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

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

           For the fiscal year ended:  August 31, 2002

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

For the transition period from ___________ to _______________

                  Commission File Number 0-5940

                     TEMTEX INDUSTRIES, INC.
     (Exact name of registrant as specified in its charter)

            Delaware                        75-1321869
(State or other jurisdiction of          (I.R.S. Employer
incorporation or organization)          Identification No.)

1190 West Oleander Avenue, Perris, California            92571
(Address of principal executive offices)               (Zip Code)

Company's Registrant's telephone number, including area code:
     909/657-7311

   Securities Registered Pursuant to Section 12(b) of the Act:

                              None

   Securities Registered Pursuant to Section 12(g) of the Act:

             Common Stock, par value $0.20 per share
                        (Title of Class)

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 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

As of December 5, 2002, the aggregate market value of the voting
stock held by non-affiliates of the registrant was $882,782.

As of December 5, 2002, there were 3,444,641 shares of common
stock, par value $0.20 per share, of the registrant outstanding.

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

               DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive Proxy Statement to be delivered
to stockholders in connection with the Annual Meeting of
Stockholders to be held February 13, 2003 are incorporated by
reference into Part III.



<PAGE>



                             PART I

ITEM 1.   BUSINESS

Fireplace Products
------------------

We are a major producer of metal fireplace products used in the
residential construction markets.  We manufacture woodburning
metal fireplaces as well as those utilizing natural gas and
liquified petroleum fuels.  Our company was organized in 1969
under the name Monnfield Industries, Inc. and in 1971 changed our
name to Temtex Industries, Inc. In August 1971, we merged with
Texas Clay Industries, Inc., thereby acquiring several
businesses, including a face brick business. We completed the
sale of Texas Clay Industries, then an operating division of the
Company, in January 1999. As of the date of this report, we have
no continuing operations related to any businesses we acquired in
the merger with Texas Clay Industries. Through a wholly owned
subsidiary, Temco Fireplace Products, Inc. we manufacture and
distribute factory built metal woodburning and gas fireplace
equipment.  For the fiscal year ended August 31, 2002, we had
aggregate sales of fireplace products of approximately $22.3
million and reported a net loss from continuing operations of
approximately $6.0 million.

FACTORY BUILT WOODBURNING FIREPLACE PRODUCTS.  A factory built
metal fireplace is similar in function to a masonry fireplace,
except that the firebox and flue pipe chimney are fabricated from
stainless and coated steels and shipped as a unit to the
purchaser or construction site.  The inside of the firebox of a
factory built metal fireplace is completely lined with an
embossed brick pattern refractory, giving the appearance of a
masonry surface.  The inner pipe of the flue is made from
stainless steel.  Because factory built metal fireplaces are
prefabricated, contractors can install them more easily and at
lower cost than is the case with traditional masonry fireplaces.
In addition, because factory built metal fireplaces utilize a
metal flue instead of a masonry chimney, they offer enhanced
placement flexibility.  We manufacture and distribute factory
built fireplaces in a full range of prices for each of the common
fuel categories (i.e., wood logs, natural gas and liquified
petroleum products).  In addition, we either manufacture or
purchase from others for use in conjunction with our fireplace
products certain essential components or optional enhancements
such as glass doors, blower kits, outside air kits, screens and
grates.  These items are incorporated into the factory built
metal fireplace units during the assembly process or shipped in
conjunction with a fireplace unit for subsequent assembly,
depending upon customer specifications.  We do not currently
manufacture accessories for fireplace units manufactured by third
parties or for existing masonry fireplaces, except for vented and
vent free gas logs.

VENTFREE GAS LOGS AND VENTFREE FIREPLACES.  During fiscal 1992,
Temtex introduced its American Dream[TM] ventfree gas log and a
related ventfree fireplace unit.  The American Dream[TM] ventfree
gas log is a simulated wood log and burner set assembly utilizing
a patented design.  This design permits the burning of natural
gas or liquefied petroleum products, such as propane, to provide
heat without the necessity of venting carbon monoxide from the
combustion area.  The simulated wood logs utilized in the
American Dream[TM] ventfree gas log set are made of a soft
ceramic material to resemble wood logs and the embers produced by
the burning of wood logs.  As the soft ceramic material is heated
by the burner set, it radiates heat and produces a red glow
resembling that produced by wood logs in a masonry fireplace.  We
also market our ventfree gas logs under the Firetech 2000[R]
brand name.  Unlike vented fireplaces, which must be located
where outside venting can be effected, our ventfree gas logs may
be placed in any location where a heat source is desired,
including existing fireplaces.  Existing fireplaces can be
modified to accommodate the use of our ventfree gas logs at a
relatively low cost.

Temtex markets ventfree gas log products, which consist of
several different size ventfree gas log sets, ventfree gas
heaters, and fireplace units.  Sales of the combined ventfree gas
log and fireplace units have been made primarily to new home
contractors, while significant quantities of the ventfree gas log
sets not associated with a factory built fireplace unit have been
sold to independent distributors and contractors serving the
remodeling and retrofit markets.

DIRECT-VENT GAS FIREPLACES.  We manufacture a broad range of
direct-vent gas fireplaces.  Direct-vent fireplaces burn natural
gas or liquefied petroleum products.  A direct-vent fireplace
system is a closed system vented to the outside of the house so
that no combustion air or flue products enter the house.  The
direct-vent fireplace market is the fastest growing segment of
the hearth industry.

TOP VENT FIREPLACES.  We also manufacture a broad line of
decorative vented fireplaces which exhaust flue products through
a class "B" chimney.

                               -1-


<PAGE>

MARKETING AND DISTRIBUTION.  We sell our fireplaces, ventfree gas
logs and related accessories nationwide primarily through third
party sales representatives to installing distributors, two-step
distributors (that is, distributors who resell to other
distributors) and retailers and, to a lesser extent, through our
own sales force.  A majority of our fireplaces are ultimately
purchased by homebuilders and others engaged in the construction
of new housing or remodeling of existing homes.  We have
distributors in all regions of the country serving builders and
remodelers.  Our fireplace products are used by many of the
country's best known home builders.

Although we ship our fireplace products nationwide, our sales
tend to be somewhat concentrated in the states where new housing
construction is most active.  Because we typically produce our
products to meet specific orders by contractors, large
distributors or retailers, we do not maintain material amounts of
inventories in excess of anticipated short-term demand.  The raw
materials for our fireplace products are readily available from a
variety of sources.  During the fiscal year ended August 31,
2002, no single customer for fireplace products accounted for
more than 10% of our consolidated sales.

MANUFACTURING.  We currently fabricate our factory built
fireplace units from stainless and coated steels acquired from
vendors and brick pattern refractory of our own manufacture.
During the fabrication process, we add components and other
hardware purchased from vendors.  Glass doors, fan kits and
blowers designed for our factory built fireplace units are
usually shipped separately.  We produce a variety of sizes and
styles of factory built fireplace units for both the single
family and multi-family markets.  In the case of the ventfree gas
log units, we incorporate an oxygen detecting safety pilot and a
valve acquired from vendors.  The ventfree gas log components are
then further assembled and placed under an arrangement of soft
ceramic simulated wood logs.

COMPETITION; PATENTS.  There are a number of manufacturers
producing factory built metal fireplaces and related accessories
similar to our products and the market for these products is very
competitive.  We believe that we are among the larger producers
of such products and that we market a full range of factory built
fireplace units at competitive prices.  However, several of our
major competitors enjoy a more dominant position in the industry
and have much greater resources than we do.  Some of our ventfree
gas log products utilize a patented design, which we own.  Other
companies have introduced products which compete with our
ventfree log sets.

Corporate Consolidation
-----------------------

Our management is continuing in its efforts to streamline our
operations, reduce costs, and improve our efficiencies.  Towards
this end, we are in the process of certain consolidation
measures. We completed the first step toward this consolidation
when we relocated our principal executive offices from Dallas,
Texas to Perris, California on September 30, 2002.   We are
currently in the process of significantly reducing our operations
at our Manchester, Tennessee facility.  A number of manufacturing
activities historically carried out in Tennessee will instead be
consolidated with the manufacturing operations currently
conducted at our Mexicali, Mexico facility.  As a result, there
will be a significant reduction in force at our Manchester
facility with a roughly corresponding increase in employees at
our Mexicali facility.  As part of this consolidation effort, we
will also be transferring a significant amount of equipment and
materials from Manchester to Mexicali. Once this consolidation is
completed, the bulk of our manufacturing activity will be carried
out at our Mexicali plant, with limited production continuing in
Manchester, Tennessee.  We anticipate our Perris, California
location continuing to serve as our corporate headquarters as
well as a center for warehousing and distribution activities.

Inventories and Payment Terms
-----------------------------

As a general rule, our customers are not permitted to return
fireplaces nor are they granted extended payment terms on any of
these products.  As a result, our working capital needs are less
than would be the case if we carried significant amounts of
inventory, accepted returns of merchandise or granted extended
payment terms.  Generally, receivables are due within 30 days.


Patents and Trademarks
----------------------

We own a variety of patents, trademarks and trade names.  The
consumer products we manufacture are sold primarily under the
trademark or trade names of Temco[R], Temco American Dream[R],
Firetech 2000[R] and Prestige[R].  Some of the patents owned give
us some unique product features.  We do not consider any one or
group of our patents, trademarks or trade names to be material to
our business as a whole, except for the patent relating to our
ventfree fireplace products. This patent was purchased in 2002
and expires in 2008.


                               -2-


<PAGE>

Seasonality
-----------

A majority of the end-users of our products are contractors and
others engaged in the construction and remodeling markets, which
tend to be most active in the summer and fall months. Since users
of our products and others engaged in this industry do not
generally maintain significant inventories of building materials
or component parts of structures, such as factory built fireplace
units, our sales are affected by this seasonality. In addition,
we operate in the durable goods sector of the building products
industry, which is cyclical in nature and can be adversely
affected by decreases in available consumer credit, increases in
interest rates, declines in consumer confidence or other adverse
developments in general economic conditions.

Backlog
-------

The table set forth below gives certain information with respect
to our approximate backlog.

                                 August 31,
                         -------------------------
                            2002           2001
                         ----------     ----------
     Backlog orders      $  930,000     $  486,000


As of August 31, 2002, the amount of backlog of orders shown
above is believed to be firm and the orders are expected to be
filled during fiscal year 2003.  We do not consider backlog
amounts to be significant due to the short-term nature of our
customer's order patterns.

Government Regulations
----------------------

Many state and local building, fire and safety codes limit or
prohibit the installation of heating sources that burn natural
gas or liquefied petroleum products, unless such sources are
accompanied by a vent, flue or chimney. Unlike other combustion-
based heat sources, our ventfree gas logs do not emit significant
amounts of carbon monoxide. Therefore, ventilation away from the
heat source is not necessary to assure the safety of occupants of
the dwelling in which ventfree gas logs are installed. We have
been relatively successful to date in obtaining waivers, as
needed, of the application of, or amendment to, the building fire
and safety codes in a variety of jurisdictions to permit the
installation of our ventfree gas logs. To the extent that we are
unsuccessful in obtaining such waivers of, or amendments to, the
relevant statutes or regulations in any of the major housing
markets in the United States, sales of ventfree gas products may
be adversely affected.

We do not anticipate that compliance with federal, state and
local provisions regulating the discharge of materials into the
environment, or otherwise relating to the protection of the
environment, will have any material effect upon capital
expenditures or earnings and will not materially affect the
competitive position of either us or our subsidiaries.

Employees
---------

As of August 31, 2002, we employed 373 persons (including
employees of our subsidiaries) of whom 94 were salaried and 279
were hourly employees.  As part of our consolidation efforts (See
"Corporate Consolidation" above) we plan to significantly reduce
our hourly and salaried employees in our Manchester, Tennessee
manufacturing facilities.  Approximately one hundred of the
positions that we will eliminate in Tennessee will be re-located
to our Mexicali facility.  We expect a small increase in
administrative staff in our corporate headquarters in Perris,
California, as a result of this consolidation.


