<PAGE>   1

                          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 September 30, 1999

                                          or

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

                           Commission File Number 333-22679

                              ZARING NATIONAL CORPORATION
                (Exact name of registrant as specified in its charter)

                 OHIO                                           31-1506058
--------------------------------------------------------------------------------
      (State or other jurisdiction of                       (I.R.S. Employer
      incorporation or organization)                       Identification No.)


11300 Cornell Park Drive, Suite 500, Cincinnati, Ohio           45242-1825
--------------------------------------------------------------------------------
(Address of principal executive offices)                        (Zip Code)


                                  513-489-8849
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(g) of the Act:

                        Common Shares, without par value
                                (Title of Class)

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 twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days.

                     YES    [  X  ]                     NO   [   ]

Number of common shares outstanding as of September 30, 1999:  4,591,488

                                                               Total Pages:  24


<PAGE>   2


                              ZARING NATIONAL CORPORATION

                                         INDEX

                                                                           Page
                                                                           ----

PART I   FINANCIAL INFORMATION

     Item 1.  Consolidated Financial Statements

         Consolidated Balance Sheets,
         September 30, 1999, September 30, 1998 (unaudited), and
         December 31, 1998                                                     3

         Consolidated Statements of Operations (unaudited),
         Three Months Ended September 30, 1999 and 1998 and
         Nine Months Ended September 30, 1999 and 1998                         5

         Consolidated Statement of Shareholders' Equity,
         Nine Months Ended September 30, 1999 (unaudited)                      6

         Consolidated Statements of Cash Flows,
         Nine Months Ended September 30, 1999 and 1998 (unaudited)             7

         Notes to Consolidated Financial Statements (unaudited)                8


     Item 2. Management's Discussion and Analysis
             of Financial Condition and Results of Operations
                                                                              15

     Item 3.  Qualitative and Quantitative Disclosure About Market Risk       23

PART II  OTHER INFORMATION                                                    24

SIGNATURES                                                                    25


2
<PAGE>   3


                             PART I. FINANCIAL INFORMATION

                       ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS


                              ZARING NATIONAL CORPORATION

                              CONSOLIDATED BALANCE SHEETS

                                        ASSETS
                                (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>



                                                                              (UNAUDITED)
                                                                              SEPTEMBER 30,             DECEMBER 31,
                                                                       -------------------------        ------------
                                                                         1999              1998            1998
                                                                       --------         --------        ------------
<S>                                                                    <C>              <C>              <C>
 Cash and cash equivalents                                             $  9,194         $  7,364         $ 15,699
 Receivables:
    Related parties                                                          28              365               82
    Notes                                                                 4,645             --                325
    Manufactured housing rebates and other                                2,280              494              885
 Inventories:
    Luxury site-built homes                                              62,911           36,450           32,365
    Entry level homes                                                     9,038            3,769            6,405
    Retail distribution manufactured homes                                4,918            1,962            2,746
    Model homes                                                          23,260           20,444           21,046
    Land, development costs and finished lots                            66,440           47,897           50,280
 Property and equipment, net                                              7,682            7,406            8,108
 HomeMax Sales Villages, net                                             11,343           12,782           12,336
 Investments in and advances to unconsolidated joint ventures                --              639              201
 Future tax benefit                                                       6,280            2,258            6,053
 Cash surrender value of life insurance and other assets                  4,727            5,924            5,566
 Goodwill, net                                                              254            2,274              259
                                                                       --------         --------         --------
                                                                       $213,000         $150,028         $162,356
                                                                       ========         ========         ========
</TABLE>



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




3
<PAGE>   4


                          ZARING NATIONAL CORPORATION

                    CONSOLIDATED BALANCE SHEETS (CONTINUED)

                      LIABILITIES AND SHAREHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                 (UNAUDITED)
                                                                                 SEPTEMBER 30,              DECEMBER 31,
                                                                          --------------------------        ------------
                                                                            1999               1998             1998
                                                                          --------          --------        ------------
<S>                                                                       <C>               <C>               <C>
 Liabilities:
    Revolving credit facility                                             $ 59,831          $ 45,156          $ 44,500
    Manufactured housing floor plan facility                                 8,747             6,338             7,082
    Term notes payable                                                      45,852            26,436            41,446
    Accounts payable                                                        25,688            11,818            14,766
    Accrued liabilities                                                      9,140             6,061             6,829
    Customer deposits                                                        9,004             2,967             3,296
    Deferred gains                                                           2,650              --                --
                                                                          --------          --------        ------------
                 Total liabilities before minority interest
                    and subordinated debt                                  160,912            98,776           117,919
                                                                          --------          --------        ------------
 Minority interest in consolidated entities                                  2,709             1,512             1,654
 Subordinated debt                                                           9,000              --                --
                                                                          --------          --------        ------------
 Commitments and contingencies

 Shareholders' equity:
     Preferred shares, no par value, 2,000,000 shares
        authorized, none issued or outstanding                                --                --                --
     Common shares, no par value, 18,000,000 shares
        authorized, 4,591,488, 4,734,388, 4,591,488
        issued and outstanding at September 30, 1999,
        September 30, 1998, and December 31, 1998,
        respectively                                                        24,957            25,099            24,957
     Additional paid-in capital                                              4,286             5,325             4,286
     Retained earnings                                                      11,136            19,316            13,540
                                                                          --------          --------        ------------
                           Total shareholders' equity                       40,379            49,740            42,783
                                                                          --------          --------        ------------
                                                                          $213,000          $150,028          $162,356
                                                                          ========          ========        ============
</TABLE>

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





4
<PAGE>   5


                          ZARING NATIONAL CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

              (DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

<TABLE>
<CAPTION>
                                                                       THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                                           SEPTEMBER 30,                     SEPTEMBER 30,
                                                                       1999            1998              1999             1998

<S>                                                              <C>             <C>              <C>              <C>
Net revenues:
     Luxury site-built homes                                     $    79,673     $    66,983      $   186,340      $   183,786
     Entry level homes                                                 7,591           3,328           18,716            6,995
     Retail distribution manufactured homes                            4,858           4,542           15,072            7,519
     Financial services                                                  434            --              1,102             --
                                                                 -----------     -----------      -----------      -----------
                  Total net revenues                                  92,556          74,853          221,230          198,300
                                                                 -----------     -----------      -----------      -----------
Expenses:
     Cost of sales luxury site-built homes                            63,186          54,323          148,724          152,044
     Cost of sales entry level homes                                   7,209           2,854           17,860            5,718
     Cost of sales retail distribution
         manufactured homes                                            4,495           3,837           13,424            6,469

     Interest                                                          2,120           1,468            5,524            4,055
     Selling                                                           8,223           4,766           18,716           14,613
     General and administrative                                        6,584           6,748           19,665           16,986
     Financial services                                                  362            --              1,044             --
                                                                 -----------     -----------      -----------      -----------
               Total expenses                                         92,179          73,996          224,957          199,885
                                                                 -----------     -----------      -----------      -----------
               Operating income (loss)                                   377             857           (3,727)          (1,585)
Other income (expense):
     Income from unconsolidated joint
        ventures                                                          51              72               51              217

      Other, net                                                          78             (45)             103               28
                                                                 -----------     -----------      -----------      -----------
             Income (loss) before minority interest and
                  provision (credit) for income taxes                    506             884           (3,573)          (1,340)

Minority interest in (income) loss of consolidated
entities                                                                 693             (21)           1,462              162
                                                                 -----------     -----------      -----------      -----------
       Income (loss) before provision
           (credit) for income taxes                                   1,199             863           (2,111)          (1,178)

Provision (credit) for income taxes                                    1,173             300              293             (588)
                                                                 -----------     -----------      -----------      -----------
      Net income  (loss)                                         $        26     $       563      $    (2,404)     $      (590)
                                                                 ===========     ===========      ===========      ===========
Basic and diluted earnings (loss) per
       common share                                              $      0.01     $      0.12      $     (0.52)     $     (0.12)
                                                                 ===========     ===========      ===========      ===========
Weighted average shares outstanding                                4,591,488       4,752,978        4,591,488        4,764,988
                                                                 ===========     ===========      ===========      ===========
</TABLE>

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







5
<PAGE>   6


                          ZARING NATIONAL CORPORATION

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                  (UNAUDITED)

                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>



                                                                        ADDITIONAL         RETAINED
                                  SHARES ISSUED     COMMON SHARES     PAID-IN CAPITAL      EARNINGS            TOTAL
                                  -------------     -------------     ---------------    ----------         ----------
<S>                                 <C>              <C>               <C>               <C>                <C>
BALANCE, December 31, 1998          4,591,488        $   24,957        $    4,286        $   13,540         $   42,783

