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, 2001

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

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.)

5400 LBJ Freeway, Suite 1375, Dallas, Texas              75240
(Address of principal executive offices)               (Zip Code)

     Company's telephone number, including area code:  972/726-7175

       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 November 26, 2001, the aggregate market value of the voting stock
held by non-affiliates of Temtex Industries, Inc. was $715,640.

As of November 26, 2001 there were 3,444,641 shares of common stock, par
value $0.20 per share, of Temtex Industries, Inc. outstanding.

                                   1

<PAGE>

                                 PART I

ITEM 1.   BUSINESS

GENERAL DEVELOPMENT OF BUSINESS

The Company is a major producer of metal fireplace products used in the
residential construction markets.  The Company manufactures woodburning
metal fireplaces as well as those utilizing natural gas and liquified
petroleum fuels.  The Company was organized in 1969 under the name
Monnfield Industries, Inc. and in 1971 changed its name to Temtex
Industries, Inc.  In August 1971, the Company merged with Texas Clay
Industries, Inc., thereby acquiring several businesses, including a face
brick business.  The Company completed the sale of Texas Clay
Industries, then an operating division of the Company, in January 1999.

NARRATIVE DESCRIPTION OF BUSINESS

Fireplace Products

Through its wholly owned subsidiary, Temco Fireplace Products, Inc. the
Company manufactures and distributes zero clearance metal woodburning
and gas fireplace equipment.  For the fiscal year ended August 31, 2001,
the Company had aggregate sales of fireplace products of approximately
$19.2 million and reported a net loss from continuing operations of
approximately $5.7 million.

Zero Clearance Woodburning Fireplace Products.  A zero clearance 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 zero clearance 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 zero clearance 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 zero
clearance metal fireplaces utilize a metal flue instead of a masonry
chimney, they offer enhanced placement flexibility.  The Company
manufactures and distributes zero clearance 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, the Company
either manufactures or purchases from others for use in conjunction with
its 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 zero clearance metal
fireplace units during the assembly process or shipped in conjunction
with a fireplace unit for subsequent assembly, depending upon customer
specifications.  The Company does not currently manufacture accessories
for fireplace units manufactured by third parties or for existing
masonry fireplaces.

Ventfree Gas Logs and Ventfree Fireplaces.  During fiscal 1992, the
Company 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 licensed to the Company.  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.  The Company also markets its ventfree gas logs as the
Firetech 2000(R) ventfree gas log, depending upon the customer.  Unlike
vented fireplaces, which must be located where outside venting can be
effected, the Company's 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 the Company's
ventfree gas logs at a relatively low cost.

The Company 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
unit have been primarily to new

                                    2

<PAGE>

home contractors, while significant quantities of the ventfree gas log
sets not associated with a zero clearance fireplace unit have been sold
to independent distributors and contractors serving the remodeling and
retrofit markets.

Direct-Vent Gas Fireplaces.  The Company manufactures 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 whereby all combustion
air and flue products do not enter the house.  The direct-vent fireplace
market is the fastest growing segment of the hearth industry.

Top Vent Fireplaces.  The Company also manufactures a complete line of
decorative vented fireplaces which exhaust flue products through a class
"B" chimney.

Marketing and Distribution.  The Company sells its fireplaces, ventfree
gas logs and related accessories nationwide through its own sales force
and through third party sales representatives primarily to installing
distributors, two-step distributors and retailers.  A majority of the
Company's fireplaces are ultimately purchased by homebuilders and others
engaged in the construction of new housing or remodeling of existing
homes.  The Company has distributors in all regions of the country
serving builders and remodelers.  The Company's fireplace products are
used by many of the country's best known builders.

Although the Company ships its fireplace products nationwide, its sales
tend to be somewhat concentrated in the states where new housing
construction is most active.  Because the Company typically produces its
products to meet specific orders by contractors, large distributors or
retailers, it does not maintain material amounts of inventories in
excess of anticipated short-term demand.  The raw materials for the
Company's fireplace products are readily available from a variety of
sources.  During fiscal year ended August 31, 2001, no single customer
for fireplace products accounted for more than 10% of the Company's
consolidated sales during such period.

Manufacturing.  The Company currently fabricates its zero clearance
fireplace units from stainless and coated steels acquired from vendors
and brick pattern refractory of its own manufacture.  During the
fabrication process, the Company adds components and other hardware
purchased from vendors.  Glass doors, fan kits and blowers designed for
the Company's zero clearance fireplace units are usually shipped
separately.  The Company produces a variety of sizes and styles of zero
clearance fireplace units for both the single family and multi-family
markets.  In the case of the ventfree gas log units, the Company
incorporates an oxygen depletion sensor and 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.  The Company, during fiscal year 1995, began manufacturing the
simulated wood logs at the Manchester facility.

Competition; Patents.  There are a number of manufacturers producing
zero clearance metal fireplaces and related accessories similar to the
products of the Company and the market for these products is very
competitive.  The Company believes that it is among the larger producers
of such products and that it markets a full range of zero clearance
fireplace units at competitive prices.  Some of the Company's ventfree
gas log products utilize a patented design, which is currently being
licensed by the Company from the holder of the applicable patent.  Under
the revised terms of this license, the Company has a non-exclusive right
to manufacture and distribute ventfree gas logs in the United States and
Mexico in conjunction with a prefabricated fireplace unit or other burn
chamber, and also the right to produce and sell ventfree gas logs
independently of fireplace units.  Other companies have introduced
products which compete with the Company's ventfree log sets.  There can
be no assurance that the holder of the patent will not license such non-
exclusive rights to additional parties, thereby increasing the
competition for the Company's ventfree gas logs.

                                    3
<PAGE>

Inventories and Payment Terms

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

Patents and Trademarks

The Company owns a variety of patents, trademarks and trade names.  The
consumer products manufactured by the Company are sold primarily under
the trademark or trade names of Temco(R), Amberlight(R), Temco American
Dream(TM), Firetech 2000(R) and Prestige(R)  The Company believes that its
trademarks and trade names as a whole have significant value.  Some of
the patents owned are relatively new and give the Company some unique
product features.  However, the Company does not consider any one or
group of its patents, trademarks or trade names or any licenses granted
to or by it to be material to its business as a whole, except for the
patent license (the "Patent License") relating to its ventfree fireplace
products.  The Patent License is scheduled to expire on March 31, 2002
and may be terminated earlier in the event of certain defaults by the
Company.  Unless the Company negotiates an extension to this license
agreement, it will lose the right to manufacture ventfree gas logs of
the covered design on that date.

Seasonality

A majority of the end-users of the Company's 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 the
Company's products and others engaged in this industry do not generally
maintain significant inventories of building materials or component
parts of structures, such as zero clearance fireplace units, the
Company's sales are affected by this seasonality. In addition, the
Company operates 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.

                                    4
<PAGE>

Backlog

The table set forth below gives certain information with respect to the
approximate backlog of the Company.

                                              August 31,
                                      --------------------------
                                         2001            2000
                                      ----------      ----------
          Backlog orders               $486,000        $440,000


As of August 31, 2001, the amount of backlog of orders shown above is
believed to be firm and the orders are expected to be filled during
fiscal year 2002.  The Company does not consider backlog amounts to be
significant due to the nature of the customer's order patterns.

Government Regulations

The Company does 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 the Company and
its subsidiary.

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, the Company's
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. The Company has been relatively successful to date
in obtaining a waiver of the application of, or amendment to, the
building fire and safety codes in a variety of jurisdictions to permit
the installation of its ventfree gas logs. To the extent that the
Company is 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.

Employees

As of August 31, 2001, the Company employed 351 persons (including
employees of its wholly-owned subsidiary) of whom 74 were salaried and
277 were hourly employees.

                                    5
<PAGE>

ITEM 2.   PROPERTIES

Corporate Office

The executive offices of the Company are located at 5400 LBJ Freeway,
Suite 1375, Dallas, Texas 75240.  Such offices consist of a small office
suite, which is leased under a five-year lease expiring on September 30,
2001.  The lease was amended on September 30, 2001 to expire on December
31, 2001.  The current monthly base rental is $5,996.

Fireplace Products

The Company manufactures and assembles its fireplace products in its
facilities at Manchester, Tennessee; Perris, California; and Mexicali,
Baja California, Mexico.  Management of the Company believes the
availability of two plants located in different geographic areas of the
United States allows it to ship products nationwide at a lower average
freight cost than many of its competitors operating out of a single
plant.