                               -3-


<PAGE>


ITEM 2.   PROPERTIES

Corporate Office
----------------

Our executive offices are located at 1190 West Oleander Avenue,
Perris, California 92571.  Such offices consist of a suite of
small offices adjoining our manufacturing facility (consisting of
approximately 78,000 square feet), which was leased under a
twenty-five year lease with an original expiration date of
September 30, 1998.  The lease was extended for an additional ten
years on March 29, 1994, to expire on September 30, 2008. The
current monthly base rental for the Perris location is $6,368.
Prior to September 30, 2002, our corporate headquarter were
located at 5400 LBJ Freeway, Suite 1375, Dallas Texas 75240.
Instead of renewing our lease for the Dallas office space, we
chose to utilize existing space at our manufacturing facility in
Perris, California. The relocation of our corporate headquarters
was part of our broader ongoing strategic plan to streamline
operations and increase efficiencies (See "Business - Corporate
Consolidation" above).

Fireplace Products
------------------

We manufacture, assemble and distribute our fireplace products in
our facilities at Manchester, Tennessee; Perris, California; and
Mexicali, Baja California, Mexico.

Our Manchester, Tennessee facility contains approximately 157,000
square feet.  The Manchester, Tennessee facility is leased by us
from HUTCO, a California partnership of which Mr. James E.
Upfield (Member of the Board of Directors) is a general partner.
The original lease provided for a twenty-five year term, expiring
in 2014 with a monthly rental of $13,020, subject to certain
scheduled rental escalations based upon increases in the consumer
price index.  During fiscal 1994, we entered into a new lease
agreement with HUTCO whereby HUTCO expanded the Manchester,
Tennessee facility by 30,000 square feet.  The revised lease
expires in 2020, and maintains a current rent of $23,960 per
month, subject to future increases based upon changes in the
consumer price index.  In the opinion of our management, the
leases from HUTCO were consummated on terms and conditions as
favorable to us as terms and conditions obtainable from non-
affiliated parties. In light of our reduced operations at this
facility (see "Business - Corporate Consolidation" above), we
will be investigating ways to better use any unutilized space,
including possible sub-leasing.  No definitive plans have been
made as of the date of this report.

Our facility in Perris, California is located on ten acres of
land and contains approximately 78,000 square feet. We currently
manufacture flue pipe chimney and concrete log sets in this
facility. Perris also serves as a West Coast distribution center
for our products. We lease this facility under a long-term lease
expiring September 30, 2008.  The monthly rental rate for this
facility is $6,368.

During 2000, we completed expansion of the facility in Mexicali,
Mexico from 35,000 square feet to 49,000 square feet to
accommodate the transfer to the Mexico plant of manufacturing
operations that have been historically conducted in our
Manchester, Tennessee facility.  The lease for the facility
provides for basic monthly rental of $17,475 (U.S.) and expires
in April 2005.  This facility currently manufactures fireplaces
and component parts for use by our Perris, California plant.  In
September 2002, we entered into an agreement with the landlord to
further expand the facility in Mexicali to 76,000 square feet.
Facility expansion costs will be built into the monthly payment
terms under a new seven-year operating lease, effective December
2002.  Under this new operating lease, our current monthly rent
for the Mexicali facility is $29,000 per month.

ITEM 3.   LEGAL PROCEEDINGS

From time to time we are involved in litigation that arises
through the normal course of business operations. As of the date
of this report, however, we are not a party to any litigation
that we believe could reasonably be expected to have a material
adverse effect on our business or results of operations.

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

Not applicable.


                               -4-


<PAGE>

                             PART II

ITEM 5.   MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER
          MATTERS

MARKET FOR COMMON STOCK.  Effective February 1, 2000, we moved
the listing of our common stock from the Nasdaq National Market
to the Nasdaq SmallCap Market.  We maintained our ticker symbol
TMTX.  Effective April 25, 2001, our stock was delisted from the
Nasdaq Stock Market and now trades on the Over The Counter
Bulletin Board (OTCBB)[R] under the symbol TMTX.OB.  In the
second quarter of 2003, a new market, the Bulletin Board Exchange
("BBX"), will be launched.  The OTCBB will be phased out within
six months of the launching of the BBX and will, in essence, be
replaced by the BBX.  Companies that are currently quoted on the
OTCBB can be listed on the BBX if they satisfy certain listing
standards.  Those companies which do not meet the standards by
the end of the phase-out period will be traded on over-the-
counter markets such as the Pink Sheets.

We believe that we will qualify for trading on the BBX when this
transition is effected; however, if we are not qualified to trade
on the BBX our stockholders will find it very difficult, if not
impossible, to sell their shares of our common stock until such
time as we qualify for trading on the BBX or another national
exchange or quotation system.

The following table summarizes the high and low sales prices of
the common stock provided to us by the Nasdaq Stock Market prior
to our delisting on April 25, 2001 and by the Over the Counter
Bulletin Board after that date.


                                     Price (1)
                              ------------------
                                High      Low
                              --------  --------
     FISCAL 2001
     September-November       $  1.41   $  0.81
     December-February           1.00      0.63
     March-May                   0.97      0.42
     June-August                 0.63      0.36

     FISCAL 2002
     September-November       $  0.44   $  0.33
     December-February           0.34      0.13
     March-May                   0.86      0.22
     June-August                 0.74      0.43

(1)  The prices shown represent quotations between dealers and do
     not include mark-ups, mark-downs or commissions, and may not
     represent actual transactions.

HOLDERS OF COMMON STOCK.  The number of our shareholders of
record as of December 5, 2002 was approximately 648. The only
stock we have outstanding is common stock, par value $0.20 per
share.

DIVIDENDS.  No cash dividends were declared or paid during fiscal
2001 or 2002.  We currently intend to reinvest our earnings, if
any, for use in our business and to finance future growth.
Accordingly, we do not anticipate paying dividends in the
foreseeable future.


                               -5-


<PAGE>


RECENT SALES OF UNREGISTERED SECURITIES. On July 19, 2002, we
issued Subordinated Convertible Notes to a group of four private
investors led by William Y. Tauscher in exchange for an aggregate
of $750,000 in cash. The Convertible Notes bear interest at the
rate of 6% per annum (9% after a default) which is payable
monthly commencing September 1, 2002.  The outstanding principal
under the Convertible Notes is due on July 19, 2007 or earlier
upon an event of default.  Further, to the extent we engage in
certain transactions resulting in the sale of the business prior
to the maturity date, the holders of the Convertible Notes
maintain the right, at their election, to accelerate the payment
of the debt to the effective date of such transaction.
Commencing July 19, 2003, the Convertible Notes are convertible,
at the option of the holders thereof, into shares of our common
stock at an initial conversion price of $0.60 per share.  As a
result, the Convertible Notes would collectively convert into
1,250,000 shares or, approximately 26.6% of the shares
outstanding, assuming only the conversion of the Convertible
Notes. The Convertible Notes are convertible prior to July 19,
2003 upon an event of default at the election of the holders.
Lastly, to the extent the holders of the Convertible Notes do not
voluntarily elect to receive the prepayment of the notes in
connection with certain sale events, the Convertible Notes will
automatically convert upon the occurrence of such event at the
then existing conversion price.  In connection with the sale of
the Convertible Notes, we issued to the purchasers of the
Convertible Notes four common stock purchase warrants exercisable
for an aggregate of 250,000 shares of our common stock.  The
warrants may be exercised for a period of five years at a per
share purchase price of $0.60.  The issuance of the Convertible
Notes and the accompanying warrants were deemed to be exempt from
registration under the Securities Act of 1933 in reliance on
Section 4(2) of such act as transactions by an issuer not
involving any public offering.  The recipients of the Convertible
Notes and the warrants represented their intentions to acquire
the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate
legends were affixed to the instruments issued in these
transactions. On July 19, 2002, Mr. Anderson, our chief executive
officer and president received, in connection with his offer for
employment, an option exercisable for 500,000 shares of the
Company's common stock at an exercise price of $0.55 per share.
The option will vest in three equal installments on July 19 of
2003, 2004 and 2005.

ITEM 6.   SELECTED FINANCIAL DATA

The following selected consolidated financial data for the five
fiscal years ended August 31, 2002 is derived from our audited
consolidated financial statements.  The selected consolidated
financial data presented below should be read in conjunction with
our consolidated financial statements, together with the Notes to
Consolidated Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations
included elsewhere in our Form 10-K for the year ended August 31,
2002.

<TABLE>
<CAPTION>

                                                                            Year Ended August 31,
                                                  -----------------------------------------------------------------------
                                                      2002           2001           2000          1999           1998
                                                  ------------   ------------   ------------  ------------   ------------
                                                              (in thousands, except share and per share amounts)

                                               <c>            <c>            <c>            <c>            <c>
Selected Statement of Operations Data:
Net sales                                         $     22,263   $     20,285   $     21,916   $    26,172    $    27,666
Loss from continuing operations                         (6,043)        (5,704)        (6,064)       (4,137)        (1,635)
Net (loss) income                                       (6,043)        (5,704)        (6,064)        1,269            507
Basic loss per common share from
  continuing operations (1)                              (1.75)         (1.66)         (1.76)        (1.19)         (0.47)
Basic net (loss) income per common share (1)             (1.75)         (1.66)         (1.76)         0.37           0.15
Diluted net (loss) income per common and common
  equivalent share (1)                                   (1.75)         (1.66)         (1.76)         0.36           0.14
Basic weighted average common shares
  outstanding (1)                                    3,444,641      3,444,641      3,444,641     3,466,975      3,477,141
Diluted weighted average common and common
  equivalent shares outstanding (1)                  3,444,641      3,444,641      3,444,641     3,511,135      3,531,414


                                                                            Year Ended August 31,
                                                  -----------------------------------------------------------------------
                                                      2002           2001           2000          1999           1998
                                                  ------------   ------------   ------------  ------------   ------------
Selected Balance Sheet Data:
Total assets                                      $      8,562   $     13,842   $     16,541  $     23,700(2)$     22,547(2)
Long-term debt, excluding current maturities (3)         3,279          1,895          1,937         1,984          2,246
Stockholders' equity (4)                                  (309)         5,686         11,390        17,454         16,288

</TABLE>

___________________________
(1)  All per share and weighted common and common equivalent
     shares outstanding have been restated to reflect the
     adoption of SFAS No. 128.
(2)  Includes assets related to discontinued operations.
(3)  Includes capitalized lease obligations to related parties
     and obligations of discontinued operations.
(4)  We have not declared or paid cash dividends during the
     relevant periods.


                               -6-


<PAGE>

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

The following discussion and analysis should be read in
conjunction with the financial statements and notes thereto
included as Item 8 of this report.  This document contains
"forward-looking statements" made under the "safe harbor"
provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are based on the beliefs
of our management as well as assumptions made by, and information
currently available, to our management.

These statements include without limitation, the following:

*    statements regarding our anticipated future capital
     requirements and the sufficiency of the working capital
     currently available to us;

*    statements regarding our plans to expand our market share
     for our products and enhanced inventory turnover;

*    statements regarding our plan to achieve targeted inventory
     reductions;

*    statements regarding our consolidation strategy;

*    statements regarding the objectives of our management; and

*    other statements which speak to projections of future
     conditions or our anticipated performance, including
     statements which contain the words "anticipate," "believe,"
     "expect" and words or phrases of similar import, as they
     relate to us or our management.

You should be aware that these forward-looking statements are
subject to certain risks, uncertainties and assumptions
including, without limitation:

*    our ability to generate sufficient cash flow to allow us to
     continue as a going concern;

*    our ability to meet our near term cash requirements;

*    our ability to achieve certain efficiencies in our sales,
     purchasing and manufacturing processes; and

*    our ability to overcome numerous other significant risks and
     difficulties including, but not limited to, those factors
     set forth in subsequently filed reports with the U. S.
     Securities and Exchange Commission.

Although we believe that the expectations reflected in such
forward-looking statements are reasonable, we can give no
assurance that such expectations will prove to have been correct.
Should any one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those
described herein. Except as required by federal securities laws,
we undertake no obligation to publicly update or revise any
written or oral forward-looking statements, whether as a result
of new information, future events, changed circumstances or any
other reason after the date of this report. All subsequent
written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their
entirety by the applicable cautionary statements.