Net loss                                 --                --                --              (2,404)            (2,404)
                                    ---------        ----------        ----------        ----------         ----------
BALANCE, September 30, 1999
                                    4,591,488        $   24,957        $    4,286        $   11,136         $   40,379
                                    =========        ==========        ==========        ==========         ==========
</TABLE>

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






6
<PAGE>   7
<TABLE>
<CAPTION>


                              ZARING NATIONAL CORPORATION
                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      (UNAUDITED)
                                (DOLLARS IN THOUSANDS)
                                                                                                NINE MONTHS ENDED
                                                                                                   SEPTEMBER 30,
                                                                                           --------------------------
                                                                                              1999              1998
                                                                                           --------          --------
<S>                                                                                        <C>               <C>
Cash Flows from Operating Activities:
     Net loss                                                                              $ (2,404)         $   (590)
         Adjustments to reconcile net loss to cash used in operating activities--
             Depreciation and amortization                                                    3,006             2,766
             Income from unconsolidated joint ventures                                          (51)             (217)
             Minority interest in loss of consolidated entities                              (1,462)             (162)
         Change in assets and liabilities--
             Future tax benefit                                                                (227)           (1,200)
             Receivables                                                                     (1,250)              130
             Inventories                                                                    (53,725)           (2,101)
             Cash surrender value of life insurance and other assets                            369            (1,744)
             Accounts payable                                                                10,922             3,365
             Accrued expenses and deferred gains                                              3,071              (231)
             Customer deposits                                                                5,708               789
                                                                                           --------          --------
                  Net cash (used in) provided by operating activities                       (36,043)              805
                                                                                           --------          --------
Cash Flows from Investing Activities:
     Additions to property and equipment, net                                                (3,258)          (13,587)
     Proceeds from sale of property and equipment                                             2,146             1,222
     Distributions received from unconsolidated joint ventures, net                             252               200
                                                                                           --------          --------
                  Net cash used for  investing activities                                      (860)          (12,165)
                                                                                           --------          --------
Cash Flows from Financing Activities:
     Borrowings on notes payable                                                             76,602            96,220
     Repayments of notes payable                                                            (46,200)          (82,356)
     Net distributions (paid to) received from majority shareholder of affiliates                (4)            1,100
     Purchase of common shares                                                                 --                (400)
                                                                                           --------          --------
                  Net cash provided by financing activities                                  30,398            14,564
                                                                                           --------          --------
 Increase (decrease)  in cash and cash equivalents                                           (6,505)            3,204
 Cash and cash equivalents, beginning of period                                              15,699             4,160
                                                                                           --------          --------
 Cash and cash equivalents, end of period                                                  $  9,194          $  7,364
                                                                                           ========          ========
 Supplemental Disclosure of Cash Flow Information:
     Cash paid during the period for-
         Interest, net of amounts capitalized                                              $  5,447          $  3,880
                                                                                           ========          ========
         Income taxes                                                                      $    521          $    608
                                                                                           ========          ========


Supplemental Schedule of Non-Cash Investing and Financing Activities:
   During the nine months ended September 30, 1999, the Company received
   a note receivable in exchange for the sale of an investment in the
   HomeMax, Inc. subsidiary (Note 6):

Note receivable                                                                            $  4,411
Deferred gain                                                                                (1,775)
Minority interest                                                                            (2,521)
Accrued expenses                                                                               (115)
</TABLE>

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







7
<PAGE>   8



                              ZARING NATIONAL CORPORATION

                             NOTES TO FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1999
                                      (UNAUDITED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

(1)    BASIS OF PRESENTATION-
       ----------------------
       Effective in May 1997, Zaring National Corporation (an Ohio corporation)
       implemented the formation of a holding company structure which results in
       the accompanying consolidated financial statements including the accounts
       of Zaring National Corporation and subsidiaries (the Company). The
       subsidiaries of the Company include the following: Zaring Homes, Inc. and
       its subsidiaries, Zaring Homes of Indiana, LLC and Zaring Homes Kentucky,
       LLC; Zaring Holdings, Inc.; HomeMax Operating Properties, L.L.C. (Note
       6); HomeMax, Inc. and its subsidiaries, HomeMax North Carolina, Inc.,
       HomeMax Tennessee, Inc., HomeMax South Carolina, Inc., HomeMax Ohio,
       Inc., HM Properties, Inc., HomeMax Indiana, LLC and HomeMax Kentucky,
       LLC; Hearthside Homes, LLC; and Zaring Financial Services, LLC.

       In October 1998, the Company increased its ownership of Blue Chip
       Mortgage Company, LLC (Blue Chip) from 50% to 100%. Accordingly, the
       financial results of Blue Chip subsequent to September 1998 are
       consolidated with the Company's activities whereas activities of Blue
       Chip prior to October 1998 were reported using the equity method of
       accounting. Effective April 1, 1999, Blue Chip and Legacy Mortgage
       Corporation were merged and renamed Zaring Financial Services, LLC.

       The principal business of the Company's subsidiary, Zaring Homes, Inc.
       (Zaring Homes) is the designing, constructing, marketing and selling of
       single-family homes and the acquisition and development of land for sale
       as residential building lots in the midwest and southeast United States.
       Zaring Homes began operations in Cincinnati, Ohio in 1964 and commenced
       operations in Nashville, Tennessee in 1986. In 1994, operations commenced
       in Raleigh/Durham, North Carolina and Indianapolis, Indiana. In 1996,
       operations commenced in Louisville, Kentucky and Charlotte, North
       Carolina.

       In November 1996, the Company formed HomeMax, Inc. (HomeMax) for the
       purpose of entering into the retail distribution of manufactured housing.
       HomeMax, based in Raleigh, North Carolina, commenced operations in the
       first quarter of 1997 and currently operates twelve sales villages
       located in North Carolina, South Carolina and Kentucky. Effective March
       15, 1999, the Company sold a 25% interest in HomeMax to American Homestar
       Corporation (Note 6).

       Effective October 1, 1997, the Company, through its subsidiary Hearthside
       Homes, LLC (Hearthside), acquired substantially all of the net operating
       assets of Legacy, Inc., an Indianapolis based builder of entry level
       single family homes. The Company also acquired the stock of Legacy
       Mortgage Corporation, an entity which originates, processes and sells
       mortgages to third-party investors.

       In June 1998, the Company's Principal Shareholder formed First Cincinnati
       Leasing LLC (Leasing LLC) and First Cincinnati Land LLC (Land LLC) to
       purchase and leaseback certain model homes and purchase certain
       undeveloped land, as applicable. In March 1999, the Company's Principal
       Shareholder formed First Cincinnati Leasing 99 LLC (Leasing 99 LLC) to
       purchase and leaseback certain model homes. As a result of, among others,
       the Principal Shareholder's control of Leasing LLC, Leasing 99 LLC and
       Land LLC (collectively Majority Shareholder LLCs), the results of each of
       these entities have been consolidated with the Company's activities
       subsequent to their formation. The LLCs' initial capitalization and
       related share of income is included as a component of minority interest
       in the accompanying consolidated financial statements.

       All significant intercompany transactions and balances have been
       eliminated in consolidation.




8
<PAGE>   9



       The accompanying consolidated financial statements have been prepared in
       accordance with the rules and regulations of the Securities and Exchange
       Commission for interim financial information. Since such financial
       statements do not include all the information and footnotes required by
       generally accepted accounting principles for complete financial
       statements, they should be read in conjunction with the consolidated
       financial statements and related footnotes included in the Form 10-K for
       the fiscal year ended December 31, 1998 filed with the Securities and
       Exchange Commission. The financial statements are unaudited, but in the
       opinion of management, all adjustments (consisting of normal recurring
       adjustments) considered necessary for a fair presentation of the
       Company's unaudited consolidated financial statements as of September 30,
       1999 have been included. Operating results for the nine months ended
       September 30, 1999, are not necessarily indicative of the results for the
       entire year.