The Company's Manchester, Tennessee facility contains approximately
127,000 square feet and includes a main building of metal construction
and three adjacent smaller buildings, generally of metal construction.
The Manchester, Tennessee facility is leased by the Company from HUTCO,
a California partnership of which Mr. James E. Upfield (Chairman of the
Board of the Company) 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, the Company
entered into a new lease agreement with HUTCO whereby HUTCO expanded the
Manchester, Tennessee facility by 30,000 square feet to a total of
approximately 157,000 square feet.  The monthly rental beginning
January, 1995 increased to $21,500 and is subject to certain scheduled
rent escalations based upon increases in the consumer price index.  The
new lease provides for a twenty-five year term, expiring in 2020.  In
the opinion of the management of the Company, the leases from HUTCO were
consummated on terms and conditions as favorable to the Company as terms
and conditions obtainable from non-affiliated parties.

The Company's manufacturing facility in Perris, California is located on
ten acres of land and contains approximately 78,000 square feet.  The
facility is leased by the Company under a long-term lease expiring
September 30, 2008.  The monthly rental rate for this facility is
$6,368.

During 2000, the Company completed the expansion of the facility in
Mexicali, Mexico from 35,000 square feet to 49,000 square feet to
accommodate expanding operations in the Mexico plant.  The lease for the
facility provides for basic monthly rental of $17,475 (U.S.) and expires
in April 2005.  This facility manufactures fireplaces and component
parts for use by the Company's Manchester, Tennessee and Perris,
California plants.

                                    6
<PAGE>

ITEM 3.   LEGAL PROCEEDINGS

From time to time the Company is involved in litigation that arises
through the normal course of business operations. As of the date of this
report, however, the Company is 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.

                              PART II

ITEM 5.   MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
          STOCKHOLDER MATTERS

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

                                               Price (1)
                                        -------------------
                                            High      Low
                                         --------   -------
                  FISCAL 2000
                  -----------
                  September-November       $2.34     $1.38
                  December-February         1.75      1.38
                  March-May                 1.56      1.06
                  June-August               1.19      0.59

                  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



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

The number of shareholders of record of the Company as of November 26,
2001 was approximately 712.  The only stock of the Company outstanding
is common stock par value $0.20 per share.

No cash dividends were declared or paid during fiscal 2000 or 2001.  The
Company currently intends to reinvest its earnings for use in its
business and to finance future growth.  Accordingly, the Company does
not anticipate paying dividends in the foreseeable future.

Effective February 1, 2000, the Company moved the listing of its common
stock from the Nasdaq National Market to the Nasdaq SmallCap Market.
The Company maintained its ticker symbol TMTX.  Effective April 25,
2001, the Company's stock was delisted from the Nasdaq Stock Market.

Following the delisting, the Company's stock has been traded via the
Over The Counter Bulletin Board (OTCBB)(R) under the symbol TMTX.OB.

                                    7

<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA

The following selected consolidated financial data for the five fiscal
years ended August 31, 2001 is derived from the audited consolidated
financial statements of the Company.  The selected consolidated
financial data presented below should be read in conjunction with the
consolidated financial statements of the Company, together with the
Notes to Consolidated Financial Statements and Management's Discussion
and Analysis of Financial Condition and Results of Operations included
elsewhere in the Company's Form 10-K for the year ended August 31, 2001.


<TABLE>
<CAPTION>

                                                          Year Ended August 31,
                                         --------------------------------------------------------
                                            2001       2000       1999       1998         1997
                                         ----------  ---------  ---------   ---------   ---------
                                            (in thousands, except share and per share amounts)
<S>                                      <C>         <C>       <C>         <C>          <C>
Selected Statement of Operations Data:
Net sales .............................    $19,151    $20,685    $24,829     $26,162      $30,198
Loss from continuing operations........     (5,704)    (6,064)    (4,137)     (1,635)      (1,245)
Net (loss) income......................     (5,704)    (6,064)     1,269         507         (201)
Basic loss per common share from
  continuing operations (1)............      (1.66)     (1.76)     (1.19)      (0.47)       (0.36)
Basic net (loss) income per common
 share (1).............................      (1.66)     (1.76)      0.37        0.15        (0.06)
Diluted net (loss) income per common
 and common equivalent share(1)........      (1.66)     (1.76)      0.36        0.14        (0.06)
Basic weighted average common shares
 outstanding (1).......................  3,444,641  3,444,641  3,466,975   3,477,141    3,474,155
Diluted weighted average common and
 common equivalent shares
 outstanding (1).......................  3,444,641  3,444,641  3,511,135   3,531,414    3,474,155

                                                                August 31,
                                          ------------------------------------------------------
                                           2000       1999       1999        1998        1997
                                         ---------  ---------  ---------  ----------  -----------
Selected Balance Sheet Data:
Total assets...........................  $  13,842  $  16,541  $  23,700(2) $22,547(2) $23,233(2)
Long-term debt, excluding current
 maturities (3)........................      1,895      1,937      1,984      2,246      2,244
Stockholders' equity (4)...............      5,686     11,390     17,454     16,288     15,781

</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) The Company has not declared or paid cash dividends during the
    relevant periods.

                                    8
<PAGE>

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

The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with
the audited consolidated financial statements and related notes of the
Company included elsewhere in this report.  This Management's Discussion
and Analysis of Financial Condition and Results of Operations and other
parts of this Annual Report on Form 10-K contain forward-looking
statements that involve risks and uncertainties.  Among the risks and
uncertainties to which the Company is subject are the risks inherent in
the cyclical and unpredictable nature of the housing and home products
business generally, fluctuations in interest rates, geographic
concentration of the Company's primary market, the fact that the Company
has experienced fluctuations in revenues and operating results, and the
highly competitive nature of the industry in which the Company competes,
together with each of those other factors set forth in the Company's
filings made with the Securities and Exchange Commission.  As a result,
the actual results realized by the Company could differ materially from
the results discussed in the forward-looking statements made herein.
Words or phrases such as "will," "anticipate," "expect," "believe,"
"intend," "estimate," "project," "plan" or similar expressions are
intended to identify forward-looking statements.  Readers are cautioned
not to place undue reliance on the forward-looking statements made in
this Annual Report on Form 10-K.

The Company is a producer of metal fireplace products used in the
residential and commercial building and the remodeling markets.  The
Company manufactures and distributes its fireplace products through
Temco Fireplace Products, Inc., a wholly owned subsidiary of the
Company.  The Company's fireplace products are sold nationwide to a
network of contractors, distributors and retailers.

In January 1999 the Company completed the sale of Texas Clay Industries,
an operating division of the Company that produced face brick products.
The results of operations and gain on the sale have been classified as
discontinued operations.


Fiscal Year 2001 Compared to Fiscal Year 2000

Net Sales

Net sales decreased approximately $1.5 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.

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.   The Company 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 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.

                                    9
<PAGE>

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 the Company's credit agreement.

Other Income

Other income or expense for both fiscal 2001 and 2000 includes
immaterial amounts of miscellaneous income and expenses from various
sources.

Income Taxes

During fiscal 2001, the Company did not recognize a credit for income
taxes.  The Company, before considering the valuation  allowance, has net
deferred tax assets resulting primarily from net operating losses.
Therefore, the Company has 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 2000 Compared to Fiscal Year 1999

Net Sales

Net sales decreased approximately $4.1 million or 17% in fiscal 2000
compared to fiscal 1999.  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 in the number
of  direct-vent gas fireplaces delivered of approximately 13% over
fiscal 1999.  Small decreases in the average unit selling prices across
all lines of fireplaces added to the reduction in net sales.

Gross Profit

Gross profit decreased approximately $1.2 million or 42% in fiscal 2000
compared to fiscal 1999.  The decrease in gross profit was caused in
part, by the decrease in sales volume.  In an effort to reduce
manufacturing costs, the Company relocated the production line for its
36-inch woodburning fireplaces from its California facility to its plant
in Mexico in September 1999.  Later in fiscal 2000, all fireplace
manufacturing was relocated to either the Mexico facility or the
facility in Tennessee.  The only production lines remaining in operation
in California are those relating to the fabrication of the chimney pipe,
pipe returns and concrete logs.

Selling, General and Administrative Expenses

Selling expenses decreased approximately 14% or approximately $546,000 in
fiscal 2000 compared to fiscal 1999.  The decrease was mainly due to
decreases in printing and video expenses, sales volume rebates and
expenses related to customer satisfaction.