We are a producer of metal fireplace products used in the
residential and commercial building and the remodeling markets.
We manufacture our fireplace products at our plants in
Manchester, Tennessee; Perris, California; and through Temcomex
Manufacturing Products (Mexico) and distribute them through Temco
Fireplace Products, Inc., (both of which are our wholly owned
subsidiaries). Our fireplace products are sold nationwide to a
network of contractors, distributors and retailers.



                               -7-


<PAGE>

Fiscal Year 2002 Compared To Fiscal  Year 2001
----------------------------------------------

NET SALES

Net sales increased approximately $2.0 million, or 10%, in fiscal
2002 compared to fiscal 2001.  The increase in sales was mainly
due to an overall increase in quantity of fireplaces delivered
for the year. Deliveries of gas fireplaces increased by
approximately 10% while deliveries of woodburning fireplaces
increased by 12%. Sales were favorably affected by the sale of
some obsolete fireplaces and associated items. Although sales and
quantity both increased, unit sale prices declined slightly.


GROSS PROFIT

Gross profit for fiscal 2002 was $187,000. Gross profit decreased
approximately $1.0 million, or 84%, in fiscal 2002 compared to
fiscal 2001.  The decrease in gross profit was primarily
attributable to inventory write-offs of approximately $1.6 million
during the period for estimated losses on obsolete inventory, and
sales of obsolete items at reduced prices.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling expenses decreased approximately $358,000 or 13% in
fiscal 2002 compared to fiscal 2001. The majority of the decrease
was related to reductions in advertising and other administrative
expenses.

General and administrative expenses decreased approximately
$188,000 or 5% in fiscal 2002 compared to fiscal 2001. A
significant portion of the decrease was related to continued cost
reduction programs in all administrative areas. The decreases in
these expenses was partially offset by certain severance costs.


INTEREST EXPENSE

Net interest expense increased approximately $39,000 or 8% in
fiscal 2002 compared to fiscal 2001. The change in expense was
caused by the change in average indebtedness under the line of
credit, and as a result of the July 19, 2002 financing
transaction.


INCOME TAXES

We recorded a benefit of $174,000 for income taxes in the third
quarter of fiscal 2002.  The benefit reflects the refund received
in June 2002 that was requested under the tax provisions of the
Job Creation and Worker Assistance Act of 2002. Before
considering the valuation allowance, we still have net deferred
tax assets resulting primarily from net operating losses.
Therefore, we have chosen to establish a valuation allowance to
reserve the entire amount until such time that reassessment
indicates that it is more likely than not that the benefits will
be realized primarily through future taxable income.


Fiscal Year 2001 Compared to Fiscal  Year 2000
----------------------------------------------


NET SALES

Net sales decreased approximately $1.6 million or 7% in fiscal
2001 compared to fiscal 2000.  The reduction in sales was mainly
due to an overall reduction in the number of woodburning and vent-
free fireplace units delivered which was partially offset by an
increase of approximately 57% in the number of direct-vent gas
fireplaces delivered over fiscal 2000.  Approximately 83% of the
decrease was attributable to the decrease in the quantities
delivered in fiscal 2001.


                               -8-


<PAGE>


GROSS PROFIT

Gross profit decreased approximately $0.5 million or 29% in
fiscal 2001 compared to fiscal 2000. The decrease in gross profit
was primarily due to the decrease in sales volume.  The
production level required to sustain the lower sales level did
not allow for full absorption of overhead expenses.  Anticipated
efficiencies from greater utilization of the Tennessee and Mexico
facilities were only marginally realized due to the inadequate
sales and production volume.  We also recorded a $350,000
inventory write-off for estimated losses on obsolete inventory.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling expenses decreased approximately 14% or approximately
$457,000 in fiscal year 2001 compared to fiscal 2000.  The most
significant decreases were recorded in salaries, commissions and
advertising expenses.

General and administrative expenses decreased approximately 15%
or $618,000 in fiscal 2001 compared to fiscal 2000. Reductions
were noted in salaries, security plan expense, and bad debt
expense.


INTEREST EXPENSE

Net interest expense increased approximately $210,000 or 74% in
fiscal 2001 compared to fiscal 2000.  The increase was the result
of borrowings under our credit agreement.


INCOME TAXES

During fiscal 2001, we did not recognize a credit for income
taxes.  Before considering the valuation allowance, we had net
deferred tax assets resulting primarily from net operating
losses.  Therefore, we have chosen to establish a valuation
allowance to reserve the entire amount until such time that
reassessment indicates that it is more likely than not that the
benefits will be realized primarily through future taxable
income.


Liquidity and Capital Resources
-------------------------------

Net cash provided by operating activities was $489,000 in fiscal
2002, compared to cash used of $3,395,000 and $2,259,000 in
fiscal 2001 and 2000, respectively.  Working capital decreased
$3,918,000 in fiscal 2002 due to decreases in accounts receivable
and inventories.  The significant decrease in inventories was the
result of an aggressive inventory reduction program undertaken by
the Company.  Working capital decreased $4,855,000 in fiscal 2001
due mainly to decreases in cash and inventories and the
borrowings under the line of credit.

Capital expenditures for fireplace products totaled $198,000,
$384,000 and $758,000 in fiscal 2002, 2001 and 2000,
respectively.  The majority of expenditures in each of the years
were for tooling, replacement items and major repairs to
manufacturing equipment.  In fiscal year 2000, capital
expenditures were primarily made using cash proceeds from the
sale of Texas Clay Industries. While the amounts spent on capital
expenditures have been decreasing in recent years, the Company
does not believe that significantly higher amounts will need to
be spent in the upcoming year, due in part to plant consolidation
actions that are underway. However, the Company is currently
evaluating the possible purchase and upgrade of computer
equipment.

A majority of the end-users of our products are contractors and
others engaged in the construction and remodeling markets, which
tend to be most active in the summer and fall months.  Since
users of our products and others engaged in this industry do not
generally maintain significant inventories of building materials
or component parts of structures our sales are affected by this
seasonality. As we enter the more active season, demands for
additional capital for inventory purchases and equipment
maintenance will significantly increase.  Without sufficient
funds, we will be unable to meet these increased demands.  In
addition, we operate in the durable goods sector of the building
products industry, which is cyclical in nature and can be
adversely affected by decreases in available consumer credit,
increases in interest rates, declines in consumer confidence or
other adverse developments in general economic conditions.


                               -9-


<PAGE>

The lack of adequate cash resources has become an increasingly
difficult problem for our management. Specifically:

     *    we are managing our cash on a day-to-day basis;

     *    the inability to obtain raw materials and other
          materials from vendors and suppliers has, on occasion,
          resulted in significant plant slow-downs, thereby
          decreasing production and jeopardizing client
          relationships; and

     *    Frost Capital Group, the lender on our revolving credit
          facility, has continued to reduce our eligible accounts
          receivable, thereby further restricting the amount of
          cash we can borrow to finance our operations.

To remedy the serious deficiencies inherent in our cash position,
we consummated, effective July 19, 2002, a financing transaction
involving James E. Upfield, our former Chairman of the Board and
an investment group led by William Y. Tauscher, our new Chairman
of the Board.

SUBORDINATED CONVERTIBLE NOTES. Effective July 19, 2002, a group
of four private investors led by William Y. Tauscher, loaned us
an aggregate $750,000 pursuant to our Subordinated Convertible
Notes due July 19, 2007. The Convertible Notes bear interest at
the rate of 6% per annum (9% after a default) which is payable
monthly commencing September 1, 2002.  The outstanding principal
under the Convertible Notes is due on July 19, 2007 or earlier
upon an event of default.  Further, to the extent we engage in
certain transactions resulting in the sale of the business prior
to the maturity date, the holders of the Convertible Notes
maintain the right, at their election, to accelerate the payment
of the debt to the effective date of such transaction.
Commencing July 19, 2003, the Convertible Notes are convertible,
at the option of the holders thereof, into shares of our common
stock at an initial conversion price of $0.60 per share.  As a
result, the Convertible Notes would collectively convert into
1,250,000 shares or, approximately 26.6% of the shares
outstanding, assuming only the conversion of the Convertible
Notes. The Convertible Notes are convertible prior to July 19,
2003 upon an event of default at the election of the holders.
Lastly, to the extent the holders of the Convertible Notes do not
voluntarily elect to receive the prepayment of the notes in
connection with certain sale events, the Convertible Notes will
automatically convert upon the occurrence of such event at the
then existing conversion price.  The Convertible Notes are
unsecured obligations and are fully subordinated to our
indebtedness to Frost Capital Group under the revolving credit
facility and to our indebtedness to James Upfield as discussed
below. In connection with the sale of the Convertible Notes, we
issued to the purchasers of the Convertible Notes four common
stock purchase warrants exercisable for an aggregate of 250,000
shares of our common stock.  The warrants may be exercised for a
period of five years at a per share purchase price of $0.60.

SECURED TERM NOTE.  Also on July 19, 2002, James E. Upfield
loaned us $750,000 pursuant to a Secured Term Note due July 19,
2005. This Term Note bears interest at the rate of 6% per annum
(9% after a default) which is payable monthly commencing
September 1, 2002.  The outstanding principal balance of the Term
Note is due on July 19, 2005 or earlier upon an event of default.
The Term Note issued to Mr. Upfield is secured by a first
priority security interest in our inventory and a second priority
security interest in our equipment (with the superior lien
remaining pledged under our credit facility with Frost Capital
Group).

AMENDMENT OF REVOLVING CREDIT FACILITY.  In September 2000, we
entered into a three-year credit agreement with Frost Capital
Group whereby we may borrow a maximum of $4,000,000 under a
revolving credit facility.  The amount available under the
facility is subject to limitations based on specified percentages
of our eligible outstanding receivables and inventory.  The
outstanding principal bears interest at an annual rate of 1.25%
above the specified bank's prime commercial interest rate.
Interest is payable monthly and is added to the outstanding loan
balance. On July 19, 2002, we entered into an amendment to the
revolving facility which, among other things, (1) permitted the
financing transaction involving James Upfield and the William
Tauscher group, (2) subordinated the bank's lien on our inventory
so as to permit the pledge of that inventory to Mr. Upfield to
secure our obligations under the Secured Term note, and (3)
eliminated inventory as part of the borrowing base.  The credit
facility is secured by all of our assets and our subsidiary,
Temco Fireplace Products, Inc., subject to a prior lien of Mr.
Upfield.  The revolving credit facility does not require the
maintenance of any financial ratios but does contain several
covenants.  As of the date of this filing, we are in compliance
with all of the loan covenants, with the exception of a provision
regarding timely filing of an officer's certificate. Frost
Capital Group has waived any defaults related to this issue. At
August 31, 2002 there was approximately $1,974,000 outstanding,
leaving approximately $86,000 available under the credit
facility.


                              -10-


<PAGE>

GOING CONCERN ISSUES.  The accompanying consolidated financial
statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business.  As shown in the
consolidated financial statements, we incurred significant losses
from continuing operations of $6,043,000 and $5,704,000 during
the years ended August 31, 2002 and 2001, respectively.  We used
cash in our operations of $3,395,000 during the year ended August
31, 2001. In addition, considering borrowing limitations under
our existing credit agreement, we continue to borrow near the
maximum amount under our credit agreement and the lender has,
consistent with its rights under the applicable loan documents,
further decreased our available borrowing base. The lack of
adequate cash resources has become an increasingly difficult
problem for our management. Accordingly, effective July 19, 2002,
we consummated a transaction with James E. Upfield, our former
Chairman of the Board and a holder of approximately 39% of our
outstanding common stock, and a group of investors led by William
Y. Tauscher, our new Chairman of the Board. As indicated, we
generated $1,500,000 of additional working capital from these
transactions. As a result of these developments, management
believes that it will have sufficient resources to meet our near
term cash requirements; however, no assurances can be given that
unforeseen circumstances will not arise in the future requiring
more cash than currently anticipated. Unless we are able to
significantly improve our operating performance, additional
outside financing will be difficult to obtain on acceptable
terms, if at all. Consequently, if the financing provided by the
July 19, 2002 transaction is insufficient to satisfy our near
term cash requirements, or if we are unable to obtain additional
financing as needed, it is likely that we would be required to
cease operations altogether.