(2)    CAPITALIZED INTEREST-
       Interest is capitalized on land in the process of development,
       construction of sales villages and residential housing construction costs
       during the development and construction period. The following table
       summarizes the activity with respect to capitalized interest:
<TABLE>
<CAPTION>

                                                   THREE MONTHS ENDED                  NINE MONTHS ENDED
                                                      SEPTEMBER 30,                      SEPTEMBER 30,
                                               ------------------------          ------------------------
                                                (DOLLARS IN THOUSANDS)            (DOLLARS IN THOUSANDS)
                                                 1999             1998            1999              1998
                                               -------          -------          -------          -------
<S>                                            <C>              <C>              <C>              <C>
          Capitalized interest,
            beginning of period                $ 2,522          $ 2,161          $ 2,139          $ 1,678

          Interest incurred                      2,356            1,321            6,143            4,391

          Interest expensed                     (2,120)          (1,468)          (5,524)          (4,055)
                                               -------          -------          -------          -------
          Capitalized interest,
            end of period                      $ 2,758          $ 2,014          $ 2,758          $ 2,014
                                               =======          =======          =======          =======
</TABLE>


(3)    NOTES PAYABLE-
       --------------
       The Company has an unsecured, $87.5 million syndicated credit facility
       with PNC Bank acting as agent. This facility consists of a revolving
       credit facility, providing for borrowings up to $72.5 million, depending
       on the Company's borrowing base, as defined in the agreement, and a $15
       million term loan. Fifteen million dollars of the revolving credit
       facility may be used for letters of credit.

<TABLE>
<S>    <C>                                                                                     <C>
       The Company's notes payable consist of the following at September 30,
       1999:

       Revolving Credit Facility, payable to PNC Bank, as agent, $72.5 million
       maximum available borrowings, interest rate options of (a) the greater of
       the Prime Rate or the Federal Funds rate plus .50% or the (b) Euro-rate
       plus 1.50% to 2.30%, depending on the Company's leverage ratio
       (borrowings outstanding at September 30, 1999 are at 7.72%),
       expiring in July 2001.                                                                     $ 59,831
                                                                                                  ========

       Manufactured Housing Floor Plan Facility, payable to Nations Bank, $12.9
       million financing facility for inventory and display models, interest at
       the Prime Rate or the Euro-rate plus 2.35% (7.73% at September 30, 1999)
       and subject to repayment upon the earlier of sale or the end of, in
       certain circumstances, six months if held in inventory. Borrowings for
       the cost of certain models held for more than twelve months accrue
       interest at 10% and are subject to repayment no later than twenty-four
       months
       after the date of initial borrowing.                                                       $  8,747
                                                                                                  ========
</TABLE>




9
<PAGE>   10

<TABLE>
<S>     <C>                                                                                     <C>
       Term Loans, payable to PNC Bank, as agent, borrowings at interest rate
       options of (a) the greater of the Prime Rate or the Federal Funds
       rate plus .50% or the (b) Euro-rate plus 1.50% to 2.30%, depending on
       the Company's leverage ratio (borrowings outstanding at September 30,
       1999 are at 7.88%), payable in quarterly installments of
       $750 through April 2001.                                                                  $ 5,250

       Credit Agreement, payable to The Provident Bank, $15.0 million
       available for working capital needs of HomeMax and subsidiaries, interest
       at the Prime Rate plus 1%, (9.25% at September 30, 1999), payable in
       three annual installments of $1.47 million commencing March 15, 2000,
       entire balance payable at the earlier of September 15, 2002 or 90 days
       following the sale of the remaining 50% of HomeMax (Note 6), secured by
       $8.4 million of promissory notes, contingent interest equal to a
       percentage of the gain, if any, upon the sale of additional interest in
       HomeMax, as defined per the Credit Agreement, $10.0 million
       guaranteed by Zaring Homes.                                                                15,000

       Notes Payable to Former Shareholders, interest at 6.00% to 8.50%,
       payable in annual installments, $424 due October 1999 through 2001 and
       $106 due December 1999.                                                                     1,378

       Term Notes Payable to Banks, interest at 7.95%, payable in quarterly
       installments of $437 through September 2001.                                                3,176

       Other Term Notes, interest at 7.00% to 12.00%, principal installments of $72
       due January 2002, $2,425 due April 2003 and  $692 due April 2005.                           2,931


       Obligation of Zaring Financial Services:
       Revolving line of credit payable to a bank, permitted borrowings of up to
       $5.0 million, interest at the Prime Rate minus 0.25% (8.0%
       at September 30, 1999).                                                                       289

       Obligations of Leasing LLC, Land LLC and Leasing 99 LLC:
       Notes payable by Leasing LLC to a bank, permitted borrowings of up to $10.0 million,
       interest at LIBOR plus 1.75% (7.13% at September 30, 1999) payable
       monthly, secured by model homes and a personal guarantee, payable upon
       sale of the models or in annual installments through June 2001.                             6,306

       Notes payable by Land LLC to a bank, permitted borrowings of up to $10.0
       million, interest at LIBOR plus 2.25% (7.63% at September 30, 1999)
       payable monthly, secured by land and a personal
       guarantee, payable in July 2001.                                                            8,663

       Notes payable by Leasing 99 LLC to a bank, permitted borrowings of up to
       $3.0 million prior to September 30, 1999, interest at LIBOR plus 1.75%
       (7.13% at September 30, 1999), payable monthly, secured by model homes, a
       personal guarantee and a guarantee by Leasing LLC, payable upon sale of
       the models or in annual installments through
       March 2002.                                                                                 2,859
                                                                                               ---------

                                                                                                 $45,852
                                                                                               =========
       Subordinated notes payable to Principal Shareholder, interest at the
       greater of 9 7/8% or the Prime Rate plus 1 5/8% (9 7/8 % at September 30,
       1999) payable monthly, principal due September, 2002.                                     $ 5,000

       Subordinated note payable to American Homestar Corporation, interest at
       6.00% payable quarterly, payable June 15, 2002 unless accelerated as a result
       of available cash flow of HomeMax, as defined, convertible into an additional
       25% equity interest in HomeMax at the discretion of American Homestar.                      4,000
                                                                                               =========
                                                                                                 $ 9,000
                                                                                               =========
</TABLE>


10
<PAGE>   11


       The bank credit agreements include provisions which require, among
       others, that the Company maintain certain levels of tangible net worth
       and cash flow from operations as well as limiting the Company's ratio of
       debt to equity. As of September 30, 1999, the Company did not meet the
       debt to equity covenant (as defined) at the Zaring National level. The
       banks have not waived these covenant violations. Management intends to
       secure waivers, amend certain of the loan provisions currently included
       in the credit agreements or refinance the facilities to enable
       prospective compliance. The banks have not waived their right to
       accelerate payments under the agreements for any period. In the event
       such payments were accelerated, the Company may be unable to secure
       financing with comparable terms and conditions.

       The Company is contingently liable under letters of credit of
       approximately $8.2 million issued as a result of lot and land acquisition
       and development activities through September 30, 1999.

(4)    EARNINGS (LOSS) PER COMMON SHARE-
       ---------------------------------
       Basic earnings per share are computed by dividing net income by the
       weighted average number of common shares outstanding during the period.
       Diluted earnings per share are computed similar to basic except the
       denominator is increased to include the number of additional common
       shares that would have been outstanding if the dilutive potential common
       shares had been issued.

       Options to purchase 456,634 and 318,784 shares of common stock at an
       average exercise price of $9.32 and $10.07 per share were outstanding as
       of September 30, 1999 and 1998, respectively, but were not included in
       the computation of earnings (loss) per share since the options' exercise
       prices were greater than the average market price of the common shares.
       In addition, inclusion of any options in the computation of diluted
       earnings per share would be anti-dilutive in periods incurring a net
       loss.

       Since there are no dilutive securities, basic and diluted earnings (loss)
       per share are identical thus a reconciliation of the numerator and
       denominator is not necessary.

(5)    SHAREHOLDERS' EQUITY-
       ---------------------
       The Company is authorized to issue up to 2,000,000 preferred shares of
       which 1,000,000 are voting. No preferred shares have been issued.

(6)    HOMEMAX, INC. JOINT VENTURE WITH AMERICAN HOMESTAR CORPORATION-
       ---------------------------------------------------------------
       Effective March 15, 1999, after assignment of certain  obligations
       and other preclosing activities, the Company sold a 25% interest in
       HomeMax to American Homestar Corporation (American Homestar) for a note
       receivable of approximately  $4.4 million. The note receivable is to be
       paid in three annual installments  commencing March 15, 2000 and accrues
       interest payable quarterly, at prime. The amended and restated
       securities  purchase  agreement includes the following terms:

       -      American Homestar issued a $4.0 million subordinated convertible
              loan to HomeMax concurrent with the sale. This subordinated loan
              accrues interest at 6.0%, payable quarterly, while the principal
              is payable on June 15, 2002 unless accelerated as a result of
              available cash flow of HomeMax, as defined. The subordinated loan
              is convertible into an additional 25% of HomeMax at the discretion
              of American Homestar.

