<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 June 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 June 30, 1999:  4,591,488

                                                                 Total Pages: 26
<PAGE>   2







                          ZARING NATIONAL CORPORATION

                                     INDEX

                                                                           Page

PART I   FINANCIAL INFORMATION

     Item 1.  Consolidated Financial Statements

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

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

         Consolidated Statement of Shareholders' Equity,
         Six Months Ended June 30, 1999 (unaudited)                          6

         Consolidated Statements of Cash Flows,
         Six Months Ended June 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                                         16

     Item 3.  Qualitative and Quantitative Disclosure About Market Risk     24

PART II  OTHER INFORMATION                                                  25

SIGNATURES                                                                  26



<PAGE>   3

<TABLE>
<CAPTION>

                                           PART I. FINANCIAL INFORMATION

                                     ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS


                                            ZARING NATIONAL CORPORATION

                                            CONSOLIDATED BALANCE SHEETS

                                                      ASSETS
                                              (DOLLARS IN THOUSANDS)



                                                                          (UNAUDITED)
                                                                           JUNE 30,
                                                                  ---------------------------       DECEMBER 31,
                                                                     1999               1998              1998
                                                                  --------           --------           --------

<S>                                                               <C>                <C>                <C>
Cash and cash equivalents                                         $ 14,362           $  4,292           $ 15,699
Receivables:
   Related parties                                                      65              1,233                 82
   Notes                                                             4,559                 50                325
     Manufactured housing rebates and other                          1,850                220                885
Inventories:
   Luxury site-built homes                                          52,759             47,834             32,365
   Entry level homes                                                 7,527              2,340              6,405
   Retail distribution manufactured homes                            3,427              1,286              2,746
   Model homes                                                      22,473             18,298             21,046
   Land, development costs and finished lots                        65,293             43,579             50,280
Property and equipment, net                                          7,928              8,098              8,108
HomeMax Sales Villages, net                                         11,747
                                                                                        8,255             12,336
Investments in and advances to unconsolidated
  joint ventures                                                       201                686                201
Future tax benefit                                                   7,454              2,601              6,053
Cash surrender value of life insurance and other assets              5,160              5,588              5,566
Goodwill, net                                                          258              2,302                259
                                                                  --------           --------           --------
                                                                  $205,063           $146,662           $162,356
                                                                  ========           ========           ========
</TABLE>



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




                                       3
<PAGE>   4

<TABLE>
<CAPTION>

                                            ZARING NATIONAL CORPORATION

                                      CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                        LIABILITIES AND SHAREHOLDERS' EQUITY
                                              (DOLLARS IN THOUSANDS)

                                                                              (UNAUDITED)
                                                                                JUNE 30,                  DECEMBER 31,
                                                                      ---------------------------         ------------
                                                                         1999              1998               1998
                                                                      --------           --------           --------
<S>                                                                   <C>                <C>                <C>
 Liabilities:
    Revolving credit facility                                         $ 60,750           $ 45,863           $ 44,500
    Manufactured housing floor plan facility                             8,035              4,169              7,082
    Term notes payable                                                  46,617             23,289             41,446
    Accounts payable                                                    23,374             11,964             14,766
    Accrued liabilities                                                  8,202              7,062              6,829
    Customer deposits                                                    7,881              3,639              3,296
    Deferred gains                                                       2,476               --                 --
                                                                      --------           --------           --------
                 Total liabilities                                     157,335             95,986            117,919
                                                                      --------           --------           --------

 Minority interest in consolidated entities                              3,375              1,241              1,654

 Subordinated debt                                                       4,000               --                 --
                                                                      --------           --------           --------

 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, 4,765,788,
        4,591,488 issued and outstanding at
        June 30, 1999, June 30, 1998, and
        December 31, 1998, respectively                                 24,957             25,131             24,957

     Additional paid-in capital                                          4,286              5,551              4,286
     Retained earnings                                                  11,110             18,753             13,540
                                                                      --------           --------           --------
                           Total shareholders' equity                   40,353             49,435             42,783
                                                                      --------           --------           --------
                                                                      $205,063           $146,662           $162,356
                                                                      ========           ========           ========
</TABLE>

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




                                       4
<PAGE>   5
<TABLE>
<CAPTION>


                                            ZARING NATIONAL CORPORATION

                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                                    (UNAUDITED)

                               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

                                                              THREE MONTHS ENDED                  SIX MONTHS ENDED
                                                                   JUNE 30,                           JUNE 30,
                                                       ------------------------------      ------------------------------
                                                            1999             1998              1999             1998
                                                       -------------     ------------      ------------      ------------
<S>                                                    <C>               <C>               <C>               <C>
Net revenues:
     Luxury site-built homes                           $    67,359       $    66,926       $   106,667       $   116,803
     Entry level homes                                       6,210             1,462            11,125             3,667
     Retail distribution manufactured homes                  5,641             2,047            10,214             2,977
     Financial services                                        353              --                 668              --
                                                       -----------       -----------       -----------       -----------
           Total net revenues                               79,563            70,435           128,674           123,447
                                                       -----------       -----------       -----------       -----------
Expenses:
     Cost  of  sales  luxury  site-built                    53,517            55,142            85,538            97,721
     homes
     Cost of sales entry level homes                         6,058             1,149            10,651             2,864
     Cost of sales retail distribution
       manufactured homes                                    5,035             1,845             8,929             2,632

