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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-K


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

For the fiscal year ended  DECEMBER 31, 1999
                           -----------------

                                       OR

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

Commission file number   0-26228
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                            MARTIN INDUSTRIES, INC.
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             (Exact name of registrant as specified in its charter)

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                       DELAWARE                                                      63-0133054
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(State or other jurisdiction of incorporation or organization)          (I.R.S. Employer Identification No.)


        301 EAST TENNESSEE STREET, FLORENCE, ALABAMA                                   35630
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          (Address of principal executive offices)                                   (Zip Code)
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Registrant's telephone number, including area code   (256) 767-0330
                                                     --------------

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

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                                                                              Name of each exchange on
                   Title of each class                                            which registered

                          NONE                                                          NONE
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<TABLE>

<S>                                                          <C>
Securities registered pursuant to Section 12(g) of the Act:  COMMON STOCK, $0.01 PAR VALUE
                                                             -----------------------------
</TABLE>

         Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]     No [ ]

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

         State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing.


AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NONAFFILIATES AS OF MARCH 22,
2000:  $7,908,431
--------------------------------------------------------------------------------

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

     COMMON STOCK, $0.01 PAR VALUE, AS OF MARCH 22, 2000: 8,571,148 SHARES


                      DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the
part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).


    (1) Proxy Statement for 2000 annual meeting of stockholders - Part III.

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                                     PART I

ITEM 1.   BUSINESS

GENERAL

         The Company is a manufacturer of home heating products. The Company's
home heating products are marketed under the Martin Gas Products, Martin
Fireplace, Atlanta Stove, Warm Morning, Prime Heat and Hunter brand names,
representing over 150 combined years in the home heating appliance marketplace.
Through acquisitions, the Company has also become a producer of premium gas
barbecue grills and do-it-yourself utility trailer kits. The Company
manufactures its products at three facilities, of which two are located in
North Alabama and one is located in Southern Ontario, Canada, and markets its
products throughout the United States and parts of Canada through a variety of
distribution channels.

         On March 31, 1999, the Company completed the sale of all of the assets
of its Ashley solid fuel heater division. The Company recorded a gain on the
sale of the Ashley division of $1,167,000. See Note 10 to Notes to Consolidated
Financial Statements.

         Prior to 1997, the Company manufactured metal office furniture through
its Filex line. In February of 1997, the Company elected to discontinue its
metal office furniture operations. The consolidation in the office furniture
industry increased competition and margin pressures in this business segment to
the point of an unacceptable return to the Company.

         The Company is incorporated under the laws of the State of Delaware.
Its principal executive offices are located at 301 East Tennessee Street,
Florence, Alabama 35630, and its telephone number is (256) 767-0330. Unless the
context indicates otherwise, all references herein to the "Company" include
Martin Industries, Inc. and its subsidiaries.

         Net sales, gross profit, segment contribution, identifiable assets and
other financial data of the Company's industry segments for the three years
ended December 31, 1999 are contained in Note 13 to Notes to Consolidated
Financial Statements.

PRODUCTS

         Home Heating Products. Home heating products represent the largest
segment of the Company's business, contributing $65.0 million, or 75.9%, of net
sales of continuing operations in 1999. The Company manufactures and
distributes a broad line of vented and vent-free gas heaters and furnaces under
the Martin Gas Products, Atlanta Stove, Warm Morning, Prime Heat and Hunter
brand names and a variety of models of gas logs, gas stoves, pre-engineered
wood and gas fireplaces and gas inserts under the Martin Gas Products, Martin
Fireplaces, Atlanta Stove, Prime Heat and Hunter brand names.

         The Company manufactures and distributes its hearth products in a
range of prices for each of the common fuel categories (i.e., wood and gas logs
that burn natural gas or liquefied petroleum) and in a wide variety of designs.
Gross sales of fireplaces, gas logs and freestanding gas stoves were $35.5
million, $36.9 million and $35.2 million in 1999, 1998 and 1997, respectively,
which represented 39.5%, 42.1% and 38.5% of total gross sales of continuing
operations in those respective periods.

         In 1999 the Company produced and marketed a variety of vent-free and
vented room heaters, direct-vent wall furnaces, wall furnaces and floor
furnaces. Gross sales of vent-free room heaters were $10.1 million, $7.4
million and $10.3 million in 1999, 1998 and 1997, respectively, which
represented 11.2%, 8.4% and 11.3% of total gross sales of continuing operations
in the respective periods.

         Leisure and Other Products. The Company manufactures and markets a
number of models of its Broilmaster grills with premium features. Gross sales
of gas grills were $16.3 million, $13.8 million and $11.7 million in 1999, 1998
and 1997, respectively, which represented 18.2%, 15.7% and 12.8% of total gross
sales of continuing operations in the respective periods.


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         The Company also produces several models of 85% preassembled and
unassembled metal trailer kits. The Company's trailers comply with Department
of Transportation requirements for highway use and can be used for a variety of
light cargo transportation purposes.

         The Company's business strategy involves a commitment to the
development of new products and enhancements to the Company's existing products.
The Company's investment in research and development totaled $2.0 million in
1999, $1.6 million in 1998 and $1.8 million in 1997.

MANUFACTURING

         Each of the Company's plants maintains a variety of metal fabrication
equipment, including extensive shearing, press and metal forming and welding
equipment, paint systems, machine shops, maintenance equipment, warehouse
space, shipping and receiving departments, and computerized materials
requirements planning, production and inventory control systems.

         The principal materials used in the production of the Company's
products include aluminized, galvanized, stainless, hot-rolled and cold-rolled
steel, cast iron, valves, controls, burners, paint and other finishing
materials and packaging. All raw materials used in finished products are
obtained by the central purchasing department. The Company is not a party to
any long-term supply contracts which are material to its business. Management
believes that the materials used in the production of the Company's products
are available at competitive prices from an adequate number of alternative
suppliers and does not believe that the loss of any single supplier would have
a material adverse effect on the Company's business. Because the Company is
dependent upon outside suppliers for all of its raw material needs, no
assurance can be given that the Company will continue to have available
necessary raw materials at reasonable prices or that any increases in raw
material costs would not have a material adverse effect on the Company's
financial condition or results of operations.

         Fireplaces and utility trailers are typically shipped from the
manufacturing plant to the Company's customers. All other home heating products
and gas grills are typically shipped from the manufacturing plant to the
Company's central warehouse located in Sheffield, Alabama via Company trucks.
Shipments made from the central warehouse are scheduled by the customer service
department through the use of a computerized product tracking system, allowing
the Company to inform customers of product availability and facilitating timely
shipment of orders. These programs also help reduce outbound freight costs by
taking advantage of load-pooling and combination loading.

         During 1999, the Company both manufactured and imported vent-free
heaters. Rather than continuing to manufacture, the Company has entered into a
sourcing agreement with one of its significant vendors. The agreement provides
that the Company will purchase all of its infrared and blue-flame heater
requirements from the vendor for a period of four years or 400,000 units,
whichever comes first. Initially, these heaters will be manufactured in the
U.S. and then will be manufactured in Mexico in 2001.

SALES AND MARKETING

         The Company's products are marketed through several divisions, each of
which is focused on specific channels of distribution. Similar home heating
products are offered under different brand names through different divisions
and the distribution channels associated therewith.

         The Company's Martin Fireplace and Hunter (fireplace) brands are sold
throughout the United States and in Canada through building products
distributors that resell to retailers, building supply houses and lumber yards.
Often, these building products distributors sell direct to new home builders on
an "installed" basis using the distributor's own installation crews.

         The Company's gas heating appliances are sold primarily throughout the
eastern United States and Canada through its Martin Gas, Atlanta Stove, Warm
Morning and Hunter brands. Martin Gas and Warm Morning products are sold
through a two-step distribution process utilizing gas equipment and hardware
wholesalers to supply products to specialty hearth product and home decor
retailers, as well as home remodelers and HVAC installers. Atlanta Stove
products are also sold through gas equipment wholesalers, but primarily service
regional retail chains, liquefied petroleum chains and natural gas utilities.


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         Broilmaster grills are sold nationwide and in Canada, with the
heaviest distribution in the eastern United States. Broilmaster grills are
primarily sold through gas equipment distributors who provide products to
specialty retailers such as hearth and patio shops, outdoor lifestyle product
retailers, pool and spa dealers and outdoor power equipment dealers.

         The Company's Prime Heat hearth and heating products and NuWay utility
trailers are sold direct through a national network of mass merchandisers,
wholesale clubs, catalog houses and farm equipment supply houses.

         During the last three years, the gas space-heating market and the
Company have experienced a shift in heating product sales from two-step
distribution to direct retail. Sales under the Martin Gas, Atlanta Gas and Warm
Morning brand names were $21.5 million, $23.3 million and $36.1 million during
1999, 1998 and 1997, respectively. Sales under the Prime Heat brand name were
$8.3 million, $5.8 million and $0.7 million during 1999, 1998 and 1997,
respectively.

         The Company employs a sales staff of 55 field sales and support
personnel, including 14 full-time Company employees identified as factory
representatives who receive a base salary and commissions, and also primarily
utilizes 23 independent manufacturers' agencies, which work on a commission
basis and in many cases have several salesmen representing the Company's
products. Although most manufacturers' representatives utilized by the Company
also sell products other than those produced by the Company, none sell products
in direct competition with those of the Company. The Company's sales force
covers the United States and Canada, with field sales personnel generally
living in or near the sales territories for which they are responsible. The
Company holds regular regional and national sales meetings at which product
development sessions, performance reviews and planning workshops are conducted.
All field sales efforts for the Company are supported by four regional sales
managers and a sales and marketing staff of 37 people located at the Company's
corporate headquarters.

         The Company promotes its products principally through direct contact
with its customers, published sales programs, participation in numerous
national and regional trade shows and print advertising. A majority of the
Company's media advertising is through trade publications. The Company
maintains an in-house media buying service as well as extensive printing
capabilities.

         The Company has developed its distribution channels in its gas heating
appliance business over a 50-year period. To maintain its relationships with
its distributors, members of management and the Company's sales staff visit the
Company's customers on a regular basis. The Company believes that frequent
personal contact contributes significantly to its ability to attract and
maintain quality distributors. The Company also believes that customer service
is integral to its marketing efforts and has invested significant resources in
overhauling its approach to customer service over the past several years, with
the objective of responding more quickly and accurately to customer inquiries.

         The Company holds registered and unregistered trademarks including
"Martin Industries", "Martin", "Warm Morning", "Prime Heat", "Broilmaster" and
"Hunter", among others. Several of the Company's trademarks are registered with
the United States Patent and Trademark Office.

BACKLOG

         The Company's backlog is based upon customer purchase orders that the
Company believes are firm. At December 31, 1999, the Company's backlog of
orders was approximately $12.2 million, as compared to a backlog of $10.5
million at December 31, 1998. While backlog volume generally indicates the
production levels at which the Company will operate at any particular time, it
is not usually indicative of sales for a full year or future operating
performance. This is due primarily to the seasonal nature of the Company's
business and its use of early booking programs for its gas heating appliances
and premium gas barbecue grills.

         In an effort to better control its production schedule and inventory
of finished products in light of the seasonal nature of the Company's business,
the Company utilizes early booking programs, which allow the Company to project
sales early in the year and plan production accordingly. In general, the
Company takes early booking orders for its heating products in the first and
second quarters and fills the majority of these orders in the second and third
quarters, with fill-in orders being shipped in the fourth quarter and to a
lesser degree in the ensuing first quarter. Unseasonably warm weather results
in higher customer inventories that in turn result in fewer fourth quarter
customer fill-in orders and lower response to the Company's early booking
programs for the following year.

         Notwithstanding the early booking programs, sales are recognized by
the Company when the product is shipped. A majority of sales of gas heaters
under the Company's early booking programs historically have occurred in the
second and third quarters, with products being shipped throughout this period.
Orders under the Company's early booking programs often represent approximately
50% to 60% of customers' projected annual requirements and, because of program
terms, the shipping period often extends over several months. Customer orders
for products other than orders placed


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under the early booking programs are accepted and filled by the Company as
received and shipped at the customer's request.

COMPETITION

         Each of the industries in which the Company manufactures and sells
products is highly competitive. Although competitive factors vary by product
line, competition in all product lines is based primarily on product quality,
product innovation, customer service and price. The Company also believes that
a manufacturer's relationship with its distributors is a key factor in the
industries in which the Company competes.

         The Company competes with a number of manufacturers in the home
heating products industry. Within this industry, there are several large
manufacturers of gas heaters and hearth products.

         There are a number of manufacturers producing pre-engineered
fireplaces, gas logs and related accessories similar to those produced by the
Company. The pre-engineered fireplace market is the largest market in which the
Company participates and is very competitive, with ten principal manufacturers
comprising a large portion of this industry. Over the last five years, a number
of additional manufacturers have joined the already highly competitive gas log
market.

         The Company believes that its premium Broilmaster grills compete
principally with products produced by five major manufacturers. Brand
recognition and product quality play essential roles in the competitive
marketing of this product. The Company's NuWay products compete primarily with
two other manufacturers in the do-it-yourself utility trailer market.

EMPLOYEES

         At March 22, 2000, the Company had 622 full-time employees. The
Company also from time to time utilizes temporary employees in its operations
and in 1999 the number of temporary employees ranged from 118 to 273. The
hourly employees located at the Company's plant in Orillia, Ontario are subject
to a collective bargaining agreement with the Company. No other employees of
the Company are subject to a collective bargaining agreement with the Company.
The Company believes that its employee relations are good.

GOVERNMENTAL REGULATIONS

         A substantial number of the products manufactured by the Company must
comply with federal, state and local laws and regulations. In Canada, products
manufactured by the Company must comply with federal, provincial, territorial
and local laws and regulations. Domestically and in Canada, a number of the
Company's products are also subject to certain voluntary standards. These laws,
regulations and standards relate, among other things, to product safety,
construction, instruction, efficiency, packaging, installation, operation and
emissions. The Company's gas heating appliances and gas grills sold in the
United States must comply with standards established by the American National
Standards Institute ("ANSI") and the American Gas Association ("AGA")/
International Approval Service ("IAS"). All gas-fired appliances manufactured
by the Company for sale in the United States must also comply with the
installation standards of the National Fire Protection Association. All
gas-fired vented heaters and furnaces manufactured for sale in the United
States further must comply with the standards for minimum efficiency for direct
heating appliances established by the National Appliance Energy Conservation
Act, and the Company's wood-burning fireplaces must comply with the standards
for performance for residential fireplaces established by the United States
Environmental Protection Agency. The Company's pre-engineered fireplaces sold
in the United States must meet standards established by Underwriters'
Laboratories. The Company's gas heating appliances manufactured for sale in
Canada must comply with standards developed by the Canadian Standards
Association (the "CSA"). The CSA is accredited by the Standards Council of
Canada to prepare National Standards in Canada for natural gas and propane
equipment which standards provide the basis for provincial approval where no
provincial standards exist. Certain provinces have established certification
requirements and standards. In the province of British Columbia, gas appliances
may be certified only by the provincial gas safety authority to provincial
standards for sale in British Columbia only. The Company's gas heating
appliances manufactured for sale in Europe must conform to all applicable
directives on appliances.

         The Company maintains facilities and equipment for testing the
Company's products for compliance with these and other laws, regulations and
standards applicable to the Company's products. These laws, regulations and
standards


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generally require that all compliance testing either be performed by an
independent testing agency at the agency's laboratories or witnessed by an
agent of the independent testing agency at the Company's facilities. The
Company utilizes both alternatives for compliance testing.

         Many state and local governments in the United States have adopted and
have in place building codes regulating the installation of certain of the
Company's home heating products. These building codes are based generally upon
one or more of the model codes drafted by three regional associations: the
Building Officials and Code Administrators International, Inc. ("BOCA"), the
International Conference of Building Officials, Inc. ("ICBO") and the Southern
Building Code Congress International, Inc. ("SBCCI"). The current model code
produced by ICBO, which has historically been the basis for building codes
adopted in certain states (primarily, western states) prohibits installation of
vent-free gas heaters. The model codes of BOCA and SBCCI do not contain this
prohibition, but do regulate where such heaters may be installed within a
structure and certain other aspects of the product. In 1996, the International
Code Council (the "ICC"), a body formed by BOCA, ICBO and SBCCI to produce a
model building code to be proposed for adoption by all states and localities,
released its model code. This uniform model code reflects the historical
position of BOCA and SBCCI allowing the installation of vent-free gas heaters.
However, there can be no assurance that the current version of the ICC model
code regarding the Company's products will be the position contained in the
version ultimately adopted by the ICC members, or that individual states and
localities will adopt the ICC model code.

         Provincial, territorial and local governments in Canada have adopted
and have in place building codes regulating building construction. These
building codes are based generally upon a model code, the National Building
Code of Canada. This code is produced by the Canadian Commission on Building
and Fire Codes. In the Province of Ontario, the Ministry of Municipal Affairs &
Housing and local municipalities regulate construction under the Ontario
Building Code. Vent-free gas appliances are only permitted for sale in the
provinces of British Columbia and Manitoba which have their own provincial
standards for such appliances. The sale of these appliances is restricted to a
maximum gas input and is restricted to certain rooms in a residence.

         The Company believes that the products which it currently produces and
sells are in compliance in all material respects with the laws, regulations and
standards applicable to such products. Nevertheless, no assurance can be given
as to the impact of future governmental regulations and product standards on
the Company's operations, or the future capital expenditure requirements or the
costs of compliance associated therewith, nor can any assurance be given that
future governmental regulations or product standards will not have a material
adverse effect on the Company. Further, in the event that national or regional
building codes are drafted in the future which prevent or restrict the
installation of, or require modification to, certain gas heaters or other
products manufactured by the Company, or if individual federal, state,
territorial, provincial or local governmental entities or agencies adopt their
own codes to such effect, these events could have a material adverse effect on
the financial condition or results of operations of the Company.

ENVIRONMENTAL MATTERS

         Manufacturing concerns such as the Company involve operations that are
subject to numerous federal, state, provincial and local laws, regulations and
standards relating to human health and safety and the environment. In the
United States, the Clean Air Act, the Clean Water Act, and similar state and
local counterparts of these federal laws regulate air and water emissions and
discharges into the environment. The Resource Conservation and Recovery Act and
the Comprehensive Environmental Response, Compensation and Liability Act, among
other federal, state and local laws, address the generation, storage,
treatment, handling, transportation and disposal of solid and hazardous waste
and releases of hazardous substances into the environment. In Canada, the
Canadian Environmental Protection Act and provincial environmental protection
legislation, along with local laws, regulate a similar range of environmental
issues. The Company's manufacturing operations require compliance with these
environmental laws and regulations, among others, as well as the workplace
safety and health standards established by the Occupational Safety and Health
Acts in both countries. Under these environmental laws and regulations, third
parties and governmental agencies in some cases have the power to require
remediation of environmental conditions and, in the case of governmental
agencies, to impose fines and penalties.

         Several of the facilities currently and previously owned or operated
by the Company are located in industrial areas and have historically been used
for extensive periods, in some cases dating back to the turn of the century,
for industrial operations such as dyeing, foundry, petroleum, painting,
plating, textile and manufacturing. These historic operations have used
materials and generated wastes that would be considered to be regulated
substances under current


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environmental laws. Prior to the enactment of modern environmental laws and
regulations, industrial operations took fewer precautions relative to the
generation, handling, storage, treatment, disposal and release of substances
now known or believed to threaten human health and safety or the environment.
The Company has implemented recordkeeping and management practices and
procedures in order to help ensure compliance with applicable environmental
laws and regulations. Each plant has personnel responsible for environmental
compliance. The Company believes that it is currently in compliance in all
material respects with these laws and regulations. Nevertheless, given the
foregoing circumstances, there can be no assurance that past operations at or
near the Company's presently or previously owned or operated facilities or the
Company's present or future operations will not necessitate action by the
Company or give rise to actions by governmental agencies or private parties
that could cause the Company to incur response costs, fines, penalties or other
liabilities, damages or expenses, or incur operational shut-downs, business
interruptions or other similar losses that either individually or in the
aggregate would have a material adverse effect on the Company's financial
condition or results of operations.