       -      The Company retained a $4.0 million receivable due from HomeMax
              which accrues interest at 6.0% and is payable quarterly. The $4.0
              million of principal is payable on June 15, 2002, unless
              accelerated as a result of available cash flow of HomeMax, as
              defined.

       -      The Company agreed to pay up to $3.0 million in connection with
              certain annual lease obligations.

       -      Subsequent to the sale, model home inventory will be replaced with
              the inventory of American Homestar. Costs of replacement, if any,
              will be provided by the Company and American Homestar in amounts
              up to $1.0 million and $0.5 million, respectively.

       -      Subsequent to the sale, the Company and American Homestar each
              agreed to provide up to $50,000 per quarter to support advertising
              and promotional initiatives.



11

<PAGE>   12

       -      American Homestar agreed to provide certain management and
              consulting services for up to three years for compensation of at
              least $0.5 million plus an additional fee of up to $750,000 based
              upon quarterly losses during the first four quarters following
              closing.

       -      American Homestar and the Company each agreed to provide working
              capital loans of up to $0.5 million to HomeMax which will accrue
              interest at prime.

       -      The Company has the option to sell and American Homestar has the
              option to buy 50% of HomeMax within three years at a defined
              price.

       -      The Company received an option, which expires on March 15, 2004,
              to purchase up to 150,000 shares of common stock of American
              Homestar with an exercise price of $18.00 per share.

       The accompanying financial statements include the results of HomeMax for
       all applicable periods. Losses for the period subsequent to the
       transaction allocable to American Homestar are included as a component of
       minority interest in loss of consolidated entities in the accompanying
       consolidated statements of operations. Similarly, American Homestar's
       investment, net of allocable losses, is included as a component of
       minority interest in consolidated entities in the accompanying balance
       sheets. The gain resulting from the Company's sale of a 25% interest in
       HomeMax to American Homestar ($1,775) has been deferred until, among
       other factors, American Homestar converts its subordinated note into an
       additional 25% equity interest in HomeMax.

(7)    INCOME TAXES-
       -------------
       Through March 15, 1999, the operating results of HomeMax were included in
       the consolidated tax return of the Company. Subsequent to March 15, 1999,
       HomeMax is not included in the Company's consolidated return.
       Accordingly, losses of HomeMax subsequent to March 15, 1999 have not been
       benefited for financial reporting purposes after giving effect to
       applicable valuation allowances.

(8)    NEW PRONOUNCEMENTS-
       -------------------
       In June 1998, the FASB issued Statement of Financial Accounting Standards
       No. 133, "Accounting for Derivative Instruments and Hedging Activities"
       (SFAS 133). This statement established accounting and reporting standards
       requiring that every derivative instrument (including certain derivative
       instruments imbedded in other contracts) be recorded on the balance sheet
       as either an asset or liability measured at its fair value. This
       statement requires that changes in the derivative's fair value be
       recognized currently in earnings unless specific hedge accounting
       criteria are met. SFAS 133 is effective for fiscal years beginning after
       June 15, 2000. Upon adoption of this statement, the Company anticipates
       no impact on its reported consolidated financial position, results of
       operations, cash flows or related disclosures.

(9)    CONTINGENCIES-
       ------------------
       During the third quarter, the Company became aware that entrapped
       moisture had resulted in mold or mildew developing in certain brick-
       faced, exterior walls in homes where tar paper was used as a vapor
       barrier as required by the City of Mason, Ohio's building code. The
       Company believes a combination of factors in the construction process
       caused conditions that led to the abnormal entrapment of moisture;
       however, the tar paper is believed to be a contributing factor. The
       problem is limited to certain homes in Mason where tar paper was used
       and exterior brick was applied after August 1997. The Company has
       commenced discussions with insurance carriers and other pertinent
       parties to address the potential financial impacts of the moisture items.
       However, given the preliminary nature of the process, further review and
       analysis will be necessary to determine the impact on the prospective
       results of the operations or financial condition of the Company.

(10)   RECLASSIFICATIONS-
       ------------------
       Certain amounts in the consolidated interim financial statements for 1998
       have been reclassified to conform to the 1999 presentation.






12
<PAGE>   13


(10)   SEGMENT INFORMATION-

       The following tables set forth, for the periods indicated, certain
       segment information regarding the Company's operations.
<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED                NINE MONTHS ENDED
                                                                      SEPTEMBER 30,                    SEPTEMBER 30,

                                                                 1999              1998            1999              1998
                                                                                 (dollars in thousands)
<S>                                                           <C>              <C>              <C>              <C>
Zaring Homes, Inc.
     Luxury Site-Built Homes
         Revenues                                             $  78,595        $  66,705        $ 183,847        $ 183,508
         Cost of sales                                           62,209           54,104          146,468          151,825
         Interest, net                                            2,008            1,840            5,954            5,252
         Selling, general and administrative expenses            10,198            7,634           25,628           20,576
                                                              ---------        ---------        ---------        ---------
         Operating income                                         4,180            3,127            5,797            5,855
         Other income (expense)                                     117              (25)              34              (11)
                                                              ---------        ---------        ---------        ---------
         Pretax Luxury Site-Built Income                          4,297            3,102            5,831            5,844

Hearthside Homes, LLC
     Entry Level Homes
         Revenues                                                 7,591            3,328           18,716            6,995
         Cost of sales                                            7,209            2,854           17,860            5,718
         Interest, net                                              303               97              762              218
         Selling, general and administrative expenses               560              371            1,671            1,330
                                                              ---------        ---------        ---------        ---------
         Operating income (loss)                                   (481)               6           (1,577)            (271)
         Other income (expense)                                    --                (17)               6               11
                                                              ---------        ---------        ---------        ---------
         Pretax Entry Level Loss                                   (481)             (11)          (1,571)            (260)

Financial Services
         Revenues                                                   434             --              1,102             --
         Expenses                                                   362             --              1,044             --
                                                              ---------        ---------        ---------        ---------
         Operating income                                            72             --                 58             --
         Other income (expense)                                      (9)            --                 36             --
                                                              ---------        ---------        ---------        ---------
         Pretax Financial Services Income                            63             --                 94             --

HomeMax, Inc.
     Retail Distribution Manufactured Homes
         Revenues                                                 4,858            4,542           15,072            7,519
         Cost of sales                                            4,495            3,837           13,424            6,469
         Interest, net                                              277              444            1,190            1,243
         Selling, general and administrative expenses             3,306            2,742            8,164            7,562
                                                              ---------        ---------        ---------        ---------
         Operating loss                                          (3,220)          (2,481)          (7,706)          (7,755)
         Other income                                              --                 13               44               30
         Minority interest                                          615               60            1,214              243
                                                              ---------        ---------        ---------        ---------
         Pretax Retail Distribution Loss                         (2,605)          (2,408)          (6,448)          (7,482)

Majority Shareholder LLCs
         Revenues                                                 1,078              278            2,493              278
         Cost of sales                                              977              219            2,256              219
         Interest, net                                              336              201              873              201
         Selling, general and administrative
             expenses                                                52               26              147               26
                                                              ---------        ---------        ---------        ---------
         Operating loss                                            (287)            (168)            (783)            (168)
         Other income                                               209              249              535              249
         Minority interest                                           78              (81)             248              (81)
                                                              ---------        ---------        ---------        ---------
                                                                      0                0                0                0
Corporate
         Interest income from subsidiaries, net                     849            1,034            3,301            2,779
         General and administrative expenses                       (924)            (854)          (3,318)          (2,059)
                                                              ---------        ---------        ---------        ---------
         Income (loss) before income taxes                        1,199              863           (2,111)          (1,178)
         Provision (credit) for income taxes                      1,173              300              293             (588)
                                                              ---------        ---------        ---------        ---------
             Net income (loss)                                $      26        $     563        $  (2,404)       $    (590)
                                                              =========        =========        =========        =========
</TABLE>






13
<PAGE>   14



Other pertinent information regarding the Company's segment operations are as
follows:
<TABLE>
<CAPTION>


                                 Zaring
                               Homes, Inc.     Hearthside                  HomeMax, Inc.
                                 Luxury        Homes, LLC                     Retail         Majority
                               Site-Built     Entry Level  Financial       Distribution     Shareholder
                                  Homes          Homes      Services    Manufactured Homes     LLCs     Corporate      Total
                          -----------------------------------------------------------------------------------------------------