General and administrative expenses decreased approximately 12% or
approximately $595,000 in fiscal 2000 compared to fiscal 1999.  A
reduction in personnel at the California facility and the Company's
corporate office decreased salaries and related benefits expenses during
the year.  Other significant decreases were recorded in legal and
professional expenses as well as group health insurance costs.  During
fiscal 2000, the Company reduced the amount of its contribution to the
employee 401(k) Savings Plan in an effort to reduce expenses.  In
addition, the Company terminated its Select Management Employee Security
Plan.  Upon termination of the plan, each participant, excluding the
Chairman of the Board of Directors, received a one-time payment of
approximately 120% of their annual salary which was partially funded with
the cash surrender values of policies covering the participants.  The
Company recorded a net expense of approximately $260,000 in fiscal 2000
in connection with the termination of the Select Management Employee
Security Plan.

                                   10
<PAGE>

Interest Expense

Net interest expense increased approximately $30,000 or 12% in fiscal
2000 compared to fiscal 1999.  The net increase was caused by a reduction
in the amount of interest income earned through the company's investment
in cash funds as a result of utilizing invested cash funds in operations.
Income is netted with expense because the income amount is not
significant.

Other Income

Other income for both fiscal 2000 and 1999 includes immaterial amounts
of miscellaneous income and expenses from various sources.

Income Taxes

During fiscal 2000, the Company did not recognize a credit for income
taxes.  The Company, before considering the valuation allowance, has net
deferred tax assets resulting primarily from net operating losses.
Therefore, the Company has 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 used in operating activities was $3,395,000, $2,259,000 and
$6,781,000 in fiscal 2001, 2000 and 1999, respectively.  Working
capital decreased $4,855,000 in fiscal 2001 due to decreases in cash
and inventories and the borrowings under the line of credit.  Working
capital decreased $3,796,000 in fiscal 2000 due mainly to decreases in
cash, accounts receivable and inventories resulting principally from
the decrease in net sales.

Capital expenditures for fireplace products totaled $384,000, $758,000
and $1,036,000 in fiscal 2001, 2000 and 1999, respectively.  The
majority of expenditures in each of the years was for tooling,
replacement items and major repairs to manufacturing equipment.  In
fiscal years 2000 and 1999, capital expenditures were primarily made
using cash proceeds from the sale of Texas Clay Industries.

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 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.  The revolving credit facility does not require the
maintenance of any financial ratios but does contain several covenants.
The credit facility is secured by all assets of the Company and its
subsidiary, Temco Fireplace Products, Inc.  At August 31, 2001 there
was approximately $2,955,000 outstanding under the credit facility,
which was the maximum credit available on that day.

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 $5,704,000 and
$6,064,000, and used cash in its operations of $3,395,000 and
$2,259,000, during the years ended August 31, 2001 and 2000,
respectively.  In addition, considering borrowing limitations under the
Company's existing credit agreement, the Company was not able to borrow
any additional amounts under its credit agreement at August 31, 2001.
These factors, among others, indicate that the Company may be unable to
continue as a going concern.

Management recognizes that the Company's continuation as a going
concern is dependent upon its ability to generate sufficient cash flow
to allow the Company to satisfy its obligations on a timely basis.  The
generation of sufficient cash flow is dependent not only on the
successful expansion of the Company's share of the market for its
product, but also on its ability reduce inventories.  The primary focus
is on increasing revenue levels to utilize excess capacity and to
increase inventory turnover. The Company is performing a detailed
review of each sales territory to determine what actions should be
taken to increase the Company's market share in that region.  In
addition, the Company has engaged the services of a consultant to
facilitate the implementation of an inventory reduction program.  Upon
the recommendation of the consultant, during August 2001, the Company
implemented an aggressive inventory reduction program that is expected
to reduce inventories by more than $1.5 million during fiscal 2002.
The Company is also evaluating other methods of controlling inventory
levels, including the possible purchase of computer software to more
effectively control the purchasing and production processes.  The
Company expects to be able to achieve these initiatives without
disrupting product shipments to current customers.  Management believes
that the successful achievement of these initiatives combined with
borrowings under its existing credit agreement should provide the
Company with sufficient resources to meet its near term cash
requirements.  In addition, the Company is also considering a number of
other strategic financing alternatives, however, no assurance can be
made with respect to the viability of the Company.  If the Company is
not successful in achieving its initiatives or obtaining additional
financing, it will be unable to continue operations which will have a
material adverse effect on the price of its stock.

                                   11

<PAGE>


Earnings Per Share

The Company's Board of Director's approved the purchase of up to $1.0
million of the Company's common stock on the open market in fiscal 1999.
The stock purchase program was initiated to indicate management's
commitment to increasing shareholder value and their continued
confidence, in 1999, in the strength of the Company.  The Company was
successful in purchasing 40,000 shares for $112,000 during the time
allotted for the purchase.  The reduction in the number of shares
outstanding had no significant impact on the calculation of earnings per
share in fiscal 2001 or fiscal 2000.

Discontinued Operations

In the second quarter of fiscal 1999, the Company sold Texas Clay
Industries, a division that produced face brick products.  Proceeds from
the sale were approximately $12.5 million and the pre-tax gain recorded
as a result of the sale was approximately $7.4 million.  The proceeds
were used to pay down indebtedness, purchase equipment and finance
operations.

Effects of Inflation

The Company believes that the effects of inflation on its operations
have not been material during the past three fiscal years.  However,
inflation could adversely affect the Company 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

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

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this Item is submitted in a separate section of this
report

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

Not applicable.

                                   12

<PAGE>


                                 PART III

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

 (a)  DIRECTORS OF THE COMPANY

The names of the directors and information about them, as furnished by
the directors themselves, are set forth below:


<TABLE>
<CAPTION>


                        First Became   Positions and Offices with Company, Business Experience
      Name        Age  a Director in       During Past Five Years and Other Directorships
 -------------    ---- -------------  --------------------------------------------------------
<S>               <C>  <C>            <C>
James E. Upfield  81   1969           Chairman of the Board of the Company for more than the
                                      past five years; also Chairman of the Board of Temco
                                      Fireplace Products, Inc., a wholly-owned subsidiary of
                                      the Company, serves as a director of Magnum Hunter
                                      Resources which is engaged in the sale of oil, gas and
                                      oilfield services.

E. R. Buford      66   1973           President of the Company for more than five years and
                                      was elected Chief Executive Officer of the Company in
                                      February, 1986; President and a director of Temco
                                      Fireplace Products, Inc., a wholly-owned subsidiary of
                                      the Company, for more than the past five years.

Larry J. Parsons  72   1989           Retired in 1988 as partner of Ernst & Whinney (now known
                                      as Ernst & Young LLP), an international public
                                      accounting firm.  Mr. Parsons was a partner for more
                                      than five years before his retirement and holds no other
                                      directorships.

Scott K. Upfield  42   1992           President, Treasurer and a director of Insurance
                                      Technologies Corporation, a company principally engaged
                                      in developing and marketing software to the insurance
                                      industry for more than the past five years.

Richard W. Griner 63   1995           Director, President and Chief Operating Officer of The
                                      Hart Group, a privately owned company which supplies
                                      managerial services to privately owned Rmax, Inc., a
                                      manufacturer of rigid foam roofing and sheathing
                                      insulation for more than the past five years; director
                                      and President of HC Industries, Inc. and of HC
                                      Industries NV., Inc., subsidiaries of Rmax; and a former
                                      director of Axon, Inc., a plumbing and heating service
                                      company.  Mr. Griner is also a director and President of
                                      Rmax.


</TABLE>


Each of the above named nominees is a member of the present Board of
Directors and was elected to such office at the Annual Meeting of
Stockholders held March 8, 2001.  There are no family relationships
among any of the directors or among any of the directors and any officer
of the Company except Messrs. James E. Upfield and Scott K. Upfield who
are father and son.

Mr. Joseph V. Mariner, Jr. resigned in June 2001 after serving as a
Director of the Company for more than twenty two years.

                                   13
<PAGE>

  (b) EXECUTIVE OFFICERS OF THE COMPANY

Name                    Age     Offices with Company
----                    ---     --------------------

James E. Upfield        81      Chairman of the Board and a director

E. R. Buford            66      President, Chief Executive Officer and
                                a director

R. L. DeLozier          61      Secretary and Treasurer

James E. Upfield and E. R. Buford have served in their respective
capacity for more than the past five years.  R. L. DeLozier was
appointed on May 15, 2000 to serve the unexpired term of R. N. Stivers
who retired on April 30, 2000.  For more than the past five years, R. L.
DeLozier was Manager of Corporate Accounting.  There are no family
relationships between any of the executive officers, nor any arrangement
of understanding between any officer and any other person pursuant to
which the officer was selected.  Officers are appointed annually by the
Board of Directors immediately following the annual meeting of
shareholders.

ITEM 11.  EXECUTIVE COMPENSATION

The following table provides certain disclosure of all compensation
awarded to, earned by or paid to the chief executive officer of the
Company and to each of the Company's four most highly compensated
executive officers (other than the chief executive officer) whose total
salary and bonus exceed $100,000.