     Interest                                                1,762             1,594             3,404             2,587
     Selling                                                 6,146             5,528            10,493             9,847
     General  and administrative                             6,707             5,554            13,081            10,238
     Financial services                                        382              --                 682              --
                                                       -----------       -----------       -----------       -----------
           Total expenses                                   79,607            70,812           132,778           125,889
                                                       -----------       -----------       -----------       -----------
           Operating loss                                      (44)             (377)           (4,104)           (2,442)
Other income (expense):
     Income from unconsolidated joint ventures                --                  95              --                 145
     Other, net                                                (29)               42                25                73
                                                       -----------       -----------       -----------       -----------
         Loss before minority interest and
              provision (credit) for income taxes              (73)             (240)           (4,079)           (2,224)
Minority interest in loss of consolidated entities             609               102               769               183
                                                       -----------       -----------       -----------       -----------
       Income (loss) before provision (credit)
           for income taxes                                    536              (138)           (3,310)           (2,041)
Provision (credit) for income taxes                            635               (97)             (880)             (888)
                                                       -----------       -----------       -----------       -----------
      Net loss                                         $       (99)      $       (41)      $    (2,430)      $    (1,153)
                                                       ===========       ===========       ===========       ===========
Basic and diluted loss per common share                $     (0.02)      $     (0.01)      $     (0.53)      $     (0.24)
                                                       ===========       ===========       ===========       ===========
Weighted average shares outstanding                      4,591,488         4,765,788         4,591,488         4,771,092
                                                       ===========       ===========       ===========       ===========
</TABLE>



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




                                       5
<PAGE>   6
<TABLE>
<CAPTION>


                                            ZARING NATIONAL CORPORATION

                                  CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                                    (UNAUDITED)

                                              (DOLLARS IN THOUSANDS)




                                                                        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                                      --               --               --             (2,430)           (2,430)
                                         ---------        ---------        ---------        ---------         ---------


BALANCE, June 30, 1999                   4,591,488        $  24,957        $   4,286        $  11,110         $  40,353
                                         =========        =========        =========        =========         =========
</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)
                                                                                            SIX MONTHS ENDED
                                                                                                JUNE 30,
                                                                                      ---------------------------
                                                                                         1999              1998
                                                                                      ---------         ---------
<S>                                                                                   <C>               <C>
Cash Flows from Operating Activities:
     Net loss                                                                         $ (2,430)         $ (1,153)
         Adjustments to reconcile net loss to cash used in operating
           activities--
             Depreciation and amortization                                               2,072             1,284
             Income from unconsolidated joint ventures                                    --                (145)
             Minority interest in loss of consolidated entities                           (769)             (183)
         Change in assets and liabilities--
             Future tax benefit                                                         (1,401)           (1,543)
             Receivables                                                                  (771)              336
             Inventories                                                               (38,637)           (4,916)
             Cash surrender value of life insurance and other assets                        89              (672)
             Accounts payable                                                            8,608             3,511
             Accrued expenses and deferred gains                                         1,959               770
             Customer deposits                                                           4,585             1,461
                                                                                      --------          --------
                  Net cash used in operating activities                                (26,695)           (1,250)
                                                                                      --------          --------
Cash Flows from Investing Activities:
     Additions to property and equipment, net                                           (1,026)           (7,812)
     Proceeds from sale of property and equipment                                           41              --
     Distributions received from unconsolidated joint ventures, net                       --                  81
                                                                                      --------          --------
                  Net cash used for  investing activities                                 (985)           (7,731)
                                                                                      --------          --------
Cash Flows from Financing Activities:
     Borrowings on notes payable                                                        54,430            73,595
     Repayments of notes payable                                                       (28,056)          (64,340)
     Net distributions paid to majority shareholder of affiliate                           (31)             --
     Purchase of common shares                                                            --                (142)
                                                                                      --------          --------
                  Net cash provided by financing activities                             26,343             9,113
                                                                                      --------          --------
 Increase (decrease)  in cash and cash equivalents                                      (1,337)              132
 Cash and cash equivalents, beginning of period                                         15,699             4,160
                                                                                      --------          --------
 Cash and cash equivalents, end of period                                             $ 14,362          $  4,292
                                                                                      ========          ========
 Supplemental Disclosure of Cash Flow Information:
     Cash paid during the period for-
         Interest, net of amounts capitalized                                         $  3,473          $  2,494
                                                                                      ========          ========
         Income taxes                                                                 $    521          $    594
                                                                                      ========          ========

Supplemental Schedule of Non-Cash Investing and Financing Activities:
   During the six months ended June 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
                                  JUNE 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 June 30, 1999
       have been included. Operating results for the six months ended June 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              SIX MONTHS ENDED
                                                     JUNE 30,                          JUNE 30,
                                              (DOLLARS IN THOUSANDS)           (DOLLARS IN THOUSANDS)
                                              -----------------------         -----------------------
                                               1999             1998            1999           1998
                                              -------         -------         -------         -------
<S>                                           <C>             <C>             <C>             <C>
               Capitalized interest,
                  beginning of period         $ 2,116         $ 1,965         $ 2,139         $ 1,678

               Interest incurred                2,168           1,790           3,787           3,070
               Interest expensed               (1,762)         (1,594)         (3,404)         (2,587)
                                              -------         -------         -------         -------

               Capitalized interest,
                 end of period                $ 2,522         $ 2,161         $ 2,522         $ 2,161

</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.

