<PAGE>

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



(Mark One)

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

For the fiscal year ended DECEMBER 31, 2001
                          ------------------

                                       OR

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

Commission file number   0-26228
                       ---------------------


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

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

     301 EAST TENNESSEE STREET, FLORENCE, ALABAMA                                                    35630
-----------------------------------------------------                  ----------------------------------------------------------
       (Address of principal executive offices)                                                   (Zip Code)
</TABLE>

Registrant's telephone number, including area code   (256) 767-0330
                                                   --------------------

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

<TABLE>
<S>                                                                    <C>
                                                                                           Name of each exchange on
                  Title of each class                                                          which registered

                         None                                                                        None
-----------------------------------------------------                  ---------------------------------------------------------
</TABLE>


Securities registered pursuant to Section 12(g) of the Act:   COMMON STOCK,
                                                              $0.01 PAR VALUE
                                                             ----------------

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

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

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

AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NONAFFILIATES AS OF MARCH 28,
2002 $438,285


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

      COMMON STOCK, $0.01 PAR VALUE, AS OF MARCH 28, 2002: 8,577,480 SHARES


<PAGE>



                       DOCUMENTS INCORPORATED BY REFERENCE

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

    (1) Proxy Statement for 2002 annual meeting of stockholders - Part III.

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



<PAGE>


                                     PART I

ITEM 1.  BUSINESS

GENERAL

         The Company manufactures home heating products. The Company's home
heating products are marketed under the Martin Gas Products, Martin Fireplace
and Atlanta Stove brand names, representing over 150 combined years in the home
heating appliance marketplace. The home heating industry is cyclical in nature,
with sales being affected by general economic cycles, consumer confidence
levels, inflation, employment and income levels and the availability of credit
generally. The Company's fireplace business is also influenced by factors
affecting the housing industry, such as housing demand, the availability of
financing and the level and stability of interest rates. Sales of home heating
products and, in particular, gas heaters (other than fireplaces), historically
have been seasonal in nature, with sales being directly affected by weather
conditions. The Company manufactures its products at its facility located in
Athens, Alabama and markets its products throughout the United States through a
variety of distribution channels.

         During the fourth quarter of 2001, the Company sold certain of its
assets constituting its Broilmaster premium gas barbecue grill business. The
purchase price for this business was $4,960,000 in cash, of which $400,000 was
paid into escrow accounts pending a final physical inventory and in order to
make funds available for future product warranty claims and to meet
indemnification requirements. See Note 16 of Notes to Consolidated Financial
Statements.


         During the first quarter of 2002, the Company transferred all of the
shares of its wholly-owned subsidiary, 1166081 Ontario Inc., to Roger Vuillod,
the manager and sole director of the Company's Canadian subsidiary Hunter
Technologies Inc. ("Hunter"). 1166081 Ontario Inc. holds all of the shares in
Hunter. In connection with this transfer, the Company also assigned $4.3 million
in intercompany debt, which Hunter owed to the Company, to Mr. Vuillod.
According to the terms of the assignment, as Mr. Vuillod collects payment on the
debt, he is required to pay a percentage of the collection to the Company. In
connection with the transaction with Mr. Vuillod, the Company assigned to Hunter
the assets used in the manufacture and distribution of NuWay do-it-yourself
trailers, which have been manufactured by Hunter since the fourth quarter of
2000. Under the terms of the share transfer, Mr. Vuillod has assumed all
obligations and liabilities associated with the ownership of the shares of the
Canadian subsidiaries. The impact of the deconsolidation of 1166081 Ontario Inc.
was approximately $6.1 million and is reflected in Loss on Abandonment of
Subsidiary in the Consolidated Statements of Operations. See Note 15 of Notes to
Consolidated Financial Statements.

GOING CONCERN MATTERS

         The accompanying 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 financial
statements during the year ended December 31, 2001 and 2000, the Company
incurred net losses of $15,886,000 and $24,593,000, respectively. The Company
also has short-term borrowings of $5,567,000 as of December 31, 2001. The
balance is payable to the Company's primary lender under a bank line of credit
agreement. The line of credit agreement expires on April 1, 2002. However, the
Company is aggressively pursuing a more permanent form of financing. There can
be no assurance, however, that any new credit arrangement will be finalized or
further extensions granted beyond April 1, 2002.

         Although the Company incurred a net loss in 2001, management continued
to implement and focus on strategies to return the Company to profitability.
During 2001, payroll expenses were reduced approximately $3 million (on an
annualized basis). The production variances experienced during fiscal 2000
improved significantly during 2001. However, the Company continued to experience
overhead variances because, due to lower sales volume, production levels were
not high enough to cover the overhead in the plant. The Company's operations
have been, and continue to be, restructured in an attempt to bring costs in line
with the expected level of sales. However, there can be no assurance that the
Company's cost reductions will be successful, that the Company will be able to
meet the needs and expectations of its customers, or that the Company will
achieve a level of revenue that will allow it to return to profitability.

         The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern. The Company's continuation as a going concern is
dependent upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to comply with the terms of its existing credit
line agreement, as extended, to obtain additional financing or refinancing as
may be required, and ultimately to re-establish profitable operations.

         The Company is incorporated under the laws of the State of Delaware.
Its principal executive offices are located at 301 East Tennessee Street,
Florence, Alabama 35630, and its telephone number is (256) 767-0330.


         Gross sales, gross margin, identifiable assets and other financial data
of the Company's industry segments for the three years ended December 31, 2001
are contained in Note 13 of Notes to Consolidated Financial Statements. Gross
sales is defined as sales, net of sales returns, discounts and credits. Net
sales is defined as gross sales less sales deductions (cash discounts and
royalties). Gross margin is defined as gross sales less production costs.

PRODUCTS

         Home Heating Products. Home heating products represent the largest
segment of the Company's business, contributing $34.0 million, or 96.4% of gross
sales in 2001. The Company manufactures and distributes a broad line of vented
and vent-free gas heaters and furnaces under the Martin Gas Products and Atlanta
Stove brand names and a variety of models of gas logs, gas stoves,
pre-engineered wood and gas fireplaces and gas inserts under the Martin Gas
Products, Martin Fireplaces and Atlanta Stove brand names. Prior to the transfer
of its Canadian subsidiaries in the first quarter of 2002, the Company also
manufactured and distributed home heating products under the Hunter brand name.
The Company no longer manufactures and distributes home heating products under
the Warm Morning or Prime Heat brand names.

         The Company manufactures and distributes its hearth products in a range
of prices for each of the common fuel categories (i.e., wood and gas logs that
burn natural gas or liquefied petroleum) and in a wide variety of designs. Gross
sales of fireplaces, gas logs and freestanding gas stoves were $30.7 million,
$38.4 million and $51.6 million in 2001, 2000 and 1999, respectively, which
represented 70.6%, 60.0% and 57.5% of total gross sales in those respective
periods.


                                       1
<PAGE>

         In 2001, the Company produced and marketed a variety of vent-free and
vented room heaters, direct-vent wall furnaces, wall furnaces and floor
furnaces. Gross sales of heating appliances were $3.3 million, $4.6 million and
$15.2 million in 2001, 2000 and 1999, respectively, which represented 7.6%, 7.2%
and 16.9% of total gross sales in the respective periods.

         Leisure and Other Products. Prior to its sale of the Broilmaster
premium gas barbecue grill business in the fourth quarter of 2001, the Company
manufactured and marketed a number of models of its Broilmaster grills with
premium features. The Broilmaster business is reflected as a discontinued
operation in the Consolidated Financial Statements as explained in Note 16 of
Notes to Consolidated Financial Statements.

         Prior to its transfer of its NuWay product line to Hunter in February
2002, the Company produced several models of partially-assembled and unassembled
metal trailer kits at its plant in Orillia, Ontario.

         The Company's investment in research and development totaled $1.3
million in 2001, $2.1 million in 2000 and $2.4 million in 1999.