ITEM 2.  PROPERTIES

         The Company's corporate headquarters are located in a single story
facility in Florence, Alabama, consisting of 50,000 square feet. The Company's
engineering center, also in Florence, is located in a separate facility,
consisting of 20,000 square feet. The Company has plants in Athens, Alabama,
Huntsville, Alabama, Sheffield, Alabama, Washington Park, Illinois and Orillia,
Ontario, Canada. The Athens plant is a 300,000 square foot facility that
produces certain of the Company's gas heating products, pre-engineered
fireplace products and Broilmaster grills. The Huntsville plant is a 250,000
square foot facility that, until recently, produced certain gas heating
products, gas logs, and NuWay utility trailers. On December 9, 1999, the
Company announced the planned closing and consolidation of the Huntsville
plant. The closing began during the first quarter of 2000 and is anticipated to
be completed by the end of the third quarter. The production of certain of the
gas heating products is being transferred to the Athens plant and to the
Orillia plant. The production of the gas logs and the NuWay utility trailers
was transferred to the Sheffield plant. (See Note 12 to Notes to Consolidated
Financial Statements.) The Company is presently seeking to sell the Huntsville
property. The Sheffield plant is a 236,000 square foot facility. In addition to
the production of the gas logs and utility trailers, the Sheffield plant
manufactures wood products, primarily surrounds for fireplaces. The Sheffield
plant also serves as the Company's central warehouse. Products not shipped
directly to customers from the Athens and Orillia plants are shipped from
Sheffield. Further, the Company's repair parts are located in and shipped to
customers from the Sheffield plant. Previously, the Sheffield plant was
utilized to manufacture metal office furniture prior to discontinuing this
business segment. (See Note 11 to Notes to Consolidated Financial Statements.)
The Company's Washington Park plant is a 120,000 square foot facility where the
Company manufactured its Broilmaster gas grills, gas logs and certain of the
Company's gas heaters prior to the plant's closing during the second quarter of
1998. (See Note 12 to Notes to Consolidated Financial Statements.) The Company
is presently seeking to sell the Washington Park property. The Company's plant
in Orillia is a 100,000 square foot facility that produces certain of the
Company's gas heating products, pre-engineered gas fireplace products and gas
grills. The Company currently leases its corporate headquarters and its Athens
manufacturing facility pursuant to lease agreements associated with the
industrial development financing arrangements utilized to acquire and develop
these properties. Although the debt associated with these properties has been
retired, the Company has continued to hold these facilities subject to the
lease arrangements in order to receive certain tax benefits. Each property may
be purchased at the Company's option for a nominal amount. Other than these two
properties, the Company owns all of its major facilities.

ITEM 3.  LEGAL PROCEEDINGS

         On February 1, 1996, the Company's wholly owned subsidiary, 1166081
Ontario Inc., acquired all of the capital stock of Hunter Technology Inc.
("Hunter") for a purchase price of approximately $1,943,000 that consisted of
cash and $729,000 in promissory notes payable. An escrow fund consisting of
$364,000 of the cash purchase price was established at the closing to make
funds available to meet the sellers' indemnification obligations to the
Company. During the first quarter of 1997, the Company notified certain of the
sellers that it was withholding payment on the promissory notes held by them
pending resolution of certain issues with the holders of the notes arising out
of the purchase transaction. The Company also claimed the entire amount in
escrow and instituted litigation to recover the amounts and additional amounts
from certain sellers in the purchase transaction, and certain of the sellers
sued to enforce collection of their notes.


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         During 1998, the Company effected a settlement with all but two of the
former shareholders, and a contingent settlement with these two. Pursuant to
the settlement, the Company has received approximately $315,000 (including
interest) of funds held in escrow, an additional payment of $32,000, and
cancellation of promissory notes and accrued interest totaling approximately
$364,000. The contingent settlement will result (if the contingency is
satisfied and that portion of the settlement effectuated) in receipt by the
Company of an additional $100,000 (including interest), and cancellation of
notes and accrued interest totaling approximately $228,000. No further action
is contemplated as to the Company's claims against these two former
shareholders, or as to their claims asserted in Canada against the Company,
until such time as it is determined that the condition for completion of the
settlement has been satisfied.

         During 1999, the Company instituted legal proceedings against a retail
customer to collect amounts owed to the Company from sales of NuWay trailers to
the customer. The Company also established a reserve in connection with
anticipated returns and the payment of certain advertising and promotional costs
associated with this same retail customer during the third quarter of 1999.
During the first quarter of 2000, the Company effected a settlement with the
customer. Pursuant to the settlement, the Company received approximately
$749,000 from the retail customer, which approximated the net amount recorded on
the books of the Company at December 31, 1999, with the retail customer
accepting and retaining possession of and title to all NuWay trailers and
accessories shipped to the retail customer pursuant to the sales contract. The
Company and the retail customer released each other from all claims relating to
the sales contract, with the exception of any future warranty claims by
customers of the retail customer based on their purchase of the NuWay trailers
and accessories.

         The Company is a party from time to time to various legal proceedings
that are incidental to its business. Certain of these cases filed against the
Company and other companies engaged in businesses similar to the Company often
allege, among other things, product liability, personal injury and breach of
contract and warranty. These types of suits sometimes seek the imposition of
large amounts of compensatory and punitive damages and trials by juries. In the
opinion of the Company's management, the ultimate liability, if any, with
respect to the proceedings in which the Company is currently involved is not
presently expected to have a material adverse effect on the Company. However,
the potential exists for unanticipated material adverse judgements against the
Company. See Note 9 to Notes to Consolidated Financial Statements.

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

         No matters were submitted to a vote of security holders of the
Company, through the solicitation of proxies or otherwise, during the fourth
quarter of the fiscal year ended December 31, 1999.


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                                    PART II

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

         The Company declared quarterly cash dividends of $0.021 per share in
January, April and July 1999 for a total of $0.063 in per share dividends
declared in 1999 on the Common Stock of the Company. The Company declared cash
dividends totaling $0.164 per share in 1998. On October 29, 1999, the Company
announced that the Board of Directors had discontinued the payment of regular
quarterly cash dividends. The Company's Board of Directors decided that it would
be in the best interests of the Company and its stockholders for the Company to
discontinue the payment of a cash dividend and to invest those funds in the
business in support and furtherance of the Company's strategic plan. Any future
payment of dividends will be within the discretion of the Board of Directors and
will depend on the Company's profitability, capital requirements, financial
condition, growth, business opportunities and other factors which the Board of
Directors may deem relevant. In addition, the Company's credit agreement with
its primary lender (the "Amended Credit Agreement") restricts the payment of
cash dividends by the Company if such payment would cause the Company to fail to
meet certain financial covenants as stated in the Amended Credit Agreement. In
particular, one of the financial covenants in the Amended Credit Agreement
requires the Company to not permit its tangible net worth to be less than
$37,000,000 as of January 1, 2001. Tangible net worth is defined as the
Company's consolidated net worth plus subordinated debt less any related-party
receivables and any intangibles.

         The Company's Common Stock began trading on The Nasdaq Stock Market's
National Market on July 13, 1995. As of March 22, 2000, the Company had 202
stockholders of record. This number excludes individual stockholders holding
stock under nominee security position listings. The closing price of the Common
Stock on The Nasdaq Stock Market's National Market on March 22, 2000 was
$1.625. The prices in the table below represent the high and low sales prices
for the Company's Common Stock as reported on The Nasdaq Stock Market's
National Market.

<TABLE>
<CAPTION>
                              Fiscal 1999                   Fiscal 1998
                        ----------------------       ----------------------
                          High          Low             High          Low
                        --------     ---------       ---------     --------

    <S>                 <C>          <C>             <C>           <C>
    First Quarter       $   2.91     $    2.19       $    6.06     $   4.94
    Second Quarter      $   2.81     $    2.00       $    5.38     $   4.69
    Third Quarter       $   2.63     $    1.94       $    5.00     $   3.06
    Fourth Quarter      $   2.34     $    1.25       $    3.38     $   2.50
</TABLE>


                                       8

<PAGE>   10

ITEM 6.  SELECTED FINANCIAL DATA.

         The selected statements of operations data, basic and diluted per
share data and balance sheet data for the five years ended December 31, 1999
set forth below have been derived from the consolidated financial statements of
the Company, which statements have been audited by Arthur Andersen LLP,
independent public accountants. The following data should be read in
conjunction with the consolidated financial statements of the Company and notes
appearing elsewhere in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                            ----------------------------------------------------------------------
                                               1999          1998           1997           1996          1995
                                            ----------    -----------    -----------    -----------  ------------
                                                         (Dollars In Thousands, except per share data)

<S>                                         <C>           <C>            <C>            <C>          <C>
OPERATIONS DATA:
Net sales                                   $   85,678     $   84,025     $   87,351     $   90,194     $   75,905
Cost of sales                                   77,370         72,366         67,521         65,334         55,113
                                            ----------------------------------------------------------------------
Gross profit                                     8,308         11,659         19,830         24,860         20,792
                                            ----------------------------------------------------------------------
Operating expenses:
   Selling                                       9,394          9,047          9,914          9,055          6,671
   General and administrative                    7,314          6,908          6,599          6,733          4,887
   Non-cash ESOP compensation (1)                  629          1,293          1,905          2,812          2,850
   Restructure charge (2)                          489            615              0              0              0
                                            ----------------------------------------------------------------------
                                                17,826         17,863         18,418         18,600         14,408
                                            ----------------------------------------------------------------------
Operating income (loss)                         (9,518)        (6,204)         1,412          6,260          6,384
Interest expense and other (income), net          (835)          (275)           584            473            539
                                            ----------------------------------------------------------------------
Income from continuing operations before
  income taxes                                  (8,683)        (5,929)           828          5,787          5,845
Provision (credit) for income taxes             (2,544)        (1,793)           576          2,592          2,624
                                            ----------------------------------------------------------------------

Income (loss) from continuing operations        (6,139)        (4,136)           252          3,195          3,221
Income (loss) from discontinued
 operations, net of tax                              0              0              0             62          1,349
Loss on disposal of discontinued
  operations, net of tax                             0              0           (756)        (1,430)             0
                                            ----------------------------------------------------------------------
Net income (loss) from discontinued
 operations                                          0              0           (756)        (1,368)         1,349
                                            ----------------------------------------------------------------------

Net income (loss)                           $   (6,139)    $   (4,136)    $     (504)    $    1,827     $    4,570
                                            ======================================================================

BASIC PER SHARE DATA:
Income (loss) from continuing operations    $    (0.84)    $    (0.58)    $     0.04     $     0.50     $     0.70
Income (loss) from discontinued operations        0.00           0.00          (0.11)         (0.21)          0.29
                                            ----------------------------------------------------------------------

Net income (loss)                           $    (0.84)    $    (0.58)    $    (0.07)    $     0.29     $     0.99
                                            ======================================================================

Weighted average number of common and
   common equivalent shares outstanding      7,338,821      7,073,430      6,787,685      6,412,222      4,622,948
                                            ======================================================================

DILUTED PER SHARE DATA:
Income (loss) from continuing operations    $    (0.84)    $    (0.58)    $     0.04     $     0.47     $     0.62
Income (loss) from discontinued operations        0.00           0.00          (0.11)         (0.20)          0.26
                                            ----------------------------------------------------------------------

Net income (loss)                           $    (0.84)    $    (0.58)    $    (0.07)    $     0.27     $     0.88
                                            ======================================================================

Weighted average number of common and
   common equivalent shares outstanding      7,338,821      7,073,430      7,049,131      6,772,191      5,204,254
                                            ======================================================================

DIVIDENDS DECLARED PER SHARE*               $     0.06     $     0.16     $     0.16     $     0.15     $     0.39
                                            ======================================================================
</TABLE>


*See ITEM 5. Market for Registrant's Common Equity and Related Stockholder
             Matters.


                                       9

<PAGE>   11

<TABLE>
<S>                                           <C>           <C>           <C>            <C>           <C>
OTHER DATA:
Income from continuing operations before
   non-cash ESOP compensation expense,
   depreciation and amortization, interest,
   taxes, and restructure charge (3)          $ (6,606)     $  (2,500)    $    5,214     $   10,695    $   10,254
Capital expenditures                             5,661          1,640          2,053          2,798         2,181
</TABLE>



<TABLE>
<CAPTION>
                                                                        At December 31,
                                              --------------------------------------------------------------------
                                                 1999          1998          1997           1996           1995
                                              ----------    ----------    -----------    ----------    -----------
                                                                        (In thousands)
<S>                                           <C>           <C>           <C>            <C>           <C>
BALANCE SHEET DATA:
  Cash and short-term investments             $  5,218      $   9,818     $   15,157     $   19,326    $  20,439
  Working capital                               18,441         35,600         43,172         44,906       43,305
  Total assets                                  58,920         62,379         70,980         76,344       63,582
  Long-term debt, less current portion           2,406          6,864          8,599         10,263        7,228
  Stockholders' equity                          37,055         42,043         47,623         48,032       43,078
</TABLE>


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

(1)  In 1993, in connection with the establishment of the ESOP, the Company
     adopted SOP No. 93-6, which requires that the Company recognize non-cash
     ESOP compensation expense in each fiscal quarter as shares of stock owned
     by the ESOP are committed to be released to participants' accounts
     based on the average fair value of the shares during the quarter. Shares
     of stock owned by the ESOP are committed to be released to
     participants' accounts as payments are made on the ESOP debt. See
     "Management's Discussion and Analysis of Financial Condition
     and Results of Operations -- ESOP Accounting" and Notes 2, 4 and 7
     to Notes to Consolidated Financial Statements.
(2)  See Note 12 to Notes to Consolidated Financial Statements.
(3)  This measurement is not intended to represent income from continuing
     operations, cash flow or any other measure of performance in accordance
     with generally accepted accounting principles, but is included because the
     Company believes certain investors find it to be useful for measuring and
     identifying trends with respect to the Company's creditworthiness.


                                       10

<PAGE>   12

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

         The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements of the Company and notes thereto and the other financial
information appearing elsewhere in this Annual Report on Form 10-K.

OVERVIEW

         The Company manufactures products in two industry segments: home
heating products and leisure and other products such as do-it-yourself utility
trailer kits and premium gas barbecue grills. Each of the industry segments in
which the Company operates is cyclical in nature, with sales being affected by
general economic cycles, consumer confidence levels, inflation, employment and
income levels and the availability of credit generally. The Company's fireplace
business is also influenced by factors affecting the housing industry, such as
housing demand, the availability of financing and the level and stability of
interest rates. Sales of home heating products and, in particular, gas heaters
(other than fireplaces), historically have been seasonal in nature, with sales
being directly affected by weather conditions.

         The Company announced on March 29, 2000, that it had engaged J.C.
Bradford & Co., LLC, of Nashville, Tennessee, to assist the Company in
exploring its strategic alternatives, which could include the sale of the
Company or some or all of its operating divisions or product lines. There can
be no assurance that any transaction or other strategic alternative will occur
or be pursued or as to the form that any possible transaction or other
strategic alternative might take. The Company does not currently expect to
disclose developments regarding its pursuit of strategic alternatives unless
and until it is in a position to announce it has decided upon a definitive
transaction or strategic alternative.

         On December 9, 1999, the Company announced the planned closing and
consolidation of its Huntsville, Alabama manufacturing facility. The closing of
the facility began during the first quarter of 2000 and is anticipated to be
completed by the end of the third quarter. The current production in Huntsville
is being transferred to the Company's existing facilities in Athens and
Sheffield, Alabama and Orillia, Ontario. The Company recorded a restructure
charge of $400,000, before tax, in connection with the closing. The restructure
charge includes employee termination costs of $125,000 and other exit costs of
$275,000 (primarily payroll and benefits of $69,000 and group insurance of
$159,000). See Note 12 to Notes to Consolidated Financial Statements.

         In 1998, the Company initiated the closing of its Washington Park,
Illinois facility and the transfer of the gas grill, gas log and freestanding
vent-free stove production from the Washington Park facility into the Athens,
Alabama and Huntsville, Alabama locations. The Company recorded a restructure
charge of $615,000, before tax, in connection with the closing. The
restructure charge includes plant closing costs of $590,000 (primarily
payroll, severance and payroll taxes of $234,000 and group insurance of
$255,000) and a property, plant and equipment valuation charge of $25,000.
During 1999, the Company increased the reserve by $89,000, primarily due to
higher than anticipated expenses such as legal fees and group insurance. The
estimated reserve remaining as of December 31, 1999 was $189,000. See Note 12
to Notes to Consolidated Financial Statements.

         Prior to 1997, the Company manufactured products in the metal office
furniture segment through its Filex line acquired in 1989. In February of 1997,
the Company elected to discontinue its metal office furniture operations. The
consolidation in the office furniture industry increased competition and margin
pressures in the segment to the point of an unacceptable return to the Company.
The metal office furniture segment's operations are treated as discontinued in
the accompanying condensed consolidated financial statements. See "--Results of
Discontinued Metal Office Furniture Operations" and Note 11 of Notes to
Consolidated Financial Statements.

         On February 1, 1996, the Company's Canadian subsidiary, 1166081
Ontario Inc., acquired all of the capital stock of Hunter.

         As used in the following discussion and elsewhere in this Annual
Report, the term "gross sales" reflects total customer invoices billed by the
Company for the applicable period, net of any customer sales credits issued.
The term "net sales" as used herein and elsewhere in this Annual Report,
reflects gross sales less deductions for cash discounts, freight and royalties
paid by the Company.


                                       11

<PAGE>   13

ESOP ACCOUNTING

         The Company established the Martin Industries, Inc. Employee Stock
Ownership Plan and Related Trust (the "ESOP" in 1992, and in January 1993 the
Company borrowed $11.9 million from its primary lender (the "Bank Loan"), which
funds were then loaned by the Company to the ESOP (the "ESOP Loan" on terms
substantially similar to those of the Bank Loan. The ESOP Loan enabled the ESOP
to purchase approximately 51% of the Company's common stock on a fully diluted
basis from existing stockholders. The Bank Loan and the ESOP Loan are payable
in equal principal installments over 10 years. At the time of the origination
of the Bank Loan and the ESOP Loan and the consummation of the purchase by the
ESOP of the Company's shares, the Company recorded the principal amount of the
Bank Loan as long-term debt and recorded unearned compensation in an equal
amount, which is reflected as a reduction of stockholders' equity on the
consolidated balance sheet.

         Pending repayment of the ESOP Loan, shares owned by the ESOP are held
in a suspense account. Shares of common stock are committed to be released from
the ESOP's suspense account and credited to ESOP participants' accounts based
on the ratio that the principal debt repayment of the ESOP Loan bears to the
original principal debt balance (i.e., approximately 347,340 shares of common
stock per year). The Company is required to recognize compensation expense each
fiscal quarter in an amount equal to one-fourth of the number of shares of
common stock committed to be released each year multiplied by the average fair
market value of such shares during the period. The fair market value of the
shares of common stock committed to be released and charged to compensation
expense is also credited to stockholders' equity. Accordingly, if the fair
market value of the common stock increases, so will the Company's non-cash
compensation expense related to the ESOP, which in turn has a negative impact
on the Company's net income (loss) and net income (loss) per share, but does
not reduce the Company's net worth. Because the Company cannot predict the
price at which its shares will trade in the future, it cannot predict the
amount of non-cash compensation expense it will incur based upon the release of
the ESOP's shares to the participants' accounts or the resulting effect on net
income (loss) or net income (loss) per share. To the extent dividends are
declared and paid on shares allocated to participants' accounts, the ESOP
allows the Administrative Committee to use such dividends to repay the ESOP
Loan. In such event, the dividends paid with respect to allocated shares are
paid to participants in the form of released shares. The negative impact on
earnings will be partially offset by the impact of such dividends, since the
Company is not required to recognize compensation expense with respect to the
release of shares related to dividends paid on ESOP shares allocated to
participants.

YEAR 2000 COMPLIANCE

         The efficient operation of the Company's business is dependent in part
on its computer software programs and operating systems (collectively,
"Programs and Systems"). These Programs and Systems are used in several key
areas of the Company's business, including inventory management, pricing,
sales, and financial reporting, as well as in various administrative functions.
Many of the Company's Programs and Systems, as well as the programs and systems
of third parties doing business with the Company, are subject to the "Year
2000" issue, which is the inability of a computer to correctly process dates
after December 31, 1999. The Company believes that all its Programs and Systems
are substantially Year 2000 compliant. To the Company's knowledge, the Company
has not experienced any significant problems as a result of Year 2000 issues.

         The statements in this section concerning the Company's belief that
all its Programs and Systems are substantially Year 2000 compliant constitute
forward-looking statements and are subject to a number of assumptions, risks
and uncertainties that could cause actual results to differ materially from
those expressed or contemplated by these statements.


                                       12

<PAGE>   14

RESULTS OF CONTINUING OPERATIONS

         The following tables set forth, for the periods indicated, information
derived from the Company's consolidated financial statements expressed as a
percentage of net sales and financial information for the Company's two
industry segments.