                           SUMMARY COMPENSATION TABLE
                           --------------------------
<TABLE>
<CAPTION                           Other                     Securities              All
                                           Annual   Restricted Underlying             Other
  Name and                                Compen-     Stock     Options/     LTIP    Compen-
 Principal    Fiscal     Salary    Bonus   sation     Awards      SARs     Payouts    sation
  Position     Year        ($)      ($)     ($)        ($)         (#)       ($)       ($)
------------ ---------------------------------------------------------------------------------
<S>          <C>       <C>         <C>    <C>       <C>        <C>         <C>      <C>
E. R. Buford   1999      225,000     -0-     N/A        -0-         -0-       -0-      N/A
Chief          2000      201,500(1)  -0-     N/A        -0-         -0-       -0-    270,000(3)
Executive      2001      168,700     -0-     N/A        -0-         -0-       -0-      N/A
Officer  and
President
(1)  Salary reduced by 25% on 4/1/00 in conjunction with Company's cost
     reduction effort.
---------------------------------------------------------------------------------------------
J. E. Upfield  1999        150,000  -0-     N/A        -0-         -0-       -0-      N/A
Chairman of    2000     112,500(2)  -0-     N/A        -0-         -0-       -0-      N/A
the Board      2001         -0-     -0-     N/A        -0-         -0-       -0-      N/A
(2)  Salary reduced by 33% on 4/1/00 and 100% on 6/30/00.
---------------------------------------------------------------------------------------------
R.L. DeLozier  2000        107,500  -0-     N/A        -0-         -0-       -0-    129,000
               2001        107,500  -0-     N/A        -0-         -0-       -0-    (3)
                                                                                      N/A
Secretary/
Treasurer
---------------------------------------------------------------------------------------------
</TABLE>

(3)  Amount received upon termination of the Company's Select Management
     Employee Security Plan.  See "Certain Relationships and Related
     Transactions."

Other annual compensation did not exceed the lesser of either $50,000 or
10% of total salary as disclosed in the summary compensation table.

Mr. R. N. Stivers, who previously served as Chief Financial Officer and
Vice President-Finance, retired on April 30, 2000.  Mr. Stivers received
total compensation in fiscal year 1999 of $118,100.

                                   14
<PAGE>


Employment Contract Agreements

At the March 3, 2000 meeting, the Board of Directors elected not to
extend the employment contracts of Mr. E. R. Buford and Mr. R. N.
Stivers.  Mr. Stivers' contract would have terminated upon his
retirement in April 2000 without any action from the Board.  Under
terms of the agreements Mr. E. R. Buford received an annual salary of
at least $201,300, Mr. R. N. Stivers received a base salary of $105,000
and each was eligible to participate in the regular employee benefit
programs established by the Company.

Select Management Employee Security Plan

At a special meeting held on February 1, 2000, the Company's Board of
Directors voted to terminate the Temtex Select Management Employee's
Security Plan (the "Plan").  At the date of termination of the plan
there were eight employees participating under the Plan. Benefits under
the plan included an annual payment of approximately 50% of the
participant's annual salary at the time of retirement for a period of
ten years.  Benefit payments are provided by individual life insurance
policies that are funded by the Company.  With the exception of Mr.
James E. Upfield, Chairman of the Board, all participants were offered
the right to receive either (i) a cash payment equal to 120% of their
annual salary, or (ii) the underlying life insurance policy purchased
by the Company under the Plan to fund the participant's benefit,
together with cash, if any, equal to the difference between the cash
value of such policy and 120% of their annual salary.  The Company
recorded a net expense of approximately $260,000 in connection with the
termination.  In addition, each participant was granted an option to
purchase an aggregate of 10,000 shares of the Company's common stock at
the fair market value of the common stock on the date of the grant.

1990 Stock Option Plan for Key Employees

The 1990 Stock Plan for Key Employees of Temtex Industries, Inc.  (the
"1990 Key Employee Plan") expired, as provided in the Plan, on December
31, 1999.  At August 31, 2001 there were options to acquire 50,000 of
common stock that remain outstanding under the terms of the 1990 Plan.

1999 Omnibus Securities Plan

In October 1999 and March 2000, respectively, the Board of Directors
and shareholders of the Company approved the adoption of the 1999
Omnibus Securities Plan (the "1999 Plan"). The 1999 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 (including outside directors), officers,
employees and certain consultants.  Awards for 111,000 shares of stock
have been granted under the 1999 Plan.  Of the 111,000 shares awarded
under the plan, 16,500 have been cancelled.

                                  15
<PAGE>

Option Grants During 2001 Fiscal Year
The following table specifies the grants of stock options made during
the last completed fiscal year to each of the Company's executive
officers named in the Summary Compensation Table:


<TABLE>
<CAPTION>
                      Option/SAR Grants in Last Fiscal Year
                      -------------------------------------

                                Individual Grants
                  -----------------------------------------------------
                                % of Total                                 Potential Realizable
                   Number of     Options/                                   Value at Assumed
                   Securities      SARS                                    Annual Rates of Stock
                   Underlying   Granted to                                  Price Appreciation
                    Options/    Employees    Exercise or Base               For Option Term (1)
                      SARS      in Fiscal         Price        Expiation      5%        10%
Name                Granted        Year           ($/Sh)         Date         ($)       ($)%
------------------------------------------------------------------------------------------------
<S>                <C>         <C>             <C>            <C>          <C>         <C>
E. R. Buford          -0-          -0-             -0-            -0-          -0-       -0-
J. E. Upfield         -0-          -0-             -0-            -0-          -0-       -0-
R. L. DeLozier        -0-          -0-             -0-            -0-          -0-       -0-

</TABLE>

(1)  Amounts represent hypothetical gains that could be achieved for
     the respective options if exercised at the end of the option term.
     These gains are based on assumed rates of stock price appreciation
     of 5% and 10% compounded annually from the date the respective
     options were granted to their expiration date.  The gains shown
     are net of the option exercise price, but do not include
     deductions for taxes or other expenses associated with the
     exercise of the option or the sale of the underlying shares.  The
     actual gains, if any, on the exercise of the stock options will
     depend on the future performance of the Company's common stock,
     and the date on which the options are exercised.

The following table includes the number of shares received upon
exercise, or if no shares were received, the number of securities with
respect to which the options were exercised, the aggregate dollar value
realized upon exercise and the total value of unexercised options held
at the end of the last completed fiscal year for each of the Company's
executive officers named in the Summary Compensation Table:


<TABLE>
<CAPTION>

               Aggregated Option/SAR Exercises in Last Fiscal Year
               ---------------------------------------------------
                          and FY-End Option/SAR Values
                          ----------------------------

                                                           Number of Securities      Value of
                                                                Underlying       Unexercised In-
                                                               Unexercised          the-Money
                                                           Options/SARs at FY-   Options/SARs at
                                                                 End (#)            FY-End ($)

                         Shares Acquired   Value Realized      Exercisable/        Exercisable/
  Name                   on Exercise (#)        ($)           Unexercisable       Unexercisable
  -----------------------------------------------------------------------------------------------
  <S>                    <C>              <C>              <C>                   <C>
  E. R. Buford                 -0-              -0-         Exercisable 30,000       -0-  (1)

  J. E. Upfield                -0-              -0-                -0-               -0-

  R. L. DeLozier               -0-              -0-         Exercisable 10,000       -0 - (1)

(1)  The Company's stock price at August 31, 2001 was below the option price.


</TABLE>

                                       16
 <PAGE>

 Stock Option Plan for Outside Directors

 In 1990, the Company adopted the Outside Director Stock Option Plan
 (The Outsider Director Plan).  The Outside Director Plan expired on
 December 31, 1999 as provided by its terms.  At the date of
 termination, December 31, 1999, there were outstanding options under
 The Outside Director Plan for the purchase of an aggregate of 21,000
 shares of the Company's common stock that terminated.  In fiscal
 year 2000, stock options were granted to outside directors under the
 1999 plan, as permitted by the 1999 Plan.  No options were granted
 in fiscal year 2001.

 The following table shows stock options granted and presently
 exercisable to outside directors as of August 31, 2001:


                       Options
                     Granted and             Value of Unexercised
                      Presently     Option   In-The-Money Options
 Name of Director    Exercisable    Price     At Fiscal Year End ($)
------------------   ------------   ------  ------------------------
Richard W. Griner       4,000       $1.82           -0-(1)

Larry J. Parsons        6,500       $1.82           -0-(1)

Scott K. Upfield        4,000       $1.82           -0-(1)

(1)  The Company's stock price at August 31, 2001 was below the
     option price.