MANAGEMENT INITIATIVES.  Although we have recently consummated a
transaction providing us with $1,500,000 in additional working
capital, these factors, among others, indicate that we may be
unable to continue as a going concern unless we are successful in
our attempts, such as our recent consolidation efforts, to
streamline operations, reduce costs and generate consistent
profits.  Management recognizes that our continuation as a going
concern is dependent upon our ability to generate sufficient cash
flow to allow us to satisfy our obligations on a timely basis.
The generation of sufficient cash flow is dependent on our
ability to reduce overhead costs, and to continue to reduce
inventories.  We are continuing to perform a detailed review of
each sales territory to determine what actions should be taken to
increase our market share in that region.  We are also evaluating
other methods of controlling inventory levels, including the
possible purchase of computer software to more effectively
control the purchasing and production processes.   We expect to
be able to achieve these initiatives without materially
disrupting product shipments to current customers.  In addition,
our management has taken and is taking certain consolidation
measures that are designed to streamline our operations, reduce
costs, and improve our efficiencies.  These consolidation
measures have included the relocation of our corporate
headquarters to Perris, California, and the relocation of a
significant amount of equipment and manufacturing operations from
our Manchester, Tennessee location to our Mexicali, Mexico
manufacturing facility.  (See "Business - Corporate
Consolidation" above).

Critical Accounting Policies
----------------------------

The Securities and Exchange Commission has indicated that a
"critical accounting policy" is one which is both important to
the portrayal of a company's financial condition and results and
requires management's most difficult, subjective or complex
judgments, often as a result of the need to make estimates about
the effect of matters that are inherently uncertain.  The Company
believes that the following accounting policies fit this
definition:

Allowance for doubtful accounts.  Certain of the trade accounts
receivable are subject to bad debt losses.  A reserve has been
recorded to reflect expected bad debt losses based on past
experience with similar accounts receivable.  The reserve is
believed to be reasonable.  However, it is possible that the
accuracy of the reserve could be affected substantially due to
changing economic conditions.  The reserve is reviewed on a
regular basis and adjusted as necessary to react to these changes
as soon as possible.  There can be no assurance that the Company
will be able to accurately estimate bad debt losses on its
accounts receivable.

Excess and obsolete reserve.  The Company has estimated that it
has approximately $630,000 of raw material, purchased parts, and
work-in-process inventory that has not been utilized in the
production of finished goods, as well as finished goods that are
not saleable items due to obsolescence.  A reserve is calculated
and then recorded using the prior history of usage and sales to
estimate excess inventory and on projections of future production
and future sales to estimate obsolescence.  The Company believes
that the reserve is adequate.  It is possible, however, that the
adequacy could be materially affected in the future by factors
such as customer demands and preferences, economic events, and
governmental and listing agency regulations.




                              -11-


<PAGE>

Income taxes.  The Company has a history of unprofitable
operations from losses incurred in 2001 as well as prior years.
These losses generated a sizeable federal tax net operating loss,
or NOL, carry forward.  Generally accepted accounting principles
require that a valuation allowance be recorded against the deferred
tax asset associated with the NOL if it is "more likely than not"
that the Company will not be able to apply the asset to taxes due on
future earnings.  Due to the amount of deferred tax asset and
the uncertainties of the prospects of the Company, the asset has
not been recognized.

Effects of Inflation
--------------------

We believe that the effects of inflation on our operations have
not been material during the past three fiscal years.  However,
inflation could adversely affect us if inflation results in
higher interest rates or a substantial weakening in economic
conditions that could adversely affect the new housing market.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
          RISK

We do not engage in market risk sensitive instruments and does
not purchase hedging instruments or "other than trading"
instruments that are likely to expose us to market risk, whether
interest rate, foreign currency exchange, commodity price or
equity price risk.  We have not purchased options or entered into
swaps or forward or futures contracts.  Our primary market risk
exposure is that of interest rate risk on borrowings that we may
have under some future credit facility.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Please refer to pages F-1 through F-16.


ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR
          ACCOUNTING AND FINANCIAL DISCLOSURES

(a)  Information required by item 304(a)(1) of Regulation S-K.

     (i)  On June 28, 2002, Ernst & Young LLP notified us that it
          had resigned.

     (ii) The reports of Ernst & Young LLP on our consolidated
          financial statements as of August 31, 2000 and August
          31, 2001, and for the years then ended, contain no
          adverse opinion or disclaimer of opinion and were not
          qualified or modified as to audit scope or accounting
          principle except that the report contained an
          explanatory paragraph that raised substantial doubt
          about our ability to continue as a going concern.

     (iii)     N/A

     (iv) In connection with its audits for the two most recent
          fiscal years and during the interim period through the
          date the relationship ended, there have been no
          disagreements with Ernst & Young LLP on any matter of
          accounting principle or practice, financial statement
          disclosure, or auditing scope or procedure, which
          disagreements if not resolved to the satisfaction of
          Ernst & Young LLP would have caused Ernst & Young LLP
          to make reference thereto in their report on the
          financial statements for such years.

     (v)  During the two most recent fiscal years and during the
          interim period through the date the relationship ended,
          there have been no reportable events (as defined in
          regulation S-K Item 304(a)(1)(v)).

(b)  Effective July 1, 2002, Weaver and Tidwell LLP was approved
     by our Board of Directors as the new independent
     accountants.  Management has not previously consulted with
     Weaver and Tidwell LLP concerning any accounting, auditing,
     or reporting matter.

(c)  We requested that Ernst & Young LLP provide us with a letter
     addressed to the SEC stating whether or not it agreed with
     the above statements.  A copy of such letter, dated July 2,
     2002, was filed as Exhibit 16 to our Form 8-K filed with the
     SEC on July 5, 2002 as well as the subsequent Form 8-K/A
     filed on July 10, 2002.


                            PART III

ITEM 10.  OUR DIRECTORS AND EXECUTIVE OFFICERS

Information called for by Item 10 will be set forth under the
caption "Election of Directors" in the Temtex Industries, Inc.
2002 Proxy Statement, which will be filed on or before December
30, 2002, and which is incorporated herein by this reference.


                              -12-


<PAGE>


ITEM 11.  EXECUTIVE COMPENSATION

Information called for by Item 11 will be set forth under the
caption "Executive Compensation and Other Matters" in the Temtex
Industries, Inc. 2002 Proxy Statement, which will be filed on or
before December 30, 2002, and which is incorporated herein by
this reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

Information called for by Item 12 will be set forth under the
caption "Security Ownership of Directors, Management and
Principal Stockholders" in the Temtex Industries, Inc. 2002 Proxy
Statement, which will be filed on or before December 30, 2002,
and which is incorporated herein by this reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information called for by Item 13 will be set forth under the
caption "Certain Relationships and Related Transactions" in the
Temtex Industries, Inc. 2002 Proxy Statement, which will be filed
on or before December 30, 2002, and which is incorporated herein
by this reference.


ITEM 14.  CONTROLS AND PROCEDURES

Within the ninety days prior to the filing date of this Form 10-
K, we carried out an evaluation under the supervision and with
the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures as defined in Rule 13a-14 of the
Securities Exchange Act of 1934. Based upon that evaluation, the
Chief Executive Officer and the Chief Financial Officer concluded
that our disclosure controls and procedures are effective in
timely alerting them to material information relating to our
company (including our consolidated subsidiaries) required to be
included in this Annual Report on Form 10-K. There have been no
significant changes in our internal controls or in other factors
which could significantly affect internal controls subsequent to
the date we carried out our evaluation.


                             PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
          FORM 8-K

(a)  The following documents are filed as a part of this report:

     1.   FINANCIAL STATEMENTS - TEMTEX INDUSTRIES, INC.  The
          following consolidated financial statements of Temtex
          Industries, Inc. are included at Part II, Item 8, of
          this Annual Report on Form 10-K.

          (a)  Report of Weaver & Tidwell LLP
          (b)  Report of Ernst & Young LLP
          (c)  Consolidated Balance Sheets as of August 31, 2002
               and 2001
          (d)  Consolidated Statements of Operations for the
               years ended August 31, 2002, 2001 and 2000
          (d)  Consolidated Statements of Stockholders' Equity
               (Deficit) for the years ended August 31, 2002,
               2001 and 2000.
          (e)  Consolidated Statements of Cash Flows for the
               years ended August 31, 2002, 2001 and 2000.
          (f)  Notes to Financial Statements

     2.   FINANCIAL STATEMENT SCHEDULES.  All required schedules
          are omitted because the required information is not
          present in amounts sufficient to require submission of
          the schedule or because the information required is
          included in the financial statements or notes thereto.

     3.   EXHIBITS.  See the response to Item 15(c) below.


                              -13-


<PAGE>

 (b) Reports on Form 8-K.   The following Current Reports were
     filed on Form 8-K during the quarter ended August 31, 2002:

     1.   On July 5, 2002, we filed a Report on Form 8-K,
          disclosing the resignation of Ernst & Young LLP as our
          independent public accountants and the retention of
          Weaver & Tidwell LLP as our independent public
          accountants for the year ended August 31, 2002, which
          was subsequently amended by a Form 8-K/A filed on July
          10, 2002.

     2.   On October 11, 2002, we filed a Report on Form 8-K,
          disclosing the relocation of our principal executive
          offices from Dallas, Texas to Perris, California.

(c)  Exhibits:

EXHIBIT
 NUMBER   DESCRIPTION
--------  ----------------------------------------------------------

3.1       Amended and Restated Certificate of Incorporation. (3.1)*

3.2       Amended and Restated Bylaws (3.2)*

4.1       Note Purchase Agreement by and among the Registrant,
          William Y. Tauscher, Richard Anderson, David Dalton, and
          the Leonard Kee Living Trust dated as of July 19, 2002.
          (4.1)***

4.2       Investors' Rights Agreement by and among the Registrant,
          William Y. Tauscher, Richard Anderson, David Dalton, and
          the Leonard Kee Living Trust dated as of July 19, 2002.
          (4.2)***

4.3       Voting Agreement by and among James Upfield, the
          Registrant, William Y. Tauscher, Richard Anderson, David
          Dalton, and the Leonard Kee Living Trust dated as of
          July 19, 2002. (4.3)***

4.4       Form of Subordinated Convertible Note issued under the Note
          Purchase Agreement by and among the Registrant William Y.
          Tauscher, Richard Anderson, David Dalton, and the Leonard
          Kee Living Trust dated as of July 19, 2002. (4.4)***

4.5       Form of Common Stock Purchase Warrant issued in connection
          with the Note Purchase Agreement by and among the
          Registrant, William Y. Tauscher, Richard Anderson, David
          Dalton, and the Leonard Kee Living Trust dated as of
          July 19, 2002. (4.5)***

10.1      Lease Agreement between the Registrant and Mr. John D.
          Howard, a former Director of the Registrant, dated October
          1, 1973 (the "Howard Lease Agreement"). (10.13)*

10.2      Second Amendment to the Howard Lease Agreement dated August
          22, 1983. (10.14)*

10.3      Lease Agreement between HUTCO and the Registrant dated
          September 7, 1989. (10.15)*

10.4      Lease Agreement between HUTCO and the Registrant dated
          April 25, 1994. (10.16)*

10.5      Temtex Industries, Inc. 1999 Omnibus Securities Plan.
          (10.26)*

10.6      Frost Capital Credit Agreement (10.27)**

10.7      Secured Term Note by the Registrant in favor of James
          Upfield dated as of July 19, 2002. (10.1)***



                              -14-


<PAGE>


EXHIBIT
 NUMBER   DESCRIPTION
--------  ----------------------------------------------------------

10.8      Security Agreement by the Registrant in favor of James
          Upfield dated as of July 19, 2002. (10.2)***

10.9      Security Agreement by Temco Fireplace Products, Inc. in
          favor of James Upfield dated as of July 19, 2002. (10.3)***

10.10     Employment Agreement by and between the Registrant and
          Richard Anderson dated as of July 19, 2002. (10.4)***

10.11     Stock Option Agreement by and between the Registrant and
          Richard Anderson dated as of July 19, 2002.  (10.5)***

10.12     Services Agreement by and between the Registrant and
          William Y. Tauscher dated as of July 19, 2002. (10.6)***

10.13     Amendment, dated July 19, 2002, to Loan Agreement between
          the Registrant, Temco Fireplace Products, Inc. and the
          Frost National Bank dated September 6, 2000. (10.7)***

10.14     Subordination Agreement by and among William Y. Tauscher,
          Leonard Kee, Richard Anderson, the Frost National Bank, and
          James E. Upfield dated as of July 19, 2002. (10.8)***

21.1      Subsidiaries of the Registrant (filed herewith)

23.1      Consent of Weaver & Tidwell LLP (filed herewith)

23.2      Consent of Ernst & Young LLP (filed herewith)

99.1      906 Certification of Financial Statements (filed herewith)


 *Filed as the exhibit shown in parentheses to the Registrant's
 Annual Report of on Form 10-K for the fiscal year ended August
 31, 1999 and incorporated herein by reference.