       The Company's notes payable consist of the following at June 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
       June 30, 1999 are at 7.01%), expiring in July 2001.            $ 60,750
                                                                      ========

       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% (7.29% at June 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.                                              $ 8,035
                                                                      ========





                             9
<PAGE>   10



       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
       June 30, 1999 are at 6.96%), payable in quarterly
       installments of $750 through April 2001.                         $ 6,000

       Credit Agreement, payable to The Provident Bank,
       $15.0 million available for working capital needs of
       HomeMax, Inc. and subsidiaries, interest at the Prime
       Rate plus 1%, (8.75% at June 30, 1999), payable in
       three annual installments of $1.47 million commencing
       March 15, 2000, entire balance payable at the earlier
       of June 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, Inc.                                                 15,000

       Notes Payable to Former Shareholders, interest at
       6.00% to 8.50%, payable in equal annual installments,
       due December 1999 and August 2001.                                  1,378

       Term Notes Payable to Banks, interest at 7.95%,
       payable in quarterly installments of $437 through
       June 2001.                                                          3,613

       Other Term Notes, interest at 7.00%, principal
       installments of $2,425 due April 2003 and $692 due
       April 2005.                                                         2,841

       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%. No borrowings outstanding as
       of June 30, 1999.                                                     __

       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% (6.99% at June 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.                                     7,161

       Notes payable by Land LLC to a bank, permitted
       borrowings of up to $10.0 million, interest at LIBOR
       plus 2.25% (7.21% at June 30, 1999) payable monthly,
       secured by land and a personal guarantee, payable in
       July 2001.                                                          8,805

       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% ( 6.99% at
       June 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.
                                                                           1,819
                                                                         -------

                                                                         $46,617
                                                                         =======

       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 June 30, 1999, the Company did not meet the debt to
       equity covenants at the Zaring National level. These covenants do not
       allow the application of cash as an offset against total liabilities. If
       cash was applied in determination of total liabilities, the Company would
       otherwise have been in compliance. The banks have not waived these
       covenant violations. Management intends to secure waivers or otherwise
       amend certain of the loan provisions currently included in the credit
       agreements to enable prospective compliance. The banks have not waived
       their right to accelerate payments under the agreements for any period.




                             10
<PAGE>   11

The Company is contingently liable under letters of credit of approximately $8.6
million issued as a result of lot and land acquisition and development
activities through June 30, 1999.









                                       11
<PAGE>   12



(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 477,482 and 333,277 shares of common stock at an
       average exercise price of $9.32 and $10.07 per share were outstanding as
       of June 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 due to the net loss incurred.

       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.

          - 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.

                                       12
<PAGE>   13


          - 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, 1998, the operating results of HomeMax were included in
       the consolidated tax returns 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
       benefitted 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)    Reclassifications-
       -----------------

       Certain amounts in the consolidated interim financial statements for 1998
       have been reclassified to conform to the 1999 presentation.

                                       13
<PAGE>   14


(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               SIX MONTHS ENDED
                                                                                JUNE 30,                         JUNE 30,
                                                                       ------------------------         ------------------------
                                                                          1999          1998             1999            1998
                                                                       ---------      ---------         ---------      ---------
                                                                                          (dollars in thousands)

Zaring Homes, Inc.
     Luxury Site-Built Homes
                  <S>                                                  <C>            <C>               <C>            <C>
                  Revenues                                             $  66,240      $  66,926         $ 105,252      $ 116,803
                  Cost of sales                                           52,506         55,142            84,259         97,721
                  Interest, net                                            1,885          1,892             3,946          3,412
                  Selling, general and administrative expenses             8,650          7,082            15,430         12,942
                                                                       ---------      ---------         ---------      ---------
                  Operating income                                         3,199          2,810             1,617          2,728
                  Other income (expense)                                     (74)             6               (83)            14
                                                                       ---------      ---------         ---------      ---------
                  Pretax Luxury Site-Built Income                          3,125          2,816             1,534          2,742

Hearthside Homes, LLC
     Entry Level Homes
                  Revenues                                                 6,210          1,462            11,125          3,667
                  Cost of sales                                            6,058          1,149            10,651          2,864
                  Interest, net                                              240            104               459            121
                  Selling, general and administrative expenses               592            507             1,111            959
                                                                       ---------      ---------         ---------      ---------
                  Operating loss                                            (680)          (298)           (1,096)          (277)
                  Other income                                                 3             15                 6             28
                  Pretax Entry Level Loss                                   (677)          (283)           (1,090)          (249)
Financial Services
                  Revenues                                                   353             --               668             --
                  Expenses                                                   382             --               682             --
                                                                       ---------      ---------         ---------      ---------
                  Operating loss                                             (29)            --               (14)            --
                  Other income                                                 4             --                45             --
                                                                       ---------      ---------         ---------      ---------
                  Pretax Financial Services Income (Loss)                    (25)            --                31             --