MANUFACTURING

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

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

         The Company's products are typically shipped from the manufacturing
plant to the Company's customers. Shipments are scheduled by the customer
service and shipping departments through the use of a computerized sales order
management system, allowing the Company to inform customers of product
availability and facilitating timely shipment of orders.

SALES AND MARKETING


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

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

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

         Prior to the transfer of the Canadian subsidiaries in February 2002,
the Company sold Hunter brand fireplaces and gas heating appliances in the
United States and Canada. See Note 15 of Notes to Consolidated Financial
Statements.


                                       2
<PAGE>

         The Company employs a sales staff of field sales and support personnel
and also utilizes independent manufacturers' agencies, which work on a
commission basis and in many cases have several salesmen representing the
Company's products. Although most manufacturers' representatives utilized by the
Company also sell products other than those produced by the Company, none sell
products in direct competition with those of the Company. The Company's sales
force covers the United States, with field sales personnel generally living in
or near the sales territories for which they are responsible. The Company holds
regular regional and national sales meetings at which product development
sessions, performance reviews and planning workshops are conducted. All field
sales efforts for the Company are supported by regional sales managers and a
sales and marketing staff of 16 people located at the Company's corporate
headquarters.

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

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

BACKLOG

         The Company's backlog is based upon customer purchase orders that the
Company believes are firm. At December 31, 2001, the Company's backlog of orders
was approximately $2.1 million, as compared to a backlog of $5.6 million at
December 31, 2000. While backlog volume generally indicates the production
levels at which the Company will operate at any particular time, it is not
usually indicative of sales for a full year or future operating performance.
This is due partly to the seasonal nature of the Company's gas heaters and its
use of early booking programs for these products. Also, fireplaces are generally
produced and shipped as orders are received.

         The Company utilizes early booking programs for its gas heaters. This
allows the Company to project sales early in the year and plan production
accordingly. In general, the Company takes early booking orders for its gas
heaters in the first and second quarters and fills the majority of these orders
in the second and third quarters, with fill-in orders being shipped in the
fourth quarter and to a lesser degree in the ensuing first quarter. Unseasonably
warm weather results in higher customer inventories that in turn result in fewer
fourth quarter customer fill-in orders and lower response to the Company's early
booking programs for the following year. The Company has experienced a decline
in its early booking orders due to its focus on the sale of fireplaces.

         Notwithstanding the early booking programs, sales are recognized by the
Company when the product is shipped. Customer orders for products other than
orders placed under the early booking programs are accepted and filled by the
Company as received and shipped at the customer's request.

COMPETITION

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

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


                                       3
<PAGE>

EMPLOYEES

         At March 28, 2002, the Company had 343 full-time employees. The Company
also from time to time utilizes temporary employees in its operations and in
2001 the number of temporary employees ranged from 3 to 57. No employees of the
Company are subject to a collective bargaining agreement with the Company.

GOVERNMENTAL REGULATIONS

         A substantial number of the products manufactured by the Company must
comply with federal, state and local laws and regulations. A number of the
Company's products are also subject to certain voluntary standards. These laws,
regulations and standards relate, among other things, to product safety,
construction, instruction, efficiency, packaging, installation, operation and
emissions. The Company's gas heating appliances sold in the United States must
comply with standards established by the American National Standards Institute
("ANSI") and the American Gas Association ("AGA"). All gas-fired appliances
manufactured by the Company for sale in the United States must also comply with
the installation standards of the National Fire Protection Association. All
gas-fired vented heaters and furnaces manufactured for sale in the United States
further must comply with the standards for minimum efficiency for direct heating
appliances established by the National Appliance Energy Conservation Act, and
the Company's factory-built fireplaces must comply with the standards for
performance and safety established by Underwriters' Laboratories.

         The Company maintains facilities and equipment for testing the
Company's products for compliance with these and other laws, regulations and
standards applicable to the Company's products. These laws, regulations and
standards generally require that all compliance testing either be performed by
an independent testing agency at the agency's laboratories or witnessed by an
agent of the independent testing agency at the Company's facilities. The Company
utilizes both alternatives for compliance testing.

         Many state and local governments in the United States have adopted and
have in place building codes regulating the installation of certain of the
Company's home heating products. These building codes are based generally upon
one or more of the model codes drafted by three regional associations: the
Building Officials and Code Administrators International, Inc. ("BOCA"), the
International Conference of Building Officials, Inc. ("ICBO") and the Southern
Building Code Congress International, Inc. ("SBCCI"). The current model code
produced by ICBO, which has historically been the basis for building codes
adopted in certain states (primarily, western states) prohibits installation of
vent-free gas heaters. The model codes of BOCA and SBCCI do not contain this
prohibition, but do regulate where such heaters may be installed within a
structure and certain other aspects of the product. In 1996, the International
Code Council (the "ICC"), a body formed by BOCA, ICBO and SBCCI to produce a
model building code to be proposed for adoption by all states and localities,
released its model code. This uniform model code reflects the historical
position of BOCA and SBCCI allowing the installation of vent-free gas heaters.
The 2000 International Residential Code, which is the current version of the ICC
model code, allows the installation of vent-free gas heaters. However, there can
be no assurance that future versions of the ICC model code regarding the
Company's products will be the position contained in code updates made through
proposed changes adopted in the code development process, or that individual
states and localities will adopt the ICC model code.

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


                                       4
<PAGE>

ENVIRONMENTAL MATTERS

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

         Several of the facilities currently and previously owned or operated by
the Company are located in industrial areas and have historically been used for
extensive periods, in some cases dating back to the early 1900s, for industrial
operations such as dyeing, foundry, petroleum, painting, plating, textile and
manufacturing. These historic operations have used materials and generated
wastes that would be considered to be regulated substances under current
environmental laws. Prior to the enactment of modern environmental laws and
regulations, industrial operations took fewer precautions relative to the
generation, handling, storage, treatment, disposal and release of substances now
known or believed to threaten human health and safety or the environment. The
Company has implemented recordkeeping and management practices and procedures in
order to help ensure compliance with applicable environmental laws and
regulations. Each plant has personnel responsible for environmental compliance.
The Company believes that it is currently in compliance in all material respects
with these laws and regulations. Nevertheless, given the foregoing
circumstances, there can be no assurance that past operations at or near the
Company's presently or previously owned or operated facilities or the Company's
present or future operations will not necessitate action by the Company or give
rise to actions by governmental agencies or private parties that could cause the
Company to incur response costs, fines, penalties or other liabilities, damages
or expenses, or incur operational shut-downs, business interruptions or other
similar losses that either individually or in the aggregate would have a
material adverse effect on the Company's financial condition or results of
operations.

ITEM 2.  PROPERTIES

         The Company's corporate headquarters are located in a single story
facility in Florence, Alabama, consisting of 50,000 square feet. The Company's
engineering center, also in Florence, is located in a separate facility,
consisting of 20,000 square feet. The Company has plants in Athens, Alabama and
Sheffield, Alabama. The Athens plant is a 300,000 square foot facility that
produces substantially all of the Company's gas heating products, pre-engineered
fireplace products and gas logs. The Athens plant also serves as the
distribution point for the Company's repair parts. Prior to the sale of the
Broilmaster premium gas barbecue grill business in the fourth quarter of 2001,
the Athens plant also produced gas grills. The Sheffield plant is a 236,000
square foot facility. The Sheffield plant manufactures wood surrounds for
fireplaces and serves as a warehouse for excess and obsolete inventory and
equipment. The Company currently leases its corporate headquarters and its
Athens manufacturing facility pursuant to lease agreements associated with the
industrial development financing arrangements utilized to acquire and develop
these properties. Although the debt associated with these properties has been
retired, the Company has continued to hold these facilities subject to the lease
arrangements in order to receive certain tax benefits. Each property may be
purchased at the Company's option for a nominal amount. The Company owns its
other properties. Until the transfer of its Canadian subsidiaries in February
2002, the Company owned a 100,000 square foot facility in Orillia, Ontario that
produced gas heating products, pre-engineered gas fireplace products, gas grills
and utility trailers. See Note 15 of Notes to Consolidated Financial Statements.