Directors' Remuneration

Those directors who are salaried employees of the Company receive no
additional compensation for their services as directors or as
members of committees of the Board.  Cash compensation currently
payable to the other directors for services in that capacity
consists of a retainer of $2,500 per year and a fee of $750 (in
addition to travel expenses) for each day of each meeting of the
Board of Directors attended.  No additional retainers are paid for
serving on a committee; however, if one or more committee meetings
are held on a day other than one on which a Board meeting is held,
committee members are paid a fee of $750 (in addition to travel
expenses) for each day of such meeting or meetings.

Directors who are not regular salaried officers or employees who
render services to the Company in a capacity or capacities other
than that of a director (for example, as consultants or attorneys)
may be compensated for such other services, and such compensation
for other services shall not, except insofar as may be specified by
the Company in particular cases, affect the cash compensation
payable to such directors in their capacities as directors and
members of committees of the Board of Directors.

Compensation Committee Interlocks and Insider Participation

James E. Upfield was, during the fiscal year, an officer of the
Company and a member of the Compensation Committee of the Board of
Directors.  Mr. Upfield has engaged in certain transactions with the
Company described under the heading "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS".

Board Compensation Committee Report on Executive Compensation

The Compensation Committee of the Board of Directors consists of Mr.
Richard W. Griner (Chairman), Mr. Larry J Parsons, Mr. James E.
Upfield and Mr. Scott K. Upfield.  The Compensation Committee's
primary function is to review the compensation awarded to the
Company's Chief Executive and Chief Financial Officers and to approve
the

                                  17

<PAGE>


determinations of compensation to be paid to certain other senior
executives of the Company.  Salaries are reviewed at regular
intervals, approximately annually, depending on job classification and
competitive market levels.

In determining executive compensation, the Compensation Committee
reviews the performance of the specific executive, the operating
performance of the Company, the compensation for executives of
companies, which are comparable to the Company and the performance of
the Company's Common Stock.  Although the Compensation Committee does
not utilize any formal mathematical formulae or objective thresholds,
particular emphasis is given to the operating results of the Company.
The Compensation Committee believes that specific formulae restrict
flexibility and are too rigid at this stage of the Company's
development.

The Compensation Committee also believes that in order for the Company
to succeed, it must attract and retain qualified executives who can
not only perform satisfactorily on an individual basis but who can
also retain and manage a quality staff of other executive officers and
key employees.  Thus, in addition to applying the criteria generally
applicable to all executive officers, in determining the compensation
of the Chief Executive Officer, the Compensation Committee may also be
influenced to a significant extent by the overall performance of the
Company's other executives and key employees.

In addition to the Compensation Committee's subjective determination
of the factors noted above, the committee has access to, and from time
to time has reviewed reports of, independent financial consultants who
assimilate and evaluate the compensation of executive officers
employed by companies which are generally comparable to the Company.
During this year's review, the Compensation Committee elected not to
consider such a report.  The Compensation Committee seeks to establish
base salaries that generally approximate the median range for
comparable companies.

After a review of the factors discussed above, the Compensation
Committee determines whether a particular executive should receive an
increase in compensation, an incentive bonus under the Company's
Executive Bonus Plan, a stock option or stock grant under the
Company's 1999 Omnibus Securities Plan, or any other compensation
benefits.  At their March 8, 2001 meeting, the Compensation Committee
recommended no changes in the salaries for the senior officers of the
Corporation for the 2001 fiscal year.

The Compensation Committee has reviewed the applicability of Section
162(m) of the Code, which disallows a tax deduction for compensation
to an executive officer in excess of $1.0 million per year.  The
Compensation Committee does not anticipate that compensation subject
to this threshold will be paid to any executive officer of the Company
in the foreseeable future.  The committee intends to periodically
review the potential consequences of Section 162(m) and may in the
future structure the performance-based portion of its executive
officer compensation to comply with certain exemptions provided in
Section 162(m).


                            Mr. Richard W. Griner
                            Mr. Larry J. Parsons
                            Mr. James E. Upfield
                            Mr. Scott K. Upfield


                            18

<PAGE>


 Performance Graph
 The following table compares the performance of the Company's Common
 Stock with certain comparable indices:







                        [GRAPH]















 <TABLE>
 <CAPTION>


                                       1996      1997       1998     1999     2000      2001
                                      -------  --------   -------  -------   -------  -------
<S>                                  <C>       <C>        <C>      <C>       <C>      <C>
TEMTEX INDUSTRIES, INC.               $100.00    $ 93.11   $ 86.23   $61.98  $ 27.55   $ 10.47
Dow Jones Total  Market               $100.00    $138.20   $143.59  $200.15  $240.37   $179.07
Dow Jones Home Construction
       & Furnishings                  $100.00    $132.91   $126.18  $135.23  $118.59   $155.00

 </TABLE>

                                       19


 ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT

  (a)  The Company knows of no person owning beneficially more than
 5% of the Company's Common Stock, except for the following persons
 who owned, as of November 26, 2001, the number of shares of Common
 Stock of the Company set forth opposite his name in the table below:

                                            Amount and
                                            Nature of
                     Name and Address of    Beneficial    Percent of
   Title of Class     Beneficial Owner    Ownership (1)      Class
  ----------------   -------------------  -------------   ----------

  Common Stock      James E. Upfield      1,379,190 (2)      40.0%
                    5400 LBJ Freeway
                    Suite 1375
                    Dallas, TX 75240
  Common Stock      Dennis Chase             334,850         9.7%
                    Box 248
                    North Lake, WI 53064

  Common Stock      Dimensional Fund         186,000         5.4%
                    Advisors, Inc.
                    1299 Ocean Avenue
                    11th Floor
                    Santa Monica, CA 90401

 ___________________

       (1)  The nature of the beneficial ownership of the
            shares is sole voting and investment power unless indicated
            otherwise.
       (2)  Includes 24,750 shares of Common Stock held of
            record by HUTCO, a partnership of which Mr. Upfield is general
            partner.  Mr. James E. Upfield has shared voting and investment
            power with respect to such shares of Common Stock.

                                  20
 <PAGE>

   (b)  The following table sets forth the beneficial ownership (as
 defined by the rules of the Securities and Exchange Commission) of
 Common Stock of the Company by the incumbent directors, nominees for
 director, named executive officers and all directors and officers
 as a group, together with the percentage of the outstanding shares
 which such ownership represents.  Information is stated as of
 November 26, 2001.

                                          Amount and
                                          Nature of
                    Name or Identity of   Beneficial      Percent
  Title of Class    Group                 Ownership (1)   of Class
-----------------   --------------------  -------------   --------
Common Stock        James E. Upfield       1,379,190(2)     40.0%

Common Stock        E. R. Buford              79,062(3)      2.3%

Common Stock        Larry J. Parsons           7,000(4)        *

Common Stock        Scott K. Upfield          31,500(5)      1.0%

Common Stock        Richard W. Griner          4,500(5)        *
                                          -------------    --------
Common Stock        R.L. DeLozier             10,000(6)        *
                                          -------------    --------
                                           1,511,252(7)     43.6%
 _____________
 * Denotes less than 1%.

    (1)  The nature of the beneficial ownership of the shares by the
         respective persons or group is sole voting and investment
         power unless otherwise indicated.
    (2)  Includes 24,750 shares of common stock over which Mr. James
         E. Upfield has shared voting and investment power owned by
         HUTCO, a partnership of which Mr. James E. Upfield is a
         general partner.
    (3)  Includes 20,000 shares and 10,000 shares of common stock
         exercisable under the 1990 Plan and the 1999 Omnibus Plan,
         respectively.
    (4)  Includes 6,500 shares of common stock exerciseable under the
         1999 Omnibus Plan.
    (5)  Includes 4,000 shares of common stock exercisable under the
         1999 Omnibus Plan.
    (6)  Includes 10,000 shares of Common Stock exercisable under the
         1999 Omnibus Plan.
    (7)  Includes 20,000 shares and 34,500 shares of common stock
         issuable upon exercise of options granted under the 1990
         Plan and the 1999 Omnibus Plan, respectively.