HomeMax, Inc.
     Retail Distribution Manufactured Homes
                  Revenues                                                 5,641          2,047            10,214          2,977
                  Cost of sales                                            5,035          1,845             8,929          2,632
                  Interest, net                                              368            597               913            799
                  Selling, general and administrative expenses             2,458          2,713             4,858          4,820
                                                                       ---------      ---------         ---------      ---------
                  Operating loss                                          (2,220)        (3,108)           (4,486)        (5,274)
                  Other income                                                26             16                44             17
                  Minority interest                                          542            102               599            183
                                                                       ---------      ---------         ---------      ---------
                  Pretax Retail Distribution Loss                         (1,652)        (2,990)           (3,843)        (5,074)

Majority Shareholder LLC's
                  Revenues                                                 1,119             --             1,415             --
                  Cost of sales                                            1,012             --             1,279             --
                  Interest, net                                              272             --               537             --
                  Selling, general and administrative expenses                71             --                95             --
                                                                       ---------      ---------         ---------      ---------
                  Operating loss                                            (236)            --              (496)            --
                  Other income                                               169             --               326             --
                  Minority interest                                           67             --               170             --
                                                                       ---------      ---------         ---------      ---------
                                                                              --             --                --             --
Corporate
                  Interest income from subsidiaries, net                   1,004            999             2,452          1,745
                  General and administrative expenses                     (1,239)          (680)           (2,394)        (1,205)
                                                                       ---------      ---------         ---------      ---------
                  Income (loss) before income taxes                          536           (138)           (3,310)        (2,041)
                  Provision (credit) for income taxes                        635            (97)             (880)          (888)
                                                                       ---------      ---------         ---------      ---------
                  Net Loss                                             $     (99)     $     (41)        $  (2,430)     $  (1,153)
                                                                       =========     ==========         =========      =========

</TABLE>


                                       14
<PAGE>   15



Other pertinent information regarding the Company's segment operations are as
follows:


<TABLE>
<CAPTION>

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

Segment assets:
<S>                                <C>             <C>         <C>             <C>                <C>            <C>        <C>
    As of June 30, 1999            $121,011       $ 13,665    $    264          $ 24,153           $ 18,745     $ 76,199   $254,037
    As of December 31, 1998          91,110         10,355         113            23,152             14,998       16,852    156,580
</TABLE>


<TABLE>
<CAPTION>
RECONCILIATION OF SEGMENT ASSETS TO TOTAL ASSETS:
                      AS OF JUNE 30, 1999                                  AS OF DECEMBER 31, 1998
                      -------------------                                  -----------------------

<S>                                <C>                                                              <C>
Total segment assets               $254,037                Total segment assets                     $156,580
Elimination of inter-entity                                 Elimination of inter-entity
  investments                       (63,336)                  investments                             (9,923)
Cash and cash equivalents*           14,362                Cash and cash equivalents*                 15,699
                                   --------                                                         --------
                                   $205,063                                                         $162,356
                                   ========                                                         ========
</TABLE>


* Management excludes cash and cash equivalents from assessing a segment's
operating performance.

                                       15
<PAGE>   16



                 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 $79.6 million for the quarter
ended June 30, 1999, compared to $70.4 million for the same quarter in 1998. The
net loss for the second quarter of 1999 was ($99,000) or ($0.02) per share,
compared to a net loss of ($41,000) or ($0.01) per share for the second quarter
of 1998.

For the six months ended June 30, 1999, consolidated revenues were $128.7
million compared to $123.4 million for the six months ended June 30, 1998. The
net loss for the six months ended June 30, 1999 was ($2.4 million) or ($ 0.53)
per share, compared to ($1.2 million) or ($0.24) per share for the six months
ended June 30, 1998.

The following tables set forth, for the periods indicated, certain information
regarding the Company's operations.

<TABLE>
<CAPTION>

                                                               THREE MONTHS ENDED                 SIX MONTHS ENDED
                                                                    JUNE 30,                           JUNE 30,
                                                         ---------------------------         --------------------------
                                                            1999              1998               1999            1998
                                                         ---------         ---------         ---------         ---------
                                                                              (dollars in thousands)
Zaring Homes, Inc.
   Luxury Site-Built Homes
           <S>                                           <C>               <C>               <C>               <C>
           Revenues                                      $  66,240         $  66,926         $ 105,252         $ 116,803
           Cost of sales                                    52,506            55,142            84,259            97,721
           Interest, net                                     1,885             1,892             3,946             3,412
           Selling, general and administrative
             expenses                                        8,650             7,082            15,430            12,942
                                                         ---------         ---------         ---------         ---------
           Operating income                                  3,199             2,810             1,617             2,728
           Other income (expense)                              (74)                6               (83)               14
                                                         ---------         ---------         ---------         ---------
           Pretax Luxury Site-Built Income                   3,125             2,816             1,534             2,742