ITEM 3.  LEGAL PROCEEDINGS

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


                                       5
<PAGE>

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

         No matters were submitted to a vote of security holders of the Company,
through the solicitation of proxies or otherwise, during the fourth quarter of
the fiscal year ended December 31, 2001.

                                     PART II

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

         As of March 28, 2002, the Company had 201 stockholders of record. This
number excludes individual stockholders holding stock under nominee security
position listings.

         The Company's Common Stock began trading on The Nasdaq National Market
on July 13, 1995. On May 21, 2001, the Company was notified by Nasdaq staff that
the Company's Common Stock was delisted from The Nasdaq National Market. The
Company began trading on the NASD's Over-the-Counter Bulletin Board ("OTCBB") on
May 22, 2001.

         With respect to periods before May 22, 2001, the prices in the table
below represent the high and low sales prices for the Company's Common Stock as
reported on The Nasdaq National Market. With respect to periods on or after May
22, 2001, the table sets forth high and low bid prices on the OTCBB. The OTCBB
quotations reflect inter-dealer prices without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.

<TABLE>
<CAPTION>
                                               Fiscal 2001                       Fiscal 2000
                                         ---------------------            -----------------------
                                           High          Low                 High          Low
                                         --------     --------            ----------    ---------
         <S>                             <C>          <C>                  <C>          <C>
         First Quarter                   $  0.97      $   0.41             $   1.97     $   1.22
         Second Quarter                  $  0.58      $   0.27             $   1.88     $   1.25
         Third Quarter                   $  0.40      $   0.18             $   1.81     $   0.94
         Fourth Quarter                  $  0.25      $   0.05             $   1.22     $   0.63
</TABLE>


         The Company has not declared any cash dividends during the two most
recent fiscal years. The payment of regular, quarterly cash dividends was
discontinued by the Company's Board of Directors in the fourth quarter of 1999.
At that time, the Company's Board of Directors decided that it would be in the
best interests of the Company and its stockholders for the Company to
discontinue the payment of cash dividends and to invest those funds in the
business in support and furtherance of the Company's strategic plan. Any future
payment of dividends will be within the discretion of the Board of Directors and
will depend on the Company's profitability, capital requirements, financial
condition, growth, business opportunities and other factors which the Board of
Directors may deem relevant. In addition, covenants contained in the Company's
credit agreement with its primary lender restrict the payment of cash dividends
by the Company.


                                       6
<PAGE>




ITEM 6.  SELECTED FINANCIAL DATA.

         The selected statements of operations data, basic and diluted per share
data and balance sheet data for the five years ended December 31, 2001, set
forth below have been derived from the consolidated financial statements of the
Company, which statements have been audited by Arthur Andersen LLP, independent
public accountants. The following data should be read in conjunction with the
consolidated financial statements of the Company and notes appearing elsewhere
in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                      ----------------------------------------------------------------------
                                                          2001(1)       2000           1999            1998          1997
                                                      -----------   -----------     -----------    -----------   -----------
                                                                   (Dollars In Thousands, except per share data)
<S>                                                   <C>           <C>             <C>            <C>           <C>
OPERATIONS DATA (1):
Net sales                                             $    34,924   $    47,380     $    74,441    $    74,149   $    79,294
Cost of sales                                              34,878        47,942          68,684         65,574        62,440
                                                      ----------------------------------------------------------------------
Gross profit (loss)                                            46          (562)          5,757          8,575        16,854
                                                      ----------------------------------------------------------------------
Operating expenses:
   Selling                                                  4,609         6,516           7,830          8,288         9,366
   General and administrative                               4,361         7,167           6,901          5,966         5,660
   Non-cash ESOP compensation (2)                             166           458             629          1,293         1,905
   Restructure charge (credit) (3)                              0          (100)            489            615             0
   Loss on abandonment
     of subsidiary, net of tax (4)                          6,055             0               0              0             0
   Impairment charge (5)                                        0         1,379               0              0             0
                                                      ----------------------------------------------------------------------
                                                           15,191        15,420          15,849         16,162        16,931
                                                      ----------------------------------------------------------------------
Operating  loss                                           (15,145)      (15,982)        (10,092)        (7,587)          (77)
Interest expense and other (income), net                      865          (500)           (835)          (275)          584
                                                      ----------------------------------------------------------------------
Loss before income taxes                                  (16,010)      (15,482)         (9,257)        (7,312)         (661)
Provision (credit) for income taxes                             0         5,339          (2,722)        (2,222)          114
                                                      ----------------------------------------------------------------------

Loss from continuing operations                           (16,010)      (20,821)         (6,535)        (5,090)         (775)
Income (loss) from discontinued
 operations, net of tax (6)                                (2,042)       (3,772)            396            954         1,027
Gain (loss) on disposal of discontinued
  operations, net of tax (6, 7)                             2,166             0               0              0          (756)
                                                      -----------------------------------------------------------------------
Income (loss) from discontinued
 operations                                                   124        (3,772)            396            954           271
                                                      ----------------------------------------------------------------------

Net loss                                              $   (15,886)  $   (24,593)    $    (6,139)   $    (4,136)  $      (504)
                                                      =======================================================================

BASIC PER SHARE DATA:
Income (loss) from continuing operations              $     (1.98)  $     (2.70)    $     (0.89)   $     (0.72)  $     (0.11)
Income (loss) from discontinued operations                   0.02         (0.49)           0.05           0.13          0.04
                                                      ----------------------------------------------------------------------

Net loss                                              $     (1.96)  $     (3.19)    $     (0.84)   $     (0.59)  $     (0.07)
                                                      =======================================================================

Weighted average number of common
     shares outstanding                                 8,098,927     7,703,315       7,338,821      7,073,430     6,787,685
                                                      ======================================================================

DILUTED PER SHARE DATA:
Income (loss) from continuing operations              $     (1.98)  $     (2.70)    $      (0.89)  $     (0.72)  $     (0.11)
Income (loss) from discontinued operations                   0.02         (0.49)            0.05          0.13           .04
                                                      ----------------------------------------------------------------------

Net loss                                              $     (1.96)  $     (3.19)    $      (0.84)  $     (0.59)  $     (0.07)
                                                      =======================================================================

Weighted average number of common
    shares outstanding                                  8,098,927     7,703,315       7,338,821      7,073,430     6,787,685
                                                      ======================================================================

DIVIDENDS DECLARED PER SHARE *                        $      0.00   $      0.00     $       0.06   $      0.16   $      0.16
                                                      ======================================================================
</TABLE>

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



                                       7
<PAGE>
<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                          ----------------------------------------------------------------------
                                              2001          2000           1999            1998          1997
                                          -----------   -----------     -----------    -----------   -----------
                                                       (Dollars In Thousands, except per share data)

<S>                                       <C>           <C>             <C>            <C>           <C>
BALANCE SHEET DATA:
  Cash and short-term investments         $         0   $         3     $     5,218    $     9,818   $    15,157
  Working capital                              (5,376)        2,349          21,799         41,017        48,589
  Total assets                                 20,206        41,508          62,278         67,796        76,397
  Current portion of long-term debt                52         2,461           4,458          1,741         1,750
  Long-term debt, less current portion              0             0           2,406          6,864         8,599
  Stockholders' equity                          1,407        16,296          40,413         45,401        50,981
</TABLE>

(1)      As a result of the transfer of the shares of 1166081 Ontario Inc. to
         Roger Vuillod in February 2002, effective January 1, 2001, 1166081
         Ontario Inc. and Hunter have been excluded from the Company's
         consolidated financial statement presentation. Related to the
         deconsolidation, the Company recognized charges of $6,055,000.

(2)      In 1993, in connection with the establishment of the ESOP, the Company
         adopted SOP No. 93-6, which requires that the Company recognize
         non-cash ESOP compensation expense in each fiscal quarter as shares of
         stock owned by the ESOP are committed to be released to participants'
         accounts based on the average fair value of the shares during the
         quarter. In connection with the retirement of the ESOP debt, all shares
         remaining in the ESOP suspense account were allocated to participants'
         accounts in 2001. See "Management's Discussion and Analysis of
         Financial Condition and Results of Operations -- ESOP Accounting" and
         Notes 2, 4 and 7 of Notes to Consolidated Financial Statements.