                                  21
    <PAGE>

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On December 21, 1976, the stockholders of the Company approved a
Share Repurchase Agreement (the "Agreement") among the Company, Mr.
James E. Upfield, the Chairman of the Board of Directors (the
 "Chairman") and a trustee under which the Company could be required
to purchase a specified number of shares of the Company's common
stock from the Chairman's estate (the "Estate") upon his death.
The purpose of the agreement was to provide an orderly means for
the Estate to raise funds to pay all estate taxes, inheritance
taxes, funeral expenses and administrative expenses without
necessitating the sale of a large number of shares of the Company's
common stock in the over-the counter market, an event which, in the
opinion of the company, would have, primarily because of the
limited volume of trading in such shares, a potentially serious
adverse effect on the price of the Company's common stock.  The
Company purchased a life insurance policy on the life of the
Chairman in the amount of $500,000 to fund the Company's
obligations under the Agreement.  Pursuant to the Agreement, upon
termination of the Agreement during the Chairman's lifetime, the
Chairman had the right to purchase any part or all of the life
insurance policy on his life at a purchase price equal to cash
surrender value, net of policy indebtedness, plus any unearned
premium thereon at the date of purchase.

On December 14, 1999, the Company and the Chairman mutually agreed
to terminate the agreement and the Chairman declined to purchase
the life insurance policy on his life.

At a special meeting held on February 1, 2000, the Company's Board
of Directors voted to terminate the Company's Select Management
Employee Security Plan.  The termination of the Select Management
Employee Security Plan is described under the caption "Executive
Compensation - Select Management Employee Security Plan."  Messrs.
Buford and DeLozier received payments of $270,000 and $129,000,
respectively, in conjunction with the termination of the Select
Management Employee Security Plan.

The manufacturing plant and related real property in Manchester,
Tennessee is leased by TFPI from HUTCO, a California partnership of
which Mr. James E. Upfield is a general partner.  The Manchester
facility, which was originally subject to a five-year lease with an
option to purchase between TFPI and the former owner, was acquired
by HUTCO upon the assignment to it of TFPI's option to purchase
following TFPI's inability to secure financing upon acceptable
terms.  The lease between TFPI and HUTCO was for a twenty-five year
term commencing November 15, 1989 and provided for monthly rental
payments of $13,020 (subject to certain scheduled rent escalations
based upon increases in the consumer price index).  During the 1994
fiscal year, the Company entered into a new twenty-five year lease
agreement with HUTCO.  The new lease agreement provides for a
30,000 square foot expansion to the facility with monthly rental
payments of $21,500 commencing January 1, 1995.  The new lease is
subject to certain scheduled rent escalations based upon increases
in the consumer price index.

In the opinion of management of the Company, the leases of the TFPI
manufacturing facility from HUTCO have been consummated on terms
and conditions as favorable to the Company as terms and conditions
obtainable from non-affiliated parties.

                                  22
 <PAGE>

                                PART IV


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

      (a)   (1) and (2)  The response to this portion of Item 14 is
                         submitted as a separate section of this
                         report

                    (3)  Listing of Exhibits: The response to this
                         portion is presented in Item  (c).

      (b)   During the fourth quarter of the period covered by this
            report, there were no reports filed on Form 8-K.

      (c)   Exhibits:

                 (3)     Articles of Incorporation and Bylaws.

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

                         3.2  Amended and Restated Bylaws. (3.2)   *


                 (10)    Material Contracts


                         10.13       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)  *

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

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

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

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

                         10.27       Frost Capital Credit Agreement.
                                     (10.27)**


               (21) Subsidiaries of the Registrant.

                     21.1 Subsidiaries of the Registrant.*

               (23) Consents of Experts and Counsel

                     23.1 Consent of Independent Auditors.


                                  23

 <PAGE>


      (d)  Financial Statement Schedules-The response to this
           portion of Item 14 is submitted as a separate section
           of this report.


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

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

                                  24
<PAGE>

                              SIGNATURES


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

                                     TEMTEX INDUSTRIES, INC.



Date:  11/29/01                      /s/ E. R. Buford
    -------------------------        ---------------------------
                                     E. R. Buford
                                     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 the Company and in the capacities and on the dates
indicated.

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




/s/James E. Upfield   Director, Chairman of the       11/29/01
-------------------   Board                           --------
James E. Upfield




/s/E. R. Buford       Director, President and Chief   11/29/01
--------------------  Executive Officer               --------
E. R. Buford




/s/R. L. DeLozier     Secretary and Treasurer        11/29/01
--------------------                                 --------
R. L. DeLozier




/s/Larry J. Parsons   Director                        11/29/01
-------------------                                   --------
Larry J. Parsons

                                  25

<PAGE>

Form 10-K Item 8 and Item 14(a) (1) and (2)

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

     Report of Ernst & Young Independent Auditors

     Consolidated balance sheets-August 31, 2001 and 2000

     Consolidated statements of operations-Years ended August 31,
     2001, 2000, and 1999

     Consolidated statements of stockholders' equity-Years ended
     August 2001, 2000, 1999, 1998

     Consolidated statements of cash flows-Years ended August 31, 2001
     2000, 1999

     Notes to consolidated financial statements-August 31, 2001


All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable
and, therefore have been omitted.

Individual financial statements of the registrant have been omitted
as the registrant is primarily an operating company, and the
subsidiary included in the consolidated financial statement, filed,
in the aggregate, does not have minority equity interest and/or
indebtedness to any person other than the registrant in amounts
which together (excepting indebtedness incurred in the ordinary
course of business which is not overdue and matures within one year
from the date of its creation whether or not evidenced by
securities) exceed five percent of the total assets as shown by the
most recent year-end consolidated balance sheet.


<PAGE>

              Report of Independent Accountants

Board of Directors
Temtex Industries, Inc.

We have audited the accompanying consolidated balance sheets
of Temtex Industries, Inc. and subsidiaries as of August 31
2001 and 2000, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of
the three 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 2000 and the
consolidated results of their operations and their cash
flows for each of three 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 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.



/s/ Ernst & Young LLP

Dallas, Texas
October 31, 2001


<PAGE>

CONSOLIDATED BALANCE SHEETS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES


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

ASSETS

CURRENT ASSETS
 Cash and cash equivalents                  $    169      $ 1,021
 Accounts receivable, less allowance
   for doubtful accounts:
   2001--$274 and 2000--$319                   2,967        2,847
 Inventories                                   6,881        7,452
 Prepaid expenses and other assets               159          180
 Income taxes recoverable                         --          484
                                            --------      -------
    TOTAL CURRENT ASSETS                      10,176       11,984

OTHER ASSETS                                      54          162

PROPERTY, PLANT AND EQUIPMENT
 Buildings and improvements                    2,615        2,615
 Machinery, equipment, furniture and
  fixtures                                    18,701       18,432
 Leasehold improvements                        1,309        1,302
                                             -------     --------
                                              22,625       22,349
Less allowances for depreciation
  and amortization                            19,013       17,954
                                             -------      -------
                                               3,612        4,395

                                             _______      _______

                                             $13,842      $16,541
                                             =======      =======

                                 1
<PAGE>
                                                 August 31,
                                              ----------------
                                               2001        2000
                                              -------     ------
                                            (in thousands, except
                                             share and per share
                                                    data)

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Notes payable                               $ 2,955     $   --
  Accounts payable                              2,337      1,565
  Accrued expenses                                899      1,396
  Income taxes payable                              8        206
  Current maturities of indebtedness to            18         15
related parties
  Current maturities of long-term
   obligations                                     44         32
                                              -------     ------

       TOTAL CURRENT LIABILITIES                6,261      3,214

INDEBTEDNESS TO RELATED PARTIES,
  less current maturities                       1,547      1,565

LONG-TERM OBLIGATIONS,
  less current maturities                         348        372

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  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                            9,253      9,253
  (Accumulated deficit) retained earnings      (3,848)      1,856
                                              -------    -------
                                                6,125     11,829
  Less:
    Treasury stock:
      At cost-153,696 shares                      439        439
      At no cost--1,687,788 shares                 --         --
                                              -------    -------
                                                5,686     11,390

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

                                              $13,842    $16,541
                                              =======    =======




See notes to consolidated financial statements.