Hearthside Homes, LLC
   Entry Level Homes
           Revenues                                          6,210             1,462            11,125             3,667
           Cost of sales                                     6,058             1,149            10,651             2,864
           Interest, net                                       240               104               459               121
           Selling, general and administrative
             expenses                                          592               507             1,111               959
                                                         ---------         ---------         ---------         ---------
           Operating loss                                     (680)             (298)           (1,096)             (277)
           Other income                                          3                15                 6                28
                                                         ---------         ---------         ---------         ---------
           Pretax Entry Level Loss                            (677)             (283)           (1,090)             (249)

Financial Services
           Revenues                                            353                 -               668                 -
           Expenses                                            382                 -               682                 -
                                                         ---------         ---------         ---------         ---------
           Operating loss                                      (29)                -               (14)                -
           Other income                                          4                 -                45                 -
                                                         ---------         ---------         ---------         ---------
           Pretax Financial Services Income (Loss)             (25)                -                31                 -
</TABLE>



                                       16




<PAGE>   17
<TABLE>
<CAPTION>
HomeMax, Inc.
   Retail Distribution Manufactured Homes
            <S>                                          <C>              <C>              <C>                 <C>
           Revenues                                      $  5,641         $  2,047         $ 10,214            2,977
           Cost of sales                                    5,035            1,845            8,929            2,632
           Interest, net                                      368              597              913              799
           Selling, general and administrative
             expenses                                       2,458            2,713            4,858            4,820
                                                         --------         --------         --------         --------
           Operating loss                                  (2,220)          (3,108)          (4,486)          (5,274)
           Other income                                        26               16               44               17
           Minority interest                                  542              102              599              183
                                                         --------         --------         --------         --------
           Pretax Retail Distribution Loss                 (1,652)          (2,990)          (3,843)          (5,074)

   Majority Shareholder LLCs
           Revenues                                         1,119                -            1,415                -
           Cost of sales                                    1,012                -            1,279                -
           Interest, net                                      272                -              537                -
           Selling, general and administrative
             expenses                                          71                -               95                -
                                                         --------         --------         --------         --------
           Operating loss                                    (236)               -             (496)               -
           Other income                                       169                -              326                -
           Minority interest                                   67                -              170                -
                                                         --------         --------         --------         --------
                                                                -                -                -                -
   Corporate
           Interest income from subsidiaries, net           1,004              999            2,452            1,745
           General and administrative expenses             (1,239)            (680)          (2,394)          (1,205)
                                                         --------         --------         --------         --------
           Income (loss) before income taxes                  536             (138)          (3,310)          (2,041)
           Provision (credit) for income taxes                635              (97)            (880)            (888)
                                                         --------         --------         --------         --------
               Net Loss                                  $    (99)        $    (41)        $ (2,430)        $ (1,153)
                                                         ========         ========         ========         ========

</TABLE>

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED             SIX MONTHS ENDED
                                                                   JUNE 30,                     JUNE 30,
                                                         -----------------------        -----------------------
                                                            1999          1998            1999           1998
                                                         ---------     ---------        ---------      ---------
                                                                              (dollars in thousands)
LUXURY SITE-BUILT HOMES
Operating data:
   Units
                <S>                                    <C>             <C>             <C>             <C>
                New Orders (2)                              351             191             656             527
                Closings (1)                                231             262             372             462
                Backlog (3)                                 540             305             540             305
         Average revenue per closing                   $    284        $    252        $    278        $    251
         Average value of new order sales              $    277        $    266        $    280        $    258
         Sales value of backlog                        $152,105        $ 80,574        $152,105        $ 80,574
         ENTRY LEVEL HOMES
         Operating data:
            Units
                New Orders (2)                               55              11             121              50
                Closings (1)                                 50              12              89              31
                Backlog (3)                                  84              43              84              43
         Average revenue per closing                   $    124        $    130        $    125        $    121
         Average value of new order sales              $    127        $    124        $    129        $    127
         Sales value of backlog                        $ 11,009        $  5,654        $ 11,009        $  5,654
         RETAIL DISTRIBUTION MANUFACTURED HOMES
         Operating data:
            Units
                New Orders (2)                               64              90             188             163
                Closings (1)                                102              41             179              60
                Backlog (3)                                 176             143             176             143
         Average revenue per closing                   $     53        $     50        $     56        $     49
         Average value of new order sales              $     40        $     55        $     59        $     55
         Sales value of backlog                        $ 11,931        $  8,344        $ 11,931        $  8,344
</TABLE>

(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.

                                       17
<PAGE>   18


       THREE AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO JUNE 30, 1998

ZARING HOMES, INC., LUXURY SITE-BUILT HOMES- Net revenues for the three months
ended June 30, 1999 decreased 1.0% from the same period 1998. Zaring Homes
delivered 231 homes in the second quarter of 1999, compared to 262 homes in
1998, an 11.8% decrease. Net revenues for the six months ended June 30, 1999
decreased 9.9% from the same period in 1998. Zaring Homes delivered 372 homes
during the six months ended June 30, 1999, compared to 462 homes in the
corresponding period in 1998, a 19.5% decrease. The overall decreases in home
closings were 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. New orders during the second
quarter of 1999 increased 83.7% to 351 units from 191 units in the second
quarter of 1998. New orders increased 24.5% in the first six months of 1999 from
527 units in the first six months of 1998 to 656 units. As a result of the
increase in new orders and the closings above, backlog at June 30, 1999 is
540 units, up 235 units or 77% from June 30, 1998.