<S>                              <C>           <C>           <C>             <C>           <C>           <C>         <C>
Segment assets:
  As of September 30,            $132,000      $ 14,818      $ 779           $ 25,985      $ 18,987      $ 75,709    $ 268,278
  1999
  As of December 31, 1998          91,110        10,355        113             23,152        14,998        16,852      156,580
<CAPTION>

RECONCILIATION OF SEGMENT ASSETS TO TOTAL
ASSETS:
                 AS OF SEPTEMBER 30, 1999                                   AS OF DECEMBER 31, 1998
                 ------------------------                                   -----------------------

<S>                        <C>                         <C>                            <C>
Total segment assets            $ 268,278               Total segment assets              $ 156,580
Elimination of                                          Elimination of
inter-entity                      (64,472)               inter-entity                        (9,923)
    investments                                             investments
Cash and cash equivalents           9,194               Cash and cash                        15,699
*                                                       equivalents *
                          ----------------                                            -------------
                                 $213,000                                                 $ 162,356
                          ================                                            =============
<FN>

* Management excludes cash and cash equivalents from assessing a segment's
operating performance.
</TABLE>






14
<PAGE>   15



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


RESULTS OF OPERATIONS
---------------------

The Company's business and the homebuilding industry are subject to changes in
national and local economic conditions, as well as other factors, including
employment levels, availability of financing, interest rates, consumer
confidence and housing demand. The Company's results of operations for the
periods presented include luxury site-built homes, entry level homes, retail
distribution manufactured homes and reflect the cyclical nature of the housing
industry.

The Company reported consolidated net revenues of $92.6 million for the quarter
ended September 30, 1999, compared to $74.9 million for the same quarter in
1998. The net income for the third quarter 1999 was $26,000 or $0.01 per share,
compared to a net income of $563,000 or $0.12 per share for the third quarter of
1998.

For the nine months ended September 30, 1999, consolidated revenues were $221.2
million compared to $198.3 million for the nine months ended September 30, 1998.
The net loss for the nine months ended September 30, 1999 was ($2.4 million) or
($ 0.52) per share, compared to ($590,000) or ($0.12) per share for the nine
months ended September 30, 1998.

The following tables set forth, for the periods indicated, certain information
regarding the Company's operations (in thousands).
<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                                     SEPTEMBER 30,                     SEPTEMBER 30,
                                                            ---------------------------        --------------------------
                                                                 1999            1998             1999              1998
                                                            ----------        ---------        ---------        ---------
                                                                                   (dollars in thousands)
<S>                                                           <C>              <C>              <C>              <C>
Zaring Homes, Inc.
     Luxury Site-Built Homes
         Revenues                                            $  78,595        $  66,705        $ 183,847        $ 183,508
         Cost of sales                                          62,209           54,104          146,468          151,825
         Interest, net                                           2,008            1,840            5,954            5,252
         Selling, general and administrative expenses           10,198            7,634           25,628           20,576
                                                             ---------        ---------        ---------        ---------
         Operating income                                        4,180            3,127            5,797            5,855
         Other income (expense)                                    117              (25)              34              (11)
                                                             ---------        ---------        ---------        ---------
         Pretax Luxury Site-Built Income                         4,297            3,102            5,831            5,844

Hearthside Homes, LLC
     Entry Level Homes
         Revenues                                                7,591            3,328           18,716            6,995
         Cost of sales                                           7,209            2,854           17,860            5,718
         Interest, net                                             303               97              762              218
         Selling, general and administrative expenses              560              371            1,671            1,330
                                                             ---------        ---------        ---------        ---------
         Operating income (loss)                                  (481)               6           (1,577)            (271)
         Other income (expense)                                   --                (17)               6               11
                                                             ---------        ---------        ---------        ---------
         Pretax Entry Level Loss                                  (481)             (11)          (1,571)            (260)

Financial Services
         Revenues                                                  434             --              1,102             --
         Expenses                                                  362             --              1,044             --
                                                             ---------        ---------        ---------        ---------
         Operating loss                                             72             --                 58             --
         Other income (expense)                                     (9)            --                 36             --
                                                             ---------        ---------        ---------        ---------
         Pretax Financial Services Income                           63             --                 94             --

HomeMax, Inc.
     Retail Distribution Manufactured Homes
         Revenues                                                4,858            4,542           15,072            7,519
         Cost of sales                                           4,495            3,837           13,424            6,469
         Interest, net                                             277              444            1,190            1,243
         Selling, general and administrative expenses            3,306            2,742            8,164            7,562
                                                             ---------        ---------        ---------        ---------
         Operating loss                                         (3,220)          (2,481)          (7,706)          (7,755)
         Other income                                             --                 13               44               30
         Minority interest                                         615               60            1,214              243
                                                             ---------        ---------        ---------        ---------
         Pretax Retail Distribution Loss                        (2,605)          (2,408)          (6,448)          (7,482)

Majority Shareholder LLCs
         Revenues                                                1,078              278            2,493              278
         Cost of sales                                             977              219            2,256              219
         Interest, net                                             336              201              873              201
         Selling, general and administrative
             expenses                                               52               26              147               26
                                                             ---------        ---------        ---------        ---------
         Operating loss                                           (287)            (168)            (783)            (168)
         Other income                                              209              249              535              249
         Minority interest                                          78              (81)             248              (81)
                                                             ---------        ---------        ---------        ---------
                                                                     0                0                0                0
Corporate
         Interest income from subsidiaries, net                    849            1,034            3,301            2,779
         General and administrative expenses                      (924)            (854)          (3,318)          (2,059)
                                                             ---------        ---------        ---------        ---------
         Income (loss) before income taxes                       1,199              863           (2,111)          (1,178)
         Provision (credit) for income taxes                     1,173              300              293             (588)
                                                             ---------        ---------        ---------        ---------
             Net income (loss)                               $      26        $     563        $  (2,404)       $    (590)
                                                             =========        =========        =========        =========
</TABLE>


15
<PAGE>   16
<TABLE>
<CAPTION>



                                                               THREE MONTHS ENDED                  NINE MONTHS ENDED
                                                                   SEPTEMBER 30,                     SEPTEMBER 30,
                                                           ---------------------------           --------------------------
                                                              1999              1998               1999                1998
                                                           --------           --------           --------           -------
                                                                                   (dollars in thousands)
<S>                                                        <C>                <C>                <C>                <C>
LUXURY SITE-BUILT HOMES
Operating data:
     Units
         New Orders (2)                                         327                194                983                721
         Closings (1)                                           292                250                664                712
         Backlog (3)                                            575                249                575                249
Average revenue per closing                                $    276           $    267           $    277           $    257
Average value of new order sales                           $    279           $    277           $    280           $    263
Sales value of backlog                                     $162,954           $ 67,604           $162,954           $ 67,604
ENTRY LEVEL HOMES
Operating data:
     Units
         New Orders (2)                                          66                 33                187                 83
         Closings (1)                                            54                 24                143                 55
         Backlog (3)                                             96                 52                 96                 52
Average revenue per closing                                $    132           $    127           $    128           $    124
Average value of new order sales                           $    124           $    131           $    127           $    129
Sales value of backlog                                     $ 12,037           $  6,928           $ 12,037           $  6,928
RETAIL DISTRIBUTION MANUFACTURED HOMES
Operating data:
     Units
         New Orders (2)                                         106                127                294                290
         Closings (1)                                            83                 82                262                142
         Backlog (3)                                            199                188                199                188
Average revenue per closing                                $     57           $     55           $     56           $     53
Average value of new order sales                           $     67           $     58           $     61           $     56
Sales value of backlog                                     $ 14,268           $ 11,189           $ 14,268           $ 11,189
<FN>

(1)      Revenue from a sale is recognized upon the closing of the sale.
(2)      New orders represent total new home orders received during the period, net
         of cancellations.
(3)      Backlog includes new orders which have not yet closed.
</TABLE>




16

<PAGE>   17


  THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO SEPTEMBER 30, 1998

ZARING HOMES, INC., LUXURY SITE-BUILT HOMES- Net revenues for the three months
ended September 30, 1999 increased 17.8% from $66.7 million for the period ended
September 30, 1998 to $78.6 million in 1999. Zaring Homes delivered 292 homes in
the third quarter of 1999, compared to 250 homes in the third quarter of 1998, a
16.8% increase. Net revenues for the nine months ended September 30, 1999
increased a nominal amount from the same period in 1998. Zaring Homes delivered
664 homes during the nine months ended September 30, 1999, compared to 712 homes
in the corresponding period in 1998, a 6.7% decrease. The decrease in home
closings for the nine month period was directly attributable to the slowing of
net sales during the fourth quarter of 1998 and the first quarter of 1999 which
impacted closings during the first and second quarters of 1999. However, overall
average revenue per closing increased $20,000 per home during the nine months
ended September 30, 1999, compared to the corresponding period in 1998. New
orders during the third quarter of 1999 increased 68.6% to 327 units from 194
units in the third quarter of 1998. New orders increased 36.3% in the first nine
months of 1999 from 721 units in the first nine months of 1998 to 983 units in
1999. As a result of the increase in new orders and the closings above, backlog
at September 30, 1999 is 575 units, an increase of 326 units or 130.9% from
September 30, 1998.