                                 2

<PAGE>


CONSOLIDATED STATEMENTS OF OPERATIONS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES



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

Net sales                         $  19,151    $ 20,685  $  24,829
Cost of goods sold                   17,991      19,057     22,004
                                  ---------    --------  ---------
                                      1,160       1,628      2,825
Costs and expenses:
  Selling, general and
   administrative                     6,326       7,401      8,542
  Interest                              493         283        253
  Other expense (income)                 45         (58)         7
                                   --------    --------   --------
                                      6,864       7,626      8,802
      LOSS FROM CONTINUING
        OPERATIONS                 --------   ---------   --------
        BEFORE INCOME TAX
         (BENEFIT) AND
           DISCONTINUED
            OPERATIONS               (5,704)     (5,998)    (5,977)

State, federal and foreign
  income tax (benefit):                  --          66     (1,840)
                                   --------    --------  ---------

        LOSS FROM CONTINUING
         OPERATIONS                  (5,704)     (6,064)    (4,137)

        GAIN FROM DISPOSAL AND
         OPERATING
         INCOME FROM
          DISCONTINUED
          OPERATIONS, NET OF             --          --      5,406
           INCOME TAXES           ---------    --------   --------

        NET (LOSS) INCOME         $  (5,704)   $ (6,064)  $  1,269
                                  =========    ========   ========

Basic and diluted (loss) income
per common share:
  Continuing operations--Basic
    and diluted                   $   (1.66)  $  (1.76)  $   (1.19)
                                  =========   =========  =========
  Net (loss) income
   Basic                          $   (1.66)  $  (1.76)  $    0.37
                                  =========   =========  =========
   Diluted                        $   (1.66)  $   (1.76) $    0.36
                                  =========   =========  =========

Basic weighted average common
  shares outstanding              3,444,641   3,444,641  3,466,975

Diluted weighted average common
  and common equivalent shares
  outstanding                     3,444,641   3,444,641  3,511,135




See notes to consolidated financial statements.

                                 3
<PAGE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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)
<S>                         <C>         <C>     <C>         <C>           <C>
BALANCE AT AUGUST 31,
  1998                       3,477,141   $  718  $    9,246    $  6,651     $   327


Exercise of stock   options
                                 7,500        2           7
Purchase of stock              (40,000)     112
Net income                                                        1,269
                             ---------   ------  ----------    --------     -------
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
                             =========   ======   =========    ========     =======

</TABLE>

See notes to consolidated financial statements.

                                        4

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES

                                                 Year Ended August 31,
                                             -------------------------------
                                               2001       2000        1999
                                             ---------   ---------  --------
                                                     (in thousands)
OPERATING ACTIVITIES
  Net (loss) income                          $ (5,704)  $ (6,064)   $ 1,269
  Adjustments to reconcile net (loss)
   income to net cash used in operating
   activities:
  Depreciation                                  1,168      1,272      1,394
  Discontinued operations:
   Gain on sale, net of tax                        --         --     (4,670)
   Income from operations, net of tax              --         --       (736)
  Deferred taxes                                   --        313        (63)
  Loss on disposition of property,
   plant and equipment                             --         23         --
  Provision for doubtful accounts                 148        225        249
  Changes in operating assets and liabilities:
   Accounts receivable                           (268)       576         62
   Inventories                                    571      1,228       (931)
   Prepaid expenses and other assets              129      1,705     (1,473)
   Accounts payable and accrued expenses          275       (513)       283

  Income taxes payable/recoverable                286     (1,024)       781
  Net change of operating assets and
   liabilities of discontinued operation           --         --     (2,946)
                                             --------   --------   --------
NET CASH USED IN  OPERATING ACTIVITIES         (3,395)    (2,259)    (6,781)

INVESTING ACTIVITIES
  Purchases of property, plant and
   equipment                                     (384)      (758)    (1,036)
  Purchases of property, plant and
   equipment, discontinued operations              --         --        (24)
  Proceeds from sale of discontinued
   operations                                      --         --     12,484
  Proceeds from disposition of property,
plant and equipment                                --          3         --
                                             --------   --------   --------
    NET CASH (USED IN) PROVIDED BY
     INVESTING ACTIVITIES                        (384)      (755)    11,424

FINANCING ACTIVITIES
  Proceeds from revolving line of credit,
   long-term obligations                        2,978         --         --
  Principal payments on revolving line of
   credit, long-term obligations
   and indebtedness to related parties            (51)       (42)      (759)

  Principal payments on long-term
   obligations, discontinued operations            --         --        (31)
  Proceeds from issuance of common stock
                                                   --         --          9
  Purchase of treasury stock                       --         --       (112)
                                             --------   -------    --------
     NET CASH PROVIDED BY (USED IN)
      FINANCING ACTIVITIES                      2,927        (42)      (893)
                                             --------   --------   --------

(DECREASE) INCREASE IN CASH AND CASH
  EQUIVALENTS                                    (852)    (3,056)     3,750
Cash and cash equivalents at beginning   of
  year                                          1,021      4,077        327
                                             --------   --------   --------
   CASH AND CASH EQUIVALENTS AT END OF
    YEAR                                     $    169   $  1,021   $  4,077
                                             ========   ========   ========



See notes to consolidated financial statements.

                                        5

August 31, 2001


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.  In January 1999, the
Company sold its face brick products manufacturing facility located
in Malakoff, Texas.

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, 2001, assets of approximately $1,073,000 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 $5,704,000 and $6,064,000, and
used cash in its operations of $3,395,000 and $2,259,000, during the
years ended August 31, 2001 and 2000, respectively.  In addition,
considering borrowing limitations under the Company's existing
credit agreement, the Company was not able to borrow any additional
amounts under its credit agreement at August 31, 2001.  All the
assets of the Company and its subsidiary secure amounts outstanding
under the credit agreement.  The Company has $169,000 of cash and
cash equivalents on hand at 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.

Management recognizes that the Company's continuation as a going
concern is dependent upon its ability to generate sufficient cash
flow to allow the Company to satisfy its obligations on a timely
basis.  The generation of sufficient cash flow is dependent not only
on the successful expansion of the Company's share of the market for
its product, but also on its ability to reduce inventories.  The
Company is performing a detailed review of each sales territory to
determine what actions should be taken to increase the Company's
market share in that region.  In addition, the Company has engaged
the services of a consultant to facilitate the implementation of an
inventory reduction program.  Upon the recommendation of the
consultant, during August 2001, the Company implemented an
aggressive inventory reduction program that is expected to reduce
inventories by more than $1.5 million during fiscal 2002.    The
Company is also evaluating other methods of controlling inventory
levels, including the possible purchase of computer software to more
effectively control the purchasing and production processes.  The
Company expects to be able to achieve these initiatives without
disrupting product shipments to current customers.  Management
believes that the successful achievement of these initiatives
combined with borrowings under its existing credit agreement should
provide the Company with sufficient resources to meet its near term
cash requirements.  In addition, the Company is also considering a
number of other strategic financing alternatives, however, no
assurance can be made with respect to the viability of the Company.


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.

                                 6
<PAGE>

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.

Income Per Common Share: Basic income per common share is based
upon the weighted average number of shares of common stock
outstanding during the year.  Diluted income 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.  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.

Options outstanding of 129,500, 216,000 and 78,500 for the years
ended August 31, 2001, 2000 and 1999 respectively, were not
included in the calculation of earnings 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 2001, 2000 and 1999 were
$317,000, $452,000 and $377,000, respectively.

Shipping and Handling Costs:  The Company records shipping and
handling costs as a reduction to gross sales upon shipment.
Shipping and handling costs in 2001, 2000 and 1999 were $1,134,000,
$1,231,000 and $1,134,000, respectively.

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

NOTE  B--INVENTORIES

Inventories are summarized below:

                                           August 31
                                       ------------------
                                        2001      2000
                                       --------- --------
                                        (in thousands)
  Finished goods                        $ 2,662   $ 2,992
  Work in process                           622       619
  Raw materials and supplies              3,597     3,841
                                        -------   -------
                                        $ 6,881   $ 7,452
                                        =======   =======

                                 7

<PAGE>


NOTE C--NOTES PAYABLE AND LONG--ERM 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.  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.  In
fiscal 2001 the Company exceeded the limit on capital expenditures
as specified in one of the covenants.  The Company has requested a
waiver from the lender.  The credit facility is secured by all
assets of the Company and its subsidiary, Temco Fireplace Products.
At August 31, 2001 there was approximately $2,955,000 outstanding
under the credit facility, which was the maximum credit available
on that day.



Long-term obligations are summarized as follows:

                                                   August 31,
                                                 --------------
                                                  2001    2000
                                                 ------  ------
                                                 (in thousands)

  Capitalized lease obligations, with interest
    at 9.0% to 15.5%--Note F                    $1,957   $1,984

  Less current maturities                           62       47
                                                ------   ------
                                                $1,895   $1,937
                                                ======   ======


Annual maturities of long-term obligations for each of the five
succeeding fiscal years and thereafter are $62,000, $69,000,
$74,000, $78,000, $89,000, and $1,585,000.

The Company made interest payments in  2001, 2000 and 1999 of
$493,000, $383,000 and  $534,000,  respectively.

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

                                 8

<PAGE>

NOTE D--ACCRUED EXPENSES

Accrued expenses include the following:
                                                 August 31,
                                             -------------------
                                               2001      2000
                                             --------  ---------
                                                (in thousands)
  Employee compensation                     $    223    $   333
  Taxes, other than taxes on income              153        139
  Interest                                        --          7
  Group health insurance                         150        163
  Legal and professional fees                    175        266
  Other                                          198        488
                                            --------    -------
                                            $    899    $ 1,396
                                            ========    =======

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, 2001, 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.