Gross profit, excluding net interest expense increased $2.0 million or 16.6% in
the second quarter of 1999 as compared to the second quarter of 1998. Gross
profit increased $1.9 million or 10.0% for the six months ended June 30, 1999 as
compared to the corresponding period in 1998. Gross profit as a percentage of
revenues increased 3.1% to 20.7% of revenues during the second quarter of 1999.
The gross profit percentage for the six-month period ended June 30, 1999 was
20.0% as compared to 16.3% 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 decreased by a nominal amount during the three months
ended June 30, 1999 as compared to the same period in 1998. Interest expense for
the six months ended June 30, 1999 increased $534,000 as compared to the
corresponding period in 1998 due to larger inventory investments in market
homes, land development costs and increases in the number of sold units in
process.

Selling expenses for the three and six month periods ended June 30, 1999
increased $375,000 and $132,000, respectively, as compared to the corresponding
periods in 1998. As a percentage of revenues, selling expenses increased to 7.4%
during the three-month period ended June 30, 1999 from 6.8% during the
three-month period ended June 30, 1998. As a percentage of revenues, selling
expenses increased to 7.8% during the six-month period ended June 30, 1999 from
6.9% for the corresponding period in 1998. These increases are due to increased
staffing levels and design center expenses coupled with lower revenues. General
and administrative expenses increased $1.2 million in the second quarter of 1999
compared to the second quarter of 1998 and $2.4 million in the six months ended
June 30, 1999, compared to the six months ended June 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 increased to 5.7% in
the second quarter of 1999 from 3.8% during the second quarter 1998 and to 6.9%
for the six months ended June 30, 1999 from 4.2% during the same period in 1998.
On a combined basis, selling, general and administrative expenses increased $1.6
million, or 22.1% in the second quarter 1999 compared to the second quarter of
1998 and $2.5 million, or 19.2% for the six months ended June 30, 1999, compared
to the corresponding period in 1998. As a percentage of revenues, selling,
general and administrative expenses increased to 13.1% for the three months
ended June 30, 1999 from 10.6% for the three months ended June 30, 1998 and to
14.7% for the six months ended June 30, 1999 from 11.1% for the six months ended
June 30, 1998. The increase as a percentage of revenues is due to the timing of
closings as well as the increases in personnel and other expenses as noted.

As a result of the foregoing, the Zaring Homes segment reported pretax income of
$3.1 million or 4.7% of net revenues in the second quarter of 1999, an increase
of $309,000 or 11.0% from the same period in 1998. For the six month period
ended June 30, 1999, Zaring Homes reported pretax income of $1.5 million or 1.5%
of net revenues, a decrease of $1.2 million or 44.1% from the same period in
1998.

HEARTHSIDE HOMES, LLC, ENTRY LEVEL SITE-BUILT HOMES- Net revenues for the three
and six months ended June 30, 1999 were $6.2 million and $11.1 million,
respectively, compared to $1.4 million and $3.6 million , respectively, for the
corresponding periods in 1998. Hearthside Homes delivered 50 and 89 homes,
respectively, in the three and six months ended June 30, 1999, as compared to 12
and 31 homes, respectively, for the three and six months ended

                                       18



<PAGE>   19

June 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 $152,000, or 2.5% and $474,000,
or 4.3% for the three and six months ended June 30, 1999, respectively as
compared to $313,000, or 21.4% and $803,000, or 21.9% for the corresponding
periods in 1998. The overall gross profit decrease for the three and six month
periods ended June 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 $592,000, or 9.5% of revenues and $1.1 million,
or 10.0% of revenues for the three and six months ended June 30, 1999,
respectively, versus 34.6% and 26.2% of revenues for the three months and six
months ended June 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
$240,000 and $459,000 for the three and six months ended June 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
$677,000 and $1.1 million for the three and six months ended June 30, 1999,
respectively, as compared to pre-tax losses of $283,000 and $249,000 for the
three and six months ended June 30, 1998, respectively.

HOMEMAX, INC., RETAIL DISTRIBUTION MANUFACTURED HOMES- Net revenues for the
three months ended June 30, 1999 increased $3.6 million from $2.0 million in the
second quarter of 1998 to $5.6 million in the second quarter of 1999. Net
revenues for the six months ended June 30, 1999 increased $7.2 million from $3.0
million for the six months ended June 30, 1998 to $10.2 million for the six
months ended June 30, 1999. HomeMax closed 102 units in the second quarter of
1999, an increase of 149% from the 41 units closed in the same period of 1998.
HomeMax closed 179 units in the six-month period ended June 30, 1999, an
increase of 198% from the 60 units closed in the same period of 1998. The
overall increase for the three and six month periods is due mainly to the fact
that 12 sales villages were open during the six month period ended June 30, 1999
compared to less than 7 sales villages being open during the period ending June
30, 1998.