Gross profit, excluding net interest expense increased $3.8 million or 29.9% in
the third quarter of 1999 as compared to the third quarter of 1998. Gross profit
increased $5.7 million or 18.0% for the nine months ended September 30, 1999 as
compared to the corresponding period in 1998. Gross profit as a percentage of
revenues was 20.8% for the third quarter 1999 as compared to 18.9% for the third
quarter of 1998. The gross profit percentage for the nine-month period ended
September 30, 1999 was 20.3% as compared to 17.3% for the corresponding period
in 1998. The increase in gross profit is attributable to, among other factors,
the closing of contracts with higher margins which resulted from a change in
pricing strategy late in 1998. Interest expense increased by $168,000 during the
three months ended September 30, 1999 as compared to the same period in 1998.
Interest expense for the nine months ended September 30, 1999 increased $702,000
as compared to the corresponding period in 1998 due to increased inventory
investments in land development and increases in the number of sold units in
process.

Selling expenses for the three and nine month periods ended September 30, 1999
increased $2.4 million and $2.5 million, respectively, as compared to the
corresponding periods in 1998. As a percentage of revenues, selling expenses
increased to 9.0% during the three-month period ended September 30, 1999 from
7.0% during the three-month period ended September 30, 1998. As a percentage of
revenues, selling expenses increased to 8.3% during the nine-month period ended
September 30, 1999 from 6.9% for the corresponding period in 1998. These
increases are due to increased staffing levels and design center expenses.
General and administrative expenses increased $169,000 in the third quarter of
1999 compared to the third quarter of 1998 and $2.5 million in the nine months
ended September 30, 1999, compared to the nine months ended September 30, 1998.
These increases are primarily attributable to increased corporate staffing,
compensation increases and related expenses coupled with increased technology
costs. As a percentage of revenue, general and administrative expenses decreased
to 4.0% in the third quarter of 1999 from 4.5% during the third quarter 1998 and
increased to 5.6% for the nine months ended September 30, 1999 from 4.3% during
the same period in 1998. On a combined basis, selling, general and
administrative expenses increased $2.6 million, or 33.6% in the third quarter
1999 compared to the third quarter of 1998 and $5.1 million, or 24.6% for the
nine months ended September 30, 1999, compared to the corresponding period in
1998. As a percentage of revenues, selling, general and administrative expenses
increased to 13.0% for the three months ended September 30, 1999 from 11.4% for
the three months ended September 30, 1998 and to 13.9% for the nine months ended
September 30, 1999 from 11.2% for the nine months ended September 30, 1998. The
increase as a percentage of revenues is due to increased selling expenses to
generate an additional 326 units in backlog at September 30, 1999 as compared to
September 30, 1998, and increases in personnel and other expenses as noted.

As a result of the foregoing, the Zaring Homes segment reported pretax income of
$4.3 million or 5.5% of net revenues in the third quarter of 1999, an increase
of $1.2 million or 38.5% from the same period in 1998. For the nine month period
ended September 30, 1999, Zaring Homes reported pretax income of $5.8 million or
3.2% of net revenues consistent with $5.8 million or 3.2% for the same period in
1998.






17
<PAGE>   18

HEARTHSIDE HOMES, LLC, ENTRY LEVEL HOMES- Net revenues for the three and nine
months ended September 30, 1999 were $7.6 million and $18.7 million,
respectively, compared to $3.3 million and $7.0 million, respectively, for the
corresponding periods in 1998. Hearthside Homes delivered 54 and 143 homes,
respectively, in the three and nine months ended September 30, 1999, as compared
to 24 and 55 homes, respectively, for the three and nine months ended September
30, 1998. The increase in homes closed is directly attributable to the expansion
into Louisville, Kentucky and Nashville, Tennessee during the fourth quarter of
1998.

Gross profit, excluding net interest expense was $382,000, or 5.0% and $856,000,
or 4.6% for the three and nine months ended September 30, 1999, respectively, as
compared to $474,000, or 14.2% and $1.3 million, or 18.3% for the corresponding
periods in 1998. The overall gross profit decrease for the three and nine month
periods ended September 30, 1999 is a result of converting operations in all
markets to produce site-built homes rather than precision built homes, which
were determined to have a higher cost per unit to produce and reducing sales
prices on existing precision built homes to expedite the conversion. Selling,
general and administrative expenses were $560,000, or 7.4% of revenues and $1.7
million, or 8.9% of revenues for the three and nine months ended September 30,
1999, respectively, versus 11.1% and 19.0% of revenues for the three months and
nine months ended September 30, 1998. The decrease as a percentage of revenues
is a result of the increase in closing revenues which cover such expenses,
offset by the cost of the expansion into Nashville and Louisville. Interest
expense was $303,000 and $762,000 for the three and nine months ended September
30, 1999, respectively, representing significant increases from the
corresponding periods in 1998 due mainly to increased investments in model and
market homes as well as the number of sold units in process.

As a result of the foregoing, the Hearthside segment reported pretax losses of
$481,000 and $1.6 million for the three and nine months ended September 30,
1999, respectively, as compared to pre-tax losses of $11,000 and $260,000 for
the three and nine months ended September 30, 1998, respectively. Management
intends to build out existing Hearthside communities then phase out the
Hearthside operations.

HOMEMAX, INC., RETAIL DISTRIBUTION MANUFACTURED HOMES- Net revenues for the
three months ended September 30, 1999 increased $316,000 from $4.5 million in
the third quarter of 1998 to $4.9 million in the third quarter of 1999. Net
revenues for the nine months ended September 30, 1999 increased $7.6 million
from $7.5 million for the nine months ended September 30, 1998 to $15.1 million
for the nine months ended September 30, 1999. HomeMax closed 83 units in the
third quarter of 1999, versus 82 units in the same period of 1998. The less than
expected increase in third quarter 1999 closings was a direct result of the
impact of the hurricane in delaying closings in North Carolina and South
Carolina. HomeMax closed 262 units in the nine-month period ended September 30,
1999, an increase of 84.5% from the 142 units closed in the same period of 1998.
The overall increase for the nine month period is due mainly to the fact that 12
sales villages were open during the nine month period ended September 30, 1999
compared to eight sales villages being open during the period ending September
30, 1998.

Gross profit, excluding net interest expense was $363,000 or 7.5% for the three
months ended September 30, 1999 compared to $705,000 or 15.5% for the same
period in 1998. Gross profit was $1.6 million or 10.9% for the nine months ended
September 30, 1999 compared to $1.0 million or 14.0% for the same period in
1998. This decrease in gross profit is primarily due to the conversion process
of changing to products offered by American Homestar during the second and third
quarter 1999. Interest expense decreased $167,000 from 9.8% of revenues in the
third quarter of 1998 to 5.7% of revenues in 1999. The decrease is a result of
the sale of 25% of HomeMax to American Homestar which took place March 15, 1999.
In conjunction with the sale, certain intercompany debt was converted to equity
with the remaining debt and the subordinated note payable to American Homestar
carrying interest at lower rates. Interest expense decreased $53,000 in the nine
months ended September 30, 1999 compared to the same period in 1998. As a
percentage of revenues, interest expense decreased to 7.9% for the nine months
ended September 30, 1999 from 16.5% in the corresponding period of 1998. The
decrease as a percentage of revenues is due to the transaction discussed above
coupled with higher revenues.

Selling, general and administrative expenses for HomeMax totaled $3.3 million
and $8.2 million for the three and nine months ended September 30, 1999,
respectively, compared to






18
<PAGE>   19

$2.7 million and $7.6 million for the same periods in 1998. Selling expenses
were $657,000 or 13.5% of revenues in the third quarter of 1999 compared to
$72,000, or 1.6% of revenues for the same period in 1998. Selling expenses were
$2.2 million or 14.7% of revenues for the nine-month period ended September 30,
1999 compared to $1.6 million or 20.7% of revenues for the same period in 1998.
This overall nine month decrease as a percentage of revenues is primarily due to
the increase in closing revenues and the maturity of the sales center
operations. General and administrative expenses were $2.6 million or 54.5% of
revenues in the third quarter of 1999 versus $2.7 million or 58.8% of revenues
for the same period in 1998. General and administrative expenses were $5.9
million or 3.2% of revenues for the nine-month period ended September 30, 1999
versus $6.0 million or 79.8% of revenues for the same period in 1998. The
decrease as a percentage of revenues is due to specific cost containment efforts
initiated in the fourth quarter of 1998 coupled with the increase in closing
revenues.