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, 2001, awards for 111,000 shares of stock have been
granted under the 1999 Omnibus plan and options exercisable for
79,500 share of common stock were outstanding.

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 2001 and 2000, respectively; risk-free
interest rate of 5.86% and 6.36%, expected volatility of 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 2001 and 2000,
respectively, was $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, 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.  No proforma disclosures have been
provided for fiscal 1999 as the Company did not grant any stock
options during that period.

                                 9

<PAGE>

NOTE E--STOCK OPTIONS--Continued

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

<S>                               <C>         <C>      <C>         <C>        <C>        <C>
Options outstanding at August 31,
  1998                               142,500     $3.03     21,000      $2.51        N/A
Options exercisable at August 31,
  1998                               125,000     $2.77     21,000      $2.51
     Granted                              --                   --                     --
     Exercised                         7,500     $1.19         --                     --
                                    --------             --------                -------    -----
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,                                                 94,500
  2001                                50,000     $4.94                                      $1.50
Options exercisable at August 31,
  2001                                50,000     $4.94                            79,500    $1.58




</TABLE>


Option prices range from $1.06 to $4.94 per share and expire
between 2001 and 2010.

The weighted average remaining life of the options at August 31,
2001 is seven years.

NOTE F--LEASE COMMITMENTS

Two leased plant facilities are accounted for as capitalized
leases.  The leased properties were capitalized at the initial
value of $635,000.  In 1995, 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 properties have a
combined net book value of $229,000 and $261,000 at August 31, 2001
and 2000, respectively.

A third manufacturing facility, accounted for as a capitalized
lease, is leased from a partnership which includes the Company's
Chairman. 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 $1,031,000 and $1,097,000 at
August 31, 2001 and 2000, respectively.  This lease obligation is
classified as "Indebtedness to Related Parties".

Other plant and office facilities are leased under operating lease
agreements, which expire at various dates through fiscal 2005.  The
capitalized leases expire in fiscal 2009 and fiscal 2019.

                                10
<PAGE>

NOTE F--LEASE COMMITMENTS--Continued

Future minimum payments, by year and in the aggregate, under
capital leases and noncancelable operating leases, consisted of the
following at August 31, 2001:

                               Capital   Operating
                               Leases      Leases
                               -------    --------
                                  (in thousands)
Fiscal Year:
  2002                          $ 373      $  306
  2003                            373         277
  2004                            366         266
  2005                            364         193
  2006                            364          18
  Thereafter                    3,921          --
                              -------      ------
Total minimum lease payments    5,761      $1,060
                                           ======
Amount representing interest    3,804
                              -------
Present value of net minimum
  lease payments              $ 1,957
                              =======


Rental expense for operating leases included in continuing
operations was $383,000, $391,000 and $330,000 in 2001, 2000, and
1999, respectively.

Interest expense paid to related parties was $273,000, $270,000 and
$247,000  in  2001, 2000 and  1999, respectively.

                                11

<PAGE>

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,
                                --------------------------------
                                  2001       2000        1999
                                --------   ---------  ----------
Current:                                 (in thousands)
  Federal                         $ --      $ (315)   $  (1,850)
  State                             --            2          74
  Foreign                           --           66          --
                                  ----      -------   ----------
  Total current                     --        (247)       (1,776)
Deferred:
  Federal                           --          576         (137)
  State                             --         (263)          73
                                  ----      -------   ----------
  Total deferred                    --          313          (64)


Total income tax
  expense/(benefit)               $ --      $    66   $   (1,840)
                                  ====      =======   ==========

The Company has state net operating loss carryforwards of
approximately $15,900,000 expiring in the years 2002 through 2015.
The Company also has a federal net operating loss carryforward of
approximately $9,200,000 which begins to expire in the year 2021.

A valuation allowance of approximately $4,500,000 has been recorded
to offset the federal and state 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:

                                       Year Ended August 31,
                                    ----------------------------
                                      2001       2000     1999
                                    ---------  -------   -------
                                           (in thousands)
Federal income tax  benefit at
  statutory rate                     $ (1,944)  $(2,039) $(2,032)
State income taxes, net of federal
  tax benefit                            (103)     (174)     (95)
Change in valuation allowance           1,972     2,139      291
Other                                      75       140       (4)
                                     --------  --------  -------
Total income tax expense/(benefit)   $     --  $     66  $(1,840)
                                     ========  ========  =======

                                12

<PAGE>

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,
                                             -------------------
                                               2001       2000
                                              -------   --------
                                                (in thousands)
Deferred tax assets:
  Accounts receivable allowance               $    93   $   110
  Capital lease obligation                        264       264
  Federal and state loss carryforwards          3,734     1,582
  Other                                            57       728
                                              -------   -------
        Total deferred tax assets               4,662     2,684
Valuation allowance                            (4,464)   (2,492)
                                              -------   -------
        Net deferred tax assets                   198       192
Deferred tax liabilities:
  Property, plant and equipment                  (119)     (118)
  Other                                           (79)      (74)
                                              -------   -------
             Total deferred tax liabilities      (198)     (192)
                                              -------   -------
                 Net deferred tax assets      $    --   $   ---
                                              =======   =======

The Company received federal or state income tax refunds in 2001
and 2000 of $575,000 and $5,000 respectively, and made federal and
state income tax payments in 2001, 2000 and 1999 of $347,000,
$761,000 and $92,000 respectively.

                                13


<PAGE>


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 $22,000, $82,000
and $116,000 in 2001, 2000 and 1999, respectively.

NOTE I--DISCONTINUED OPERATIONS

On January 5, 1999, the Company sold its Texas Clay Industries
brick manufacturing division for cash of approximately $12.5
million resulting in a net after tax gain of approximately $4.7
million.  The financial statements classify Texas Clay Industries
as a discontinued operation and prior year has been restated to
reflect the same.

For business segment reporting purposes, Texas Clay Industries was
previously classified as face brick products.

The components of the Company's results from the discontinued
operation of Texas Clay Industries are as follows:

                                       Year Ended August 31,
                                       ---------------------
                                               1999
                                               ----
                                       (in thousands, except
                                          per share data)
Net sales                                       $ 3,660
Income from operations before income
  taxes                                           1,139
Income taxes                                        403
                                                -------
                                                    736
Gain on disposal before income taxes              7,413
Income taxes                                      2,743
                                                -------
                                                  4,670
                                                -------
Gain from disposal and income from
  discontinued operations,
  net of income taxes                           $ 5,406
                                                =======

Income per share:
  Basic income per common share:
  Operations                                        .21
  Gain on sale                                     1.35
                                                -------
                                                $  1.56
                                                =======
Diluted income per common and common
  equivalent share:
  Operations                                        .21
  Gain on sale                                     1.33
                                                -------
                                                $  1.54
                                                =======
                                14

<PAGE>


NOTE J--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.

NOTE K--QUARTERLY RESULTS (UNAUDITED)

Summary data relating to the results of operations for each quarter
of the years ended August 31, 2001 and 2000 follows (in thousands
except per share amounts):


<TABLE>
<CAPTION>

                                                          Three Months Ended
                                            ----------------------------------------------
                                             November 30  February 28   May 31   August 31
                                            ------------  -----------   -------  ---------

<S>                                         <C>           <C>           <C>      <C>
Fiscal year 2001:
   Net sales                                  $ 4,936      $  4,098    $ 4,766     $ 5,351
   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)
   Basic and diluted loss from continuing
     operations per common share              $  (.26)      $ (0.41)   $ (0.54)    $ (0.45)
   Net loss
       Basic                                  $ (0.26)      $ (0.41)   $ (0.54)    $ (0.45)
       Diluted                                $ (0.26)      $ (0.41)   $ (0.54)    $ (0.45)
 Fiscal year 2000:
   Net sales                                  $ 6,124       $ 5,210    $ 4,770     $ 4,581
   Gross profit                                   976           381        150         121
   Loss from
     continuing operations                       (420)       (1,019)    (2,839)     (1,786)
   Net loss                                      (420)       (1,019)    (2,839)     (1,786)
   Basic and diluted loss from continuing
     operations per common share              $ (0.12)      $ (0.30)   $ (0.82)    $ (0.52)
   Net loss
       Basic                                  $ (0.12)      $ (0.30)   $ (0.82)    $ (0.52)
       Diluted                                $ (0.12)      $ (0.30)   $ (0.82)    $ (0.52)

</TABLE>
                                       15