Gross profit, excluding net interest expense was $606,000 or 10.7% for the three
months ended June 30, 1999 compared to $202,000 or 9.9% for the same period in
1998. Gross profit was $1.3 million or 12.6% for the six months ended June 30,
1999 compared to $345,000 or 11.6% for the same period in 1998. This increase in
gross profit is primarily due to a change in pricing strategy in the fourth
quarter of 1998. Interest expense decreased $229,000 from 29.2% of revenues in
the second quarter of 1998 to 6.5% 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 increased $114,000
in the six months ended June 30, 1999 compared to the same period in 1998. As a
percentage of revenues, interest expense decreased to 8.9% for the six months
ended June 30, 1999 from 26.8% in 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 $2.5 million
and $4.9 million for the three and six months ended June 30, 1999, respectively,
compared to $2.7 million and $4.8 million for the same periods in 1998. Selling
expenses were $810,000 or 14.4% of revenues in the second quarter of 1999
compared to $709,000, or 34.6% of revenues for the same period in 1998. Selling
expenses were $1.6 million or 15.7% of revenues for the six-month period ended
June 30, 1999 compared to $1.5 million or 50% of revenues for the same period in
1998. This 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 $1.6 million or 28.4% of revenues in the second
quarter of 1999 versus $2.0 million or 97.7% of revenues for the same period in
1998. General and administrative expenses were $3.3 million or 32.3% of revenues
for the six-month period ended June 30, 1999 versus 110% of revenues for the
same period in 1998. The decrease as a percentage of


                                       19
<PAGE>   20

revenues is due to specific cost containment efforts in the fourth quarter of
1998 and the first quarter of 1999 coupled with the increase in closing
revenues.

As a result of the foregoing, HomeMax reported a pretax loss of $1.7 million in
the second quarter of 1999 compared to $3.0 million in the second quarter of
1998 and a pretax loss of $3.8 million for the six months ended June 30, 1999
compared to $5.0 million for the corresponding period in 1998.

FINANCIAL SERVICES - The financial services segment reported revenues of
$353,000 and $668,000 for the three and six months ended June 30, 1999. After
deducting $382,000 and $682,000 in expenses associated with the mortgage company
operations for the three and six months ended June 30, 1999, respectively,
offset by miscellaneous other income, the financial services segment reported a
pretax loss of $25,000 for the three months ended June 30, 1999 and pretax
income of $31,000 for the six months ended June 30, 1999.

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 five homes during the
three and six months ended June 30, 1999, respectively, for total revenues of
$1.1 million and $1.4 million, respectively. Interest expense of $272,000 and
$537,000 during the three and six months ended June 30, 1999, respectively,
represents interest incurred related to model home and undeveloped land
holdings. Other income of $169,000 and $326,000 represents model home rental
income for the three and six months ended June 30, 1999.

OTHER OPERATING RESULTS - Interest income from subsidiaries represents the
allocation of interest cost to the subsidiaries. Corporate general and
administrative expenses were $1.2 million and $2.4 million for the three and
six-month periods ended June 30, 1999, respectively, as compared to $680,000 and
$1.2 million for the three and six-month periods ended June 30, 1998. The
overall increase represents additional corporate staff, personnel costs as well
as technology and 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 will be reviewed
for Year 2000 compliance. This includes all server, client, and communication
hardware, all related peripheral hardware, and all "embedded" system hardware.
Additionally, all of the application software that runs on the internal system
hardware will be reviewed for compliance. Supplier exposure is also being
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 is 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.

                                       20

<PAGE>   21
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 involves an inventory of all hardware, software and
suppliers that could entail risk to the Company because of date sensitivity. The
result of this process is 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
includes all makes, models and versions of information systems. This information
is then used in Step two of the process, risk assessment.

Step two involves 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 involves a combination of several criteria: business
impact, likelihood of failure, and effort to remediate. The high and medium risk
items that are identified as non-compliant will be further addressed in Step
three of the project.

Step three entails the development of action plans to address systems or
suppliers that are deemed not compliant in the previous phases and that have a
significant impact on the Company's business. Each non-compliant system or
supplier will have 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 will
include 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 will
have 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 June 30, 1999, the
Company has entered into Step three of the Compliance Program, with the
exception of the implementation of the core management information system, which
is complete. In addition, several initiatives in regards to Step four have
commenced. The timeline for completion of all four phases of the program, in all
operations of the Company, is September 30, 1999. This was revised from an
estimated completion date of July 31, 1999 to permit the Company the appropriate
time to finalize testing procedures. The Company believes that this is a
realistic time frame and that it permits sufficient time prior to first "date
events" to insure the Company has adequately addressed the issue.

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. 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 June 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 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

                                       21

<PAGE>   22

expensed as incurred. The Company intends to finance 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 intends to complete all Year 2000 remediation and testing
activities by September 30, 1999, and although the Company has initiated Year
2000 communications with significant vendors and other parties material to the
Company's operations (and is diligently monitoring the progress of such third
parties in the Year 2000 compliance area), such third parties nonetheless
represent a significant risk that cannot be assessed with precision or
controlled with certainty. The Company's ability to meet the target date of
September 1999 in finalizing 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 second 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 intends to develop 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. A final contingency plan is scheduled to
be completed prior to September 30, 1999.