<TABLE>
<CAPTION>
                                                         Percentage of Net Sales
                                                          Year Ended December 31,
                                                   1999           1998              1997
                                               ------------------------------------------
<S>                                            <C>                <C>               <C>
Net sales                                         100.0%          100.0%            100.0%

Cost of sales                                      90.3            86.1              77.3
                                               ------------------------------------------
Gross profit                                        9.7            13.9              22.7
                                               ------------------------------------------
Operating expenses:
   Selling                                         11.0            10.8              11.3
   General and administrative                       8.5             8.2               7.6
   Non-cash ESOP compensation                       0.7             1.6               2.2
   Restructure charge                               0.6             0.7               0.0
                                               ------------------------------------------
                                                   20.8            21.3              21.1
                                               ------------------------------------------
Operating income (loss)                           (11.1)           (7.4)              1.6
Interest expense (income), net                     (1.0)           (0.3)              0.7
                                               ------------------------------------------
Income (loss) from continuing operations
   before income taxes                            (10.1)           (7.1)              0.9
Provision (credit) for income taxes                (2.9)           (2.2)              0.6
                                               ------------------------------------------
Income (loss) from continuing operations           (7.2)%          (4.9)%             0.3%
                                               ==========================================
</TABLE>


<TABLE>
<CAPTION>
                                                        Segment Information
                                                       Year Ended December 31,
                                                           (In thousands)
                                                 1999          1998            1997
                                               ---------------------------------------
<S>                                            <C>           <C>             <C>
Net sales:
   Home heating products                       $  65,040     $  65,386       $  69,371
   Leisure and other products                     20,638        18,639          17,980
                                               ---------------------------------------
                                               $  85,678     $  84,025       $  87,351
                                               =======================================
Gross profit:
   Home heating products                       $   5,055     $   7,964       $  16,135
   Leisure and other products                      3,253         3,695           3,695
                                               ---------------------------------------
                                               $   8,308     $  11,659       $  19,830
                                               =======================================
Segment contribution (loss) (1):
   Home heating products                       $  (1,397)    $   1,463       $   8,662
   Leisure and other products                        311         1,149           1,254
                                               ---------------------------------------
                                               $  (1,086)    $   2,612       $   9,916
                                               =======================================
</TABLE>

(1) Segment contribution (loss) consists of gross profit less selling expenses.


                                       13
<PAGE>   15

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

         Net sales in 1999 were $85.7 million as compared to $84.0 million in
1998, an increase of $1.7 million. Net sales of home heating products decreased
to $65.0 million in 1999 as compared to $65.4 million in 1998, a decrease of
$346,000, or 0.5%. Net sales of leisure and other products increased $2.0
million, or 10.7%, in 1999 to $20.6 million as compared to $18.6 million in
1998.

         Of the decrease in net sales of home heating products, heating sales
decreased $1.5 million, while fireplace sales increased $1.1 million in 1999.
The decrease in heating sales was primarily due to the Company's sale of its
Ashley division. Fireplace sales continue to benefit from a strong housing
market, expanded distribution and aggressive sales programs. The increase in
leisure and other sales was primarily the result of a $2.5 million, or 18.4%,
increase in net sales of gas barbecue grills, primarily due to the continued
acceptance of premium gas grills in the marketplace. Net sales of utility
trailer kits decreased $525,000, or 10.7%, in 1999 to $4.4 million as compared
to $4.9 million in 1998. Trailer sales were adversely affected by the
introduction of new products by competitors and a provision for anticipated
returns from a retail customer.

         Gross profit in 1999 was $8.3 million as compared to $11.7 million in
1998, a decrease of $3.4 million, or 28.7%. Gross profit on net sales of home
heating products was $5.1 million in 1999 as compared to $8.0 million in 1998,
a decrease of $2.9 million, or 36.5%. Gross profit on net sales of leisure and
other products was $3.3 million in 1999, as compared to $3.7 million in 1998.

         Gross margin, defined as gross profit as a percentage of net sales,
decreased to 9.7% in 1999 from 13.9% in 1998. Gross margin on home heating
products decreased to 7.8% in 1999 from 12.2% in 1998. The decrease in gross
margin was primarily the result of reduced selling prices on gas heating
products, a continued shift in mix from higher margin gas and wood heaters to
fireplace products, an increase in imported heater sales and an increase in
production costs. Gross margin on leisure and other products decreased to 15.8%
in 1999 from 19.8% in 1998. The decrease in margin was primarily the result of
increased product costs due to quality improvement initiatives associated with
the gas grill production line.

         Selling expenses in 1999 were $9.4 million as compared to $9.0 million
in 1998, an increase of $347,000, or 3.8%. The increase was primarily the
result of a 2.0% increase in net sales together with a shift in mix from
two-step heater sales to retail heater and grill sales. The rate of selling and
promotional expenses is greater on retail heater and grill sales.

         Total segment loss, defined as gross profit less selling expenses, was
($1.1 million) in 1999 compared to a segment contribution of $2.6 million in
1998. The $3.7 million decrease was primarily the result of the decrease in
gross profit and the increase in selling expenses discussed above.

         General and administrative expenses increased $406,000, or 5.9%, in
1999 as compared to 1998. The increase in general and administrative expenses
was primarily the result of increased human resources, data processing and
design and development expenses, partially offset by a decrease in certain
post-employment benefits.

         Non-cash ESOP compensation expense decreased $664,000, or 51.4%, in
1999 to $629,000, as compared to $1.3 million in 1998. In 1999, 273,485 shares
of unallocated ESOP stock were committed to be released as compensation at an
average fair value of $2.30 per share, as compared to 293,044 shares committed
to be released as compensation at an average fair value of $4.41 per share in
1998.

         As reported in the Company's Form 10-Q for the 13-week period ended
March 28, 1998, the Company made the decision to close its Washington Park,
Illinois facility. The Company initiated the closing and the transfer of the
gas grill, gas log and freestanding vent-free stove production into the Athens,
Alabama and Huntsville, Alabama locations during the third quarter of 1998.
During 1999, the Company increased the reserve by $89,000, primarily due to
higher than anticipated expenses such as legal fees and group insurance.

         On December 9, 1999, the Company announced the planned closing and
consolidation of its Huntsville, Alabama manufacturing facility. The closing of
the facility began during the first quarter of 2000 and is anticipated to be
completed by the end of the third quarter. The Company recorded a restructure
charge of $400,000, before tax, in connection with the closing. See Note 12 to
Notes to Consolidated Financial Statements.


                                       14

<PAGE>   16

         The gain on sales of assets increased $977,000 in 1999 to $1.3 million.
The increase was primarily due to the gain on sale of the Ashley division
of $1.2 million. See Note 10 to Notes to Consolidated Financial Statements.

         Interest expense decreased $254,000, or 25.3%, in 1999 to $751,000, as
compared to $1.0 million in 1998. The decrease was primarily attributable to
the decrease in average outstanding debt during 1999.

         Interest and other income decreased $671,000, or 67.8%, in 1999 to
$318,000, as compared to $989,000 in 1998. The decrease was primarily due to
a decrease in interest income on short-term investments and a $422,000 gain
on settlement of litigation recorded during 1998.

         The credit for income taxes was $2.5 million in 1999 as compared to a
credit for income taxes of $1.8 million in 1998. The effective tax rate was
(29.3)% in 1999 as compared to (30.2)% in 1998. The effective tax rate differs
from the amount computed by applying the federal statutory rate primarily as a
result of recording an additional valuation allowance for deferred tax assets
of $738,000 during 1999. See Note 3 to Notes to Consolidated Financial
Statements.

         The Company has net deferred tax assets resulting primarily from net
operating loss ("NOL") carryforwards in United States jurisdictions of
approximately $3,449,000 expiring in fiscal year 2019, and NOL carryforwards in
Canada of approximately $2,138,000 expiring in fiscal years 2000 through 2006.
The Company continually reviews the adequacy of its valuation allowance and
recognizes tax benefits only as an assessment indicates that it is more likely
than not those tax benefits will be realized. Through such assessments, the
Company recorded valuation allowances primarily related to the Canadian NOL
carryforwards to a level where management believes that it is more likely than
not that the remaining Canadian net deferred tax asset of approximately
$954,000 will be realized, primarily through future taxable income and
available tax planning strategies. The total amount of future taxable income
in the United States necessary to realize the remaining deferred tax benefits is
approximately $18.5 million. The Company expects to generate this income
principally through future earnings and, if necessary, implementation of
reasonable and prudent tax planning strategies (including the possible sale of
certain divisions, property held for sale and other tax planning strategies) to
fully realize the net deferred tax asset before expiration in 2019.

         Loss from continuing operations in 1999 was $6.1 million as compared
to loss from continuing operations of $4.1 million in 1998, primarily as a
result of the factors discussed above.

         Loss from continuing operations per share-basic was $0.84 in 1999 as
compared to loss from continuing operations per share-basic of $0.58 in 1998.

         The loss per share on a diluted basis was the same as the loss per
share on a basic basis for 1999 and 1998 as the effect of outstanding stock
options was antidilutive.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

         Net sales in 1998 were $84.0 million as compared to $87.4 million in
1997, a decrease of $3.3 million. Net sales of home heating products decreased
to $65.4 million in 1998 as compared to $69.4 million in 1997, a decrease of
$4.0 million, or 5.7%. Net sales of leisure and other products increased
$659,000, or 3.7%, in 1998 to $18.6 million as compared to $18.0 million in
1997.

         Of the decrease in net sales of home heating products, gas heating
sales decreased $7.0 million in 1998, while fireplace sales increased $3.7
million in 1998. The decrease in sales was primarily due to the weather's
influence on order rates, continued competitive pressures in the gas space
heater market from both foreign and domestic sources and a decrease in Martin's
share of the gas heater market. Statistics published by the Gas Appliance
Manufacturers Associates ("GAMA") indicate that industry sales of vented and
vent-free gas heating products in 1998 decreased 5.0% as compared with 1997.
Martin's sales of GAMA-reported products decreased 19.6% for the same period.
The increase in leisure and other sales was primarily the result of a $1.9
million, or 17.1%, increase in net sales of gas barbecue grills. Net sales of
utility trailer kits decreased $1.0 million, or 17.2%, in 1998 to $4.8 million
as compared to $5.8 million in 1997.

         Gross profit in 1998 was $11.7 million as compared to $19.8 million in
1997, a decrease of $8.2 million, or 41.2%. Gross profit on net sales of home
heating products was $8.0 million in 1998 as compared to $16.1 million in 1997,
a decrease of $8.2 million, or 50.6%. Gross profit on net sales of leisure and
other products, $3.7 million in 1998, remained relatively constant compared to
1997.


                                       15

<PAGE>   17

         Gross margin, defined as gross profit as a percentage of net sales,
decreased to 13.9% in 1998 from 22.7% in 1997. Gross margin on home heating
products decreased to 12.2% in 1998 from 23.3% in 1997. The significant
decrease in gross margin was primarily the result of higher factory provisions
for product liability and workers' compensation claims, reduced gas heater
prices and a shift in mix from higher margin gas heaters to fireplace products.
Additionally, gross margin on home heating products was negatively impacted as
a result of a $1.8 million fourth quarter charge to earnings for excess and
obsolete inventory. The inventory charge was primarily the result of the
discontinuance of certain low volume product lines, the elimination of certain
components resulting from the planned re-design of certain high volume products
and the write-off of certain slow moving repair parts. Gross margin on leisure
and other products decreased to 19.8% in 1998 from 20.6% in 1997. Gross margin
was negatively impacted by higher production variances associated with the
transfer of grill production from the Washington Park, Illinois facility to the
Athens, Alabama facility. See Note 12 to Notes to Consolidated Financial
Statements. In addition, gross margin on leisure and other products declined as
a result of a $200,000 charge for excess and obsolete inventory.

         Selling expenses in 1998 were $9.0 million as compared to $9.9 million
in 1997, a decrease of $867,000, or 8.7%. The decrease was primarily due to a
$183,000 decrease in co-op advertising, a $103,000 decrease in commission
expenses and a $558,000 decrease in advertising and promotion expenses. Selling
expenses as a percentage of net sales decreased to 10.8% in 1998 from 11.3% in
1997.

         Total segment contribution, defined as gross profit less selling
expenses, was $2.6 million in 1998 compared to $9.9 million in 1997. The $7.3
million decrease, or 73.7%, was primarily the result of the decrease in gross
profit offset by decreased selling expenses, as discussed above.

         General and administrative expenses increased $309,000, or 4.7%, in
1998 as compared to 1997. The increase in general and administrative expenses
was primarily due to an increase in deferred compensation expense, primarily
caused by a death benefit received during 1997, the resignation of the former
CEO and a decrease in the implicit interest rate assumed in the plan. The
increase in general and administrative expenses was partially offset by a
decrease in design and development expenses.

         Non-cash ESOP compensation expense decreased $612,000, or 32.1%, in
1998 to $1.3 million, as compared to $1.9 million in 1997. In 1998, 293,044
shares of unallocated ESOP stock were committed to be released as compensation
at an average fair value of $4.41 per share, as compared to 314,243 shares
committed to be released as compensation at an average fair value of $6.06 per
share in 1997.

         As reported in the Company's Form 10-Q for the 13-week period ended
March 28, 1998, the Company made the decision to close its Washington Park,
Illinois facility. The Company initiated the closing and the transfer of the
gas grill, gas log and freestanding vent-free stove production into the Athens,
Alabama and Huntsville, Alabama locations during the second quarter of 1998.
The Company recorded a non-recurring charge of $615,000, before tax, in
connection with the closing in the second quarter of 1998. The non-recurring
charge includes plant closing costs of $590,000 (primarily payroll, severance
and payroll taxes of $234,000 and group insurance of $255,000) and a property,
plant and equipment valuation charge of $25,000. The estimated reserve
remaining as of December 31, 1998 totaled $251,000. See Note 12 to Notes to
Consolidated Financial Statements.

         The gain on sales of assets increased $325,000 in 1998 to $291,000.
The increase was primarily attributable to a gain on the sale of marketable
securities.

         Interest expense decreased $481,000, or 32.4%, in 1998 to $1.0
million, as compared to $1.5 million in 1997. The decrease was primarily
attributable to the decrease in average outstanding debt during 1998.

         Interest and other income increased $53,000, or 5.7%, in 1998 to
$989,000, as compared to $936,000 in 1997. The increase was primarily
attributable to a gain on settlement of litigation of $422,000 (see Note 9 to
Notes to Consolidated Financial Statements), primarily offset by a decrease in
average funds invested during 1998.

         The credit for income taxes was $1.8 million in 1998 as compared to a
provision for income taxes of $576,000 in 1997. The effective tax rate was
(30.2)% in 1998 as compared to 69.6% in 1997. The change in the effective tax
rate was primarily the result of the establishment of a $446,000 valuation
allowance for deferred taxes.

         Loss from continuing operations in 1998 was $4.1 million as compared
to income from continuing operations of $252,000 in 1997, primarily the result
of the factors discussed above.


                                       16

<PAGE>   18

         Loss from continuing operations per share-basic was $0.58 in 1998 as
compared to income from continuing operations per share-basic of $0.04 in 1997.

         The loss per share on a diluted basis was the same as the loss per
share on a basic basis for 1998 as the effect of outstanding stock options was
not dilutive.

RESULTS OF DISCONTINUED METAL OFFICE FURNITURE OPERATIONS

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

         There was no activity relative to the discontinued metal office
furniture operations during 1999.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

         During 1998, the Company utilized the reserve of $299,000 recorded at
December 31, 1997, for charges associated with the discontinued metal office
furniture operations incurred during the year. The reserve remaining at
December 31, 1998 was $0. The Company does not expect any further expense.


                                       17

<PAGE>   19

QUARTERLY RESULTS

         The following table sets forth certain quarterly income statement data
for each of the Company's last two fiscal years and the percentage of net sales
represented by the line items presented (except in the case of per share
amounts). The quarterly income statement data set forth below was derived from
unaudited consolidated financial statements of the Company and includes all
adjustments which the Company considers necessary for a fair presentation
thereof.

<TABLE>
<CAPTION>
                                                                           1999
                                    --------------------------------------------------------------------------------
                                          APRIL 3             JULY 3             OCTOBER 2            DECEMBER 31
                                    -----------------   ----------------     -----------------    ------------------
                                                        (In Thousands, except per share amounts)

<S>                                 <C>       <C>       <C>        <C>       <C>         <C>      <C>          <C>
Net sales                           $23,033   100.0%    $ 20,774   100.0%    $ 21,415    100.0%   $20,456      100.0%
Gross profit                          3,786    16.4        2,799    13.5        1,136      5.3        587        2.9
Non-cash ESOP compensation              180     0.8          174     0.8          159      0.7        116        0.6
Operating loss                         (807)   (3.5)      (1,551)   (7.5)      (3,451)   (16.1)    (3,709)     (18.1)
Income (loss) before income
   taxes                                274     1.2       (1,640)   (7.9)      (3,545)   (16.6)    (3,772)     (18.4)
Income (loss)                           164     0.7       (1,149)   (5.5)      (2,410)   (11.3)    (2,744)     (13.4)
                                    ---------------------------------------------------------------------------------

Net income (loss)                   $   164     0.7%    $ (1,149)   (5.5)%   $ (2,410)   (11.3)   $(2,744)     (13.4)%
                                    ================================================================================

BASIC PER SHARE DATA:
Net income (loss) (1)               $  0.02             $  (0.16)            $  (0.32)            $ (0.37)
                                    ================================================================================

DILUTED PER SHARE DATA:
Net income (loss) (1)               $  0.02             $  (0.16)            $  (0.32)            $ (0.37)
                                    ================================================================================

</TABLE>


<TABLE>
<CAPTION>
                                                                       1998
                                    ------------------------------------------------------------------------------
                                         MARCH 28            JUNE 27           SEPTEMBER 26         DECEMBER 31
                                    ---------------     ---------------     -----------------    -----------------
                                                      (In Thousands, except per share amounts)

<S>                                 <C>       <C>       <C>       <C>       <C>         <C>      <C>         <C>
Net sales                           $18,908   100.0%    $24,233   100.0%    $ 20,102    100.0%   $20,782     100.0%
Gross profit                          3,677    19.4       5,331    22.0        2,127     10.6        524       2.5
Non-cash ESOP compensation              402     2.1         376     1.6          312      1.6        203       1.0
Operating income (loss)                (726)   (3.8)        222     0.9       (1,736)    (8.6)    (3,964)    (19.1)
Income (loss) before income
   taxes                               (749)   (3.9)        395     1.6       (1,840)    (9.2)    (3,735)    (18.0)
Income (loss)                          (468)   (2.5)        150     0.6       (1,414)    (7.0)    (2,404)    (11.6)
                                    ------------------------------------------------------------------------------

Net income (loss)                   $  (468)   (2.5)%   $   150     0.6%    $ (1,414)    (7.0)%  $(2,404)    (11.6)%
                                    ==============================================================================

BASIC PER SHARE DATA:
Net income (loss) (1)               $ (0.07)            $  0.02             $  (0.20)            $ (0.33)
                                    ==============================================================================

DILUTED PER SHARE DATA:
Net income (loss) (1)               $ (0.07)            $  0.02             $  (0.20)            $ (0.33)
                                    ==============================================================================
</TABLE>

(1)  The sum of the quarterly per share amounts may differ from the annual
     per share amounts because of differences in the weighted average number of
     common and common equivalent shares used in the quarterly and annual
     computations.


                                       18

<PAGE>   20

LIQUIDITY AND CAPITAL RESOURCES

         The Company has historically financed its operations from internally
generated funds and seasonal borrowings under its bank line of credit. The
Company's primary capital requirements are for working capital, capital
expenditures and debt service.

         The following table presents a summary of the Company's cash flows for
each of the three years in the period ended December 31:

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                      1999              1998              1997
                                                                  ----------         ----------        ---------
                                                                                  (In thousands)

<S>                                                               <C>                <C>               <C>
Net cash provided by operations                                   $      607         $       13        $    368
Capital expenditures                                                  (5,661)            (1,640)         (2,053)
Proceeds from sales of assets                                          1,658                896           1,023
Net proceeds (repayments) on short-term borrowings                       754               (301)           (280)
Net payments on long-term debt                                        (1,741)            (1,743)         (1,656)
Purchase of treasury stock                                                 0             (1,728)           (774)
Proceeds from exercise of stock options                                  105                141              44
Cash dividends paid                                                     (330)              (896)           (822)
                                                                  ----------         ----------        --------

Net decrease in cash and short-term investments                   $   (4,608)        $   (5,258)       $ (4,150)
                                                                  ==========         ==========        ========
</TABLE>

         During 1999, the Company utilized cash available from operations and
from the initial public offering ("IPO") in 1995 and proceeds from the sale of
assets to finance capital expenditures, repay long-term debt and for working
capital and other general corporate purposes. The Company did not utilize its
bank line of credit during 1999.

         As a result of its seasonal business cycle, the Company finances
interim working capital requirements with cash and bank lines of credit, one
with its principal lender and one with a Canadian financial institution. The
line of credit with its principal lender was entered into effective January 1,
2000, has a current maximum of $10,000,000 and expires on January 1, 2001. The
line of credit is secured by the receivables and inventory of the Company
(exclusive of the receivables and inventory of Hunter). Interest on the line of
credit is payable monthly at a variable rate of 30-day LIBOR plus 1.25%. In
connection with the renewal of the line, the Company agreed to a first quarter
2000 pay off of the $3.2 million term loan utilized to refinance the bank debt
which the Company caused to be paid upon the acquisition of Hunter. As such, the
$3.2 million term loan has been categorized as a current obligation. See Notes 4
and 5 to Notes to Consolidated Financial Statements.