 ** Filed as the exhibit shown in parentheses to the
 Registrant's Annual Report of on Form 10-K for the fiscal year
 ended August 31, 2000 and incorporated herein by reference.

 ***Filed as the exhibit shown in parentheses to the
 Registrant's Quarterly Report of on Form 10-Q for the fiscal
 quarter ended May 31, 2002.









                              -15-


<PAGE>

                           SIGNATURES


Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, we have duly caused this report
to be signed on behalf of Temtex Industries, Inc. by the
undersigned, thereunto duly authorized.

                              TEMTEX INDUSTRIES, INC.



Date: December 9, 2002           /s/ Richard N. Anderson
     -----------------        -----------------------------------
                              Richard N. Anderson
                              President/Chief Executive Officer

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

       Signatures                 Titles                  Date
------------------------ ------------------------   -----------------

/s/ WILLIAM Y. TAUSCHER  Director, Chairman of      December 9, 2002
------------------------ the Board
William Y. Tauscher

/s/  RICHARD N. ANDERSON Director, President and    December 9, 2002
------------------------ Chief Executive Officer
Richard N. Anderson

/s/ JOHN F. GURROLA      Secretary and Chief        December 9, 2002
------------------------ Financial Officer
John F. Gurrola

/s/  DAVID DALTON        Director                   December 9, 2002
------------------------
David Dalton

/s/  JAMES E. UPFIELD    Director                   December 9, 2002
------------------------
James E. Upfield

/s/  RICHARD GRINER      Director                   December 9, 2002
------------------------
Richard Griner

/s/  SCOTT UPFIELD       Director                   December 9, 2002
------------------------
Scott Upfield











                              -16-


<PAGE>

                         CERTIFICATIONS

I, Richard Anderson, certify that:

1.   I have reviewed this annual report on Form 10-K of Temtex
     Industries, Inc.;

2.   Based on my knowledge, this annual report does not contain
     any untrue statement of a material fact or omit to state a
     material fact necessary to make the statements made, in
     light of the circumstances under which such statements were
     made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other
     financial information included in this annual report, fairly
     present in all material respects the financial condition,
     results of operations and cash flows of the registrant as
     of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are
     responsible for establishing and maintaining disclosure
     controls and procedures (as defined in Exchange Act Rules
     13a-14 and 15d-14) for the registrant and we have:

     a)   designed such disclosure controls and procedures to
          ensure that material information relating to the
          registrant, including its consolidated subsidiaries, is
          made known to us by others within those entities,
          particularly during the period in which this annual
          report is being prepared;

     b)   evaluated the effectiveness of the registrant's
          disclosure controls and procedures as of a date within
          90 days prior to the filing date of this annual report
          (the "Evaluation Date"); and

     c)   presented in this annual report our conclusions about
          the effectiveness of the disclosure controls and
          procedures based on our evaluation as of the Evaluation
          Date;

5.   The registrant's other certifying officers and I have
     disclosed, based on our most recent evaluation, to the
     registrant's auditors and the audit committee of
     registrant's board of directors (or persons performing the
     equivalent function):

     a)   all significant deficiencies in the design or operation
          of internal controls which could adversely affect the
          registrant's ability to record, process, summarize and
          report financial data and have identified for the
          registrant's auditors any material weaknesses in
          internal controls; and

     b)   any fraud, whether or not material, that involves
          management or other employees who have a significant
          role in the registrant's internal controls; and

6.   The registrant's other certifying officers and I have
     indicated in this annual report whether or not there were
     significant changes in internal controls or in other factors
     that could significantly affect internal controls subsequent
     to the date of our most recent evaluation, including any
     corrective actions with regard to significant deficiencies
     and material weaknesses.

Date: December  9, 2002

/s/ RICHARD N. ANDERSON
-------------------------------------
Richard N. Anderson
President and Chief Executive Officer




                              -17-


<PAGE>

                         CERTIFICATIONS

I, John Gurrola, certify that:

1.   I have reviewed this annual report on Form 10-K of Temtex
     Industries, Inc.;

2.   Based on my knowledge, this annual report does not contain
     any untrue statement of a material fact or omit to state a
     material fact necessary to make the statements made, in
     light of the circumstances under which such statements were
     made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other
     financial information included in this annual report, fairly
     present in all material respects the financial condition,
     results of operations and cash flows of the registrant as
     of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are
     responsible for establishing and maintaining disclosure
     controls and procedures (as defined in Exchange Act Rules
     13a-14 and 15d-14) for the registrant and we have:

     a)   designed such disclosure controls and procedures
          to ensure that material information relating to the
          registrant, including its consolidated subsidiaries, is
          made known to us by others within those entities,
          particularly during the period in which this annual
          report is being prepared;

     b)   evaluated the effectiveness of the registrant's
          disclosure controls and procedures as of a date within
          90 days prior to the filing date of this annual report
          (the "Evaluation Date"); and

     c)   presented in this annual report our conclusions
          about the effectiveness of the disclosure controls and
          procedures based on our evaluation as of the Evaluation
          Date;

5.   The registrant's other certifying officers and I have
     disclosed, based on our most recent evaluation, to the
     registrant's auditors and the audit committee of
     registrant's board of directors (or persons performing the
     equivalent function):

     a)   all significant deficiencies in the design or
          operation of internal controls which could adversely
          affect the registrant's ability to record, process,
          summarize and report financial data and have identified
          for the registrant's auditors any material weaknesses
          in internal controls; and

     b)   any fraud, whether or not material, that involves
          management or other employees who have a significant
          role in the registrant's internal controls; and

6.  The registrant's other certifying officers and I have
    indicated in this annual report whether or not there were
    significant changes in internal controls or in other factors
    that could significantly affect internal controls subsequent
    to the date of our most recent evaluation, including any
    corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: December 9, 2002

/s/ JOHN F. GURROLA
-------------------------------------
John F. Gurrola
Secretary and Chief Financial Officer











                              -18-


<PAGE>

                        INDEX TO EXHIBITS


EXHIBIT
 NUMBER   DESCRIPTION
--------  ----------------------------------------------------------

3.1       Amended and Restated Certificate of Incorporation. (3.1)*

3.2       Amended and Restated Bylaws (3.2)*

4.1       Note Purchase Agreement by and among the Registrant,
          William Y. Tauscher, Richard Anderson, David Dalton, and
          the Leonard Kee Living Trust dated as of July 19, 2002.
          (4.1)***

4.2       Investors' Rights Agreement by and among the Registrant,
          William Y. Tauscher, Richard Anderson, David Dalton, and
          the Leonard Kee Living Trust dated as of July 19, 2002.
          (4.2)***

4.3       Voting Agreement by and among James Upfield, the
          Registrant, William Y. Tauscher, Richard Anderson, David
          Dalton, and the Leonard Kee Living Trust dated as of
          July 19, 2002. (4.3)***

4.4       Form of Subordinated Convertible Note issued under the Note
          Purchase Agreement by and among the Registrant William Y.
          Tauscher, Richard Anderson, David Dalton, and the Leonard
          Kee Living Trust dated as of July 19, 2002. (4.4)***

4.5       Form of Common Stock Purchase Warrant issued in connection
          with the Note Purchase Agreement by and among the
          Registrant, William Y. Tauscher, Richard Anderson, David
          Dalton, and the Leonard Kee Living Trust dated as of
          July 19, 2002. (4.5)***

10.1      Lease Agreement between the Registrant and Mr. John D.
          Howard, a former Director of the Registrant, dated October
          1, 1973 (the "Howard Lease Agreement"). (10.13)*

10.2      Second Amendment to the Howard Lease Agreement dated August
          22, 1983. (10.14)*

10.3      Lease Agreement between HUTCO and the Registrant dated
          September 7, 1989. (10.15)*

10.4      Lease Agreement between HUTCO and the Registrant dated
          April 25, 1994. (10.16)*

10.5      Temtex Industries, Inc. 1999 Omnibus Securities Plan.
          (10.26)*

10.6      Frost Capital Credit Agreement (10.27)**

10.7      Secured Term Note by the Registrant in favor of James
          Upfield dated as of July 19, 2002. (10.1)***

10.8      Security Agreement by the Registrant in favor of James
          Upfield dated as of July 19, 2002. (10.2)***

10.9      Security Agreement by Temco Fireplace Products, Inc. in
          favor of James Upfield dated as of July 19, 2002. (10.3)***



                              -19-


<PAGE>


EXHIBIT
 NUMBER   DESCRIPTION
--------  ----------------------------------------------------------

10.10     Employment Agreement by and between the Registrant and
          Richard Anderson dated as of July 19, 2002. (10.4)***

10.11     Stock Option Agreement by and between the Registrant and
          Richard Anderson dated as of July 19, 2002.  (10.5)***

10.12     Services Agreement by and between the Registrant and
          William Y. Tauscher dated as of July 19, 2002. (10.6)***

10.13     Amendment, dated July 19, 2002, to Loan Agreement between
          the Registrant, Temco Fireplace Products, Inc. and the
          Frost National Bank dated September 6, 2000. (10.7)***

10.14     Subordination Agreement by and among William Y. Tauscher,
          Leonard Kee, Richard Anderson, the Frost National Bank, and
          James E. Upfield dated as of July 19, 2002. (10.8)***

21.1      Subsidiaries of the Registrant (filed herewith)

23.1      Consent of Weaver & Tidwell LLP (filed herewith)

23.2      Consent of Ernst & Young LLP (filed herewith)

99.1      906 Certification of Financial Statements (filed herewith)


 *Filed as the exhibit shown in parentheses to the Registrant's
 Annual Report of on Form 10-K for the fiscal year ended August
 31, 1999 and incorporated herein by reference.

 ** Filed as the exhibit shown in parentheses to the
 Registrant's Annual Report of on Form 10-K for the fiscal year
 ended August 31, 2000 and incorporated herein by reference.

 ***Filed as the exhibit shown in parentheses to the
 Registrant's Quarterly Report of on Form 10-Q for the fiscal
 quarter ended May 31, 2002.



<PAGE>

                  INDEX TO FINANCIAL STATEMENTS



Independent Auditors Report for the fiscal year ended
  August 31, 2002...........................................    F-1

Report of the Independent Auditors for the fiscal years
  ended August 31, 2001 and 2000............................    F-2

Consolidated Balance Sheets as of August 31, 2002 and
  2001......................................................    F-3

Consolidated Statements of Operations for the years ended
  August 31, 2002, 2001 and 2000............................    F-5

Consolidated Statements of Stockholders' Equity (Deficit)
  for the years ended August 31, 2002, 2001 and 2000........    F-6

Consolidated Statements of Cash Flows for the years ended
  August 31, 2002, 2001 and 2000............................    F-7

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









<PAGE>


                  INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
TEMTEX INDUSTRIES, INC.

We have audited the accompanying consolidated balance sheet of
Temtex Industries, Inc. and subsidiaries as of August 31, 2002,
and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the year then
ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements
based on our audit.

We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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
audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material aspects, the consolidated
financial position of Temtex Industries, Inc. and subsidiaries as
of August 31, 2002, and the consolidated results of their
operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the
United States of America.

The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern.
As discussed in Note A to the consolidated financial statements,
the Company's recurring losses raise substantial doubt about its
ability to continue as a going concern. Management's plans as to
these matters are also described in Note A. The consolidated
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.



WEAVER AND TIDWELL, L.L.P.

Dallas, Texas
November 15, 2002







                               F-1


<PAGE>

Report of the Independent Auditors


Board of Directors
Temtex Industries, Inc.