(3)      See Note 12 of Notes to Consolidated Financial Statements.

(4)      See Note 15 of Notes to Consolidated Financial Statements.

(5)      See Note 11 of Notes to Consolidated Financial Statements.

(6)      Prior to 2001, the Company manufactured products in the leisure and
         other segment through its Broilmaster premium gas barbecue grill line
         acquired in 1990. In November 2001, the Company sold its Broilmaster
         premium gas barbecue grill business. The premium gas barbecue grill
         operations are treated as discontinued operations. See Note 16 of Notes
         to Consolidated Financial Statements.

(7)      Prior to 1997, the Company manufactured products in the metal office
         furniture segment through its Filex line acquired in 1989. In February
         1997, the Company elected to discontinue its metal office furniture
         operations. The consolidation in the office furniture industry
         increased competition and margin pressures in the segment to the point
         of an unacceptable return to the Company. The metal office furniture
         segment's operations are treated as discontinued operations. The gain
         on the sale of certain assets related to the Company's Broilmaster
         premium gas barbecue grill business is also included in this line item
         for fiscal 2001. See Note 16 of Notes to Consolidated Financial
         Statements.


                                       8
<PAGE>


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

         The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements of the Company and notes thereto and the other financial
information appearing elsewhere in this Annual Report on Form 10-K. Certain
statements contained in this Management's Discussion and Analysis of Financial
Condition and Results of Operations may constitute "forward-looking statements."
These statements are not guarantees of future financial condition, performance
or operations and involve certain risks and uncertainties that are difficult to
quantify or, in some cases, to identify. A description of the important factors
that could cause the Company's future results to differ materially from past
results are described in the "Safe Harbor" statement under the Private
Securities Litigation Reform Act included at page 27, below.

OVERVIEW

         On April 1, 2002, the Company received an extension from its primary
lender of its current line of credit through July 1, 2002. The lender also
agreed to waive the Company's current defaults of debt covenants contained in
its loan agreement through March 31, 2002. The extension does not effect a
change in the amount available to the Company under the line, which varies based
on the value of certain assets securing the line. The line of credit is secured
by the Company's equipment, inventory and accounts receivable. Under a previous
extension, the Company agreed to pay to the lender a fee in the amount of
$100,000 in the event the Company was unable to obtain replacement financing on
or before March 31, 2002. The lender has agreed to extend the payment of this
fee until July 1, 2002 and, in the event the line or credit is paid in full by
April 30, 2002, to waive the fee. In the event the line of credit is repaid in
full after April 30, 2002, but on or before May 31, 2002, the fee will be
reduced to $50,000. In the event the Company does not repay the line of credit
in full by June 30, 2002, the lender will receive warrants to purchase common
stock in the Company equal to 10% of the Company's outstanding shares. The
Company also agreed to grant the lender a second mortgage in all of the real
property of the Company.

         The Company is also negotiating a term loan agreement with an entity
controlled by three of the Company's directors. Under the proposed transaction,
the Company will receive a $1.5 million term loan from a limited liability
company formed by John L. Duncan, William D. Biggs, Sr. and James D. Caudle, Sr.
The proposed terms provided that the loan will be made for a term of six months,
subject to a six month extension at the Company's option. The loan will bear
interest at an annual rate of 12% and is subject to a placement fee of 5% due at
the funding of the loan and a 3% fee due at repayment. The loan is to be secured
by an unencumbered first mortgage in all of the real property of the Company.
The Company is also continuing to pursue a more permanent form of financing,
equity investment in the Company or a sale of the Company. See Liquidity and
Capital Resources below.

         On February 20, 2002, the Company transferred the shares of its
wholly-owned subsidiary, 1166081 Ontario Inc., to Roger Vuillod, the manager and
sole director of the Company's Canadian subsidiary Hunter Technologies Inc.
("Hunter"). 1166081 Ontario Inc. holds all of the shares in Hunter. In
connection with this transfer, the Company also assigned $4.3 million in
intercompany debt, which Hunter owed to the Company, to Mr. Vuillod. According
to the terms of the assignment, as Mr. Vuillod collects payment on the debt, he
is required to pay a percentage of the collection to the Company. In connection
with the transaction with Mr. Vuillod, the Company assigned to Hunter the assets
used in the manufacture and distribution of NuWay do-it-yourself trailers, which
have been manufactured by Hunter since the fourth quarter of 2000. Under the
terms of the share transfer, Mr. Vuillod assumed all obligations and liabilities
associated with the ownership of the shares of the Canadian subsidiaries. The
impact of the exclusion of 1166081 Ontario Inc. on the Company's financial
statements was an approximately $6.1 million loss which is included in Loss on
Abandonment of Subsidiary in the Consolidated Statements of Operations. See Note
15 of Notes to Consolidated Financial Statements. Due to the losses incurred by
Hunter, management believes the transfer of the shares of the subsidiary should
improve the Company's cash flow.

         On November 30, 2001, the Company sold certain of its assets
constituting its Broilmaster premium gas barbecue grill business. The purchase
price for this business was $4,960,000 in cash, of which $400,000 was paid into
escrow accounts pending a final physical inventory and in order to make funds
available for future product warranty claims and to meet indemnification
requirements. Proceeds from the sale of Broilmaster were used to repay the
balance of the bank term loan and to fund operations. See Notes 4 and 16 of
Notes to Consolidated Financial Statements.

         The Company has in place an Executive Protection package of insurance
coverage, including Directors' and Officers' Liability, Employment Practices
Liability, Fiduciary Liability and Crime policies ("D&O policy"). The current
carrier issued one-year renewal policies on July 11, 2001. Since that renewal,
the market has continued to harden and as of January 2002, renewal rates for D&O
coverage were being increased 30 to 50% over the previous year, deductibles have
increased significantly and coverage limits have been reduced. There can be no
assurance that coverage will be offered to the Company, or, if coverage is
offered, that the Company will be able to afford adequate coverage at available
rates. The current D&O policy has a 90-day extended reporting period available
for a premium of one-half the annual rate. In the event the Company is unable to
purchase Directors' and Officers' liability insurance, there can be no assurance
that the Company's directors will continue to serve on the Company's board. The
resignation of all or a substantial number of the Company's directors would have
a material adverse effect on the Company's operations.

         On December 7, 2001, the Company announced that Bill G. Hughey had
tendered his resignation from the Company's Board of Directors. The Board does
not plan at this time to fill the vacancy created by Mr. Hughey's resignation.
On March 16, 2002, the Board reduced the number of directors from seven to six.


                                       9
<PAGE>

         Although the Company incurred a net loss in 2001, management continued
to implement and focus on strategies to return the Company to profitability.
During 2001, payroll expenses were reduced approximately $3 million (on an
annualized basis). The production variances experienced during fiscal 2000
improved significantly during 2001. However, the Company continued to experience
overhead variances because, due to lower sales volume, production levels were
not high enough to cover the overhead in the plant. The Company's operations
have been, and continue to be, restructured in an attempt to bring costs in line
with the expected level of sales. However, there can be no assurance that the
Company's cost reductions will be successful, that the Company will be able to
meet the needs and expectations of its customers, or that the Company will
achieve a level of revenue that will allow it to return to profitability.

         On May 21, 2001, the Company announced that its stock would move to the
Over the Counter Bulletin Board ("OTCBB") effective with its delisting from The
Nasdaq National Market with the open of business May 22, 2001. The Company was
informed by Nasdaq that the delisting was decided by the Nasdaq Listing
Qualifications Panel which approved the Nasdaq's staff decision to delist the
stock due to its failing to maintain a minimum bid price of $1.00 for 30
consecutive trading days as required by Marketplace Rule 4450(a)(5) for
continued listing.