         During 1998, Hunter established a bank line of credit with a Canadian
financial institution. The credit agreement provides a line of approximately
$1,550,000. The credit line is subject to an annual renewal on April 30 each
year. The financial institution's review could result in the cancellation of
the line or a revision of its terms. In the event that the financial
institution terminates the line of credit or proposes amended terms that are
unacceptable to the Company, the Company currently believes it has adequate
capital resources available to fund Hunter's operations in the near term. The
line of credit is secured by Hunter's receivables, inventory and equipment.
Interest on the line of credit is payable monthly at a variable rate equivalent
to the financial institution's prime lending rate plus 0.5%, which at December
31, 1999 was 7.0%. As of December 31, 1999, the outstanding balance of the line
of credit was $776,000.

         In January 1993, the Company obtained the Bank Loan, the proceeds of
which were loaned under the ESOP Loan to enable the ESOP to purchase 3,489,115
shares of common stock from certain stockholders of the Company. The Bank Loan
is due in semi-annual principal payments of $596,700 over a ten-year period.
Interest on the Bank Loan is payable monthly at a variable rate of 79.5% of
prime plus 1.35%. Simultaneously with the origination of the Bank Loan, the
Company entered into a separate interest rate swap agreement that was designed
to fix the interest rate on the Bank Loan for seven years from its origination
at 8.21%. The interest rate swap expired in January 2000. At March 22, 2000,
the interest rate was 8.51%. The Bank Loan is secured by a lien on the
Company's buildings and equipment and is cross collateralized with the secured
line of credit.


                                       19

<PAGE>   21

         On July 18, 1995, the Company closed the sale of 2,300,000 shares of
common stock at a price of $9.50 per share in connection with the IPO. The
proceeds of the IPO, net of an underwriting discount of $1,530,000 and expenses
of $923,000, were $19,397,000. Through the date of this Annual Report on Form
10-K, the Company has used approximately $14.4 million of the proceeds to fund
capital expenditures, acquire Hunter, repay outstanding indebtedness, acquire
shares of its Common Stock in accordance with the Company's share repurchase
program and for working capital and other general corporate purposes. During
1999, the Company used approximately $4.6 million to fund capital expenditures,
repay outstanding indebtedness and for working capital and other general
corporate purposes.

         Management of the Company currently believes that its existing cash and
funds generated from operations, together with the Company's unused borrowing
capacity under the Company's secured line of credit, will be sufficient to fund
the Company's operating needs during fiscal year 2000. The Company, however, has
experienced significant losses during the last two years, which losses could
continue during fiscal year 2000. Such continued losses could result in a
material reduction of internally generated funds and could also result in the
use of a substantial portion or all of the Company's secured line of credit.
Consequently, there can be no assurances that the Company's liquidity position
will not be adversely affected during fiscal year 2000. Further, although the
Company currently believes it has unused "asset-based" borrowing capacity and
other internal sources of liquidity, there can be no assurance that additional
financing, or, if the Company's current line of credit is not renewed, financing
to replace the existing line of credit will be available beyond fiscal year 2000
on terms acceptable to the Company. It is anticipated that during 2000 the
Company will expend approximately $3.2 million for capital expenditures.

         On October 29, 1999, the Company announced that its Board of Directors
had discontinued the payment of regular quarterly cash dividends. The Company's
Board of Directors decided that it would be in the best interests of the
Company and its stockholders for the Company to discontinue the payment of a
cash dividend at that time and to invest those funds in the business in support
and furtherance of the Company's strategic plan. Any future payment of
dividends will be within the discretion of the Board of Directors and will
depend on the Company's profitability, capital requirements, financial
condition, business opportunities and other factors which the Board of
Directors may deem relevant.

CREDIT RISK

         The Company extends credit to a wide range of customers and offers
payment terms ranging from 30 days to early-booking terms which can be as long
as nine months. The Company does not believe that it has a significant
concentration of credit risk in any one geographic area or market segment.
There can be no assurance that such concentration of credit risk may not
develop in the future.

INFLATION

         The Company believes that the relatively moderate rate of inflation
experienced over the last three years has not had a material impact on its
sales or profitability. However, there can be no assurance that the Company's
business will not be adversely affected by inflation in the future.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         The Company is exposed to market risk from changes in foreign currency
exchange rates and interest rates as part of its normal operations. The Company
has estimated its market risk exposures using sensitivity analyses assuming a
10% change in market rates.

FOREIGN CURRENCY EXCHANGE RATE RISK

         Due to its Canadian operations, the Company has assets, liabilities,
operations and cash flows in the Canadian currency. Fluctuations in foreign
currency exchange rates impact the U.S. dollar value of Canadian dollar assets,
liabilities, operations and cash flows. The Company translates the Canadian
dollar income statement to U.S. dollars using the average rate of exchange and
translates the Canadian dollar balance sheet to U.S. dollars using the closing
rate of exchange. Certain accounts (e.g., capital stock) are translated using
an historical exchange rate. Consequently, unrealized foreign currency
translation adjustments are reported as a separate component of stockholders'
equity. To illustrate the potential impact of changes in foreign currency
exchange rates on the unrealized foreign currency translation


                                       20

<PAGE>   22

adjustments, a hypothetical 10% change (decrease) in the average and closing
exchange rates for fiscal 1999 would have increased the unrealized foreign
currency translation adjustment (a loss) by $811,000.

INTEREST RATE RISK

         To manage its exposure to changes in interest rates, the Company uses
both fixed and variable rate debt. At December 31, 1999, the Company had
$3,580,000 of debt outstanding at a variable interest rate of 79.5% of prime
plus 1.35%. The debt is scheduled to mature in September 2002. Therefore, the
Company is exposed to interest rate fluctuations on the debt balance. A
hypothetical increase of 10% (for example, the prime rate of 9.0% would
increase to 9.90%) in the prime lending rate would not cause the Company's
interest expense to increase significantly.

         Effective January 1, 2000, the Company entered into a secured bank
line of credit of up to a maximum of $10,000,000 which is to be utilized to
finance inventories, receivables and operations on an interim basis. Interest
on the line of credit is payable monthly at a variable rate based on the 30-day
London Interbank Offered Rate ("LIBOR") plus 1.25%. A hypothetical increase of
10% in the LIBOR rate would not cause the Company's interest expense to
increase significantly. See Notes 4, 5 and 8 to Notes to Consolidated Financial
Statements.

         Further, Hunter maintains a secured bank line of credit of up to a
maximum of approximately $1,550,000 which is to be utilized to finance
inventories, receivables and operations. Interest on the line of credit is
payable monthly at a variable rate based on the lender's prime rate plus .5%. A
hypothetical increase of 10% in the prime lending rate would not cause the
Company's interest expense to increase significantly.

         Certain statements contained in this section and the estimated amounts
generated from the sensitivity analyses referred to above include
forward-looking statements of market risk which assume that certain adverse
market conditions may occur. Actual future market conditions may differ
materially from such assumptions. Accordingly, the forward- looking statements
should not be considered projections by the Company of future events or losses.

         For further information, see "Liquidity and Capital Resources."

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The consolidated financial statements of the Company, including the
report of independent accountants, the consolidated balance sheets as of
December 31, 1999 and 1998, the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1999, 1998
and 1997 and notes to the consolidated financial statements are set forth on
pages F-1 through F-21 of this Annual Report on Form 10-K. In addition, on page
S-2 of this Annual Report on Form 10-K, the supplemental financial statement
schedule, as required by Item 8, is provided.

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

         None.


                                       21
<PAGE>   23


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         See the "Election of Directors," "Executive Officers of the Company"
and "Section 16(a) Beneficial Ownership Reporting Compliance" sections of the
proxy statement for the 2000 Annual Meeting of Stockholders of the Company,
which sections are incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

         See the "Remuneration of Executive Officers" section of the proxy
statement for the 2000 Annual Meeting of Stockholders of the Company, which
section is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         (a) See the "Principal Stockholders" section of the proxy statement for
the 2000 Annual Meeting of Stockholders of the Company, which section is
incorporated herein by reference.

         (b) See the "Election of Directors" and "Principal Stockholders"
sections of the proxy statement for the 2000 Annual Meeting of Stockholders of
the Company, which sections are incorporated herein by reference.

         (c) There are no arrangements known to the Company the operation of
which may at a subsequent date result in a change in control of the Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         No information is required to be included herein pursuant to Item 404
of Regulation S-K, which requires disclosure of certain information with respect
to certain relationships or related transactions of the directors and management
of the Company.



                                     PART IV

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

         (a)      Certain documents filed as part of Form 10-K

                  1.       Financial Statements.

<TABLE>
<CAPTION>

Description                                                                                                    Page
                                                                                                               ----
<S>                                                                                                            <C>
Report of Independent Public Accountants...............................................................         F-1

Consolidated Balance Sheets as of December 31, 1999 and 1998...........................................         F-2

Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997.............         F-4

Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998 and
  1997.................................................................................................         F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998, and
  1997 ................................................................................................         F-6

Notes to Consolidated Financial Statements.............................................................         F-7
</TABLE>


                                       22

<PAGE>   24


                  2.       Financial Statement Schedule.

                           The financial statement schedule required by
                           Regulation S-X is filed as part of Exhibit S of this
                           Annual Report on Form 10-K, as listed below:

                           Schedule Supporting the Consolidated Financial
                           Statements:

<TABLE>
<CAPTION>

                                                                                                 Page
                                                                                                 ----
                           <S>                                                                   <C>
                           Schedule II - Valuation and Qualifying Accounts                       S-2
</TABLE>

                           All other schedules for which provision is made in
                           the applicable accounting regulations of the
                           Securities and Exchange Commission have been omitted
                           because they are not required under the related
                           instructions or are inapplicable, or because the
                           information has been provided in the Consolidated
                           Financial Statements or the Notes thereto.

                  3.       Exhibits required to be filed by Item 601 of
                           Regulation S-K.

                           The Exhibits filed as part of this Annual Report on
                           Form 10-K are listed in Item 14(c) of this Annual
                           Report on Form 10-K, which listing is hereby
                           incorporated herein by reference.

         (b)      Reports on Form 8-K.

                  There were no Current Reports on Form 8-K filed during the
                  last quarter of the period covered by this Annual Report on
                  Form 10-K.

         (c)      Exhibits.

                  The Exhibits required by Item 601 of Regulation S-K are set
                  forth in the following list and are filed either by
                  incorporation by reference from previous filings with the
                  Securities and Exchange Commission (the "Commission") or by
                  attachment to this Annual Report on Form 10-K as so indicated
                  in such list.

<TABLE>
<CAPTION>

Exhibit
Number                     Description of Exhibit
                           ----------------------

<S>               <C>
* 3(a)            Form of Restated Certificate of Incorporation of Martin
                  Industries, Inc. which was filed as Exhibit 3(a) to the
                  Company's Registration Statement on Form S-1 filed with the
                  Commission on March 17, 1995 (Registration No. 33-90432).

* 3(b)            Amended and Restated Bylaws of Martin Industries, Inc. which
                  were filed as Exhibit 3(b) to the Registrant's Quarterly
                  Report on Form 10-Q for the 26-week period ended June 28, 1997
                  (Commission File No. 0-26228).

* 3(c)            Amendments to the By-laws of Martin Industries, Inc. which
                  were filed as Exhibit 99.1 to the Company's Form 8-K on
                  February 24, 1999 (Commission File No. 0-26228).

* 4(a)            Article 4 of the Restated Certificate of Incorporation of
                  Martin Industries, Inc. (included in Exhibit 3(a)).
</TABLE>


                                       23
<PAGE>   25

<TABLE>
<S>               <C>
* 4(b)            Rights Agreement, dated as of February 23, 1999, between
                  Martin Industries, Inc. and SunTrust Bank, Atlanta, Rights
                  Agent, which was filed as Exhibit 1 to the Company's
                  Registration Statement on Form 8-A (Commission File No.
                  0-26228).

* 10(a)           Martin Industries, Inc. Employee Stock Ownership Plan, as
                  amended, which was filed as Exhibit 10(a) to the Company's
                  Registration Statement on Form S-1 filed with the Commission
                  on March 17, 1995 (Registration No. 33-90432) and, with
                  respect to Amendment No. 7 thereto, as filed as Exhibit 10(a)
                  to the Company's Quarterly Report on Form 10-Q for the 13-week
                  period ended September 30, 1995 (Commission File No. 0-26228).

* 10(b)           Martin Industries, Inc. Employee Stock Ownership Trust
                  Agreement between Martin Industries, Inc., Bill G. Hughey,
                  James W. Truitt and James D. Wilson dated November 12, 1992,
                  as amended, which was filed as Exhibit 10(b) to the Company's
                  Registration Statement on Form S-1 filed with the Commission
                  on March 17, 1995 (Registration No. 33-90432).

* 10(c)           Loan Agreement by and between Martin Industries, Inc. and
                  AmSouth Bank N.A. dated January 7, 1993 in the principal
                  amount of $11,934,000, as amended, which was filed as Exhibit
                  10(c) to the Company Registration Statement on Form S-1 filed
                  with the Commission on March 17, 1995 (Registration No.
                  33-90432).

* 10(d)           Term Note by Martin Industries, Inc. in favor of AmSouth Bank,
                  N.A. dated January 7, 1993 in the principal amount of
                  $11,934,000 which was filed as Exhibit 10(d) to the Company's
                  Registration Statement on Form S-1 filed with the Commission
                  on March 17, 1995 (Registration No. 33-90432).

* 10(e)           Loan and Security Agreement by and between Bill G. Hughey,
                  James W. Truitt and James D. Wilson, as trustees of the Martin
                  Industries, Inc. Employee Stock Ownership Plan and Related
                  Trust (the "ESOP"), and Martin Industries, Inc. dated January
                  7, 1993 in the principal amount of $11,934,000 which was filed
                  as Exhibit 10(f) to the Company's Registration Statement on
                  Form S-1 filed with the Commission on March 17, 1995
                  (Registration No. 33-90432).

* 10(f)           Promissory Note by Bill G. Hughey, James W. Truitt and James
                  D. Wilson, as trustees of the ESOP, in favor of Martin
                  Industries, Inc. dated January 7, 1993, in the principal
                  amount of $11,934,000 which was filed as Exhibit 10(g) to the
                  Company's Registration Statement on Form S-1 filed with the
                  Commission on March 17, 1995 (Registration No. 33-90432).

* 10(g)           Interest Rate Swap Agreement by and between Martin Industries,
                  Inc. and AmSouth Bank, N.A. dated November 3, 1992 which was
                  filed as Exhibit 10(h) to the Company's Registration Statement
                  on Form S-1 filed with the Commission on March 17, 1995
                  (Registration No. 33-90432).

* 10(h)           Martin Industries, Inc. 1988 Nonqualified Stock Option Plan,
                  as amended, which was filed as Exhibit 10(l) to the Company's
                  Registration Statement on Form S-1 filed with the Commission
                  on March 17, 1995 (Registration No. 33-90432).

* 10(i)           Executive Supplemental Income Plan Guidelines and Form of
                  Supplemental Income Agreement which was filed as Exhibit 10(n)
                  to the Company's Registration Statement on Form S-1 filed with
                  the Commission on March 17, 1995 (Registration No. 33-90432).
</TABLE>


                                       24
<PAGE>   26

<TABLE>
<S>               <C>
* 10(j)           Supplemental Executive Retirement Plan which was filed as
                  Exhibit 10(o) to the Company's Registration Statement on Form
                  S-1 filed with the Commission on March 17, 1995 (Registration
                  No. 33-90432).

* 10(k)           Lease Agreement by and between the Industrial Development
                  Board for the City of Florence and Martin Industries, Inc.
                  dated August 1, 1978 which was filed as Exhibit 10(p) to the
                  Company's Registration Statement on Form S-1 filed with the
                  Commission on March 17, 1995 (Registration No. 33-90432).

* 10(l)           Lease Agreement by and between the Industrial Development
                  Board for the City of Athens and Martin Stamping & Stove
                  Company, predecessor corporation to Martin Industries, Inc.,
                  dated December 1, 1964 which was filed as Exhibit 10(q) to the
                  Company's Registration Statement on Form S-1 filed with the
                  Commission on March 17, 1995 (Registration No. 33-90432).

* 10(m)           Renewal Option Agreement between the Industrial Development
                  Board of the City of Athens and Martin Stamping & Stove
                  Company, predecessor corporation to Martin Industries, Inc.,
                  dated December 1, 1964 which was filed as Exhibit 10(r) to the
                  Company's Registration Statement on Form S-1 filed with the
                  Commission on March 17, 1995 (Registration No. 33-90432).

* 10(n)           Purchase Option Agreement between the Industrial Development
                  Board of the City of Athens and Martin Stamping & Stove
                  Company, predecessor corporation to Martin Industries, Inc.,
                  dated December 1, 1964 which was filed as Exhibit 10(s) to the
                  Company's Registration Statement on Form S-1 filed with the
                  Commission on March 17, 1995 (Registration No. 33-90432).

* 10(o)           First Amendment to Loan Agreement and Other Loan Documents by
                  and between Martin Industries, Inc. and AmSouth Bank of
                  Alabama dated as of March 15, 1995 which was filed as Exhibit
                  10(u) to the Company's Registration Statement on Form S-1
                  filed with the Commission on March 17, 1995 (Registration No.
                  33-90432).

* 10(p)           Second Amendment to Loan Agreements and Other Loan Documents
                  dated as of March 28, 1996, by and between Martin Industries,
                  Inc. and AmSouth Bank of Alabama which was filed as Exhibit
                  10(y) to the Company's Annual Report on Form 10-K as filed
                  with the Commission on March 30, 1996 (Commission File No. 0-
                  26228).

* 10(q)           Term Note by Martin Industries, Inc. in favor of AmSouth Bank
                  of Alabama dated March 28, 1996, in the principal amount of
                  $5,000,000 which was filed as Exhibit 10(z) to the Company's
                  Annual Report on Form 10-K as filed with the Commission on
                  March 30, 1996 (Commission File No. 0-26228).

* 10(r)           Martin Industries, Inc. 1996 Non-Employee Directors' Stock
                  Option and Deferred Compensation Plan which was filed as
                  Exhibit 10(x) to the Company's Annual Report on Form 10-K as
                  filed with the Commission on March 31, 1997 (Commission File
                  No. 0-26228).

* 10(s)           Amendment No. 6 to Martin Industries, Inc. 1988 Nonqualified
                  Stock Option Plan which was filed as Exhibit 10(y) to the
                  Company's Annual Report on Form 10-K as filed with the
                  Commission on March 31, 1997 (Commission File No. 0-26228).

* 10(t)           Martin Industries, Inc. Amended and Restated 1994 Nonqualified
                  Stock Option Plan which was filed as Exhibit 10(b) to the
                  Company's Quarterly Report on Form 10-Q for the 26-week period
                  ended June 27, 1998 (Commission File No. 0-26228).
</TABLE>


                                       25
<PAGE>   27

<TABLE>
<S>               <C>
* 10(u)           Amendment No. 8 to Martin Industries, Inc. Employee Stock
                  Ownership Plan which was filed as Exhibit 10(a) to the
                  Company's Quarterly Report on Form 10-Q for the 39-week period
                  ended September 27, 1997 (Commission File No. 0-26228).

* 10(v)           Third Amendment to Loan Agreement and Other Loan Documents
                  dated as of August 28, 1997 by and between Martin Industries,
                  Inc. and AmSouth Bank filed as Exhibit 10(b) to the Company's
                  Quarterly Report on Form 10-Q for the 39-week period ended
                  September 27, 1997 (Commission File No. 0-26228).

* 10(w)           Modified, Amended and Restated Line of Credit Note dated as of
                  August 28, 1997 by and between Martin Industries, Inc. and
                  AmSouth Bank filed as Exhibit 10(c) to the Company's Quarterly
                  Report on Form 10-Q for the 39-week period ended September 27,
                  1997 (Commission File No. 02-26228).

* 10(x)           Amendment No. 9 to Martin Industries, Inc. Employee Stock
                  Ownership Plan which was filed as Exhibit 10(a) to the
                  Company's Quarterly Report on Form 10-Q for the 26-week period
                  ended June 27, 1998 (Commission File No. 0-26228).

* 10(y)           Amendment No. 10 to Martin Industries, Inc. Employee Stock
                  Ownership Plan which was filed as Exhibit 10(y) to the
                  Company's Annual Report on Form 10-K as filed with the
                  Commission on March 31, 1999 (Commission File No. 0-26228).

* 10(z)           Salary Continuation Letter Agreement dated July 15, 1998
                  between Martin Industries, Inc. and Martin D. Husted which was
                  filed as Exhibit 10(z) to the Company's Annual Report on Form
                  10-K as filed with the Commission on March 31, 1999
                  (Commission File No. 0-26228).

* 10(aa)          Salary Continuation Letter Agreement dated October 23, 1998
                  between Martin Industries, Inc. and Louis J. Martin, II which
                  was filed as Exhibit 10(aa) to the Company's Annual Report on
                  Form 10-K as filed with the Commission on March 31, 1999
                  (Commission File No. 0-26228).

