western Kentucky Baker underground mine and
higher surface mining ratios (cubic yards of overburden removed to salable tons
of coal produced) at certain Eastern Kentucky surface mines, net of the benefit
of a $5.6 million reduction in equipment lease expense associated with the
buyout of those obligations with the proceeds of the Notes.


                                       11
<PAGE>

DEPRECIATION, DEPLETION, AND AMORTIZATION for the 1999 Period increased from the
1998 Period by $2.3 million. The primary reason for this increase was
depreciation as a result of capital equipment additions during the interim
twelve months including $27.5 million, which was capitalized in conjunction with
the buyout of leases with the proceeds of the Notes.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES during the 1999 Period were
relatively unchanged when compared to the 1998 Period. Variances between periods
related to expenses incurred as part of the year 2000 compliance effort in the
1999 Period have been offset by favorable variances in legal expenses and other
administrative charges.


OPERATING INCOME (LOSS) decreased from a profit of $4.9 million during the 1998
Period to a loss of $1.6 million during the 1999 Period primarily as a result of
the impact of reduced shipments during the 1999 Period.


INTEREST EXPENSE, NET was $9.5 million for the 1999 Period, an increase of $4.7
million over the 1998 Period, which reflects the impact of interest on the
Notes.


INCOME TAXES for the 1999 Period are $0. Due to the Company's change in tax
status (See Note 4 of Notes to Consolidated Financial Statements), the Company
is no longer subject to income taxes, and accordingly, no provision or credit
for income taxes has been recorded during the 1999 Period.


NET INCOME (LOSS) decreased from a profit of $.1 million during the 1998 Period
to a loss of $11.1 million during the 1999 Period as a result of the factors
described above.



LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity requirements arise from working capital requirements,
capital investments, interest payment obligations and costs of implementing its
business strategy to grow through strategic acquisitions. The Company's primary
source of liquidity is cash provided by operating activities. The Company also
has available a $120 million senior credit facility (the Senior Credit Facility)
that provides for advances by the lender to a maximum of $90.0 million, based on
specific percentages of eligible receivables and inventories, and for letters of
credit of up to $30.0 million, based on a percentage of appraised value of
equipment and mineral reserves. As of April 30, 1999, the Senior Credit Facility
debt was $3.8 million, and $16.2 million of letters of credit were outstanding.
Based upon eligible collateral as of April 30, 1999, the net unused borrowing
and letter of credit availability thereunder was $26.1 million and $9.9 million,
respectively.


Cash used in the Company's operating activities for the 1999 Period was $5.4
million, compared to $13.5 million provided from the 1998 Period operating
activities. The $5.4 million of cash used in operating activities during the
1999 Period reflects the negative impact on cash resulting from reduced sales
volume and the build up of inventory experienced during the six months ended
April 30, 1999.

As a result of various factors as described herein, the Company's coal inventory
has increased by $10.2 million since November 1, 1998. In addition to temporary
production reductions at certain mine locations, Lodestar has implemented an
aggressive marketing strategy to relieve this inventory without significantly
compromising the realization earned per sold ton. Based upon current production
levels and new sales order commitments accepted to date, the Company projects
coal inventory will return to normal levels by the end of fiscal 1999.



                                       12
<PAGE>

For the six months ended April 30, 1999, capital expenditures and the cost of
acquisitions funded with cash were $10.8 million. As of April 30, 1999, the
Company had capital expenditure commitments of approximately $6.1 million,
including $2.5 million for a replacement panline, which is a major component of
the Western Kentucky Baker mine longwall unit. This expenditure is expected to
occur in the third quarter of fiscal 1999. Total capital expenditures and the
cost of expected acquisitions funded with cash for fiscal 1999 are projected to
be less than $20.0 million.


The Company has significant indebtedness outstanding at April 30, 1999.
Management believes that cash flow from operations, in addition to availability
under the Senior Credit Facility, will be sufficient to provide for the
Company's liquidity needs for the foreseeable future. In addition, management
believes that such cash availability will be sufficient to finance projects that
will allow the implementation of its business strategy to grow through strategic
acquisitions. In general, management expects that such projects would be
financed with specifically targeted available funds and would meet their
criteria for cash self-sufficiency. There can be no assurance that the Company
will be successful in consummating such acquisitions.