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

ESOP ACCOUNTING

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

         During the fourth quarter of 2001, the Company paid in full the
principal and interest due under the Bank Loan and cancelled the ESOP Loan.
Prior to the cancellation of the ESOP Loan, shares owned by the ESOP were held
in a suspense account. Shares of common stock were committed to be released from
the ESOP's suspense account and credited to ESOP participants' accounts based on
the ratio that the principal debt repayment of the ESOP Loan bore to the
original principal debt balance (i.e., approximately 347,340 shares of common
stock per year). In connection with the cancellation of the ESOP Loan, all
unallocated shares of common stock held in the ESOP's suspense account were
credited to the ESOP participants' accounts. Prior to the cancellation of the
ESOP Loan, the Company was required to recognize compensation expense each
fiscal quarter in an amount equal to one-fourth of the number of shares of
common stock committed to be released from the ESOP's suspense account each year
multiplied by the average fair market value of such shares during the period.
The fair market value of the shares of common stock committed to be released and
charged to compensation expense was also credited to stockholders' equity.

CRITICAL ACCOUNTING POLICIES

         In December 2001, the SEC requested that all registrants list their
three to five most "critical accounting policies" in the Company's annual
report. The SEC indicated that a "critical accounting policy" is one which is
both important to the portrayal of the company's financial condition and results
and requires management's most difficult, subjective or complex judgments, often
as a result of the need to make estimates about the effect of matters that are
inherently uncertain. The Company believes that the following accounting
policies fit this definition:

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


                                       10
<PAGE>

         Excess and obsolete reserve. The Company has estimated that it has
approximately $1.0 million of raw material, purchased parts, and work-in-process
inventory that has not been utilized in the production of finished goods, as
well as finished goods that are not saleable items due to obsolescence. A
reserve is calculated and then recorded using the prior year history of usage
and sales to estimate excess inventory and on projections of future production
and future sales to estimate obsolescence. The Company believes that the reserve
is adequate. It is possible, however, that the adequacy could be materially
affected in the future by factors such as customer demands and preferences,
economic events, and governmental regulations.

         Income taxes. The Company has a history of unprofitable operations from
losses incurred in 2001 as well as prior years. These losses generated a
sizeable federal tax net operating loss, or NOL, carry forward of approximately
$37.8 million. Generally accepted accounting principles require that a valuation
allowance be recorded against the deferred tax asset associated with the NOL if
it is "more likely than not" that the Company will not be able to apply the
asset to taxes due on future earnings. Due to the amount of the deferred tax
asset and the uncertainties of the prospects of the Company, the asset has not
been recognized. It is possible that the Company may become profitable in the
future in which case management may conclude that it is more likely than not
that all or a portion of the deferred tax asset could be recouped. In that
situation the tax asset would be recorded at net realizable value at that time
and then provide for income taxes at a rate equal to the combined federal and
state effective rates. Subsequent changes to the estimated net realizable value
of the deferred tax asset could cause the provision for income taxes to vary
significantly from period to period, although the cash tax payments would remain
unaffected until the effect of the NOL is utilized.


RESULTS OF CONTINUING OPERATIONS

         The following tables set forth, for the periods indicated, information
derived from the Company's consolidated financial statements expressed as a
percentage of net sales and financial information for the Company's two industry
segments. The format of the segment information table has been changed from
formats previously presented to more accurately depict management's analyses of
its segments.

<TABLE>
<CAPTION>
                                                                          Percentage of Net Sales
                                                                          Year Ended December 31,
                                                                2001             2000             1999
                                                          ----------------------------------------------------
<S>                                                       <C>                    <C>             <C>
Net sales                                                      100.0%            100.0%          100.0%

Cost of sales                                                   99.9             101.2            92.3
                                                          ----------------------------------------------------
Gross profit                                                     0.1              (1.2)            7.7
                                                          ----------------------------------------------------
Operating expenses:
   Selling                                                      13.2              13.8            10.5
   General and administrative                                   12.5              15.1             9.3
   Non-cash ESOP compensation                                    0.5               1.0             0.8
   Restructure charge (credit)                                   0.0              (0.2)            0.7
   Impairment charge                                             0.0               2.9             0.0
   Loss on abandonment of subsidiary                            17.3               0.0             0.0
                                                          ----------------------------------------------------
                                                                43.5              32.6            21.3
                                                          ----------------------------------------------------
Operating loss                                                 (43.4)            (33.8)          (13.6)
Net interest and other income                                    2.5              (1.1)           (1.1)
                                                          ----------------------------------------------------
Loss before income taxes                                       (45.9)            (32.7)          (12.5)
Provision (credit) for income taxes                              0.0              11.3            (3.7)
                                                          ----------------------------------------------------
Loss from continuing operations                                (45.9)            (44.0)           (8.8)
                                                          ----------------------------------------------------

Discontinued Operations
Loss from discontinued operations                               (5.8)             (8.0)           (0.5)
Gain on disposal of discontinued operations                      6.2               0.0             0.0
                                                          ----------------------------------------------------
Net income (loss) from discontinued operations                   0.4              (8.0)           (0.5)
                                                          ----------------------------------------------------

Net income (loss)                                              (45.5)%           (52.0)%          (8.3)%
                                                          ====================================================
</TABLE>


                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                                            Segment Information
                                                                          Year Ended December 31,
                                                                              (In thousands)
                                                               2001              2000             1999
                                                          ----------------------------------------------------
<S>                                                       <C>               <C>               <C>
Gross sales:
   Home heating products                                  $    33,977       $    43,046       $    66,799
   Leisure and other products                                   1,283             4,690             7,842
                                                          ----------------------------------------------------
                                                          $    35,260       $    47,736       $    74,641
                                                          ====================================================

Reconciliation to net sales:
   Gross sales                                            $    35,260       $    47,736       $    74,641
   Freight revenue                                                335               419               906
   Discounts and royalties                                       (671)             (775)           (1,106)
                                                          ----------------------------------------------------

Net sales                                                 $    34,924       $    47,380       $    74,441
                                                          ====================================================

Gross margin:
   Home heating products                                  $    10,444       $    15,474       $    22,631
   Leisure and other products                                     712             1,939             3,289
                                                          ----------------------------------------------------
                                                          $    11,156       $    17,413       $    25,920
                                                          ====================================================
Reconciliation to gross profit:
    Gross margin                                          $    11,156       $    17,413       $    25,920
    Freight revenue                                               335               419               906
    Discounts and royalties                                      (671)             (775)           (1,106)
    Fixed costs, variances, reserves and other                (10,774)          (17,619)          (19,963)
                                                          ----------------------------------------------------

Gross profit (loss)                                       $        46       $      (562)      $     5,757
                                                          ====================================================
</TABLE>

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

         Net sales in 2001 were $34.9 million as compared to $47.4 million in
2000, a decrease of $12.5 million, or 26.4%. Gross sales of home heating
products decreased $9.1 million to $34.0 million in 2001 as compared to $43
million in 2000, a decrease of 21.2%. Gross sales of leisure and other products
decreased by $3.4 million to $1.3 million in 2001 as compared to $4.7 million in
2000, a decrease of 72.3 %. Freight revenue decreased $84,000 and sales
deductions decreased $104,000.

         Of the decrease in gross sales of home heating products, hearth sales
decreased $7.1 million and heating sales decreased $2.0 million. The decrease in
both hearth and heating sales is due in part to the deconsolidation of sales of
the Canadian subsidiary from the 2001 financial statements. The deconsolidation
reduced hearth sales by $3.8 million and heating sales by $2.7 million. Hearth
sales also declined $2.7 million in vent free gas logs due to the loss of three
customers who chose not to continue to carry vent free gas log products. The
decrease in gross sales of leisure and other products also reflects the
deconsolidation of the Canadian subsidiary from the 2001 financial statements.
Sales of OEM products and replacement parts decreased $824,000.