* 10(bb)          Salary Continuation Letter Agreement dated October 23, 1998
                  between Martin Industries, Inc. and J. Reid Roney which was
                  filed as Exhibit 10(bb) to the Company's Annual Report on Form
                  10-K as filed with the Commission on March 31, 1999
                  (Commission File No. 0-26228).

* 10(cc)          Salary Continuation Letter Agreement dated October 23, 1998
                  between Martin Industries, Inc. and Roderick V. Schlosser
                  which was filed as Exhibit 10(cc) to the Company's Annual
                  Report on Form 10-K as filed with the Commission on March 31,
                  1999 (Commission File No. 0-26228).

* 10(dd)          Salary Continuation Letter Agreement dated November 2, 1998
                  between Martin Industries, Inc. and Robert L. Goucher which
                  was filed as Exhibit 10(dd) to the Company's Annual Report on
                  Form 10-K as filed with the Commission on March 31, 1999
                  (Commission File No. 0-26228).

* 10(ee)          Salary Continuation Letter Agreement dated January 25, 1999
                  between Martin Industries, Inc. and Troy K. Hoskins which was
                  filed as Exhibit 10(ee) to the Company's Annual Report on Form
                  10-K as filed with the Commission on March 31, 1999
                  (Commission File No. 0-26228).

* 10(ff)          Salary Continuation Letter Agreement dated January 11, 1999
                  between Martin Industries, Inc. and William F. Roberts which
                  was filed as Exhibit 10(ff) to the Company's Annual Report on
                  Form 10-K as filed with the Commission on March 31, 1999
                  (Commission File No. 0-26228).
</TABLE>


                                       26
<PAGE>   28

<TABLE>
<S>               <C>
* 10(gg)          Salary Continuation Letter dated Agreement dated July 12, 1999
                  between Martin Industries, Inc. and Robert Kevin Caldwell
                  which was filed as Exhibit 10(a) to the Company's Quarterly
                  Report on Form 10-Q for the 26-week period ended July 3, 1999
                  (Commission File No. 0-26228).

* 10(hh)          Employment Agreement with Robert L. Goucher dated as of
                  November 2, 1998 which was filed as Exhibit 10(gg) to the
                  Company's Annual Report on Form 10-K as filed with the
                  Commission on March 31, 1999 (Commission File No. 0-26228).

* 10(ii)          Operating Credit Line Agreement by and between Hunter
                  Technology Inc. and Canadian Imperial Bank of Commerce dated
                  October 21, 1998 for a credit limit of $2,250,000 (Canadian)
                  which was filed as Exhibit 10(a) to the Company's Quarterly
                  Report on Form 10-Q for the 39-week period ended October 2,
                  1999 (Commission File No. 0-26228).

  10(jj)          Fourth Amendment to Loan Agreement and Other Loan Documents by
                  and between Martin Industries, Inc. and AmSouth Bank dated as
                  of January 1, 2000.

  10(kk)          Security Agreement by and between Martin Industries, Inc. and
                  AmSouth Bank dated March 22, 2000.

  10(ll)          Modified, Amended and Restated Line of Credit Note by and between
                  Martin Industries, Inc., as Borrower, and AmSouth Bank, as Lender,
                  dated as of January 1, 2000.

  21              Subsidiaries of the Company.

  23              Consent of Arthur Andersen LLP.

  24              Powers of Attorney.

  27              Financial Data Schedule (Electronic Submission only).
</TABLE>


------------------
*  Incorporated by reference.


                                       27

<PAGE>   29

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:

         With the exception of historical information, the matters and
statements discussed, made or incorporated by reference in this Annual Report on
Form 10-K , including those regarding the restructuring charges resulting from
the closing of the Huntsville, Alabama facility and the Washington Park
facility, the Company's engagement of J.C. Bradford & Co., LLC to assist the
Company in exploring strategic alternatives, the estimated reserve for excess
and obsolete inventories, the utilization of deferred tax assets related to net
operating loss carryforwards, the Company's beliefs with respect to the funding
of its operations during fiscal year 2000, the Company's expectations regarding
the possible exposure as a result of Hunter Technology Inc.'s design and
production problems, and the Company's expectations and estimates regarding its
foreign currency exchange rate and interest rate risk, constitute
forward-looking statements and are discussed, made or incorporated by reference,
as the case may be, pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Wherever possible, the Company has
identified these "forward-looking" statements (as defined in Section 21E of the
Securities Exchange Act of 1934) by words such as "anticipates," "may,"
"believes," "estimates," "projects," "expects," "intends," and words of similar
import. In addition, the Company and its representatives may from time to time
make other oral or written statements that are also forward-looking statements.
Such forward-looking statements involve certain assumptions, risks and
uncertainties that could cause actual results to differ materially from those
included in or contemplated by the statements. In particular, there can be no
assurance that the Company will not exceed the estimated reserve for excess and
obsolete inventories, will utilize deferred tax assets related to net operating
loss carryforwards, or will not incur costs related to products of Hunter
Technology Inc. in excess of those currently expected. These assumptions, risks
and uncertainties include, but are not limited to, those associated with general
economic cycles; the cyclical nature of the industries in which the Company
operates and the factors related thereto, including consumer confidence levels,
inflation, employment and income levels, the availability of credit, and factors
affecting the housing industry; the potential in the Company's business to
experience significant fluctuations in quarterly earnings; the Company's
business strategy, including its strategy of pursuing new product development;
potential losses from product liability and personal injury lawsuits; the
effects of seasonality and weather conditions on the Company's home heating
product sales and other sales; fluctuations in quarterly earnings due to ESOP
accounting; the effect of existing and new governmental and environmental
regulations applicable to the Company; the dependence of the Company on key
personnel; the highly competitive nature of each of the industries in which the
Company operates; the volatility of the stock price at which outstanding shares
of the Company may trade from time to time; and the other risks and
uncertainties discussed or indicated in all documents filed by the Company with
the Commission. The Company expressly disclaims any obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.


                                       28
<PAGE>   30

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Martin Industries, Inc.:

We have audited the accompanying consolidated balance sheets of MARTIN
INDUSTRIES, INC. (a Delaware corporation) AND SUBSIDIARY as of December 31, 1999
and 1998 and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Martin Industries, Inc. and
subsidiary as of December 31, 1999 and 1998 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with generally accepted accounting principles.


                                         /s/ ARTHUR ANDERSEN LLP



Birmingham, Alabama
March 23, 2000


                                       F-1


<PAGE>   31


                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>

                                                                                  DECEMBER 31,
                                                                        --------------------------------
                                                                            1999                 1998
                                                                        -----------          -----------

<S>                                                                     <C>                  <C>
CURRENT ASSETS:
   Cash and short-term investments                                      $ 5,218,000          $ 9,818,000
   Accounts and notes receivable, less allowance for
      doubtful accounts of $604,000 and $627,000, respectively           13,153,000           10,712,000
   Inventories                                                           13,192,000           20,323,000
   Refundable income taxes                                                   16,000            1,712,000
   Deferred tax benefits                                                  2,970,000            2,926,000
   Prepaid expenses and other assets                                      1,164,000            1,277,000
                                                                        --------------------------------

                                                                         35,713,000           46,768,000
                                                                        --------------------------------

PROPERTY, PLANT AND EQUIPMENT:
   Land and improvements                                                  1,152,000            1,248,000
   Projects in progress                                                   2,024,000              123,000
   Buildings                                                              8,005,000            8,275,000
   Machinery and equipment                                               16,588,000           13,385,000
                                                                        --------------------------------

                                                                         27,769,000           23,031,000
   Less accumulated depreciation and amortization                        14,190,000           13,027,000
                                                                        --------------------------------

                                                                         13,579,000           10,004,000
                                                                        --------------------------------

OTHER NONCURRENT ASSETS:
   Deferred tax benefits                                                  4,601,000            1,620,000
   Goodwill, net of accumulated amortization of
      $203,000 and $143,000, respectively                                 1,827,000            1,773,000
   Cash value of life insurance                                           1,359,000            1,370,000
   Notes receivable                                                       1,181,000              213,000
   Other                                                                    660,000              631,000
                                                                        --------------------------------

                                                                          9,628,000            5,607,000
                                                                        --------------------------------

                                                                        $58,920,000          $62,379,000
                                                                        ================================
</TABLE>


                   The accompanying notes are an integral part
                     of these consolidated balance sheets.


                                       F-2


<PAGE>   32


                           CONSOLIDATED BALANCE SHEETS

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                         DECEMBER 31,
                                                                  1999                   1998
                                                              ------------           ------------

<S>                                                           <C>                    <C>
CURRENT LIABILITIES:
   Short-term borrowings                                      $    944,000           $    159,000
   Current portion of long-term debt                             4,458,000              1,741,000
   Accounts payable                                              5,303,000              3,139,000
   Accrued liabilities:
      Payroll and employee benefits                              2,374,000              2,348,000
      Product liability                                          1,122,000                961,000
      Warranty                                                     878,000              1,126,000
      Workers' compensation                                        731,000                709,000
      Restructuring costs                                          589,000                251,000
      Other                                                        873,000                734,000
                                                              ------------           ------------

                                                                17,272,000             11,168,000
                                                              ------------           ------------
NONCURRENT LIABILITIES:
   Long-term debt                                                2,406,000              6,864,000
   Deferred compensation                                         2,187,000              2,304,000
                                                              ------------           ------------

                                                                 4,593,000              9,168,000
                                                              ------------           ------------

COMMITMENTS AND CONTINGENCIES (NOTE 9)

STOCKHOLDERS' EQUITY:
   Preferred stock, $.01 par value; 1,000,000 shares
      authorized; no shares issued and outstanding                       0                      0
   Common stock, $.01 par value; 20,000,000 shares
      authorized; 9,763,054 at December 31, 1999 and
      9,752,050 shares issued at December 31, 1998                  98,000                 98,000
   Paid-in capital                                              27,241,000             27,397,000
   Retained earnings                                            17,639,000             24,229,000
   Accumulated other comprehensive loss                           (554,000)              (996,000)
                                                              ------------           ------------

                                                                44,424,000             50,728,000
   Less:
   Treasury stock at cost (1,192,145 shares at
      December 31, 1999 and 1,325,170 shares at
      December 31, 1998)                                         3,789,000              4,008,000
   Unearned compensation                                         3,580,000              4,677,000
                                                              ------------           ------------

                                                                37,055,000             42,043,000
                                                              ------------           ------------

                                                              $ 58,920,000           $ 62,379,000
                                                              ============           ============
</TABLE>


                   The accompanying notes are an integral part
                     of these consolidated balance sheets.


                                       F-3

<PAGE>   33

                      CONSOLIDATED STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>

                                                                                  YEAR ENDED DECEMBER 31,
                                                                     1999                   1998                   1997
                                                                 ------------           ------------           ------------

<S>                                                              <C>                    <C>                    <C>
NET SALES                                                        $ 85,678,000           $ 84,025,000           $ 87,351,000
Cost of sales                                                      77,370,000             72,366,000             67,521,000
                                                                 ----------------------------------------------------------

GROSS PROFIT                                                        8,308,000             11,659,000             19,830,000
                                                                 ----------------------------------------------------------
Operating expenses:
 Selling                                                            9,394,000              9,047,000              9,914,000
 General and administrative                                         7,314,000              6,908,000              6,599,000
 Non-cash ESOP compensation                                           629,000              1,293,000              1,905,000
 Restructure charge                                                   489,000                615,000                      0
                                                                 ----------------------------------------------------------

                                                                   17,826,000             17,863,000             18,418,000
                                                                 ----------------------------------------------------------

OPERATING INCOME (LOSS)                                            (9,518,000)            (6,204,000)             1,412,000
(Gain) loss on sales of assets                                     (1,268,000)              (291,000)                34,000
Interest expense                                                      751,000              1,005,000              1,486,000
Interest and other income                                            (318,000)              (989,000)              (936,000)
                                                                 ----------------------------------------------------------

INCOME (LOSS) FROM CONTINUING OPERATIONS
 BEFORE INCOME TAXES                                               (8,683,000)            (5,929,000)               828,000
Provision (credit) for income taxes                                (2,544,000)            (1,793,000)               576,000
                                                                 ----------------------------------------------------------

INCOME (LOSS) FROM CONTINUING OPERATIONS                           (6,139,000)            (4,136,000)               252,000

Loss on disposal of discontinued operations, net of tax                     0                      0               (756,000)
                                                                 ----------------------------------------------------------

NET LOSS                                                         $ (6,139,000)          $ (4,136,000)          $   (504,000)
                                                                 ==========================================================

BASIC PER SHARE DATA:

Income (loss) from continuing operations                         $      (0.84)          $      (0.58)          $       0.04
Loss from discontinued operations                                        0.00                   0.00                  (0.11)
                                                                 ----------------------------------------------------------

Net loss                                                         $      (0.84)          $      (0.58)          $      (0.07)
                                                                 ==========================================================

Weighted average number of common
 shares outstanding                                                 7,338,821              7,073,430              6,787,685
                                                                 ==========================================================

DILUTED PER SHARE DATA:

Income (loss) from continuing operations                         $      (0.84)          $      (0.58)          $       0.04
Loss from discontinued operations                                        0.00                   0.00                  (0.11)
                                                                 ----------------------------------------------------------

Net loss                                                         $      (0.84)          $      (0.58)          $      (0.07)
                                                                 ==========================================================

Weighted average number of common
  shares outstanding                                                7,338,821              7,073,430              7,049,131
                                                                 ==========================================================

DIVIDENDS DECLARED PER SHARE                                     $      0.063           $      0.164           $      0.156
                                                                 ==========================================================
</TABLE>


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


                                       F-4


<PAGE>   34

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>


                                                                For the Years Ended December 31, 1997, 1998, and 1999
                                             --------------------------------------------------------------------------------------


                                                 Common Stock            Paid-in        Retained             Treasury Stock
                                               Shares      Amount        Capital        Earnings         Shares           Amount
                                               ------      ------        -------        --------         ------           ------
                                             <S>           <C>        <C>             <C>              <C>             <C>
BALANCE,
 DECEMBER 31, 1996                           9,748,000     $97,000    $ 25,866,000    $ 31,035,000     1,021,925       $ 1,911,000

Comprehensive loss:
 Net loss                                            0           0               0        (504,000)            0                 0
 Unrealized loss on foreign
  currency translation                               0           0               0               0             0                 0

 Total comprehensive loss

Dividends ($.156 per share)                          0           0               0      (1,030,000)            0                 0
Issuance of stock under dividend
 reinvestment plan                                 746           0           4,000               0             0                 0
Purchase of treasury stock                           0           0               0               0       140,000           774,000
Exercise of stock options,  net of tax               0           0          89,000               0       (57,820)          (95,000)
Fair value of stock
 released to ESOP, net of tax                        0           0         904,000               0             0                 0
                                             --------------------------------------------------------------------------------------

BALANCE,
 DECEMBER 31, 1997                           9,748,746      97,000      26,863,000      29,501,000     1,104,105         2,590,000

Comprehensive loss:
 Net loss                                            0           0               0      (4,136,000)            0                 0
 Unrealized loss on foreign
  currency translation                               0           0               0               0             0                 0

 Total comprehensive loss


Dividends ($.164 per share)                          0           0               0      (1,136,000)            0                 0
Issuance of stock under dividend
 reinvestment plan                               3,304       1,000          13,000               0             0                 0
Purchase of treasury stock                           0           0               0               0       410,000         1,728,000
Exercise of stock options, net of tax                0           0         187,000               0      (188,935)         (310,000)
Fair value of stock
 released to ESOP, net of tax                        0           0         334,000               0             0                 0
                                             --------------------------------------------------------------------------------------

BALANCE,
 DECEMBER 31, 1998                           9,752,050      98,000      27,397,000      24,229,000     1,325,170         4,008,000

Comprehensive loss:
 Net loss                                            0           0               0      (6,139,000)            0                 0
 Unrealized gain on foreign
  currency translation                               0           0               0               0             0                 0

 Total comprehensive loss


Dividends ($.063 per share)                          0           0               0        (451,000)            0                 0
Issuance of stock under dividend
 reinvestment plan                              11,004           0          23,000               0             0                 0
Exercise of stock options, net of tax                0           0         183,000               0      (133,025)         (219,000)
Fair value of stock
 released to ESOP, net of tax                        0           0        (362,000)              0             0                 0
                                             --------------------------------------------------------------------------------------

BALANCE,
 DECEMBER 31, 1999                           9,763,054     $98,000    $ 27,241,000    $ 17,639,000     1,192,145       $ 3,789,000
                                             ======================================================================================


<CAPTION>



                                          For the Years Ended December 31, 1997, 1998, and 1999
                                          -----------------------------------------------------
                                                             Accumulated
                                                                Other
                                                Unearned    Comprehensive
                                              Compensation  Income (Loss)          Total
                                              ------------  -------------          -----
                                              <C>           <C>                <C>
BALANCE,
 DECEMBER 31, 1996                             $7,080,000      $  25,000       $ 48,032,000

Comprehensive loss:
 Net loss                                               0              0           (504,000)
 Unrealized loss on foreign
  currency translation                                  0       (397,000)          (397,000)
                                                                               ------------
 Total comprehensive loss                                                          (901,000)
                                                                               ------------

Dividends ($.156 per share)                             0              0         (1,030,000)
Issuance of stock under dividend
 reinvestment plan                                      0              0              4,000
Purchase of treasury stock                              0              0           (774,000)
Exercise of stock options,  net of tax                  0              0            184,000
Fair value of stock
 released to ESOP, net of tax                  (1,204,000)             0          2,108,000
                                              ---------------------------------------------

BALANCE,
 DECEMBER 31, 1997                              5,876,000       (372,000)        47,623,000

Comprehensive loss:
 Net loss                                               0              0         (4,136,000)
 Unrealized loss on foreign
  currency translation                                  0       (624,000)          (624,000)
                                                                               ------------
 Total comprehensive loss                                                        (4,760,000)
                                                                               ------------

Dividends ($.164 per share)                             0              0         (1,136,000)
Issuance of stock under dividend
 reinvestment plan                                      0              0             14,000
Purchase of treasury stock                              0              0         (1,728,000)
Exercise of stock options, net of tax                   0              0            497,000
Fair value of stock
 released to ESOP, net of tax                  (1,199,000)             0          1,533,000
                                              ---------------------------------------------

BALANCE,
 DECEMBER 31, 1998                              4,677,000       (996,000)        42,043,000

Comprehensive loss:
 Net loss                                               0              0         (6,139,000)
 Unrealized gain on foreign
  currency translation                                  0        442,000            442,000
                                                                               ------------
 Total comprehensive loss                                                        (5,697,000)
                                                                               ------------

Dividends ($.063 per share)                             0              0           (451,000)
Issuance of stock under dividend
 reinvestment plan                                      0              0             23,000
Exercise of stock options, net of tax                   0              0            402,000
Fair value of stock
 released to ESOP, net of tax                  (1,097,000)             0            735,000
                                              ---------------------------------------------

BALANCE,
 DECEMBER 31, 1999                             $3,580,000      $(554,000)      $ 37,055,000
                                              =============================================

</TABLE>




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


                                       F-5


<PAGE>   35



                      CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                        1999                  1998                   1997
                                                                    -----------           ------------           ------------
<S>                                                                 <C>                   <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                         $(6,139,000)          $ (4,136,000)          $   (504,000)
   Adjustments to reconcile net loss to net cash
   provided by operating activities:
      Non-cash loss on disposal of discontinued operations                    0                      0                187,000
      Depreciation and amortization                                   1,794,000              1,796,000              1,897,000
      Net (gain) loss on sales of assets                             (1,268,000)              (291,000)                34,000
      Provision for doubtful accounts and notes receivable              102,000                195,000                200,000
      Provision (credit) to value inventories at LIFO cost              (48,000)              (115,000)                 9,000
      Provision (credit) for deferred income taxes                   (2,962,000)              (552,000)               113,000
      Non-cash ESOP compensation                                        629,000              1,293,000              1,905,000
      Provision for deferred compensation                               244,000                444,000                251,000
      (Increase) decrease in operating assets:
         Accounts and notes receivable                               (2,194,000)              (837,000)             7,442,000
         Inventories                                                  6,417,000              4,487,000             (6,585,000)
         Refundable income taxes                                      1,696,000             (1,228,000)              (269,000)
         Prepaid expenses and other assets                              113,000                510,000                (44,000)
         Other noncurrent assets                                        (37,000)              (423,000)              (463,000)
      Increase (decrease) in operating liabilities:
         Accounts payable                                             2,110,000               (339,000)              (956,000)
         Accrued income taxes payable                                         0                      0               (492,000)
         Accrued liabilities                                            513,000               (453,000)            (2,120,000)
         Other noncurrent liabilities                                  (363,000)              (338,000)              (237,000)
                                                                    ---------------------------------------------------------
            Net cash provided by operating activities                   607,000                 13,000                368,000
                                                                    ---------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                              (5,661,000)            (1,640,000)            (2,053,000)
   Proceeds from sales of assets                                      1,658,000                896,000              1,023,000
                                                                    ---------------------------------------------------------
      Net cash used in investing activities                          (4,003,000)              (744,000)            (1,030,000)
                                                                    ---------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net proceeds (repayments) on short-term borrowings                   754,000               (301,000)              (280,000)
   Principal payments on long-term debt                              (1,741,000)            (1,743,000)            (1,656,000)
   Purchase of treasury stock                                                 0             (1,728,000)              (774,000)
   Exercise of stock options                                            105,000                141,000                 44,000
   Cash dividends paid                                                 (330,000)              (896,000)              (822,000)
                                                                    ---------------------------------------------------------
      Net cash used in financing activities                          (1,212,000)            (4,527,000)            (3,488,000)
                                                                    ---------------------------------------------------------
NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS                      (4,608,000)            (5,258,000)            (4,150,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH                                   8,000                (81,000)               (19,000)
CASH AND SHORT-TERM INVESTMENTS AT THE BEGINNING
 OF THE YEAR                                                          9,818,000             15,157,000             19,326,000
                                                                    ---------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT THE END OF THE YEAR              $ 5,218,000           $  9,818,000           $ 15,157,000
                                                                    =========================================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:
 Cash paid during the period for:
    Interest                                                        $   672,000           $    885,000           $  1,358,000
    Income taxes                                                    $    31,000           $     28,000           $    877,000

</TABLE>

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


                                       F-6


<PAGE>   36


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       BUSINESS AND ORGANIZATION

         Martin Industries, Inc. (the "Company") is a manufacturer
of products in two operating segments (see Note 13), which includes home heating
products and leisure and other products. On February 24, 1997, the Company
elected to discontinue its operations in the metal office furniture segment (see
Note 11). Home heating products are sold primarily to distributors and dealers
in the United States and Canada. The Company's leisure products,
primarily barbecue gas grills and utility trailers, are sold to distributors,
dealers and mass merchandisers in the United States and Canada.