The indenture governing the Notes and the Senior Credit Facility contains
numerous covenants and prohibitions that impose limitations on the liquidity of
the Company, including requirements that the Company satisfy certain financial
ratios and limitations on the incurrence of additional indebtedness. The ability
of the Company to meet its debt service requirements and to comply with such
covenants will be dependent upon future operating performance and financial
results which will be subject to financial, economic, political, competitive and
other factors affecting the Company, many of which are beyond its control.


YEAR 2000


The Company established an internal committee in 1998 responsible for monitoring
year 2000 (Y2K) compliance. The committee, in conjunction with an independent
consulting firm, has developed a detailed work schedule designed to minimize the
Company's risk to business interruptions related to Y2K issues. This plan has
been diligently administered during the 1999 Period, and the initial phase of
system inventory and analysis is complete.

The Company's information systems (IS) have been completely evaluated, and Y2K
remediation work to be performed in that area is minimal.

The primary non-IS risk areas are the embedded systems affecting mining
equipment, preparation plant systems, scale system interfaces, laboratory
equipment, and other facility-specific equipment. Testing was prioritized based
on evaluated risk. Evaluation of the most critical areas was completed in April
1999, with all testing scheduled to be completed by July 1, 1999. Remediation
efforts, which are not expected to be of a material nature, began in the second
quarter of 1999 on selected noncompliant items. Projections at this time
indicate that all remediation work that is required will be accomplished before
the end of the calendar year.

Additionally, the Company is in the process of a comprehensive review of the Y2K
compliance efforts of its most critical vendors and customers. Although
management believes that it is unlikely that its operations will be disrupted,
contingency plans are currently being developed to address the areas in which
potential disruptions could be most serious. All contingency plans will be
finalized during the third quarter of fiscal 1999.

To accelerate project completion and to enhance the thoroughness of its Y2K
efforts, the Company has increased its reliance on third party consultants.
Dependent upon the magnitude of required remediation efforts, and without
consideration of internal labor costs (which are not expected to be
significant), the expenditures to achieve Y2K compliance are projected to be
less than $1.0 million. As of April 30, 1999, approximately $485,000 has been
spent in Y2K compliance efforts.


                                       13
<PAGE>

While every effort is being made to ensure Y2K compliance within the
controllable scope of the Lodestar operations, there can be no assurance that
business interruptions resulting from Y2K issues initiated from external systems
can be prevented.



 EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." SFAS No. 132 revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. This Statement is
effective for the Company in its 1999 fiscal year. The Company does not expect
the implementation of this Statement to have a material effect on its
consolidated financial statements.



FORWARD - LOOKING STATEMENTS

This report includes "forward-looking statements," within the meaning of the
Private Securities Litigation Reform Act of 1995, which involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of the Company to differ materially
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such risks, uncertainties and other important
factors include, among others: general economic and business conditions;
industry capacity; demand; industry trends, including coal pricing; competition;
the loss of any significant customers or long-term contracts; availability of
qualified personnel; major equipment failures; changes in, or failure or
inability to comply with, government regulation, including, without limitation,
environmental regulations; outcome of litigation; and other factors referenced
in this report. For a detailed discussion of these factors, please refer to the
information under the caption "Risk Factors" in the Company's Registration
Statement No. 333-59037 (effective November 12, 1998). These forward-looking
statements speak only as of the date of this report. The Company expressly
disclaims any obligation or undertaking to disseminate any updates or revisions
to any forward-looking statement contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.