As a result of the foregoing, HomeMax reported a pretax loss of $2.6 million in
the third quarter of 1999 compared to $2.4 million in the third quarter of 1998
and a pretax loss of $6.5 million for the nine months ended September 30, 1999
compared to $7.5 million for the corresponding period in 1998.

FINANCIAL SERVICES - The financial services segment reported revenues of
$434,000 and $1.1 million for the three and nine months ended September 30,
1999. After deducting $362,000 and $1.0 million in expenses associated with the
mortgage company operations for the three and nine months ended September 30,
1999, respectively, offset by miscellaneous other income (expense), the
financial services segment reported a pretax income of $63,000 and $94,000 for
the three and nine months ended September 30, 1999, respectively.

MAJORITY SHAREHOLDER LLCS - First Cincinnati Leasing LLC (Leasing LLC), First
Cincinnati Leasing 99 LLC and First Cincinnati Land LLC are reported as
"Majority Shareholder LLCs". Leasing LLC closed four and nine homes during the
three and nine months ended September 30, 1999, respectively, for total revenues
of $1.1 million and $2.5 million, respectively. One home was closed during the
three and nine months ended September 30, 1998. Interest expense of $336,000 and
$873,000 during the three and nine months ended September 30, 1999,
respectively, and $201,000 for the three and nine months ended September 30,
1998 represents interest incurred related to model home and undeveloped land
holdings. Other income of $209,000 and $535,000 for the three and nine months
ended September 30, 1999 and $249,000 for the three and nine months ended
September 30, 1998 represents model home rental income.

OTHER OPERATING RESULTS - Interest income from subsidiaries, net represents the
allocation of interest cost to the subsidiaries. Corporate general and
administrative expenses were $924,000 and $3.3 million for the three and
nine-month periods ended September 30, 1999, respectively, as compared to
$854,000 and $2.1 million for the three and nine-month periods ended September
30, 1998. The overall increase represents additional corporate staff, personnel
costs as well as administrative expenses necessary to support the organization's
various initiatives.

YEAR 2000 ISSUE

BACKGROUND--At midnight on December 31, 1999, unless the proper modifications
have been made, the program logic in many of the world's computer systems will
start to produce erroneous results because, among other things, the systems will
incorrectly read the date "01/01/00" as being January 1 of the year 1900 or
another incorrect date. In addition, certain systems may fail to detect that the
year 2000 is a leap year. Problems can also arise earlier than January 1, 2000,
as dates in the next millennium are entered into non-Year 2000 compliant
programs.

ZARING NATIONAL CORPORATION YEAR 2000 COMPLIANCE PROGRAM--During 1998, the
Company initiated a comprehensive corporate wide Year 2000 Compliance Program
(the Compliance Program) to evaluate and address the impact of the Year 2000
issue on its entire operations. The Compliance Program covers all aspects of the
Company's business that may be affected by the Year 2000 issue. The issue is
segregated into three main categories of possible risk: internal systems,
supplier exposure, and environmental risk. All internal systems have been
reviewed for Year 2000 compliance. This includes all server, client, and
communication hardware, all related peripheral hardware, and all "embedded"
system







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hardware. Additionally, all of the application software that runs on the
internal system hardware has been reviewed for compliance. Supplier exposure has
also been considered in this review. Supplier exposure includes a review of any
products or services used directly by the Company throughout its value delivery
process. The supplier category also includes analysis of possible first and
second tier supplier work interruptions caused by the Year 2000 issue. The last
category of review was the environmental impact of the issue on operations,
including internal work interruptions caused by external events such as power
delivery and physical access. This Compliance Program encompasses the review of
all three categories of risk at Zaring Homes, Hearthside, HomeMax and all other
Company subsidiary organizations.

YEAR 2000 COMPLIANCE PROGRAM PROCESS--The Company's process to achieve Year 2000
compliance involves four major steps: inventory of assets and suppliers, risk
assessment, action plan development, and testing.

Step one of the processes involved an inventory of all hardware, software and
suppliers that could entail risk to the Company because of date sensitivity. The
result of this process was a list of all suppliers that could have a significant
effect on the business if their work was interrupted or if their products or
services are not Year 2000 compliant. The hardware and software inventory
included all makes, models and versions of information systems. This information
is then used in Step two of the process, risk assessment.

Step two involved a risk assessment of individual systems and suppliers
resulting in a three-tier risk structure (high, medium, low) for the systems and
suppliers. This assessment involved a combination of several criteria: business
impact, likelihood of failure, and effort to remediate. The high and medium risk
items identified as non-compliant were further addressed in Step three of the
project.

Step three entailed the development of action plans to address systems or
suppliers deemed not compliant in the previous phases and that have a
significant impact on the Company's business. Each non-compliant system or
supplier has a customized action contingency plan. These plans may include
remediation through wholesale replacement of non-compliant systems, upgrades of
systems, or identification of alternate sources of supply. Each action plan
includes the development of a contingency plan in the remote case that the
identified remediation is not completed in time. The Audit Committee of the
Board of Directors continues to review these action plans and each plan has its
own timeline and program for completion.

The final step of this process (Step four) involves testing of all relevant
systems to verify that any remediation efforts were successful in making the
systems compliant with the Year 2000 issue.

TIME TO COMPLETE THE YEAR 2000 COMPLIANCE PROGRAM--As of September 30, 1999, the
Company has substantially completed all phases of the Compliance Program. The
Company has completed the development of all contingency plans, in all
operations of the Company, and will continue to implement the contingency plans.

ZARING NATIONAL'S CORE INFORMATION SYSTEM--Prior to the undertaking of the
Compliance Program, the Company realized that one of its core information
systems was not compliant and that there was a significant risk that the
software supplier could not develop an upgrade in sufficient time. For this
reason, and other operational benefits, the Company decided to replace this core
non-compliant system with a new and compliant product. This effort was formally
launched in January 1998 and was complete as of March 31, 1999. A Year 2000
compliant core accounting, purchasing, payables and management information
system was installed in all of the Company's relevant operations, and the
non-compliant system was decommissioned. This project met all major milestones
to date and is within the budgeted amount of $3.0 million. As of September 30,
1999, a total of $2.4 million of costs have been capitalized in association with
this project in accordance with the guidelines established in Statement of
Position 98-1 "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" issued in March 1998.

COST OF THE YEAR 2000 COMPLIANCE PROGRAM--At the present time, management
estimates that the costs associated with completing the comprehensive Compliance
Program will be approximately $125,000. This estimate represents external vendor
consulting and excludes


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<PAGE>   21

the expense associated with management's oversight and review of the Compliance
Program. In addition, this estimate excludes any non-core information system
hardware or software remediation cost. However, miscellaneous hardware and
software remediation costs, other than the core management information system
discussed previously, are anticipated to be immaterial to the overall Company's
operations. Compliance Program review costs are expensed as incurred. The
Company is financing the cost of the core management information system and Year
2000 compliance review through internal sources of funds.

RISKS OF NON-COMPLIANCE AND CONTINGENCY PLANS--The transmission and distribution
by automation systems affecting the building of a home and the internal
management information systems affecting cash flow management are major business
applications which pose the greatest Year 2000 risks for the Company if
implementation of the Compliance Program is not successful. The potential
problems related to these systems are interruptions of service to customers,
interrupted revenue and cost data gathering, delays in the cash payment
function, and poor customer relations resulting from a delayed building process.
Although the Company has substantially completed all Year 2000 remediation and
testing activities, the Year 2000 compliance of third parties poses a risk. The
Company has surveyed significant vendors and other parties material to the
Company's operations to assess their Year 2000 compliance and is diligently
monitoring the progress of such third parties in the Year 2000 compliance area.
Although all of the Company's significant vendors have indicated Year 2000
readiness, such third parties nonetheless represent a significant risk that
cannot be assessed with precision or controlled with certainty. The Company's
ability to finalize its Compliance Program is heavily dependent upon the timely
provision of necessary upgrades and modifications by the Company's suppliers and
contractors. In some instances, it is anticipated that third party upgrades and
modifications to hardware and software are not expected to be available until
fourth quarter 1999. In addition, the Company cannot guarantee that third
parties on whom it depends for essential services (such as lumber, building
materials, subcontractor labor, electric utilities, exchange carriers, phone and
fax systems, etc.) will convert their critical systems and processes in a timely
manner. Failure or delay by any of these parties could significantly disrupt the
Company's business. However, the Company has established a supplier compliance
program to work with key vendors to minimize such risks. For these reasons, the
Company is finalizing the development of contingency plans to address
alternatives in the event that Year 2000 failures of automatic systems and
equipment occur, including contingencies for the potential failures of key
vendors to become Year 2000 compliant. All contingency plans have been developed
and will be implemented prior to December 31, 1999.