                         CAPITAL RESOURCES AND LIQUIDITY

Net cash used in operating activities increased from a $1.3 million use of cash
during the six months ended June 30, 1998 to a $26.7 million use of cash during
the six months ended June 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 $38.6
million, tempered by financing provided through trade payables, accruals and
customer deposits of $15.2 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 $6.7 million from $7.7 million
during the six months ended June 30, 1998 to $985,000 during the six months
ended June 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 six months ended June 30, 1999
was $26.3 million, an increase of $17.2 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 $60.8 million was
     outstanding and $7.6 million was available (as per the agreement) as of
     June 30, 1999

   - $17.8 million of term facilities provided to the Land and Leasing LLC's
     controlled by the Company's chairman

   - $9.6 million of bank term loans

   - A $5.0 million bank revolving credit arrangement of which $5.0 million was
     available as of June 30, 1999

                                       22

<PAGE>   23
-  Other term loans of $4.2 million

-  Financing for HomeMax provided through:
-  A bank floor plan credit facility of which $8.0 million was
   outstanding as of June 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 June 30, 1999, the Company did not meet the debt to equity covenants at
the Zaring National level. These covenants do not allow the application of cash
as an offset against total liabilities. If cash was applied in the determination
of total liabilities, the Company would otherwise have been in compliance. The
banks have not waived these violations as of June 30, 1999. Management intends
to secure waivers or otherwise amend certain of the loan provisions currently
included in the credit agreements to enable continued compliance. However, in
the event such waivers or amendments are required and not received, the bank may
have the opportunity 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 June 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, financing provided to the Land and
Leasing LLC's controlled by the Company's chairman, as well as other financing
sources available to the Company. However, the Company intends to closely
monitor current and prospective capital requirements and secure additional bank
credit facilities or expansions to existing bank credit facilities.

LOT COMMITMENTS- In the aggregate, as of June 30, 1999, Zaring Homes owned, had
the ability to develop or purchase, or had under contract 4,896 lots. Of this
amount, Zaring Homes owned approximately 793 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, 1,186 lots and
undeveloped land which, if purchased, would be developed into approximately
2,102 lots. Of the 1,186 lots under contract, Zaring Homes is committed to 391
lots.

As of June 30, 1999, Hearthside Homes owned, had the ability to purchase, or had
under contract 1,048 lots. Of this amount, Hearthside owned approximately 167
lots and had under contract, subject to the satisfaction of Hearthside's
purchase contingencies and exercising of option agreements, 881 lots, of which
Hearthside is committed to 96 lots.

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

                                       23
<PAGE>   24

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 June 30, 1999 from that presented in the Company's
annual report on Form 10-K for the fiscal year ended December 31, 1998.

                                       24

<PAGE>   25


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.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          On April 29, 1999, the Company held the Annual Meeting of Shareholders
          at which the shareholders voted upon the election of six directors for
          one-year terms expiring 2000. The results of the voting on these
          matters were as follows:

              Nominee              Votes For   Votes Against         Withheld
              -------              --------    -------------         --------
          Allen G. Zaring III      4,439,867      12,504                 --
          John R. Brooks           4,439,955      12,416                 --
          Murat H. Davidson        4,439,955      12,416                 --
          Daniel W. Geeding        4,440,055      12,316                 --
          Robert N. Sibcy          4,440,055      12,316                 --
          John H. Wyant            4,439,955      12,416                 --

          At the meeting, the shareholders confirmed the appointment of
          Arthur Andersen, LLP as independent auditors of the Company
          for fiscal 1999. There were 4,437,514 votes cast in favor,
          12,731 votes cast in opposition and 2,126 abstentions.

ITEM 5.   NONE

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

         (a) Exhibits
             10.11 Second Amended and Restated Credit Agreement by and among
             Zaring Homes, Inc. and Zaring holdings, Inc. and Hearthside Homes,
             LLC as borrowers and guarantors and Zaring National Corporation and
             Zaring Homes of Indiana, L.L.C. and Zaring Homes Kentucky, LLC, as
             guarantors and the banks party hereto and PNC Bank, National
             Association, as agent and Bank of America NT&SA and Bank One,
             Michigan, as co-agents dated as of June 28, 1999.

             10.20 Loan and Security Agreement between The Provident Bank and
             Zaring National Corporation, dated as of March 31, 1999.

             10.21 Term Promissory Note between The Provident Bank and Zaring
             National Corporation.

             10.22 Loan and Security Agreement between First Cincinnati Leasing
             99 LLC and The Huntington National Bank.

             10.23 Promissory Note between First Cincinnati Leasing 99 LLC and
             The Huntington National Bank.

             27  Financial Data Schedule

         (b) During the second quarter ended June 30, 1999, the Company filed a
             Form 8-K/A reporting information under Item 2 regarding the
             completion of an agreement whereby American Homestar Corporation
             acquired 25% of the outstanding common stock of HomeMax, Inc.

                                       25

<PAGE>   26



                                   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:  August 16, 1999       By:  /s/Allen G. Zaring III
                                  ----------------------
                                  Allen G. Zaring III
                                  Chairman of the Board, Chief Executive Officer


Date:  August 16, 1999       By:  /s/Ronald G. Gratz
                                  ------------------
                                  Ronald G. Gratz
                                  Chief Financial Officer
                                  Secretary and Treasurer
                                  (Principal Financial and Accounting Officer)




                                       26