                                       14
<PAGE>


PART II.  - ITEM 1 LEGAL PROCEEDINGS

In 1997, Cedar Bay Generating Company Limited Partnership (Cedar Bay), one of
the Company's five largest customers, brought a lawsuit in the Circuit Court
for Duval County, Florida, against Florida Power & Light Company (FP&L), the
utility for which Cedar Bay generates power, alleging, among other things,
that FP&L was in breach of its contract with Cedar Bay for underpaying
invoices from Cedar Bay by amounts which FP&L disputed were properly due
under the contract. While such lawsuit has been pending, FP&L has withheld
payment to Cedar Bay of the portion of the invoices disputed by FP&L and
Cedar Bay has, in turn, withheld a portion of the amounts invoiced by the
Company to Cedar Bay for coal used by Cedar Bay to generate power for FP&L.
Were Cedar Bay not successful in its litigation with FP&L, Cedar Bay might
assert that the payments it had withheld from the Company, a portion of which
are recorded as current receivables by the Company, are not properly owed,
and, more significantly, Cedar Bay's ability to meet its financial
obligations to the Company and others might be impaired. See Note (5) re
Commitments and Contingencies in the Financial Statements included herein. In
order to protect its financial interest in this matter, the Company sought
approval from the court to intervene in the litigation between Cedar Bay and
FP&L generally in support of Cedar Bay's position. In April 1999, the court
granted the Company's application. The Company is unable to determine whether
Cedar Bay will be successful in the litigation and is unable to estimate any
losses the company would experience were Cedar Bay to lose such litigation.

                                       15
<PAGE>


PART II.  - ITEM 6  EXHIBITS AND REPORTS ON FORM 8-K

Exhibits:

         A list of exhibits required to be filed as part of this Report Form
         10-Q is set forth in the "Exhibit Index", which immediately precedes
         such exhibits, and is incorporated herein by reference.


Reports on Form 8-K:

         No reports on Form 8-K were filed during the quarter for which this
         report is filed.





                                       16
<PAGE>


                                   SIGNATURE


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 under
signed thereunto duly authorized.


                             Lodestar Holdings, Inc.
                                  (Registrant)

                        By:    /s/ Michael E. Donohue
                               -------------------------------------------------
                                      MICHAEL E. DONOHUE
                                      Vice President and Chief Financial Officer
                                      (duly authorized officer and principal
                                        financial and accounting officer)




                        Date:      June 14, 1999
                               -------------------------------------------------




                                       17
<PAGE>




                                 EXHIBIT INDEX



 EXHIBIT NO.                                                    DESCRIPTION



10  MATERIAL CONTRACTS

    10.1 Amendment No. 1, dated as of October 22, 1998,
         to Amended and Restated Loan and Security Agreement, dated
         May 15, 1998, by and among Lodestar Energy, Inc., as Borrower,
         Lodestar Holdings, Inc., as Guarantor, the financial institutions
         named therein as lenders, Congress Financial Corporation, as Agent,
         and The CIT/Business Credit, Inc., as Co-Agent.

    10.2 Amendment No. 2, dated as of December 4, 1998,
         to Amended and Restated Loan and Security Agreement, dated
         May 15, 1998, by and among Lodestar Energy, Inc., as Borrower,
         Lodestar Holdings, Inc., as Guarantor, the financial institutions
         named therein as lenders, Congress Financial Corporation, as Agent,
         and The CIT/Business Credit, Inc., as Co-Agent.


    10.3 Amendment No. 3, dated as of January 15, 1999,
         to Amended and Restated Loan and Security Agreement, dated
         May 15, 1998, by and among Lodestar Energy, Inc., as Borrower,
         Lodestar Holdings, Inc., as Guarantor, the financial institutions
         named therein as lenders, Congress Financial Corporation, as Agent,
         and The CIT/Business Credit, Inc., as Co-Agent.

    10.4 Amendment No. 4, dated as of April 30, 1999,
         to Amended and Restated Loan and Security Agreement, dated
         May 15, 1998, by and among Lodestar Energy, Inc., as Borrower,
         Lodestar Holdings, Inc., as Guarantor, the financial institutions
         named therein as lenders, Congress Financial Corporation, as Agent,
         and The CIT/Business Credit, Inc., as Co-Agent.

27  FINANCIAL DATA SCHEDULE

                                       18
<PAGE>



                                   SIGNATURE



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 under
signed thereunto duly authorized.


                         Lodestar Holdings, Inc.
                                  (Registrant)

                        By:    /s/ Michael E. Donohue
                               -------------------------------------------------
                                      MICHAEL E. DONOHUE
                                      Vice President and Chief Financial Officer
                                      (duly authorized officer and principal
                                        financial and accounting officer)




                        Date:      June 14, 1999
                               -------------------------------------------------






                                       19