         The Company's business is seasonal and cyclical with the
potential for significant fluctuations in earnings. These fluctuations may be
affected by weather conditions, general economic conditions, inflation,
employment, the level of consumer confidence, and factors impacting the housing
industry.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

         The consolidated financial statements include the accounts and
transactions of the Company and its wholly owned Canadian subsidiary, 1166081
Ontario Inc. All significant intercompany accounts and transactions have been
eliminated in consolidation.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

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

CASH AND SHORT-TERM INVESTMENTS

         All short-term investments of the Company, which include commercial
paper, money market funds and other low risk investments, are considered cash
equivalents in the consolidated statements of cash flows as they are highly
liquid and have original maturities of three months or less.

INVENTORIES

         The Company's inventories are determined by the last-in, first-out
("LIFO") method for approximately 63% and 67% of the Company's inventories at
December 31, 1999 and 1998, respectively, and by the first-in, first-out
("FIFO") method for all other inventories. Inventory costs include material,
labor and overhead, and the Company evaluates raw materials, purchase parts,
work-in-process and finished goods to ensure that inventory is not recorded at
amounts in excess of estimated net realizable value. Inherent in the estimates
of net realizable value are management's estimates related to the Company's
customer demand, product mix and salvage value. Certain inventories were reduced
in fiscal 1999 and 1998 resulting in a reduction to pre-tax income of
approximately $1,500,000 and $2,000,000, respectively. At December 31, 1999 and
1998, the reserve for excess and obsolete inventory was $1,872,000 and
$1,716,000, respectively. An analysis of inventories at December 31, 1999 and
1998 follows:

<TABLE>
<CAPTION>

                                                                          1999                 1998
                                                                     ----------------------------------
<S>                                                                  <C>                   <C>
Inventories valued at first-in, first-out ("FIFO") cost:
      Raw material and purchased parts                               $  8,076,000          $ 10,644,000
      Work-in-process                                                   3,870,000             4,797,000
      Finished goods                                                    6,663,000            10,347,000
                                                                     ----------------------------------
                                                                       18,609,000            25,788,000
      Less excess of FIFO over LIFO cost                                5,417,000             5,465,000
                                                                     ----------------------------------

                                                                     $ 13,192,000          $ 20,323,000
                                                                     ==================================
</TABLE>


                                       F-7

<PAGE>   37
PROPERTY PLANT AND EQUIPMENT

         Property, plant and equipment are recorded at cost. Depreciation is
computed on the straight-line, declining balance and sum-of-the-years-digits
methods over the estimated service lives of the depreciable assets (10-33 years
for buildings and 3-10 years for machinery and equipment).

         Maintenance and repairs are charged to expense as incurred. Cost of
renewals and betterments are capitalized by charges to property accounts and
depreciated at applicable annual rates. The cost and accumulated depreciation
of assets sold, retired, or otherwise disposed of are removed from the
accounts, and the related gain or loss is credited or charged to income.

CASH VALUE OF LIFE INSURANCE

         Cash value of life insurance consists primarily of contractual rights
under life insurance agreements on the lives of certain current and former
officers and directors. The Company owns the policies and pays the premiums.
Upon death of an insured party, the Company utilizes the proceeds to fund the
related deferred compensation obligation (see Note 7).

REVENUE RECOGNITION

         Revenue is recognized upon the shipment of the Company's products to
its customers.

RESEARCH AND DEVELOPMENT

         Research and development expenses are charged against income in the
period in which the expenses are incurred. Research and development expenses
were $2.0 million, $1.6 million and $1.8 million in 1999, 1998 and 1997,
respectively.

INSURANCE ARRANGEMENTS

         The Company is partially self-insured for worker's compensation,
product liability, and employee medical/dental claims. The Company purchases
insurance coverage for all worker's compensation claims in excess of $250,000
per occurrence, for all product liability claims in excess of $75,000 per
occurrence, and for all medical claims in excess of $200,000 per occurrence.

         Worker's compensation claims are accrued currently for management's
estimated cost of claims incurred, including related expenses, based upon
independent actuarial reports and historical claims experience. Product
liability and employee medical/dental claims are also accrued currently based
on management's estimated cost of claims incurred as determined by reference to
historical experience and current claim trends. Management considers the
accrued liabilities for unsettled claims to be adequate; however, there is no
assurance that the estimates accrued will not vary from the ultimate amounts
incurred upon final disposition of all outstanding claims. As a result,
periodic adjustments to the reserves will be made as events occur which
indicate changes are necessary.

PRODUCT WARRANTIES

         The Company warrants its products against manufacturing defects
generally for a period of three years commencing at the time of sale. The
estimated cost of such warranties is accrued at the time of sale based upon
historical experience and current claim trends. Periodic adjustments to the
accrual will be made as events occur which indicate changes are necessary.

EMPLOYEE STOCK OWNERSHIP PLAN

         The Company recognizes non-cash Employee Stock Ownership Plan ("ESOP")
compensation expense as shares of stock owned by the ESOP are committed to be
released to participant accounts based on the average fair value of the shares
during the year. Shares of stock owned by the ESOP are committed to be released
to participant accounts based on scheduled principal payments to be made on the
ESOP debt. The difference in the average fair value of the committed


                                      F-8

<PAGE>   38
shares and the original cost of those shares, net of income taxes, if
applicable, is charged or credited to paid-in capital (see Notes 4 and 7).

POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS

         The Company currently maintains a plan whereby the Company pays
supplemental Medicare insurance premiums on behalf of certain retired officers,
directors and their spouses. The Company accounts for these benefits in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions, which
requires the accrual of postretirement benefits as they are earned by
employees.

         The Company also maintains a plan whereby the Company provides medical
insurance coverage through its self-insured medical/dental plan to certain
former officers and directors who have terminated their employment and have not
reached retirement age. The Company accounts for these benefits in accordance
with SFAS No. 112, Employer's Accounting for Postemployment Benefits,
which requires the accrual of postemployment benefits as they are earned by
employees.

ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS

         The Company continually evaluates whether events and circumstances
have occurred that indicate the remaining balance of its long-lived assets and
intangibles may be impaired and not be recoverable. In performing this
evaluation, the Company uses an estimate of the related cash flows expected to
result from the use of the asset and its eventual disposition. When this
evaluation indicates the asset has been impaired, the Company will measure such
impairment based on the asset's fair value.

ACCOUNTING FOR STOCK-BASED COMPENSATION

         The Company accounts for its stock options under the intrinsic value
method and, accordingly, no compensation cost is recognized for options granted
that are equal to or greater than the market value at the date of grant.

EARNINGS PER SHARE

         Basic earnings per share ("EPS") excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the Company. Diluted EPS
has been computed based on the weighted average number of common shares
outstanding, including the effect of outstanding stock options, if dilutive, in
each respective year.

         A reconciliation of shares as the denominator of the basic EPS
computation to the diluted EPS computation is as follows:

<TABLE>
<CAPTION>
                                                         1999            1998           1997
                                                      -----------    ------------   -----------
<S>                                                   <C>            <C>            <C>
Weighted average shares-basic, excluding ESOP
  and stock option effects                              5,426,323       5,279,713     5,245,114

Weighted average effect of ESOP shares
  committed to be released                              1,912,498       1,793,717     1,542,571
                                                      -----------------------------------------

Weighted average number of common shares
  outstanding-basic                                     7,338,821       7,073,430     6,787,685

Dilutive effect of stock options                                0               0       261,446
                                                      -----------------------------------------

Weighted average number of common
  shares outstanding-diluted                            7,338,821       7,073,430     7,049,131
                                                      =========================================
</TABLE>


                                      F-9

<PAGE>   39

         Options outstanding of 525,014, 765,973 and 526,867 for the years
ended December 31, 1999, 1998 and 1997, respectively, were not included in the
table above as they were anti-dilutive.

NEW ACCOUNTING STANDARDS

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In June 1999, the FASB issued SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133, which amends FASB Statement No.
133 to be effective for all fiscal years beginning after June 15, 2000 (January
1, 2001 for companies with calendar-year fiscal years). This statement is not
expected to have a material effect on the Company's consolidated financial
statements.

         In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use. This statement
requires capitalization of certain costs of internal-use software. The Company
adopted the new rules in 1999 with no significant impact on financial
reporting.

FOREIGN CURRENCY TRANSLATION

         The Company has determined that the local currency of its Canadian
subsidiary is the functional currency. In accordance with SFAS No. 52, Foreign
Currency Translation, the assets and liabilities denominated in foreign
currency are translated into U.S. dollars at the current rate of exchange
existing at year-end and revenues and expenses for the year are translated at
average monthly exchange rates. Related translation adjustments are reported as
a separate component of stockholders' equity, whereas gains or losses resulting
from foreign currency transactions are included in results of operations.

PRIOR YEAR RECLASSIFICATION

         Certain prior year amounts have been reclassified to conform with the
current year's presentation.


                                      F-10

<PAGE>   40

3.       INCOME TAXES

         An analysis of the provision (credit) for income taxes from continuing
operations for the years ended December 31, 1999, 1998, and 1997 follows:

<TABLE>
<CAPTION>
                              1999             1998           1997
                          -------------    -------------   -----------
<S>                       <C>              <C>             <C>
Federal:
   Current                $     209,000    $  (1,141,000)  $ 1,103,000
   Deferred                  (2,492,000)        (509,000)     (385,000)
                          --------------------------------------------
                             (2,283,000)      (1,650,000)      718,000
                          --------------------------------------------
State/Provincial:
   Current                      209,000         (100,000)       76,000
   Deferred                    (470,000)         (43,000)     (218,000)
                          --------------------------------------------
                               (261,000)        (143,000)     (142,000)
                          --------------------------------------------
                          $  (2,544,000)   $  (1,793,000)  $   576,000
                          ============================================
</TABLE>

         The provision (credit) for income taxes from continuing operations
differs from the amounts computed by applying the federal statutory rate due to
the following:

<TABLE>
<CAPTION>
                                                                  1999             1998           1997
                                                              -------------    -------------   -----------
<S>                                                           <C>              <C>             <C>
Tax provision at the federal statutory rate                   $  (2,952,000)   $  (2,016,000)  $   282,000
State income taxes, net of federal income tax benefit              (172,000)         (94,000)      (94,000)
Non-cash ESOP compensation                                                0           32,000       238,000
Increase in deferred tax valuation allowance                        738,000          446,000             0
Other                                                              (158,000)        (161,000)      150,000
                                                              --------------------------------------------
                                                              $  (2,544,000)   $  (1,793,000)  $   576,000
                                                              ============================================
</TABLE>


Temporary differences which create net deferred tax assets at December 31, 1999
and 1998 are as follows:

<TABLE>
<CAPTION>
                                                                                 1999             1998
                                                                            --------------   -------------
   <S>                                                                      <C>              <C>
   Net operating loss carryforwards                                         $    5,587,000   $   1,778,000
   Deferred compensation                                                           822,000         866,000
   Reserve for excess and obsolete inventory                                       683,000         603,000
   Accrued product liability                                                       422,000         361,000
   Accrued vacation                                                                290,000         203,000
   Accrued workers' compensation                                                   274,000         263,000
   Accrued medical claims                                                          257,000         285,000
   Accrued warranty                                                                253,000         306,000
   Inventory                                                                       229,000         384,000
   Other                                                                           562,000         521,000
                                                                            ------------------------------
                                                                                 9,379,000       5,570,000
   Valuation allowance for deferred tax assets                                  (1,184,000)       (446,000)
                                                                            ------------------------------
     Total deferred tax assets                                                   8,195,000       5,124,000
                                                                            ------------------------------

   Depreciation                                                                   (624,000)       (578,000)
                                                                            ------------------------------
     Total deferred tax liabilities                                               (624,000)       (578,000)
                                                                            ------------------------------

     Net deferred tax assets                                                $    7,571,000   $   4,546,000
                                                                            ==============================
</TABLE>


                                      F-11

<PAGE>   41

         The Company has net deferred tax assets resulting primarily from net
operating loss ("NOL") carryforwards in United States jurisdictions of
approximately $3,449,000 expiring in fiscal year 2019, and NOL carryforwards in
Canada of approximately $2,138,000 expiring in fiscal years 2000 through 2006.

         The Company establishes valuation allowances in accordance with SFAS
No. 109, Accounting for Income Taxes. The Company continually reviews the
adequacy of the valuation allowance and is recognizing these benefits only as
reassessment indicates that it is more likely than not that the benefits will
be realized primarily through future taxable income and certain available tax
planning strategies.

         In assessing the valuation allowance established at December 31, 1999
and 1998, the Company recorded valuation allowances primarily related to the
Canadian NOL carryforwards to a level where management believes that it is more
likely than not that the remaining Canadian net deferred tax asset of
approximately $954,000 will be realized primarily through future taxable income
and available tax planning strategies.

         The total amount of future taxable income in the United States
necessary to realize the remaining deferred tax benefits is approximately $18.5
million. The Company expects to generate this income principally through the
implementation of reasonable and prudent tax planning strategies (including the
sale of certain divisions, property held for sale and other tax planning
strategies if necessary) to fully realize the net deferred tax assets.

         There can be no assurance that the Company will generate enough
taxable income through its operations to realize the net deferred tax assets;
however, management believes that the Company will generate future taxable
income to realize the net deferred tax asset of approximately $7.6 million
primarily due to the available tax planning strategies discussed above.

4.       LONG-TERM DEBT

         The Company's long-term debt as of December 31, 1999 and 1998
is as follows:

<TABLE>
<CAPTION>
                                                                        1999             1998
                                                                    ------------     -----------
<S>                                                                 <C>              <C>
Bank term loan (ESOP), variable rate, 8.11% and 7.51%
  at December 31, 1999 and 1998, respectively, secured
  by fixed assets of the Company                                     $ 3,580,000     $ 4,774,000
Bank term loan, fixed rate of 6.90%, unsecured                         3,250,000       3,750,000
Capitalized lease obligations, interest rates ranging from
  5.90% to 7.46% at December 31, 1999 and 1998,
  secured by automotive and computer equipment                            34,000          81,000
                                                                     ---------------------------
                                                                       6,864,000       8,605,000
Less current maturities                                                4,458,000       1,741,000
                                                                     ---------------------------
                                                                     $ 2,406,000     $ 6,864,000
                                                                     ===========================
</TABLE>

         In connection with the establishment of the ESOP, on January 7, 1993,
the Company obtained a bank term loan amounting to $11,934,000 due over a
ten-year period at a rate of 79.5% of prime plus 1.35%. Simultaneously, the
Company entered into a separate interest rate swap agreement with the bank
which carried a notional principal amount of $11,934,000 (which notional amount
amortizes corresponding with the loan balance), on which the Company receives
payments based on a variable rate (6.76% and 6.16% at December 31, 1999 and
1998 respectively) and makes payments based on a fixed rate of 6.86%. This
agreement was designed to fix the interest rate on the debt for seven years at
8.21%. The interest rate swap agreement matured on January 7, 2000. The bank
term loan proceeds were loaned by the Company to the ESOP (see Notes 2 and 7),
which utilized the funds together with a $54,000 cash contribution from the
Company to purchase 3,489,115 shares of common stock from existing
stockholders. The terms of the Company loan to the ESOP are substantially
similar to the terms under the bank term loan. The Company is obligated to
repay the bank term loan in semi-annual principal payments of $596,700 each and
has pledged the fixed assets of the Company as collateral on the loan. The bank
term loan also requires the Company to meet certain defined covenants and
ratios (i.e., debt service coverage, working capital, and net worth) common to
such agreements. The Company has complied with or obtained a waiver for all
debt compliance covenants in effect at December 31, 1999.


                                      F-12

<PAGE>   42

         During 1996, in connection with the acquisition of the Canadian
subsidiary, the Company obtained a $5,000,000 bank term loan which was utilized
to refinance the subsidiary's debt. The bank term loan requires semi-annual
principal payments in the amount of $250,000 and matures on March 15, 2003.
However, the Company has agreed to retire the remaining principal amount
outstanding of $3,250,000 in connection with the signing of the secured bank
line of credit agreement discussed in Note 5.

The total debt at December 31, 1999 maturing in subsequent years is as follows:

<TABLE>

                    <S>                           <C>
                    2000                          $  4,458,000
                    2001                             1,207,000
                    2002                             1,199,000
                                                  ------------
                                                  $  6,864,000
                                                  ============
</TABLE>

5.       SHORT-TERM BORROWINGS

         Effective January 1, 2000, the Company entered into a secured bank
line of credit agreement for up to a maximum of $10,000,000 which is to be
utilized to finance inventories, receivables and operations on an interim
basis. Interest on the line of credit is payable monthly at a variable rate
based on the 30-day London Interbank Offered Rate ("LIBOR") plus 1.25%, and the
line of credit expires on January 1, 2001. The fixed assets that secure the
ESOP loan also secure this line of credit.

         During 1999, there were no borrowings under the line of credit that
expired on July 31, 1999. During 1998, the maximum and average amounts of
borrowings outstanding under this line of credit were $8,010,000 and
$1,093,000, respectively, and the weighted average interest rate on these
borrowings was 6.9%.

         During 1998, Hunter Technology Inc. ("Hunter"), a wholly-owned
subsidiary of 1166081 Ontario Inc., established a bank line of credit with a
Canadian financial institution. The credit agreement provides a line of
approximately $1,550,000. The credit line is subject to an annual renewal on
April 30 each year. The financial institution's review could result in the
cancellation of the line or a revision of its terms. As of December 31, 1999,
the financial institution had not communicated the results of the review for
1999. In the event that the financial institution terminates the line of credit
or proposes amended terms that are unacceptable to the Company, the Company
believes it has adequate capital resources available to fund Hunter's
operations in the near term. The line of credit is secured by Hunter's
receivables, inventory and equipment. Interest on the line of credit is payable
monthly at a variable rate equivalent to the financial institution's prime
lending rate plus one-half of one percent, which at December 31, 1999 was 7.0%.
As of December 31, 1999, the outstanding balance of the line of credit was
$776,000. During 1999, the maximum and average amounts of borrowings
outstanding under the line of credit were $1,225,000 and $613,000,
respectively, and the weighted average interest rate on these borrowings was
6.69%.

         Management of the Company currently believes that its existing cash
and funds generated from operations, together with the Company's unused
borrowing capacity under the Company's secured line of credit, will be
sufficient to fund the Company's operating needs during fiscal year 2000. The
Company, however, has experienced significant losses during the last two
years, which losses could continue during fiscal year 2000. Such continued
losses could result in a material reduction of internally generated funds and
could also result in the use of a substantial portion or all of the Company's
secured line of credit. Consequently, there can be no assurances that the
Company's liquidity position will not be adversely affected during fiscal year
2000. Further, although the Company currently believes it has unused
"asset-based" borrowing capacity and other internal sources of liquidity, there
can be no assurance that additional financing, or, if the Company's current
line of credit is not renewed, financing to replace the existing line of credit
will be available beyond fiscal year 2000 on terms acceptable to the Company.
It is anticipated that during 2000 the Company will expend approximately $3.2
million for capital expenditures.