We have audited the accompanying consolidated balance sheet of
Temtex Industries, Inc. and subsidiaries as of August 31, 2001,
and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the two years in
the period ended August 31, 2001. 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 auditing standards
generally accepted in the United States. 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 consolidated
financial position of Temtex Industries, Inc. and subsidiaries at
August 31, 2001, and the consolidated results of their operations
and their cash flows for each of two years in the period ended
August 31, 2001, in conformity with accounting principles
generally accepted in the United States.

As discussed in Note A to the consolidated financial statements,
the Company's recurring losses and negative cash flows from
operations raise substantial doubt about its ability to continue
as a going concern. Management's plan as to these matters are
also described in Note A. The consolidated financial statements
do not include any adjustments that might result from the outcome
of this uncertainty.



                                            ERNST & YOUNG, L.L.P.

Dallas, Texas
October 31, 2001









                               F-2


<PAGE>





CONSOLIDATED BALANCE SHEETS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>


                                                                          August 31,
                                                                 ---------------------------
                                                                     2002           2001
                                                                 ------------   ------------
                                                                 (in thousands, except share
                                                                      and per share data)

                                                              <c>            <c>
ASSETS

CURRENT ASSETS

  Cash and cash equivalents                                      $        918   $        169
  Accounts receivable, less allowance for doubtful accounts:
     2002--$236 and 2001--$274                                          2,386          2,967
  Inventories                                                           2,146          6,881
  Prepaid expenses and other assets                                       139            159
                                                                 ------------   ------------

    TOTAL CURRENT ASSETS                                                5,589         10,176

OTHER ASSETS                                                               97             54

PROPERTY, PLANT AND EQUIPMENT
  Buildings and improvements                                            2,615          2,615
  Machinery, equipment, furniture and fixtures                         18,890         18,701
  Leasehold improvements                                                1,318          1,309
                                                                 ------------   ------------
                                                                       22,823         22,625
  Less allowances for depreciation
    and amortization                                                   19,947         19,013
                                                                 ------------   ------------
                                                                        2,876          3,612

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


TOTAL ASSETS                                                     $      8,562   $     13,842
                                                                 ============   ============

</TABLE>

See notes to consolidated financial statements.



                               F-3


<PAGE>

<TABLE>
<CAPTION>


                                                                          August 31,
                                                                 ---------------------------
                                                                     2002           2001
                                                                 ------------   ------------
                                                                 (in thousands, except share
                                                                      and per share data)

                                                              <c>            <c>

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
  Notes payable                                                  $      1,974   $      2,955
  Accounts payable                                                      2,296          2,337
  Accrued employee compensation                                           331            223
  Accrued expenses                                                        902            676
  Income taxes payable                                                     20              8
  Current maturities of indebtedness to related parties                    20             18
  Current maturities of long-term obligations                              49             44
                                                                 ------------   ------------

       TOTAL CURRENT LIABILITIES                                        5,592          6,261

INDEBTEDNESS TO RELATED PARTIES,
  less current maturities                                               2,834          1,547

LONG-TERM OBLIGATIONS,
  less current maturities                                                 445            348

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT)
  Preferred stock--$1 par value; 1,000,000
    shares authorized, none issued                                         --             --
  Common stock--$.20 par value; 10,000,000 shares authorized,
    5,286,125 shares issued                                               720            720
  Additional capital                                                    9,301          9,253
Accumulated deficit                                                    (9,891)        (3,848)
                                                                 ------------   ------------
                                                                          130          6,125
  Less:
    Treasury stock:
      At cost-153,696 shares                                              439            439
      At no cost--1,687,788 shares                                         --             --
                                                                 ------------   ------------
         TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                            (309)         5,686

                                                                 ------------   ------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)              $      8,562   $     13,842
                                                                 ============   ============

</TABLE>




See notes to consolidated financial statements.



                               F-4


<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

                                                              Year Ended August 31,
                                                  ------------------------------------------
                                                      2002           2001           2000
                                                  ------------   ------------   ------------
                                                (in thousands, except share and per share data)

                                               <c>            <c>            <c>
Net sales                                         $     22,263   $     20,285   $     21,916
Cost of goods sold                                      22,076         19,125         20,288
                                                  ------------   ------------   ------------
                                                           187          1,160          1,628

Costs and expenses:
  Selling, general and administrative                    5,780          6,326          7,401
  Interest                                                 532            493            283
  Other expense (income)                                    87             45            (58)
                                                  ------------   ------------   ------------
                                                         6,399          6,864          7,626

      LOSS FROM OPERATIONS                        ------------   ------------   ------------
           BEFORE INCOME TAX (BENEFIT)                  (6,212)        (5,704)        (5,998)

State, federal and foreign income tax (benefit):          (169)            --             66
                                                  ------------   ------------   ------------

        NET LOSS                                        (6,043)        (5,704)        (6,064)
                                                  ============   ============   ============


Basic and diluted loss per common share:
     Net loss - basic and diluted                 $      (1.75)  $      (1.66)  $      (1.76)
                                                  ============   ============   ============

Basic weighted average common shares outstanding     3,444,641      3,444,641      3,444,641

Diluted weighted average common and common
  equivalent shares outstanding                      3,444,641      3,444,641      3,444,641

</TABLE>

See notes to consolidated financial statements.




                               F-5


<PAGE>


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES


<TABLE>
<CAPTION>

                                   Common Stock                       (Accumulated
                                    Outstanding                         Deficit)     Cost of
                              ---------------------    Additional       Retained     Treasury
                                Shares       Amount     Capital         Earnings       Stock
                              ----------     ------    ----------     ------------   ---------
                                                  (Dollars in thousands)

                           <c>            <c>       <c>            <c>            <c>
BALANCE AT AUGUST 31, 1999     3,444,641     $  720    $    9,253     $      7,920   $     439

  Net loss                                                                  (6,064)
                              ----------     ------    ----------     ------------   ---------
BALANCE AT AUGUST 31, 2000     3,444,641        720         9,253            1,856         439

  Net loss                                                                  (5,704)
                              ----------     ------    ----------     ------------   ---------
BALANCE AT AUGUST 31, 2001     3,444,641        720         9,253           (3,848)        439
  Issuance of warrants                                         48
  Net loss                                                                  (6,043)
                              ----------     ------    ----------     ------------   ---------
BALANCE AT AUGUST 31, 2002     3,444,641     $  720    $    9,301     $     (9,891)  $     439
                              ==========     ======    ==========     ============   =========

</TABLE>


See notes to consolidated financial statements.


                               F-6


<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>


                                                                           Year Ended August 31,
                                                                 ----------------------------------------
                                                                     2002          2001          2000
                                                                 ------------  ------------  ------------
                                                                              (in thousands)

                                                              <c>           <c>           <c>
OPERATING ACTIVITIES
  Net loss                                                       $     (6,043) $     (5,704) $     (6,064)
  Adjustments to reconcile net loss to net
    cash (used in) operating activities:
    Depreciation and amortization                                         934         1,168         1,272
    Deferred taxes                                                         --            --           313
    Loss on disposition of property, plant and equipment                   --            --            23
    Provision for doubtful accounts                                       (38)          148           225
    Changes in operating assets and liabilities:
       Accounts receivable                                                619          (268)          576
       Inventories                                                      4,735           571         1,228
       Prepaid expenses and other assets                                  (23)          129         1,705
       Accounts payable and accrued expenses                              293           275          (513)
       Income taxes payable/recoverable                                    12           286        (1,024)
                                                                 ------------  ------------  ------------
          NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES             489        (3,395)       (2,259)

INVESTING ACTIVITIES
  Purchases of property, plant and equipment                             (198)         (384)         (758)
  Proceeds from disposition of property, plant and equipment               --            --             3
                                                                 ------------  ------------  ------------
          NET CASH USED IN INVESTING ACTIVITIES                          (198)         (384)         (755)

FINANCING ACTIVITIES
  Proceeds from revolving line of credit, long-term obligations         1,452         2,978            --
  Principal payments on revolving line of credit, long-term
     obligations and indebtedness to related parties                   (1,042)          (51)          (42)
 Issuance of warrants                                                      48            --            --
                                                                 ------------  ------------  ------------

          NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES             458         2,927           (42)
                                                                 ------------  ------------  ------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                          749          (852)       (3,056)
Cash and cash equivalents at beginning of year                            169         1,021         4,077
                                                                 ------------  ------------  ------------
          CASH AND CASH EQUIVALENTS AT END OF YEAR               $        918  $        169  $      1,021
                                                                 ============  ============  ============

</TABLE>


See notes to consolidated financial statements.





                               F-7


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES

August 31, 2002


NOTE A--SIGNIFICANT ACCOUNTING POLICIES

Organization:  Temtex Industries, Inc. (the Company) is a major
producer of metal fireplace products.  The Company manufactures
its fireplace products in facilities located in Manchester,
Tennessee; Perris, California; and Mexicali, Mexico.

All products are sold through the Company's own sales force and
third party sales representatives to contractors, distributors
and retailers engaged in providing building products used in both
new residential and commercial construction as well as remodeling
projects.

At August 31, 2002, assets of approximately $807,000 were located
at the Company's manufacturing facility in Mexico.

Principles of Consolidation:  The consolidated financial
statements include the accounts of the Company and its
wholly-owned subsidiaries.  All significant intercompany accounts
and transactions have been eliminated.

Basis of Presentation:  The accompanying consolidated financial
statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business.  As shown in the
consolidated financial statements, the Company incurred
significant losses from continuing operations of $6,043,000 and
$5,704,000 during the years ended August 31, 2002 and 2001,
respectively, and  used cash in its operations of $3,395,000
during the year ended August 31, 2001.  These factors, among
others, indicate that the Company may be unable to continue as a
going concern.  The consolidated financial statements do not
include any adjustments relating to the recoverability and
classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.

The Company has recently consummated a transaction providing
$1,500,000 of additional working capital (See Note C).
Management recognizes that the Company's continuation as a
going concern is dependent upon its ability to generate
sufficient cash flow to allow it to satisfy its obligations
on a timely basis. The generation of sufficient cash flow is
dependent on the Company's ability to reduce overhead costs
and to continue to reduce inventories.  Consequently, if the
Company is not able to achieve its initiatives, and if the
financing provided by the July 19, 2002 transaction is
insufficient to satisfy near term cash requirements, or if
the Company is unable to obtain additional financing as
needed, it is likely that the Company would be required to
cease operations altogether.


Use of Estimates:  The preparation of consolidated financial
statements in conformity with accounting principles generally
accepted in the United States requires management to make certain
estimates and assumptions.  These estimates and assumptions
affect the reported amounts of assets, liabilities, revenues, and
expenses and the disclosure of gain and loss contingencies at the
date of the consolidated financial statements.  Actual results
could differ from those estimates.

Inventories:  Raw materials and supplies are stated at the lower
of cost, determined on the first-in, first-out method, or market.
Work in process and finished goods are stated at the lower of
cost, determined on the first-in, first-out method or market.

Property, Plant and Equipment:  Property, plant and equipment are
carried at cost.  Capitalized leases are carried at the present
value of the net fixed minimum lease commitments, as explained in
Note F.  Depreciation on buildings and equipment is provided
using principally accelerated methods.  Amortization of leasehold
improvements and assets under capitalized leases are computed
using the straight-line method.  The estimated useful lives used
in computing depreciation and amortization are:

                                                  Years
                                             --------------
Buildings and improvements                        5-30
Machinery, equipment, furniture and fixtures      3-15
Leasehold improvements                       Life of lease

Expenditures for maintenance and repairs are charged to
operations; betterments are capitalized.

Income Taxes:  Income taxes have been provided using the
liability method.

Loss Per Common Share: Basic loss per common share is based
upon the weighted average number of shares of common stock
outstanding during the year.  Diluted loss per share is based
upon the weighted average number of shares of common stock and
common stock equivalents outstanding during the year unless the
effect of the common stock equivalents would be antidilutive.
Common stock equivalents include options granted to key employees
and outside directors as explained in Note E, as well as warrants
issued in connection with the subordinated convertible notes
described in Note C.  The number of common stock equivalents was
based on the number of shares issuable on the exercise of options
reduced by the number of shares that are assumed to have been
purchased at the average price of the common stock during the
year with the proceeds from the exercise of the options.