         Gross profit in 2001 was $46,000 as compared to a loss of $562,000 in
2000, reflecting an increase of $608,000. The gross margin (defined as gross
sales less production costs) on home heating products in 2001 was $10.4 million,
or 30.7% of home heating gross sales. The gross margin on home heating products
in 2000 was $15.5 million, or 35.9% of home heating gross sales. The decrease in
gross margin on home heating products was primarily the result of an increase,
as a percentage of home heating sales, of lower margin mobile home fireplaces.
The gross margin on leisure and other products in 2001 was $712,000, or 55.5% of
leisure and other gross sales. The gross margin on leisure and other products in
2000 was $1.9 million, or 41.3% of leisure and other gross sales. The increase
in gross margin on leisure and other products was primarily the result of an
increase in higher margin replacement parts.

         Selling expenses in 2001 were $4.6 million as compared to $6.5 million
in 2000, a decrease of $1.9 million, or 29.2%. Selling expenses as a percentage
of net sales decreased to 13.2% in 2001 from 13.8% in 2000.

         General and administrative expenses decreased $2.8 million, or 39.1%,
in 2001 as compared to 2000. The decrease was primarily the result of a decrease
in payroll and related taxes of $496,000, a decrease in bad debt write-offs of
$1.6 million, a decrease in employee fringe benefits and recruitment costs of
$178,000, and a decrease of $488,000 in other general and administrative
expenses.


                                       12
<PAGE>

         Non-cash ESOP compensation expense decreased $293,000, or 64.0%, in
2001 as compared to 2000. In 2001, 694,719 shares of unallocated ESOP stock were
committed to be released as compensation at an average fair value of $0.24 per
share, as compared to 347,340 shares committed to be released as compensation at
an average fair value of $1.32 per share in 2000.

         Loss on abandonment of subsidiary of $6.1 million represents the loss
associated with the transfer of shares of the Company's Canadian subsidiary to
the manager and sole director of Hunter. See Note 15 of Notes to Consolidated
Financial Statements.

         Gain on sales of assets of $1.9 million in 2001 includes the $2.2
million gain recorded in connection with the sale of certain assets related to
the Broilmaster premium gas barbecue grill business, and approximately $240,000
loss from the disposal of certain other machinery and equipment. The $1.0
million gain on sales of assets in 2000 includes the $75,000 gain recorded in
connection with the sale of certain undeveloped land and rental property, the
$637,000 gain on sale of the Huntsville, Alabama manufacturing plant and certain
equipment and the $392,000 gain on sale of the Washington Park, Illinois
manufacturing plant and certain equipment. See Note 10 of Notes to Consolidated
Financial Statements.

         Interest expense increased $118,000, or 16.5%, in 2001 to $832,000 as
compared to $714,000 in 2000. The increase was primarily attributable to the
increase in average outstanding debt during 2001.

         Interest and other income decreased $145,000, or 82.9%, in 2001 to
$30,000 as compared to $175,000 in 2000. The decrease was primarily attributable
to the decrease in interest income on notes receivable.

         The provision for income taxes was $0 in 2001 as compared to a
provision for income taxes of $5.3 million in 2000. The provision recorded in
2000 was the result of fully-reserving the Company's net deferred tax assets.
The Company's deferred tax assets are primarily the result of net operating
losses ("NOLs"). The reserve will not restrict the Company from utilizing the
NOLs to offset taxes on future earnings. See Note 3 of Notes to Consolidated
Financial Statements.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

         Net sales in 2000 were $47.7 million as compared to $74.6 million in
1999, a decrease of $26.9 million, or 36.1%. Gross sales of home heating
products decreased $23.8 million to $43.0 million in 2000 as compared to $66.8
million in 1999, a decrease of 35.6%. Gross sales of leisure and other products
decreased by $3.1 million to $4.7 million in 2000 as compared to $7.8 million in
1999, a decrease of 39.7%. Freight revenue decreased $487,000 and sales
deductions decreased $331,000.

         Of the decrease in gross sales of home heating products, hearth sales
decreased $13.1 million and heating sales decreased $10.6 million. Hearth
product sales were negatively impacted by lower housing starts, a significant
depression in the manufactured home industry and the Company's inability to
produce and ship products in a timely manner due, in part, to the implementation
of a new distribution system early in 2000. Sales of heating appliances
decreased primarily as a result of the decrease in customer orders and delays in
shipping early season orders. The delays in shipping were primarily due to the
discontinuation of an arrangement to outsource production of the Company's
infrared and blue-flame heaters. The decrease in gross sales of leisure and
other products was primarily the result of a $2.0 million decrease in NuWay
utility trailer sales. The loss of a significant NuWay customer in late 1999 and
the decrease in volume from another customer negatively impacted trailer sales.
Also, the planned introduction of the redesigned trailer late in the first
quarter of 2000, which resulted in the loss of some early season orders,
negatively impacted trailer sales. Sales of OEM products and replacement parts
decreased $895,000.

         Gross profit in 2000 was ($0.6) million as compared to $5.8 million in
1999, a decrease of $6.4 million, or 110.3%. The gross margin (defined as gross
sales less production costs) on home heating products in 2000 was $15.5 million,
or 35.9% of home heating gross sales. The gross margin on home heating products
in 1999 was $22.6 million, or 33.9% of home heating gross sales. The increase in
gross margin on home heating products was primarily the result of an increase,
as a percentage of home heating sales, of higher margin vent-free logs. The
gross margin on leisure and other products in 2000 was $1.9 million, or 41.3% of
leisure and other gross sales. The gross margin on leisure and other products in
1999 was $3.3 million, or 41.9% of leisure and other gross sales.


                                       13
<PAGE>

         Selling expenses in 2000 were $6.5 million as compared to $7.8 million
in 1999, a decrease of $1.3 million, or 16.8%. Selling expenses as a percentage
of net sales increased to 13.8% in 2000 from 10.5% in 1999.

         General and administrative expenses increased $2.0 million, or 26.4%,
in 2000 as compared to 1999. The increase was primarily the result of an
increase of $727,000 in severance expense incurred in connection with the
termination of officers and other salaried employees, an increase of $558,000 in
depreciation and amortization expense primarily associated with a computer
systems change implemented in 1999 and the first quarter of 2000 and an increase
in bad debts expense of $1.4 million. The increase in bad debts is primarily
attributable to specifically reserving the receivable balances of three of the
Company's customers. Two of these customers declared bankruptcy during 2000.
However, after the restatement of financial statements for the year ending
December 31, 2000, due to the sale of Broilmaster premium barbecue gas grills,
general and administrative expenses were reduced by approximately $2.5 million.

         Non-cash ESOP compensation expense decreased $171,000, or 27.2%, in
2000 as compared to 1999. In 2000, 347,340 shares of unallocated ESOP stock were
committed to be released as compensation at an average fair value of $1.32 per
share, as compared to 273,485 shares committed to be released as compensation at
an average fair value of $2.30 per share in 1999.

         The restructure credit of $100,000 in 2000 represents a reduction of
the reserve for the Huntsville, Alabama plant closing. The reduction was based
on the Company's analysis that the original reserve for group insurance claims
should be reduced based on a lower-than-anticipated number of terminated
employees participating in the Company's self-insured insurance plan. See Note
12 of Notes to Consolidated Financial Statements.

         The impairment charge of $1.4 million in 2000 represents the Company's
re-valuation of its long-lived assets. The Company reviews the impairment of
long-lived assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The carrying amount of
goodwill associated with the acquisition of Hunter was reduced by $1.2 million
and the carrying amount of property, plant and equipment at the Sheffield,
Alabama facility was reduced by $172,000. See Note 11 of Notes to Consolidated
Financial Statements.

         Gain on sales of assets of $1.0 million in 2000 includes the $75,000
gain recorded in connection with the sale of certain undeveloped land and rental
property, the $637,000 gain on sale of the Huntsville, Alabama manufacturing
plant and certain equipment and the $392,000 gain on sale of the Washington
Park, Illinois manufacturing plant and certain equipment. The $1.3 million gain
on sales of assets in 1999 includes the $1.2 million gain recorded in connection
with the sale of the Ashley division. See Note 10 of Notes to Consolidated
Financial Statements.