                                      F-13

<PAGE>   43

6.       STOCKHOLDER RIGHTS PLAN AND PREFERRED SHARE PURCHASE RIGHTS

         On February 22, 1999, the Board of Directors adopted a Stockholder
Rights Plan and declared a dividend distribution of one Preferred Share
Purchase Right on each outstanding share of common stock. The dividend
distribution date was March 8, 1999 payable to stockholders of record on that
date. The Rights will expire on March 8, 2009 and the Rights distribution is
not taxable to stockholders.

         The Rights will be exercisable only if a person or a group acquires
15% or more of the Company's common stock or announces a tender offer, the
consummation of which would result in ownership by a person or group of 15% or
more of the common stock. The Board of Directors is authorized to reduce the
15% thresholds referred to above to not less than 10%. Each Right will entitle
stockholders to buy one one-hundredth of a share of a new series of junior
participating preferred stock at an exercise price of $10.

         If a person or group acquires 15% or more of the Company's outstanding
common stock, each Right will entitle its holder (other than such person or
members of such group) to purchase, at the Right's then-current exercise price,
a number of the Company's common shares having a market value of twice such
exercise price. In addition, if the Company is acquired in a merger or other
business combination transaction after a person or group has acquired 15% or
more of the Company's outstanding common stock, each Right will entitle its
holder (other than such person or members of such group) to purchase, at the
Right's then-current exercise price, a number of the acquiring Company's common
shares having a market value of twice such exercise price.

         Following the acquisition by a person or a group of beneficial
ownership of 15% or more of the Company's common stock and prior to an
acquisition of 50% or more of the common stock, the Board of Directors may
exchange the Rights (other than Rights owned by such person or group), in whole
or in part, at an exchange ratio of one share of common stock (or one
one-hundredth of a share of the new series of junior participating preferred
stock or equivalent preferred stock) per Right. Prior to the acquisition by a
person or group of beneficial ownership of 15% or more of the Company's common
stock, the Rights are redeemable by the Company for one cent per Right at the
option of the Board of Directors.

7.       EMPLOYEE BENEFIT AND COMPENSATION PLANS

         EMPLOYEE AND DIRECTOR STOCK OPTION PLANS

         In 1988, the Company adopted the 1988 Stock Option Plan for certain
key management personnel. Options granted under the 1988 plan were issued at a
total purchase price determined by the Board of Directors, to be satisfied 50%
in cash upon exercise of the options and 50% in previously earned but unpaid
compensation accrued. The previously earned but unpaid compensation accrued
represents compensation utilized to reduce the cash exercise price of the
option at the date of grant. The difference in the total purchase price of the
options and the estimated fair value of the common stock at the date of grant
was not material to the Company's consolidated financial statements. Options
granted under the 1988 plan are exercisable over a ten-year period beginning
one year after the date of grant. At December 31, 1999, there were no options
available for grant under this plan.

         In 1994, the Company adopted the 1994 Stock Option Plan for certain
officers, directors, and key management employees of the Company. Options
granted under the 1994 plan were issued at prices which approximated the fair
value of the common stock and are exercisable over a ten-year period beginning
one year after the date of grant, with the exception of one grant during 1998
of 50,000 options which is exercisable two years after the date of grant and
one grant during 1999 of 30,000 shares which is exercisable three years from
the date of employment for a certain officer (November 2, 2001). Total options
issuable under this plan amount to 525,014, of which 94,566, 168,830 and
124,000 were granted in 1999, 1998 and 1997, respectively. At December 31,
1999, there were 142,054 options available for grant under this plan.

         During 1994, the Company adopted a stock option agreement with a
former director and consultant whereby options for 7,000 shares were granted at
prices which approximated the fair value of the common stock. These options are
exercisable over a ten-year period beginning one year after the date of grant.


                                      F-14

<PAGE>   44

         During 1996, the Company adopted the 1996 Non-Employee Directors'
Stock Option and Deferred Compensation Plan whereby directors may elect to
receive stock options in lieu of directors' fees. Further, directors may elect
to defer all or any portion of the directors' fees in accordance with the terms
of the 1996 plan. Options granted under the 1996 plan were issued at prices
which approximated the fair value of the common stock and are exercisable over
a ten-year period beginning one year after the date of grant. Total options
issuable under this plan amount to 100,000, of which no options, 40,765 and
43,809 were granted in 1999, 1998 and 1997, respectively. At December 31, 1999,
there were 3,852 options available for grant under this plan.

         The Company accounts for these plans utilizing the intrinsic value
method, under which no compensation cost has been recognized. Had compensation
cost for these plans been determined consistent with SFAS No. 123, the
Company's income from continuing operations and income from continuing
operations per share would have been reduced to the following pro forma
amounts:

<TABLE>
<CAPTION>
                                                                  1999              1998             1997
                                                              ------------      ------------     -----------
<S>                                                           <C>               <C>              <C>
Income (loss) from continuing operations:
   As reported                                                $ (6,139,000)     $ (4,136,000)    $   252,000
   Pro forma                                                  $ (6,292,000)     $ (4,394,000)    $   142,000

Income (loss) from continuing operations per share:
   As reported - diluted                                      $      (0.84)     $      (0.58)    $      0.04
   Pro forma - diluted                                        $      (0.86)     $      (0.62)    $      0.02
</TABLE>

         Information with respect to stock options is summarized as follows:

<TABLE>
<CAPTION>
                                                    1999                         1998                          1997
                                         -------------------------  ------------------------------  --------------------------
                                           Shares        Wtd. Avg.     Shares          Wtd. Avg.       Shares        Wtd. Avg.
                                            (000)        Ex Price       (000)          Ex Price         (000)        Ex Price
                                         -----------   -----------  -------------    -------------  ------------   -----------

<S>                                      <C>           <C>          <C>              <C>            <C>            <C>
Outstanding at beginning of year             766         $  5.00          788          $   4.31           678         $ 3.68
Granted                                       95            3.07          210              4.85           168           5.92
Exercised                                   (133)           1.57         (189)             1.50           (58)          1.52
Forfeited                                   (203)           6.70          (43)             6.73             0           0.00
                                         -----------------------------------------------------------------------------------
Outstanding at end of year                   525         $  4.89          766          $   5.00           788         $ 4.31
                                         -----------------------------------------------------------------------------------
Exercisable at end of year                   380         $  5.29          556          $   5.05           620         $ 3.88
                                         -----------------------------------------------------------------------------------
Weighted average fair value of options
  granted                                  $1.34                      $  1.76                         $  2.59
</TABLE>


         The fair value of each option granted is estimated on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1999, 1998 and 1997,
respectively: risk-free interest rates of 5.41, 5.20 and 6.10 percent; expected
dividend yields of zero, 1.8 and 2.7 percent; expected lives of six years;
expected volatility of 50 percent, 49 percent and 50 percent.

         Of the 525,014 options outstanding at December 31, 1999, 120,486 have
a range of exercise prices between $1.38 and $3.00 with a weighted average
exercise price of $2.36 and a weighted average remaining contractual life of
seven years. Of these options, 45,920 are exercisable. Of the options
outstanding at December 31, 1999, 294,333 have a range of exercise prices
between $4.00 and $6.00 with a weighted average exercise price of $4.96 and a
weighted average remaining contractual life of eight years. Of these options,
224,333 are exercisable. The remaining 110,195 options outstanding at December
31, 1999 have a range of exercise prices from $6.38 to $9.50 with a weighted
average exercise price of $7.30 and a weighted average remaining contractual
life of seven years. All of these options are exercisable.

         During 1999, 1998 and 1997, the Company recognized tax benefits
related to the exercise of stock options in the amount of $193,000, $215,000,
and $97,000, respectively. The tax benefits were credited to paid-in capital in
the respective years.


                                      F-15

<PAGE>   45

         EMPLOYEE STOCK OWNERSHIP PLAN

         The Company maintains an ESOP which is available to substantially all
employees who meet certain age and service requirements. The Company's
Board of Directors serves as the ESOP's Administrative Committee and
thereby directs the actions of the trustees of the ESOP, who are executive
officers of the Company.

         On January 7, 1993, the ESOP received a loan from the Company in the
amount of $11,934,000 under substantially similar terms as the Company's bank
term loan discussed in Note 4. The ESOP utilized the funds together with a
$54,000 initial cash contribution from the Company to purchase 3,489,115 shares
of Company common stock from existing stockholders. The ESOP has pledged the
common stock purchased as security on the loan from the Company. The
outstanding balance due on the loan, which is reflected as unearned
compensation in the accompanying consolidated balance sheets, as of December
31, 1999, and 1998 was $3,580,000 and $4,677,000, respectively. Company
contributions are made to the ESOP in such amounts as determined by the
Company's Board of Directors; however, the Company's contributions must be
sufficient to cover principal and interest on the loan to the ESOP.

         During the years ended December 31, 1999, 1998 and 1997, the Company
recognized interest expense related to the ESOP debt of $392,000, $484,000 and
$585,000, respectively. Non-cash ESOP compensation expense recognized by the
Company during the years ended December 31, 1999, 1998 and 1997, which was
based on the average fair value of the shares committed to be released as
compensation, amounted to $629,000, $1,293,000 and $1,905,000, respectively.
Additionally, the fair value of shares released in payment of dividends on
allocated shares amounted to $51,000, $240,000 and $208,000 in 1999, 1998 and
1997, respectively.

         The difference in the average fair value and the original cost of
shares committed to be released as compensation or dividends on allocated
shares, net of income taxes, if applicable, was (charged) credited to paid-in
capital during the years ended December 31, 1999, 1998 and 1997 and amounted to
($362,000), $334,000 and $904,000, respectively.

         SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("SERP")

         The SERP was adopted by the Company to provide retirement benefits for
certain key management personnel who are not eligible to participate in the
ESOP. Awards under the plan are granted annually to participants in the form of
phantom shares of Company common stock equal to the number of shares the
participant would have received under the ESOP.

         During 1999, 1998 and 1997, phantom shares of the Company's common
stock totaling 6,329, 7,213 and 11,924, respectively, were allocated to
participant accounts. Compensation expense equal to the fair value of phantom
shares granted is accrued annually together with any change in the fair value
of shares previously allocated and resulted in credits to the consolidated
statements of operations in 1999, 1998 and 1997 in the amount of $91,000,
$197,000 and $85,000, respectively.

         PROFIT-SHARING PLAN

         The Company maintains a profit-sharing plan covering substantially all
employees. Contributions to the plan are at the discretion of the Board of
Directors. As a result of the adoption of the ESOP in 1993, no contributions
have been made to the plan since 1992.

         As part of the profit-sharing plan, the Company offers a savings
retirement provision under Section 401(k) of the Internal Revenue Code to
substantially all of its employees. Under these provisions, employees may
contribute up to 8% of their total compensation to the plan. The Company makes
matching contributions up to a maximum of 1% of the employee's compensation, as
defined, which amounted to $69,000, $75,000 and $80,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.

         DEFERRED COMPENSATION PLAN

         The Company maintains a supplemental income plan for certain current
or retired employees. The Plan provides for 120 monthly payments starting at
age 65 equal to 40% of the employee's regular compensation, as defined. The


                                      F-16

<PAGE>   46

Company is accruing the net present value of the estimated benefits from the
dates of the agreements to the estimated retirement dates. As part of this
program, the Company purchased life insurance on the participants to utilize in
funding these obligations. Deferred compensation expense recognized by the
Company in the years ended December 31, 1999, 1998 and 1997 amounted to
$244,000, $444,000 and $251,000, respectively.

         SALARY CONTINUATION (TERMINATION) BENEFITS

         In 1998, the Company entered into certain salary continuation
agreements with certain key employees which provide for termination benefits to
be paid to these employees. The termination benefits are payable only in the
event employment with the Company is terminated for any reason other than
death, permanent disability, voluntary termination or for cause. The period
covered by the agreements extended through December 31, 1999, with the
exception of two agreements which extend through July 11, 2000 and December 31,
2000, respectively. Due to the termination of one participant during 1999, the
Company paid $54,000 in salary continuation and accrued $53,000 as compensation
to be paid during 2000.

         DIVIDEND REINVESTMENT PLAN ("DRIP")

         The DRIP was adopted by the Company in 1997 to provide holders of
common stock with an opportunity to invest cash dividends in shares of common
stock and optional cash payments for additional shares of common stock without
payment of any brokerage, commission or service charge. During fiscal year
1999, 1998 and 1997, 11,004, 3,304 and 746 shares, respectively, of common
stock were issued in connection with this plan.

8.       FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL
INSTRUMENTS

         SFAS No. 107, Disclosure About Fair Value of Financial Instruments,
requires all businesses to disclose the fair value of financial instruments,
both assets and liabilities recognized and not recognized on the balance sheet,
for which it is practicable to estimate fair value. Based upon their remaining
term to maturity and the current interest environment, the estimated fair values
of the Company's financial instruments on the balance sheet at December 31, 1999
and 1998 approximate their carrying values at those dates.

         As of December 31, 1999 and as discussed in Note 4, the Company is a
party to an interest rate swap, an off-balance-sheet, derivative financial
instrument. The interest rate swap carries a current notional amount of
$3,580,000 and is accounted for as a 7-year hedge on the bank term loan
originated in 1993. The counter-party to the interest rate swap is the
Company's primary bank. The interest rate swap agreement matured on January 7,
2000, and the amount of loss in the interest rate swap currently deferred was
insignificant at December 31, 1999.

9.       COMMITMENTS AND CONTINGENCIES

         PRODUCT CONTINGENCY

         The Company has experienced production and design problems with
certain products manufactured by Hunter. These product problems, in some cases,
caused the production to be suspended and, therefore, shipments were also
suspended. Corrections have been implemented and the affected products are back
in production. The Company has completed its evaluation of the potential
exposure to deal with problems related to products shipped prior to these
corrections, and it currently believes that the ultimate liability will not
have a material adverse effect on the Company.

         LEGAL

         On February 1, 1996, 1166081 Ontario Inc. acquired all of the capital
stock of Hunter for a purchase price of approximately $1,943,000 that included
$850,000 in cash, $729,000 in promissory notes payable and $364,000 paid into
escrow. The escrow fund was established at the closing to make funds available
to meet the sellers' indemnification obligations to the Company. During the
first quarter of 1997, the Company notified certain of the sellers that it was
withholding payment on the promissory notes held by them pending resolution of
certain issues with the holders of the notes arising out of the purchase
transaction. The Company also claimed the entire amount in escrow and
instituted


                                      F-17

<PAGE>   47

litigation to recover these amounts and additional amounts from certain sellers
in the purchase transaction, and certain of the sellers sued to enforce
collection of their notes.

         During 1998, the Company effected a settlement with all but two of the
former shareholders, and a contingent settlement with these two. Pursuant to the
settlement, the Company has received approximately $315,000 (including interest)
of funds held in escrow, an additional payment of $32,000, and cancellation of
promissory notes and accrued interest totaling approximately $364,000.
Consequently, during the fourth quarter of 1998, the Company recorded a gain on
settlement of litigation of $422,000, which is included in interest and other
income in the 1998 Consolidated Statement of Operations. The contingent
settlement with the two former shareholders will result (if the contingency is
satisfied and that portion of the settlement effectuated) in receipt by the
Company of an additional $100,000 (including interest), and cancellation of
notes and accrued interest totaling approximately $228,000.

         The Company is a party to various legal proceedings that are
incidental to its business. Certain of these cases filed against the Company
and other companies engaged in businesses similar to the Company often allege,
among other things, product liability, personal injury and breach of contract
and warranty. These kinds of suits sometimes seek the imposition of large
amounts of compensatory and punitive damages and trials by jury. In the opinion
of management, after consultation with legal counsel responsible for these
matters, the ultimate liability, if any, with respect to the proceedings in
which the Company is currently involved is not presently expected to have a
material adverse affect on the Company. However, the potential exists for
unanticipated material adverse judgments against the Company.

         LEASES

         The Company had financing lease obligations for a portion of its
manufacturing facilities and its central office building. These obligations
were classified as financing leases as they contained bargain purchase options
which the Company intends to exercise. Although the Company satisfied the
financing lease obligations in a prior year, the bargain purchase options had
not been exercised as of December 31, 1999. A summary of the asset balances of
the leased facilities follows:

<TABLE>
<CAPTION>
                                                       1999                  1998
                                                    -----------          -----------
<S>                                                 <C>                  <C>
Class of property:
      Land                                          $   192,000          $   192,000
      Buildings and machinery                         2,223,000            2,223,000
                                                    --------------------------------
                                                      2,415,000            2,415,000
      Less accumulated depreciation                   1,655,000            1,608,000
                                                    --------------------------------
                                                    $   760,000          $   807,000
                                                    ================================
</TABLE>

         In addition, the Company has various items of machinery and equipment
under operating leases that expire during the next one to six years or are on
month-to-month rental terms. Rent expense under all operating leases amounted
to $552,000, $376,000 and $524,000 in the years ended December 31, 1999, 1998
and 1997, respectively.

         The following is a schedule of future minimum rental payments by year
under operating leases having initial or remaining noncancelable lease terms in
excess of one year as of December 31, 1999:

<TABLE>

                       <S>                           <C>
                       2000                          $    222,000
                       2001                               145,000
                       2002                                59,000
                       2003                                16,000
                       2004                                16,000
                       Thereafter                           8,000
                                                     ------------

                                                     $    466,000
                                                     ============
</TABLE>


                                      F-18

<PAGE>   48

10.      SALE OF CERTAIN ASSETS

         On March 31, 1999, the Company completed the sale of all of the assets
of its Ashley solid fuel division. The Company recorded a gain on the sale of
the Ashley division of $1,167,000 which is included in gain on sales of assets
in the Consolidated Statements of Operations. In connection with this sale, the
Company received cash of $1.1 million and accepted notes receivable totaling
approximately $1.1 million. The notes bear interest at 7% and are due in
installments through the end of 2001. The Company is holding common stock as
collateral and also obtained a personal guarantee from the buyer.

11.      DISCONTINUED OPERATIONS

         On February 24, 1997, the Company announced that it had elected to
discontinue its operations in the metal office furniture segment. The segment's
operations have been treated as a discontinued operation for accounting
purposes for all years presented. The Company established a reserve at December
31, 1996 of $1,430,000, net of taxes of $861,000, for estimated operating
losses through the date of discontinuance (April, 1997), write-downs of
inventory ($100,000) and property, plant and equipment ($510,000) to estimated
net realizable value, and estimated costs to discontinue these operations
($245,000). During 1997, the Company exceeded the original estimated reserve by
$756,000, net of taxes of $457,000, which is reflected as a loss on disposal of
discontinued operations in the 1997 Consolidated Statement of Operations. The
estimated reserve was exceeded primarily as a result of greater than
anticipated credits for damaged and defective merchandise, lower than
anticipated margins on sales (due to discounted sales prices and higher than
expected freight costs), group insurance costs and write-downs of inventory. At
December 31, 1997, the Company maintained a reserve of $299,000 for charges to
be incurred during 1998. During 1998, the reserve was reduced to a $-0-
balance. During 1999, there was no activity related to the discontinued
operations, and the Company does not anticipate any future expense.

12.      RESTRUCTURE CHARGE

         As part of the continuing effort to reduce operating costs and improve
manufacturing efficiencies, the Company made the decision to close its
Washington Park, Illinois facility. The Company initiated the closing and the
transfer of the gas grill, gas log and freestanding vent-free stove production
into the Athens, Alabama and Huntsville, Alabama locations during the second
quarter of 1998. The Company recorded a non-recurring charge of $615,000,
before tax, in connection with the closing. The non-recurring charge includes
plant closing costs of $590,000 (primarily payroll, severance and payroll taxes
of $234,000 and group insurance of $255,000) and a property, plant and
equipment valuation charge of $25,000. During 1999, the Company increased the
reserve by $89,000, primarily due to higher than originally anticipated
expenses such as legal fees and group insurance. The estimated reserve
remaining as of December 31, 1999 was $189,000.

         On December 9, 1999, the Company announced the planned closing and
consolidation of its Huntsville, Alabama manufacturing facility. The closing of
the facility began during the first quarter of 2000 and is anticipated to be
completed by the end of the third quarter. The current production in Huntsville
is being transferred to the Company's existing facilities in Athens and
Sheffield, Alabama and Orillia, Ontario. The Company recorded a non-recurring
charge of $400,000, before tax, in connection with the closing. The
non-recurring charge includes employee termination costs of $125,000 and other
exit costs of $275,000 (primarily payroll and benefits of $69,000 and group
insurance of $159,000).