                            CAPITAL RESOURCES AND LIQUIDITY

Net cash used in operating activities increased from a $805,000 source of cash
during the nine months ended September 30, 1998 to a $36.0 million use of cash
during the nine months ended September 30, 1999. This overall increase in the
use of cash is due mainly to additional investments in luxury site-built homes
as well as investments in land developments and developed lots which aggregate
$53.7 million, tempered by financing provided through trade payables, accruals
and customer deposits of $19.7 million. The increase in inventories is primarily
attributable to response to market demands for the Company's housing products
and efforts to maintain appropriate levels of land and finished lots.

Net cash used for investing activities decreased $11.3 million from $12.2
million during the nine months ended September 30, 1998 to $860,000 during the
nine months ended September 30, 1999. This decrease is directly related to the
fact that HomeMax sales villages which were in the development phase in 1998
were substantially complete and operating commencing in 1998.

Net cash provided by financing activities for the nine months ended September
30, 1999 was $30.4 million, an increase of $15.8 million from the same period in
1998. This increase is due to net borrowings which were primarily used to
finance additional investments in inventories and support working capital needs.

The Company's financing is comprised of:

-      A $72.5 million bank revolving credit facility of which $59.8 million was
       outstanding and $9.0 million was available (as per the agreement) as of
       September 30, 1999


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<PAGE>   22

-      $17.8 million of term facilities provided to the Majority Shareholder
       LLCs which are controlled by the Company's Principal Shareholder

-      $5.0 million in subordinated loans from the Principal Shareholder

-      $8.4 million of bank term loans

-      A $5.0 million bank revolving credit arrangement for Zaring Financial
       Services of which $4.7 million was available as of September 30, 1999

-      Other term loans of $4.3 million

-      Financing for HomeMax provided through:

-      A bank floor plan credit facility of which $8.7 million was
       outstanding as of September 30, 1999

-      A $15.0 million bank term facility

-      A $4.0 million subordinated convertible note payable to American Homestar

-      Financing commitments by the Company and American Homestar of
       approximately $4.6 million and $1.1 million, respectively

As of September 30, 1999, the Company did not meet the debt to equity covenant
at the Zaring National level. The banks have not waived these violations.
Management intends to secure waivers, amend certain of the loan provisions
currently included in the credit agreements or refinance the facilities to
enable continued compliance. However, in the event such waivers or amendments
are required and not received, the banks have the right to accelerate the
scheduled payments stipulated per the agreements. In the event such payments
were accelerated, the Company may be unable to secure financing on comparable
terms and conditions.

Through September 30, 1999, the Company had not expanded its preexisting bank
credit facilities given its efforts to finance its growth through profitable
operations, asset management initiatives, subordinated financing provided by the
Company's Principal Shareholder, financing provided to Land LLC, Leasing LLC and
Leasing 99 LLC controlled by the Company's Chairman and Principal Shareholder,
as well as other financing sources available to the Company.

In October 1999, the Chairman and Principal Shareholder announced his intentions
to provide an additional $15.0 million of subordinated financing to the
Company in addition to the $5.0 million of subordinated financing provided as of
September 30, 1999. At the present time, the Chairman has indefinitely suspended
his efforts to provide additional subordinated debt financing. The Company
intends to closely monitor current and prospective capital requirements and will
explore alternative financial arrangements to the extent deemed appropriate.

CONTINGENCIES- During the third quarter of 1999, the Company became aware that
entrapped moisture had resulted in mold or mildew developing in certain
brick-faced, exterior walls in homes where tar paper was used as a vapor
barrier as required by the City of Mason, Ohio's Building Code. The Company
believes a combination of factors in the construction process caused conditions
that led to the abnormal entrapment of moisture; however, the tar paper is
believed to be a contributing factor. The problem is limited to certain homes
in Mason where tar paper was used and exterior brick was applied after August
1997. The Company is diligently investigating appropriate procedures to correct
the situation, including, but not limited to, the removal and replacement of
exterior brick and the treatment of internal wall areas to the installation of
ventilation louvers. The Company has commenced discussions with insurance
carriers and other pertinent parties to address the potential financial
impacts of the moisture items. However, given the preliminary nature of the
process, further review and analysis will be necessary to determine the impact
on the prospective results of the operations or financial condition of the
Company.

LOT COMMITMENTS- In the aggregate, as of September 30, 1999, Zaring Homes owned,
had the ability to develop or purchase, or had under contract 4,697 lots. Of
this amount, Zaring Homes owned approximately 705 lots and undeveloped land,
including land owned by Land LLC, which will be developed into approximately 905
lots. Zaring also had under contract, subject to the satisfaction of Zaring's
purchase contingencies and exercising of option agreements, 1,075 lots and
undeveloped land which, if purchased, would be developed into approximately
2,012 lots. Of the 1,075 lots under contract, Zaring Homes is committed to 399
lots.

As of September 30, 1999, Hearthside Homes owned, had the ability to purchase,
or had under contract 492 lots. Of this amount, Hearthside owned approximately
155 lots and had under contract, subject to the satisfaction of Hearthside's
purchase contingencies and exercising of option agreements, 337 lots, of which
Hearthside is committed to 39 lots.

PROVISIONS FOR WRITEDOWN TO NET REALIZABLE VALUE- The Company periodically
reviews





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the value of assets held by its reporting segments, including: land,
inventories, property and equipment, and intangibles and determines whether any
write-downs need to be recorded to reflect declines in value. The estimated net
realizable value of real estate inventories and property and equipment
represents management's estimate based on present plans and intentions, selling
prices in the ordinary course of business and anticipated economic and market
conditions. Accordingly, the realization of the value of the Company's real
estate inventories, property and equipment and certain intangibles is dependent
upon future events and conditions that may cause actual results to differ from
amounts presently estimated.

INFLATION- Housing demand, in general, is affected adversely by increases in
interest rates. If mortgage interest rates, material and labor costs increase
significantly, the Company's revenues, gross profit and net income could be
adversely affected.

CAUTIONARY STATEMENTS - Certain statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" are "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements involve known and unknown risks, uncertainties and
other factors that may cause results to differ materially. Such risks,
uncertainties and other factors include, but are not limited to, changes in
general real estate, general economic and other conditions, fluctuations in
interest rates, increases in raw materials and labor costs, levels of
competition and other factors described in Zaring National Corporation's Form
10-Q for the quarter ended September 30, 1998.

       ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

There were no material changes in the qualitative and quantitative disclosures
about market risk as of September 30, 1999 from that presented in the Company's
annual report on Form 10-K for the fiscal year ended December 31, 1998.







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PART II - OTHER INFORMATION

ITEM 1.    LEGAL INFORMATION

The Company is subject to various claims, lawsuits and administrative
proceedings arising in the ordinary course of business activities which seek
remedies or damages. The Company believes that any liability that may be
determined will not have a material effect on its financial position or results
of operation.

ITEM 2.    NONE

ITEM 3.    NONE

ITEM 4.    NONE

ITEM 5.    NONE

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

       (a)    Exhibits

              10.24 - $5.0 Million Subordinated Loans from Principal Shareholder
                      (Form of Term Note)

              27     Financial Data Schedule

       (b)    The Company did not file a report on form 8-K during the quarter
              for which this report is filed.






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                                      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.


                                          ZARING NATIONAL CORPORATION.
                                          (Registrant)



Date:  November 15, 1999                  By:  /s/Allen G. Zaring III
                                               ----------------------
                                               Allen G. Zaring III
                                               Chairman of the Board, Chief
                                                  Executive Officer


Date:  November 15, 1999                  By:  /s/Ronald G. Gratz
                                              -------------------
                                              Ronald G. Gratz
                                              Chief Financial Officer
                                              Secretary and Treasurer
                                              (Principal Financial and
                                              Accounting Officer)





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