         Interest expense increased $209,000, or 27.8%, in 2000 to $960,000 as
compared to $751,000 in 1999. The increase was primarily attributable to the
increase in average outstanding debt during 2000. However, after the restatement
of financial statements for the year ending December 31, 2000, due to the sale
of Broilmaster premium barbecue gas grills, interest expense was reduced by
approximately $246,000.

         Interest and other income decreased $143,000, or 45.0%, in 2000 to
$175,000 as compared to $318,000 in 1999. The decrease was primarily
attributable to the decrease in interest income on short-term investments.

         The provision for income taxes was $5.3 million in 2000 as compared to
a credit for income taxes of $2.7 million in 1999. The provision recorded in
2000 was the result of fully-reserving the Company's net deferred tax assets.
The Company's deferred tax assets are primarily the result of net operating
losses ("NOLs"). The reserve will not restrict the Company from utilizing the
NOLs to offset taxes on future earnings. See Note 3 of Notes to Consolidated
Financial Statements.

RESULTS OF DISCONTINUED OPERATIONS

         As discussed above, the Company discontinued its Broilmaster premium
gas barbecue grill business in November of 2001. The gain on the sale of the
discontinued operation was $124,000, which was comprised of a $2.0 million loss
on the premium gas barbecue grill business operations and a gain of $2.1 million
on certain assets related to the sale of the premium barbecue segment. Of the
sales price, $400,000 was placed in escrow offset by a $250,000 reserve to cover
any future expenses related to product warranty claims, inventory discrepancies,
and indemnification requirements. No other reserves have been recorded or
anticipated against future claims.


                                       14
<PAGE>

QUARTERLY RESULTS

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

<TABLE>
<CAPTION>
                                                                                2001
                                  -------------------------------------------------------------------------------------------------
                                        MARCH 31                   JUNE 30               SEPTEMBER 29           DECEMBER 31
                                  ----------------------   ----------------------  ----------------------   -----------------------
                                                             (In Thousands, except per share amounts)

<S>                               <C>            <C>       <C>             <C>      <C>             <C>      <C>             <C>
Net sales                         $ 7,226         100.0%   $ 9,556         100.0%   $ 8,810         100.0%   $ 9,332         100.0%
Gross profit (loss)                  (509)         (7.0)      (147)         (1.5)      (208)         (2.4)       910           9.8
Non-cash ESOP compensation             63           0.9         32           0.3         23           0.3         47           0.5
Loss on abandonment
   of subsidiary net of tax(1)     (6,055)        (83.8)         0           0.0          0           0.0          0           0.0
Operating loss                     (9,694)       (134.2)    (3,110)        (32.5)    (2,824)        (32.1)       483           5.2
Income (loss) before
  income taxes                     (9,933)       (137.5)    (3,361)        (35.2)    (3,110)        (35.3)       394           4.2
Income (loss) from
 continuing operations             (9,932)       (137.4)    (3,361)        (35.2)    (3,110)        (35.3)       393          (4.2)
Income (loss) from
   discontinued
   operations net of tax(2)         1,463          20.2        248           2.6         30           0.3     (1,617)        (17.3)
                                  -------------------------------------------------------------------------------------------------

Net loss                          $(8,469)       (117.2)%  $(3,113)        (32.6)%  $(3,080)        (35.0)%  $(1,224)        (13.1)%
                                ===================================================================================================

BASIC PER SHARE DATA:
Income (loss) from
  continuing operations           $  (1.25)                $  (0.42)                $  (0.38)                $   0.05
Income (loss) from
  discontinued operations             0.18                     0.03                     0.00                    (0.19)
                                  -------------------------------------------------------------------------------------------------

Net loss (3)                      $  (1.07)                $  (0.39)                $  (0.38)                $  (0.15)
                                ===================================================================================================

DILUTED PER SHARE DATA:
Income (loss) from
  continuing operations           $  (1.25)                $  (0.42)                $  (0.38)                $   0.05
Income (loss) from
  discontinued operations             0.18                     0.03                     0.00                    (0.19)
                                  -------------------------------------------------------------------------------------------------

Net loss (3)                      $  (1.07)                $  (0.39)                $  (0.38)                $  (0.15)
                                ===================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                             2000
                                 ---------------------------------------------------------------------------------------------
                                       APRIL 1                  JULY 1                 SEPTEMBER 30            DECEMBER 31
                                 ---------------------------------------------------------------------------------------------
                                                           (In Thousands, except per share amounts)
<S>                              <C>          <C>      <C>              <C>      <C>             <C>      <C>           <C>
Net sales                        $ 11,993     100.0%   $ 11,724         100.0%   $ 13,174        100.0%   $ 10,489      100.0%
Gross profit (loss)                 1,270      10.6        (626)         (5.3)        237          1.8      (1,443)     (13.8)
Non-cash ESOP compensation            130       1.1         136           1.2         108          0.8          84        0.8
Operating loss                     (2,345)    (19.6)     (4,612)        (39.3)     (3,309)       (25.1)     (5,716)     (54.5)
Loss before income taxes           (2,341)    (19.5)     (4,160)        (35.5)     (3,526)       (26.8)     (5,455)     (52.0)
Loss from continuing
  operations                       (2,341)    (19.5)     (4,160)        (35.5)     (3,526)       (26.8)    (10,794)    (102.9)
Income (loss) from
  discontinued
  operations (2)                      368       3.1        (530)         (4.5)       (188)        (1.4)     (3,422)     (32.6)
                                 ---------------------------------------------------------------------------------------------
Net loss                         $ (1,973)    (16.5)%  $ (4,690)        (40.0)%  $ (3,714)       (28.1)%  $(14,216)    (135.5)%
                                 =============================================================================================

BASIC PER SHARE DATA:
Loss from continuing
  operations                     $  (0.31)             $  (0.54)                 $  (0.46)                $  (1.37)
Income (loss) from
  discontinued operations            0.05                 (0.07)                    (0.02)                   (0.44)
                                 ---------------------------------------------------------------------------------------------

Net loss (3)                     $  (0.26)             $  (0.61)                 $  (0.48)                $  (1.81)
                                 =============================================================================================

DILUTED PER SHARE DATA:
Loss from continuing
  operations                     $  (0.31)             $  (0.54)                 $  (0.46)                $  (1.37)
Income (loss) from
  discontinued operations            0.05                 (0.07)                    (0.02)                   (0.44)
                                 ----------------------------------------------------------------------------------------------

Net loss (3)                     $  (0.26)             $  (0.61)                 $  (0.48)                $  (1.81)
                                 =============================================================================================
</TABLE>


(1)      See Note 15 of Notes to Consolidated Financial Statements.

(2)      See Note 16 of Notes to Consolidated Financial Statements.

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


                                       15
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         The Company has historically financed its operations from internally
generated funds and borrowings under its bank lines of credit. The Company's
primary capital requirements are for working capital, capital expenditures and
debt service. In addition, the Company's ESOP provides that participants will
have the option from time to time to cause the Company to repurchase shares
distributed to them from the ESOP for the then fair market value of the shares.
Based on the amount of currently distributed shares, the Company anticipates
that ESOP participants could require the Company to repurchase up to
approximately 150,000 shares from time to time. The Company further estimates
that ESOP participants eligible for retirement during the next five years could
require the Company to repurchase approximately 35,000 shares of Common Stock
per year over the next five years. However, these estimates rely on information
currently available to the Company and there can be no assurance that the actual
number of shares which the Company is obligated to repurchase will not be
materially different from the Company's estimates. During 2001, 130,000 shares
were sold by ESOP participants. All of these shares were traded on The Nasdaq
National Market or on the OTCBB. The Company was not required to repurchase any
of these shares.