13.      INDUSTRY SEGMENT INFORMATION

         Under SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information, certain information is disclosed for the two reportable
operating segments of the Company. The reportable segments were determined
using the internal management reporting system. They are composed of the
Company's significant sales segments. The home heating segment products include
vented and vent-free gas heaters and furnaces, wood-, gas- and coal-burning
free standing heaters and fireplace inserts, pre-engineered gas- and
wood-burning fireplaces and gas logs. The leisure and other segment products
include premium gas barbecue grills and utility trailer kits. The accounting
policies for each segment are the same as those used by the Company as
described in Note 2 -- Summary of Significant Accounting Policies. The Company
evaluates performance based on net sales, gross profit and segment
contribution, defined as gross profit less selling expenses. As such, the
Company does not allocate general and administrative expense, non-cash ESOP
compensation expense, restructure charge, interest expense, interest and other
income or income taxes to the reportable


                                      F-19

<PAGE>   49

operating segments. The segment results include certain overhead allocations,
primarily related to fixed manufacturing and selling expenses. The results for
the two reportable segments of the Company are included in the following table.

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                                    1999              1998             1997
                                                              ---------------    --------------   -------------
<S>                                                           <C>                <C>              <C>
CONTINUING OPERATIONS:
Net sales:
   Home heating products                                      $    65,040,000    $   65,386,000   $  69,371,000
   Leisure and other products                                      20,638,000        18,639,000      17,980,000
                                                              -------------------------------------------------
                                                              $    85,678,000    $   84,025,000   $  87,351,000
                                                              =================================================
Gross profit:
   Home heating products                                      $     5,055,000    $    7,964,000   $  16,135,000
   Leisure and other products                                       3,253,000         3,695,000       3,695,000
                                                              -------------------------------------------------
                                                              $     8,308,000    $   11,659,000   $  19,830,000
                                                              =================================================
Segment contribution (loss) (1):
   Home heating products                                      $    (1,397,000)   $    1,463,000   $   8,662,000
   Leisure and other products                                         311,000         1,149,000       1,254,000
                                                              -------------------------------------------------
                                                              $    (1,086,000)   $    2,612,000   $   9,916,000
                                                              =================================================
Identifiable net assets (2):
   Home heating products                                      $    16,170,000    $   21,777,000   $  28,024,000
   Leisure and other products                                       6,621,000         6,869,000       4,446,000
   Other (3)                                                        3,980,000         1,681,000       2,731,000
                                                              -------------------------------------------------
                                                              $    26,771,000    $   30,327,000   $  35,201,000
                                                              =================================================
Depreciation and amortization:
   Home heating products                                      $     1,083,000    $    1,190,000   $   1,234,000
   Leisure and other products                                         301,000           259,000         212,000
   Other (3)                                                          410,000           347,000         451,000
                                                              -------------------------------------------------
                                                              $     1,794,000    $    1,796,000   $   1,897,000
                                                              =================================================
Capital expenditures:
   Home heating products                                      $     2,420,000    $    1,033,000   $   1,507,000
   Leisure and other products                                         674,000           117,000         268,000
   Other (3)                                                        2,567,000           490,000         278,000
                                                              -------------------------------------------------
                                                              $     5,661,000    $    1,640,000   $   2,053,000
                                                              =================================================

Discontinued Operations:(5)
Net sales                                                     $             0    $            0   $   5,498,000
Gross profit                                                  $             0    $            0   $  (1,822,000)
Segment contribution (loss) (1)                               $             0    $            0   $  (2,371,000)
Identifiable net assets                                       $             0    $            0   $   1,230,000(4)
</TABLE>


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

(1)  Segment contribution (loss) consists of gross profit less selling expenses.
(2)  Represents Property, Plant and Equipment and Inventory (each net of
     respective reserves).
(3)  Represents amounts attributable to the Company's corporate administration
     and discontinued operations.
(4)  Represents Property, Plant and Equipment-$978,000, and Inventory-$252,000
     (each net of respective reserves).
(5)  See Note 11.


                                      F-20

<PAGE>   50

The Company also reports revenues from customers and holds assets in different
geographic areas as illustrated in the following table.

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                             1999                1998              1997
                                                       ----------------    ---------------    ---------------
<S>                                                    <C>                 <C>                <C>
NET SALES FROM CONTINUING OPERATIONS (1):
   United States                                       $     79,353,000    $    79,072,000    $    82,839,000
   Canada                                                     7,226,000          7,212,000          6,514,000
   Elimination of intersegment net sales                       (901,000)        (2,259,000)        (2,002,000)
                                                       ------------------------------------------------------
                                                       $     85,678,000    $    84,025,000    $    87,351,000
                                                       ======================================================

LONG-LIVED ASSETS:
   United States                                       $     10,997,000    $     7,322,000    $     7,200,000
   Canada                                                     4,409,000          4,455,000          5,064,000
                                                       ------------------------------------------------------
                                                       $     15,406,000    $    11,777,000    $    12,264,000
                                                       ======================================================
</TABLE>

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

(1) Net sales are attributed to countries based primarily on the location of
    the external customers.


                                      F-21

<PAGE>   51

                                                                      EXHIBIT S

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS






To Martin Industries, Inc.:


         We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of MARTIN INDUSTRIES, INC.
included in this Form 10-K and have issued our report thereon dated March 23,
2000. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the accompanying
index is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.


                              ARTHUR ANDERSEN LLP




Birmingham, Alabama
March 23, 2000


                                      S-1

<PAGE>   52


                                                                    SCHEDULE II


                            MARTIN INDUSTRIES, INC.

                       VALUATION AND QUALIFYING ACCOUNTS

             FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999


<TABLE>
<CAPTION>
                                                                   Charged/
                                                Balance at        (Credited)      (Deductions)/
                                                 Beginning         to Costs         Recoveries         Balance at
                                                  of Year        and Expenses           Net            End of Year
                                                  -------        ------------      ------------        -----------
<S>                                             <C>              <C>              <C>                  <C>
FOR THE YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts                 $  419,000        $   200,000      $  (187,000)         $  432,000

FOR THE YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts                 $  432,000        $   195,000      $         0          $  627,000

FOR THE YEAR ENDED DECEMBER 31, 1999:
Allowance for doubtful accounts                 $  627,000        $   102,000      $  (125,000)         $  604,000
</TABLE>


                                      S-2

<PAGE>   53

                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.


                                             MARTIN INDUSTRIES, INC.

                                By:          /s/ ROBERT L. GOUCHER
                                    ----------------------------------------
                                                Robert L. Goucher
                                       President and Chief Executive Officer

Date:  March 30, 2000


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

<TABLE>
<CAPTION>

                 Signature                                         Title                            Date
                 ---------                                         -----                            ----


<S>                                                 <C>                                         <C>
           /s/ ROBERT L. GOUCHER                        President, Chief Executive              March 30, 2000
--------------------------------------------               Officer and Director
              Robert L. Goucher                        (Principal Executive Officer)


          /s/ RODERICK V. SCHLOSSER                 Vice President and Chief Financial          March 30, 2000
--------------------------------------------               Officer and Secretary
            Roderick V. Schlosser                    (Principal Financial Officer and
                                                       Principal Accounting Officer)


         /s/ WILLIAM H. MARTIN, III*                             Director
--------------------------------------------
           William H. Martin, III


            /s/ WILLIAM D. BIGGS*                                Director
--------------------------------------------
              William D. Biggs


           /s/ JIM D. CAUDLE, SR.*                               Director
--------------------------------------------
             Jim D. Caudle, Sr.


           /s/ HERBERT J. DICKSON*                               Director
--------------------------------------------
             Herbert J. Dickson


             /s/ JOHN L. DUNCAN*                                 Director
--------------------------------------------
               John L. Duncan


             /s/ BILL G. HUGHEY*                                 Director
--------------------------------------------
               Bill G. Hughey

           /s/ CHARLES R. MARTIN*
--------------------------------------------                     Director
              Charles R. Martin


            /s/ JAMES J. TANOUS*                                 Director
--------------------------------------------
               James J. Tanous


        *By /s/ RODERICK V. SCHLOSSER                                                           March 30, 2000
--------------------------------------------
            Roderick V. Schlosser
              Attorney-In-Fact
</TABLE>


<PAGE>   54

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
                                                                                                         Sequential
Exhibit                                                                                                     Page
Number                          Description of Exhibits                                                    Number
------                          -----------------------                                                    ------

<S>           <C>                                                                                        <C>
*  3(a)       Form of Restated Certificate of Incorporation of Martin Industries, Inc. which was
              filed as Exhibit 3(a) to the Company's Registration Statement on Form S-1 filed with
              the Commission on March 17, 1995 (Registration No. 33-90432).

*  3(b)       Amended and Restated Bylaws of Martin Industries, Inc. which were filed as Exhibit
              3(b) to the Registrant's Quarterly Report on Form 10-Q for the 26-week period ended
              June 28, 1997 (Commission File No. 0-26228).

*  3(c)       Amendments to the By-laws of Martin Industries, Inc. which were filed as Exhibit
              99.1 to the Company's Form 8-K on February 24, 1999 (Commission File No.
              0-26228).

*  4(a)       Article 4 of the Restated Certificate of Incorporation of Martin Industries, Inc.
              (included in Exhibit 3(a)).

*  4(b)       Rights Agreement, dated as of February 23, 1999, between Martin Industries, Inc.
              and SunTrust Bank, Atlanta, Rights Agent, which was filed as Exhibit 1 to the
              Company's Registration Statement on Form 8-A (Commission File No. 0-26228).

*  10(a)      Martin Industries, Inc. Employee Stock Ownership Plan, as amended, which was
              filed as Exhibit 10(a) to the Company's Registration Statement on Form S-1 filed
              with the Commission on March 17, 1995 (Registration No. 33-90432) and, with
              respect to Amendment No. 7 thereto, as filed as Exhibit 10(a) to the Company's
              Quarterly Report on Form 10-Q for the 13-week period ended September 30, 1995
              (Commission File No. 0-26228).

*  10(b)      Martin Industries, Inc. Employee Stock Ownership Trust Agreement between Martin
              Industries, Inc., Bill G. Hughey, James W. Truitt and James D. Wilson dated
              November 12, 1992, as amended, which was filed as Exhibit 10(b) to the Company's
              Registration Statement on Form S-1 filed with the Commission on March 17, 1995
              (Registration No. 33-90432).

*  10(c)      Loan Agreement by and between Martin Industries, Inc. and AmSouth Bank N.A.
              dated January 7, 1993 in the principal amount of $11,934,000, as amended, which
              was filed as Exhibit 10(c) to the Company Registration Statement on Form S-1 filed
              with the Commission on March 17, 1995 (Registration No. 33-90432).

*  10(d)      Term Note by Martin Industries, Inc. in favor of AmSouth Bank, N.A. dated January
              7, 1993 in the principal amount of $11,934,000 which was filed as Exhibit 10(d)
              to the Company's Registration Statement on Form S-1 filed with the Commission
              on March 17, 1995 (Registration No. 33-90432).

*  10(e)      Loan and Security Agreement by and between Bill G. Hughey, James W. Truitt and
              James D. Wilson, as trustees of the Martin Industries, Inc. Employee Stock
              Ownership Plan and Related Trust (the "ESOP"), and Martin Industries, Inc. dated
              January 7, 1993 in the principal amount of $11,934,000 which was filed as Exhibit
              10(f) to the Company's Registration Statement on Form S-1 filed with the
              Commission on March 17, 1995 (Registration No. 33-90432).

*  10(f)      Promissory Note by Bill G. Hughey, James W. Truitt and James D. Wilson, as
              trustees of the ESOP, in favor of Martin Industries, Inc. dated January 7, 1993, in
</TABLE>


<PAGE>   55

<TABLE>

<S>           <C>
              the principal amount of $11,934,000 which was filed as Exhibit 10(g) to the
              Company's Registration Statement on Form S-1 filed with the Commission on
              March 17, 1995 (Registration No. 33-90432).

*  10(g)      Interest Rate Swap Agreement by and between Martin Industries, Inc. and AmSouth
              Bank, N.A. dated November 3, 1992 which was filed as Exhibit 10(h) to the
              Company's Registration Statement on Form S-1 filed with the Commission on March
              17, 1995 (Registration No. 33-90432).

*  10(h)      Martin Industries, Inc. 1988 Nonqualified Stock Option Plan, as amended, which
              was filed as Exhibit 10(l) to the Company's Registration Statement on Form S-1 filed
              with the Commission on March 17, 1995 (Registration No. 33-90432).

*  10(i)      Executive Supplemental Income Plan Guidelines and Form of Supplemental Income
              Agreement which was filed as Exhibit 10(n) to the Company's Registration
              Statement on Form S-1 filed with the Commission on March 17, 1995 (Registration
              No. 33-90432).

*  10(j)      Supplemental Executive Retirement Plan which was filed as Exhibit 10(o) to the
              Company's Registration Statement on Form S-1 filed with the Commission on March
              17, 1995 (Registration No. 33-90432).

*  10(k)      Lease Agreement by and between the Industrial Development Board for the City
              of Florence and Martin Industries, Inc. dated August 1, 1978 which was filed as
              Exhibit 10(p) to the Company's Registration Statement on Form S-1 filed with the
              Commission on March 17, 1995 (Registration No. 33-90432).

*  10(l)      Lease Agreement by and between the Industrial Development Board for the City
              of Athens and Martin Stamping & Stove Company, predecessor corporation to
              Martin Industries, Inc., dated December 1, 1964 which was filed as Exhibit 10(q)
              to the Company's Registration Statement on Form S-1 filed with the Commission
              on March 17, 1995 (Registration No. 33-90432).

*  10(m)      Renewal Option Agreement between the Industrial Development Board of the City
              of Athens and Martin Stamping & Stove Company, predecessor corporation to
              Martin Industries, Inc., dated December 1, 1964 which was filed as Exhibit 10(r)
              to the Company's Registration Statement on Form S-1 filed with the Commission
              on March 17, 1995 (Registration No. 33-90432).

*  10(n)      Purchase Option Agreement between the Industrial Development Board of the City
              of Athens and Martin Stamping & Stove Company, predecessor corporation to
              Martin Industries, Inc., dated December 1, 1964 which was filed as Exhibit 10(s)
              to the Company's Registration Statement on Form S-1 filed with the Commission
              on March 17, 1995 (Registration No. 33-90432).

*  10(o)      First Amendment to Loan Agreement and Other Loan Documents by and between
              Martin Industries, Inc. and AmSouth Bank of Alabama dated as of March 15, 1995
              which was filed as Exhibit 10(u) to the Company's Registration Statement on Form
              S-1 filed with the Commission on March 17, 1995 (Registration No. 33-90432).

*  10(p)      Second Amendment to Loan Agreements and Other Loan Documents dated as of
              March 28, 1996, by and between Martin Industries, Inc. and AmSouth Bank of
              Alabama which was filed as Exhibit 10(y) to the Company's Annual Report on Form
              10-K as filed with the Commission on March 30, 1996 (Commission File No. 0-
              26228).
</TABLE>


<PAGE>   56


<TABLE>

<S>           <C>
*  10(q)      Term Note by Martin Industries, Inc. in favor of AmSouth Bank of Alabama dated
              March 28, 1996, in the principal amount of $5,000,000 which was filed as Exhibit
              10(z) to the Company's Annual Report on Form 10-K as filed with the Commission
              on March 30, 1996 (Commission File No. 0-26228).

*  10(r)      Martin Industries, Inc. 1996 Non-Employee Directors' Stock Option and Deferred
              Compensation Plan which was filed as Exhibit 10(x) to the Company's Annual
              Report on Form 10-K as filed with the Commission on March 31, 1997 (Commission
              File No. 0-26228).

*  10(s)      Amendment No. 6 to Martin Industries, Inc. 1988 Nonqualified Stock Option Plan
              which was filed as Exhibit 10(y) to the Company's Annual Report on Form 10-K
              as filed with the Commission on March 31, 1997 (Commission File No. 0-26228).

*  10(t)      Martin Industries, Inc. Amended and Restated 1994 Nonqualified Stock Option Plan
              which was filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q
              for the 26-week period ended June 27, 1998 (Commission File No. 0-26228).

*  10(u)      Amendment No. 8 to Martin Industries, Inc. Employee Stock Ownership Plan which
              was filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for
              the 39-week period ended September 27, 1997 (Commission File No. 0-26228).

*  10(v)      Third Amendment to Loan Agreement and Other Loan Documents dated as of
              August 28, 1997 by and between Martin Industries, Inc. and AmSouth Bank filed
              as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the 39-week
              period ended September 27, 1997 (Commission File No. 0-26228).

*  10(w)      Modified, Amended and Restated Line of Credit Note dated as of August 28, 1997
              by and between Martin Industries, Inc. and AmSouth Bank filed as Exhibit 10(c)
              to the Company's Quarterly Report on Form 10-Q for the 39-week period ended
              September 27, 1997 (Commission File No. 02-26228).

*  10(x)      Amendment No. 9 to Martin Industries, Inc. Employee Stock Ownership Plan which
              was filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for
              the 26-week period ended June 27, 1998 (Commission File No. 0-26228).

*  10(y)      Amendment No. 10 to Martin Industries, Inc. Employee Stock Ownership Plan
              which was filed as Exhibit 10(y) to the Company's Annual Report on Form 10-K
              as filed with the Commission on March 31, 1999 (Commission File No. 0-26228).

*  10(z)      Salary Continuation Letter Agreement dated July 15, 1998 between Martin
              Industries, Inc. and Martin D. Husted which was filed as Exhibit 10(z) to the
              Company's Annual Report on Form 10-K as filed with the Commission on March
              31, 1999 (Commission File No. 0-26228).

*  10(aa)     Salary Continuation Letter Agreement dated October 23, 1998 between Martin
              Industries, Inc. and Louis J. Martin, II which was filed as Exhibit 10(aa) to the
              Company's Annual Report on Form 10-K as filed with the Commission on March
              31, 1999 (Commission File No. 0-26228).

*  10(bb)     Salary Continuation Letter Agreement dated October 23, 1998 between Martin
              Industries, Inc. and J. Reid Roney which was filed as Exhibit 10(bb) to the
              Company's Annual Report on Form 10-K as filed with the Commission on March
              31, 1999 (Commission File No. 0-26228).

*  10(cc)     Salary Continuation Letter Agreement dated October 23, 1998 between Martin
              Industries, Inc. and Roderick V. Schlosser which was filed as Exhibit 10(cc) to the
</TABLE>


<PAGE>   57


<TABLE>

<S>           <C>
              Company's Annual Report on Form 10-K as filed with the Commission on March 31, 1999
              (Commission File No. 0-26228).

*  10(dd)     Salary Continuation Letter Agreement dated November 2, 1998 between Martin
              Industries, Inc. and Robert L. Goucher which was filed as Exhibit 10(dd) to the
              Company's Annual Report on Form 10-K as filed with the Commission on March
              31, 1999 (Commission File No. 0-26228).

*  10(ee)     Salary Continuation Letter Agreement dated January 25, 1999 between Martin
              Industries, Inc. and Troy K. Hoskins which was filed as Exhibit 10(ee) to the
              Company's Annual Report on Form 10-K as filed with the Commission on March
              31, 1999 (Commission File No. 0-26228).

*  10(ff)     Salary Continuation Letter Agreement dated January 11, 1999 between Martin
              Industries, Inc. and William F. Roberts which was filed as Exhibit 10(ff) to the
              Company's Annual Report on Form 10-K as filed with the Commission on March
              31, 1999 (Commission File No. 0-26228).

*  10(gg)     Salary Continuation Letter dated Agreement dated July 12, 1999 between Martin
              Industries, Inc. and Robert Kevin Caldwell which was filed as Exhibit 10(a) to the
              Company's Quarterly Report on Form 10-Q for the 26-week period ended July 3,
              1999 (Commission File No. 0-26228).

*  10(hh)     Employment Agreement with Robert L. Goucher dated as of November 2, 1998
              which was filed as Exhibit 10(gg) to the Company's Annual Report on Form 10-K
              as filed with the Commission on March 31, 1999 (Commission File No. 0-26228).

*  10(ii)     Operating Credit Line Agreement by and between Hunter Technology Inc. and
              Canadian Imperial Bank of Commerce dated October 21, 1998 for a credit limit of
              $2,250,000 (Canadian) which was filed as Exhibit 10(a) to the Company's Quarterly
              Report on Form 10-Q for the 39-week period ended October 2, 1999 (Commission
              File No. 0-26228).

   10(jj)     Fourth Amendment to Loan Agreement and Other Loan Documents by and between Martin
              Industries, Inc. and AmSouth Bank dated as of January 1, 2000.

   10(kk)     Security Agreement by and between Martin Industries, Inc. and AmSouth Bank dated March 22, 2000.

   10(ll)     Modified, Amended and Restated Line of Credit Note by and between Martin Industries, Inc.,
              as Borrower, and AmSouth Bank, as Lender, dated as of January 1, 2000.

    21        Subsidiaries of the Company.

    23        Consent of Arthur Andersen LLP.

    24        Powers of Attorney.

    27        Financial Data Schedule (Electronic Submission only).
</TABLE>

------------------------
*  Incorporated by reference.