                               F-8


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES


Options and warrants outstanding of 894,500, 129,500 and 216,000
for the years ended August 31, 2002, 2001 and 2000, respectively,
and the subordinated convertible debt were not included in the
calculation of losses per share for continuing operations as
they were not dilutive.

Cash Equivalents:  The Company considers all highly liquid
investments with a maturity of three months or less to be cash
equivalents.

Concentration of Credit Risk:  The Company manufactures and sells
fireplace products to companies in the construction  and
remodeling industries.  The Company performs periodic credit
evaluations of its customers' financial condition and generally
does not require collateral.  Receivables generally are due
within 30 days.  Credit losses consistently have been within
management's expectations.

Advertising Costs:  The Company expenses advertising costs as
they are incurred.  Advertising costs in 2002, 2001 and 2000 were
$200,000, $317,000 and $452,000, respectively.

Reclassifications:  The Company changed its policy in 2002 for
recording shipping and handling costs. Such costs are now
included in cost of goods sold. Shipping and handling costs for
2001 and 2000 of $1,134,000 and $1,231,000, respectively, have
been reclassified from sales to cost of goods sold to conform to
the current year presentation.

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

Recently Issued Accounting Standards: In July 2001, the FASB
issued Statement of Financial Accounting Standards No. 141,
"Business Combinations" ("SFAS 141") and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"). SFAS 141 addresses the initial recognition
and measurement of goodwill and other intangible assets acquired
in a business combination. SFAS 142 addresses the initial
measurement and recognition of intangible assets acquired outside
of a business combination, whether acquired with a group of other
assets or acquired individually, and the accounting and reporting
for goodwill and other intangibles subsequent to their
acquisition. These standards require all future business
combinations to be accounted for using the purchase method of
accounting. Goodwill will no longer be amortized but instead will
be subject to impairment test on an annual basis at a minimum.
The Company will adopt SFAS 141 and SFAS 142 beginning September
1, 2002. The Company expects that the adoption will not have a
material impact on future financial statements.
The FASB issued a Statement on Asset Impairment ("SFAS 144") that
is applicable to financial statements issued for fiscal years
beginning after December 15, 2001. The FASB's new rules on asset
impairment supercede FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of", and provide a single accounting model for long-
lived assets to be disposed of.

Although retaining many of the fundamental recognition and
measurement provisions of Statement 121, the new rules
significantly change the criteria that would have to be met to
classify an asset as held-for-sale. This distinction is important
because assets held-for-sale are stated at the lower of their
fair values or carrying amounts and depreciation is no longer
recognized.

In April 2002, the FASB issued Statement of Financial Accounting
Standards No. 145, "Rescission of FASB Statements No. 4, 44, and
62, Amendment of FASB Statement 13, and Technical Corrections
("SFAS 145"). For most companies, SFAS 145 will require gains and
losses from the extinguishment of debt to be classified as a
component of income or loss from continuing operations. Prior to
the issuance of SFAS 145, early debt extinguishments were
required to be recognized as extraordinary items. SFAS 145
amended other previously issued statements and made numerous
technical corrections. This statement is not expected to impact
the consolidated financial statements of the Company.

The FASB recently issued Statement of Financial Accounting
Standards No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" ("SFAS 146"). SFAS 146 nullifies the
Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity". SFAS 146 requires that a liability
associated with an exit or disposal activity be recognized when
the liability is incurred while EITF Issue No. 94-3 recognized
such liabilities at such time that an entity committed to an exit
plan. The provisions of SFAS 146 are effective for exit or
disposal activities initiated after December 31, 2002 with early
application encouraged. The Company does not anticipate that
adoption of SFAS 146 will have a material affect on its results
of operations.



                               F-9


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES



NOTE  B--INVENTORIES

Inventories are summarized below:
                                             August 31
                                   ---------------------------
                                       2002           2001
                                   ------------   ------------
                                          (in thousands)
     Finished goods                $        740   $      2,662
     Work in process                        332            622
     Raw materials and supplies           1,704          4,055
                                   ------------   ------------
                                          2,776          7,339
                                   ------------   ------------
     Excess and obosolete reserves         (630)          (458)
                                   ------------   ------------
     Total Inventories, Net        $      2,146   $      6,881
                                   ============   ============

Included in cost of goods sold for 2002 and 2001 are provisions
for approximately $1,600,000 and $350,000, respectively, for
estimated losses on obsolete inventory.


NOTE C--NOTES PAYABLE AND LONG-TERM OBLIGATIONS

In September 2000, the Company entered into a three-year credit
agreement with Frost Capital Group whereby the Company may borrow
a maximum of $4,000,000 under a revolving credit facility.  The
amount available under the facility is subject to limitations
based on specified percentages of the Company's eligible
outstanding receivables and inventories.  The outstanding
principal bears interest at an annual rate of 1.25% above the
specified bank's prime commercial interest rate.  On July 19,
2002, the Company entered into an amendment to the revolving
facility which, among other things, (1) permitted the issuance of
$1.5 million long term obligations, (2) subordinated the bank's
lien on the Company's inventory so as to permit the pledge of
that inventory to the holder of the Secured Note, and  (3)
eliminated inventory as part of the borrowing base. Interest is
payable monthly and is added to the outstanding loan balance.
The revolving credit facility does not require the maintenance of
any financial ratios but does contain both affirmative and
negative covenants. As of the date of this filing, the Company is
in compliance with all of the loan covenants, with the exception
of a provision requiring timely filing of an officer's
certificate. Frost Capital Group has waived any defaults related
to this issue.  The credit  facility is secured by all assets of
the Company and its subsidiary, Temco Fireplace Products.  At
August 31, 2002 there was approximately $1,974,000 outstanding
under the credit facility, leaving $86,000 available.

Effective July 19, 2002, a group of four private investors led by
William Y. Tauscher, loaned the Company an aggregate $750,000
pursuant to Subordinated Convertible Notes due July 19, 2007. The
Convertible Notes bear interest at the rate of 6% per annum (9%
after a default) which is payable monthly commencing September 1,
2002.  The outstanding principal under the Convertible Notes is
due on July 19, 2007 or earlier upon an event of default.
Further, to the extent the Company engages in certain
transactions resulting in the sale of the business prior to the
maturity date, the holders of the Convertible Notes maintain the
right, at their election, to accelerate the payment of the debt
to the effective date of such transaction.  Commencing July 19,
2003, the Convertible Notes are convertible, at the option of the
holders thereof, into shares of common stock at an initial
conversion price of $0.60 per share.  As a result, the
Convertible Notes would collectively convert into 1,250,000
shares or, approximately 26.6% of the shares outstanding,
assuming only the conversion of the Convertible Notes. The
Convertible Notes are convertible prior to July 19, 2003 upon an
event of default at the election of the holders.  Lastly, to the
extent the holders of the Convertible Notes do not voluntarily
elect to receive the prepayment of the notes in connection with
certain sale events, the Convertible Notes will automatically
convert upon the occurrence of such event at the then existing
conversion price.  The Convertible Notes are unsecured
obligations and are fully subordinated to the Company's
indebtedness to Frost Capital Group under the revolving credit
facility and to the Company's indebtedness to James Upfield as
discussed below. In connection with the sale of the Convertible
Notes, the Company issued to the purchasers of the Convertible
Notes four common stock purchase warrants exercisable for an
aggregate of 250,000 shares of common stock.  The warrants may be
exercised for a period of five years at a per share purchase
price of $0.60. The warrants were allocated a value of $47,500 at
issuance. Such amount reduced the face amount of the Subordinated
Convertible Notes and will be accreted to interest expense over
the life of the notes.



                              F-10


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES



Also on July 19, 2002, James E. Upfield loaned the Company
$750,000 pursuant to a Secured Term Note due July 19, 2005. This
Term Note bears interest at the rate of 6% per annum (9% after a
default) which is payable monthly commencing September 1, 2002.
The outstanding principal balance of the Term Note is due on July
19, 2005 or earlier upon an event of default.  The Term Note
issued to Mr. Upfield is secured by a first priority security
interest in the Company's inventory and a second priority
security interest in equipment (with the superior lien remaining
pledged under the credit facility with Frost Capital Group).

Long-term obligations are summarized as follows:

                                                 August 31,
                                             ------------------
                                               2002      2001
                                             --------  --------
                                               (in thousands)
     Capitalized lease obligations, with
       interest at 9.0% to 15.5%--Note F     $  1,896  $  1,957
     Subordinated Convertible Notes, 6%           702         -
     Secured Term Note, 6%                        750         -

     Less current maturities                       69        62
                                             --------  --------
                                             $  3,279  $  1,895
                                             ========  ========


Annual maturities of long-term obligations for each of the five
succeeding fiscal years and thereafter are $69,000, $74,000,
$828,000, $89,000, $802,000 and $1,486,000.

The Company made interest payments in 2002, 2001 and 2000 of
$532,000, $493,000 and $383,000, respectively.

The carrying amounts of the Company's borrowings under its
credit arrangement and long-term obligations approximate their
fair value.


NOTE D--ACCRUED EXPENSES

Accrued expenses include the following:

                                        August 31,
                                   ------------------
                                     2002      2001
                                   --------  --------
                                     (in thousands)
Taxes, other than taxes on income  $    126  $    153
Interest                                 11        --
Group health insurance                  168       150
Legal and professional fees             117       175

Other                                   480       198
                                   --------  --------
                                   $    902  $    676
                                   ========  ========


NOTE E--STOCK OPTIONS

In October 1999 and March 2000, respectively, the Board of
Directors and shareholders of the Company adopted the 1999
Omnibus Securities Plan (the "1999 Omnibus Plan") to replace the
1990 Stock Plan for Key Employees and the 1990 Stock Plan for
outside directors of the Company.    The 1990 Plans expired on
December 31, 1999.  At August 31, 2002, options exercisable for
50,000 shares of common stock remain outstanding under the 1990
Stock Plan for Key Employees.  All unexercised options
outstanding under the 1990 Stock Plan for outside directors
expired on December 31, 1999.


                              F-11

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES


The 1999 Omnibus Plan permits the discretionary granting of stock
options, restricted and unrestricted stock grants, performance
stock awards, dividend equivalent rights and stock appreciation
rights to plan participants.  The 1999 Plan permits the Company
to grant awards exercisable for up to 175,000 shares of common
stock to directors, officers, employees and certain consultants.
At the time options are granted, vesting dates are determined by
the stock option committee and specified on each individual
award.  As of August 31, 2002, awards for 111,000 shares of stock
have been granted under the 1999 Omnibus plan and options
exercisable for 84,500 shares of common stock were outstanding.

On July 19, 2002, Mr. Anderson, the Company's chief executive
officer and president received, in connection with his offer for
employment, an option exercisable for 500,000 shares of the
Company's common stock at an exercise price of $0.55 per share.
The option will vest in three equal installments on July 19 of
2003, 2004 and 2005.

The Company has elected to continue to follow the expense
recognition criteria in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" however, pro forma
information regarding net income and earnings per share is
required by Statement of Financial Accounting Standards No. 123
(SFAS No. 123) and has been determined as if the Company had
accounted for its stock options under the fair value method of
that statement.  The fair value for these options was estimated
at the date of grant using the Black-Scholes method with the
following weighted average assumptions for fiscal year 2002, 2001
and 2000, respectively; risk-free interest rate of 2.75%, 5.86%
and 6.36%, expected volatility of 52%, 42% and 37%, dividend
yield of 0% and a weighted average expected life of the options
of five years for all periods.  The weighted average fair value
at the grant date for fiscal year 2002, 2001 and 2000,
respectively, was $0.29, $0.48 and $0.65 per option.

For purposes of pro forma disclosure, the estimated fair value of
the options is amortized over the options vesting period.  If the
Company had accounted for its stock options under the fair value
method set forth in SFAS No. 123, proforma net loss and basic and
diluted loss per share for the year ended August 31, 2002 would
be $6,049,000 and $1.76, for the year ended August  31, 2001,
would be $5,728,000 and $1.66 and for the year ended August 31,
2000, would be $6,101,000 and $1.77.  The effects of applying
SFAS No. 123 as disclosed above are not indicative of future
amounts. The Company anticipates making additional stock-based
compensation awards in the future.

The following table indicates the activity for each option plan:

<TABLE>
<CAPTION>

                                           Key Employee Plan           Outside Director Plan             1999 Omnibus Plan
                                        -----------------------       ------------------------      -------------------------
                                                       Weighted                       Weighted                      Weighted
                                                        Average                        Average                       Average
                                        Number of      Exercise       Number of       Exercise      Number of       Exercise
                                         Options        Price          Options         Price         Options          Price
                                        ---------      --------       ---------      ---------      ---------      ----------

                                     <c>            <c>            <c>            <c>            <c>            <c>
Options outstanding at August 31, 1999    135,000      $   3.13          21,000      $    2.51      N/A
Options exercisable at August 31, 1999    135,000      $   3.13          21,000      $    2.51
  Granted                                      --                            --                        91,000      $     1.63
  Exercised                                    --                            --                            --
  Expired                                  10,000      $   4.94          21,000      $    2.51             --
                                        ---------      --------       ---------      ---------      ---------      ----------
Options outstanding at August 31, 2000    125,000      $   2.99              --                        91,000            1.63
Options exercisable at August 31, 2000    125,000      $   2.99             N/A                        21,000            1.82
  Granted                                                                                              20,000      $     1.06
  Exercised                                    --                                                          --
  Expired                                  75,000      $   1.69                                        16,500      $     1.67
                                        ---------      --------                                     ---------      ----------
Options outstanding at August 31, 2001     50,000      $   4.94                                        94,500      $     1.50
Options exercisable at August 31, 2001     50,000      $   4.94                                        79,500      $     1.58
  Granted                                 500,000      $   0.55
                                        ---------      --------
Options outstanding at August 31, 2002    550,000      $   0.95                                        94,500      $     1.50
Options exercisable at August 31, 2002     50,000      $   4.94                                        84,500      $     1.55
</TABLE>


Option prices range from $0.55 to $4.94 per share and expire
between 2005 and 2012.
The weighted average remaining life of the options at August 31,
2002 is nine years.
The  weighted average remaining life of the stock warrants  (Note
C) is five years.


                              F-12

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES


NOTE F--LEASE COMMITMENTS

The Perris, California facility is accounted for as a capitalized
lease. The property was capitalized at the initial value of
$635,000.  In 1994, the Company exercised its option to renew the
lease which increased the term of the lease by ten years and
added to the value of the lease.  The leased property has a net
book value of $196,000 and $229,000 at August 31, 2002 and 2001,
respectively.

A Manchester, Tennessee facility is also accounted for as a
capitalized lease, and is leased from a partnership which
includes a member of the Company's Board of Directors. This
facility was capitalized at the initial value of $976,000. During
1995, the facility was expanded, at the expense of the
partnership, and the original lease canceled.  The new twenty-
five year lease negotiated by the Company has basically the same
provisions as the original, with an increase in the lease
payments in consideration of the expense incurred in the
expansion. The facility has a net book value of $970,000 and
$1,031,000 at August 31, 2002 and 2001, respectively.  This lease
obligation is included in  "Indebtedness to Related Parties" on
the consolidated balance sheets.

Other plant and office facilities are leased under operating
lease agreements, which expire at various dates through fiscal
2009.  The capitalized leases expire in fiscal 2009 and fiscal
2019.

Future minimum payments, by year and in the aggregate, under
capital leases and noncancelable operating leases, consisted of
the following at August 31, 2002:

                                    Capital  Operating
                                    Leases     Leases
                                   --------  ---------
                                     (in thousands)
Fiscal Year:
  2003                             $    373  $    423
  2004                                  373       414
  2005                                  366       398
  2006                                  364       366
  2007                                  364       348
  Thereafter                          3,557       696
                                   --------  --------
Total minimum lease payments          5,397  $  2,645
                                             ========
Amount representing interest          3,501
                                   --------
Present value of net minimum
  lease payments                   $  1,896
                                   ========


Rental expense for operating leases included in continuing
operations was $364,000, $383,000 and $391,000 in 2002, 2001, and
2000, respectively.

Interest expense paid to related parties was $270,000, $273,000
and $270,000 in 2002, 2001 and 2000, respectively.





                              F-13

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES


NOTE G--INCOME TAXES

Significant components of the state, federal and foreign
provision (benefit) for income taxes attributable to continuing
operations are as follows:

                             Year Ended August 31,
                         ----------------------------
                           2002      2001      2000
                         --------  --------  --------
     Current:                  (in thousands)
       Federal           $   (174)       --  $   (315)
       State                    5        --         2
       Foreign                 --        --        66
                         --------  --------  --------
       Total current         (169)       --      (247)
     Deferred:
       Federal                 --        --       576
       State                   --        --      (263)
                         --------  --------  --------
       Total deferred          --        --       313
                         --------  --------  --------
     Total income tax
       expense/(benefit) $   (169)       --  $     66
                         ========  ========  ========

The Company has a federal net operating loss carryforward of
approximately $15,000,000 which begins to expire in the year
2021.

A valuation allowance of approximately $6,466,000 has been
recorded to offset the net operating loss carryforwards since
the realization of these assets is uncertain.

The differences between the provision (benefit) for federal
income taxes and the expected income taxes computed using
statutory income tax rates are as follows:

<TABLE>
<CAPTION>

                                                           Year Ended August 31,
                                                  ------------------------------------------
                                                      2002           2001           2000
                                                  ------------   ------------   ------------
                                                                 (in thousands)

                                               <c>            <c>            <c>
Federal income tax  benefit at statutory rate     $     (2,174)  $     (1,944)  $     (2,039)
State income taxes, net of federal tax benefit               3           (103)          (174)
Change in valuation allowance                            2,002          1,972          2,139
Other                                                       --             75            140
                                                  ------------   ------------   ------------
Total income tax expense/(benefit)                $       (169)  $         --   $         66
                                                  ============   ============   ============

</TABLE>



                              F-14

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES


NOTE G--INCOME TAXES--continued

Deferred income taxes are recognized using the liability method
and reflect the tax impact of temporary differences between the
amount of assets and liabilities for financial purposes and such
amounts as measured by tax laws and regulations.  Significant
components of the Company's deferred tax assets and liabilities
are as follows:

                                            August 31,
                                        ------------------
                                          2002      2001
                                        --------  --------
                                           (in thousands)
Deferred tax assets:
  Federal and state loss carryforwards  $  5,936  $  3,734
  Other                                      530       928
                                        --------  --------
     Total deferred tax assets             6,466     4,662
Valuation allowance                       (6,466)   (4,464)
                                        --------  --------
     Net deferred tax assets                  --       198
Deferred tax liability:
  Other                                       --      (198)
                                        --------  --------
     Total deferred tax liabilities           --      (198)
                                        --------  --------
       Net deferred tax assets          $     --  $     --
                                        ========  ========

The Company received federal or state income tax refunds in 2002
and 2001 of $174,000 and $575,000 respectively, and made federal
and state income tax payments in 2002, 2001 and 2000 of $ 0,
$347,000 and $761,000 respectively.


NOTE H--EMPLOYEE BENEFIT PLAN

During 1992, the Company adopted a defined contribution benefit
plan covering substantially all of its employees.  The Company
contribution was $.25 for each $1.00 contributed by an employee
(up to 4% of eligible wages).

The plan was amended during 1997, which increased the Company
contribution to $.50 for each $1.00 contributed by an employee
(up to 6% of eligible wages).

The plan was amended again during 2000 which reduced the Company
contribution to $0.25 for each $1.00 contributed by an employee
(up to 6% of eligible wages).

The total expense for Company contributions was $27,000, $22,000
and $82,000 in 2002, 2001 and 2000, respectively.


NOTE I--COMMITMENTS AND CONTINGENCIES

Due to the complexity of the Company's operations, disagreements
occasionally occur.

In the opinion of management, the Company's ultimate loss from
such disagreements and potential resulting legal action, if any,
will not be significant.

During 2002, the Company entered into an agreement with William
Tauscher  (now the Chairman of the Company) to provide consulting
services.  As a result of such agreement, the Company recorded
$142,406 in expenses for the fiscal year, $78,228 of which
remains outstanding and is included in accounts payable as of
August 31, 2002.


                              F-15

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES


NOTE J--QUARTERLY RESULTS (UNAUDITED)

Summary data relating to the results of operations for each
quarter of the years ended August 31, 2002 and 2001 follows (in
thousands except per share amounts):

<TABLE>
<CAPTION>
                                                  Three Months Ended
                              --------------------------------------------------------
                              November 30    February 28       May 31       August 31
                              -----------    -----------    ------------   -----------

                           <c>            <c>            <c>            <c>
Fiscal year 2002:
  Net sales                   $     5,677    $     5,432    $      5,729   $     5,425
  Gross profit                        690            277              85          (865)
  Loss from
   continuing operations             (875)        (1,281)         (1,324)       (2,563)
  Net loss                           (875)        (1,281)         (1,324)       (2,563)

  Net loss per common share
    Basic                     $     (0.25)   $     (0.37)   $      (0.38)  $     (0.75)
    Diluted                   $     (0.25)   $     (0.37)   $      (0.38)  $     (0.75)



Fiscal year 2001:
  Net sales                   $     5,243    $     4,324    $      5,036   $     5,682
  Gross profit                        571            105             160           324
  Loss from
   continuing operations             (899)        (1,404)         (1,850)       (1,551)
  Net loss                           (899)        (1,404)         (1,850)       (1,551)

  Net loss per common share
    Basic                     $     (0.26)   $     (0.41)   $      (0.54)  $     (0.45)
    Diluted                   $     (0.26)   $     (0.41)   $      (0.54)  $     (0.45)

</TABLE>






                              F-16


<PAGE>

                                                     EXHIBIT 21.1


                 SUBSIDIARIES OF THE REGISTRANT



                 Temco Fireplace Products, Inc.

                   Temtex International, Inc.

                     Temcomex, S.A. de C. V.






<PAGE>

                                                     EXHIBIT 23.1



               CONSENT OF INDEPENDENT AUDITORS

     We consent to the incorporation by reference in the
Registration Statements pertaining to the 1990 Stock Plan for Key
Employees of Temtex Industries, Inc. (Form S-8 No. 33-61415) and
the 1999 Omnibus Securities Plan of Temtex Industries, Inc. (Form
S-8 333-34458) of our report dated November 15, 2002 with respect
to the consolidated financial statements of Temtex Industries, Inc.
and Subsidiaries included in its Annual Report (Form 10-K) for the
year ended August 31, 2002.


/s/ Weaver & Tidwell LLP
Dallas, Texas

December 9, 2002



<PAGE>


                                                     EXHIBIT 23.2



                CONSENT OF INDEPENDENT AUDITORS

      We consent to the incorporation by reference in the
Registration Statements pertaining to the 1990 Stock Plan for Key
Employees of Temtex Industries, Inc. (Form S-8 No. 33-61415)  and
the 1999 Omnibus Securities Plan of Temtex Industries, Inc. (Form
S-8  333-34458) of our report dated October 31, 2001 with respect
to the consolidated financial statements of Temtex Industries, Inc.
and Subsidiaries included in its Annual Report (Form 10-K) for the
year ended August 31, 2002.


                                           /s/ Ernst & Young LLP
Dallas, Texas

December 9, 2002






<PAGE>


                                                     Exhibit 99.1

            906 CERTIFICATION OF FINANCIAL STATEMENTS

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18,
United States Code) (the "Act"), each of the undersigned officers
of Temtex Industries, Inc., a Delaware corporation (the
"Company"), does hereby certify that:

The Annual Report on Form 10-K for the year ended August 31,
2002, (the "Periodic Report") of the Company fully complies with
the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 780(d)) and information
contained in the Periodic Report fairly presents, in all material
respects, the financial condition and results of operations of
the Company.





/s/ RICHARD N. ANDERSON
--------------------------------------
Richard N. Anderson
President and Chief Executive Officer



/s/ JOHN F. GURROLA
--------------------------------------
John F. Gurrola
Secretary and Chief Financial Officer


Dated:  December  9, 2002



 THE FOREGOING CERTIFICATION IS BEING FURNISHED SOLELY PURSUANT
 TO SECTION 906 OF THE ACT AND IS NOT BEING FILED AS PART OF THE
      PERIODIC REPORT OR AS A SEPARATE DISCLOSURE DOCUMENT.