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

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                     2001               2000              1999
                                                                  ---------          ----------        --------
                                                                                  (In thousands)

<S>                                                               <C>                <C>               <C>
Net cash provided by (used in) operations                         $    (372)         $   (7,573)       $    607
Capital expenditures                                                   (145)             (2,394)         (5,661)
Proceeds from sale of assets                                             10               1,527           1,658
Proceeds from sale of division                                        4,560                   0               0
Net proceeds (repayments) on short-term borrowings                   (2,952)              7,621             754
Net payments on long-term debt                                       (2,409)             (4,402)         (1,741)
Proceeds from loans against life insurance policies                   1,305                   0               0
Proceeds from exercise of stock options                                   0                   0             105
Cash dividends paid                                                       0                   0            (330)
                                                                  ----------------------------------------------

Net decrease in cash and short-term investments                   $      (3)         $   (5,221)       $ (4,608)
                                                                  ==============================================
</TABLE>

         As shown in the financial statements, during the years ended December
31, 2001 and 2000, the Company has incurred net losses from continuing
operations of $16,010,000 and $20,821,000, respectively. The Company has
experienced significant losses during the previous four years, which losses
could continue during 2002. The accompanying financial statements have been
prepared on a going concern basis. See Note 14 of Notes to Consolidated
Financial Statements. The Company's continuation as a going concern is dependent
upon its ability to obtain replacement permanent financing from alternate
sources. In addition, the Company must be able to generate sufficient cash flow
to meet its obligations on a timely basis, must be able to comply with the terms
of its existing credit line, and, if replaced, with the terms of its replacement
financing, and ultimately must be able to return to profitable operations.

         During 2001, the Company financed working capital requirements with its
bank line of credit with its principal lender. Interest on the line of credit is
payable monthly at a rate of 2% in excess of the lender's prime rate. As of
March 28, 2002, a maximum of $7.5 million was available to the Company under its
line of credit, with the actual amount available under the line of credit being
based on the value from time to time of certain assets (i.e., the borrowing
base) securing the line of credit. The line of credit is secured by the
receivables, equipment and inventory of the Company. As of December 31, 2001,
and March 28, 2002, the outstanding balance was $5,567,000 million and
$5,639,000, respectively.

         The line of credit with the principal lender has been extended to July
1, 2002. Additionally, the Company is currently not in compliance with certain
debt covenants under its amended credit agreement with its principal lender.
However, the Company has obtained a waiver of these covenants through March 31,
2002. See Overview above.


                                       16
<PAGE>
         The Company is working to complete negotiations with an entity
controlled by three of its directors to provide a $1.5 million term loan to the
Company. The loan will be for a six month term, subject to renewal for an
additional six months at the option of the Company. The loan will bear interest
at an annual rate of 12% and is subject to a placement fee of 5% due at the
funding of the loan and an additional 3% fee at repayment. The loan is to be
secured by anunencumbered first mortgage in all of the real property of the
Company. Although the Company believes that this transaction will be completed
and funds made available to the Company thereunder during the first half of
April, 2002, the transaction is subject to the entity closing its own funding
and the completion of the lending documents. Therefore, there can be no
assurance given that this proposed transaction will be completed.

         The Company is also aggressively pursuing more permanent financing to
replace its current line of credit and has received a non-binding proposal from
a prospective lender for a new asset-based, secured line of credit. However,
there can be no assurance that the Company will be able to consummate this
transaction. Further, the company is pursuing equity investment in the Company
or an acquisition of the Company with the assistance of its investment bankers,
McDonald investments. However, there can be no assurance that any transaction
will be consummated.

         The Company currently believes that funds generated from operations,
together with the Company's line of credit and the $1.5 million term loan, if
completed, should be sufficient to fund the Company's operating needs until July
1, 2002. However, there can be no assurance that the Company's liquidity
position will not be adversely affected through July 1, 2002. Further, if the
Company is not able to refinance its line of credit by July 1, 2002, or to
obtain a further extension, the Company will be unable to continue to operate
and its principal lender will have all rights and remedies provided for in the
amended credit agreement between the lender and the Company. See Notes 1, 4, 5,
and 14 of Notes to Consolidated Financial Statements. There can be no assurance
that any new credit arrangements will be finalized or further extensions granted
beyond July 1, 2002.

         During the fourth quarter of 2001, the Company paid in full the
principal and interest due under the term loan obtained by the Company in 1993
to finance the purchase of 3,489,115 shares of Company Common Stock by the
Company's ESOP.

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

FINANCIAL POSITION

         Cash and short-term investments in 2001 decreased $3,000 primarily as a
result of a net loss of $15.9 million, partially offset by net short-term
borrowings of $3.0 million, proceeds of loans against life insurance policies of
$1.3 million, and proceeds from the sale of the Broilmaster premium gas barbecue
grill business of $4.6 million. Of the $15.9 million loss, $6.1 million was
related to the transfer of the shares of 1166081 Ontario Inc. to the manager and
sole director of Hunter. Additionally, accounts payable increased $520,000. In
an effort to reduce its carrying costs, the Company reduced inventory levels by
$4.7 million. Accounts receivable decreased $2.9 million in 2001. The decrease
in accounts receivable was primarily the result of a $12.5 decrease in net
sales.

CREDIT RISK

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

INFLATION

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


                                       17
<PAGE>


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         The Company is exposed to market risk from changes in interest rates as
part of its normal operations. Prior to the transfer of its Canadian
subsidiaries in February 2002, the Company was also exposed to market risk from
changes in foreign currency exchange rates. The Company has estimated its market
risk exposures using sensitivity analyses assuming a 10% change in market rates.

FOREIGN CURRENCY EXCHANGE RATE RISK

         Prior to the transfer of its Canadian operations in February 2002, the
Company had assets, liabilities, operations and cash flows in the Canadian
currency. Fluctuations in foreign currency exchange rates impact the U.S. dollar
value of Canadian dollar assets, liabilities, operations and cash flows. The
Company translated the Canadian dollar income statement to U.S. dollars using
the average rate of exchange and translated the Canadian dollar balance sheet to
U.S. dollars using the closing rate of exchange. Certain accounts (e.g., capital
stock) were translated using an historical exchange rate. Consequently,
unrealized foreign currency translation adjustments are reported as a separate
component of stockholders' equity.

         Because the Company has transferred all of its Canadian operations, the
Company is no longer exposed to material market risks from changes in foreign
currency change rates.

INTEREST RATE RISK

         At December 31, 2001, the Company had $5,567,000 of debt outstanding at
a variable interest rate of prime plus 2%. Therefore, the Company is exposed to
interest rate fluctuations on the debt balance. A hypothetical increase of 10%
(for example, the prime rate of 9.0% would increase to 9.90%) in the prime
lending rate would not cause the Company's interest expense to increase
significantly.

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

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

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The consolidated financial statements of the Company, including the
report of independent accountants, the consolidated balance sheets as of
December 31, 2001 and 2000, the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 2001, 2000
and 1999 and notes to the consolidated financial statements are set forth on
pages F-1 through F-21 of this Annual Report on Form 10-K. In addition, on page
S-2 of this Annual Report on Form 10-K, the supplemental financial statement
schedule, as required by Item 8, is provided.

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

         None.


                                       18
<PAGE>


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         See the "Election of Directors," "Executive Officers of the Company"
and "Section 16(a) Beneficial Ownership Reporting Compliance" sections of the
proxy statement for the 2002 Annual Meeting of Stockholders of the Company,
which sections are incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

         See the "Remuneration of Executive Officers" section of the proxy
statement for the 2002 Annual Meeting of Stockholders of the Company, which
section is incorporated herein by reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         (a)      See the "Principal Stockholders" section of the proxy
statement for the 2002 Annual Meeting of Stockholders of the Company, which
section is incorporated herein by reference.

         (b)      See the "Election of Directors" and "Principal Stockholders"
sections of the proxy statement for the 2002 Annual Meeting of Stockholders of
the Company, which sections are incorporated herein by reference.

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


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company is working to complete negotiations with an entity
controlled by three of its directors, John L. Duncan, William D. Biggs, Sr. and
James D. Caudle, to provide a $1.5 million term loan to the Company. The loan
will be for a six month term, subject to renewal for an additional six months at
the option of the Company. The loan will bear interest at an annual rate of 12%
and is subject to a placement fee of 5% due at the funding of the loan and an
additional 3% fee at repayment. The loan is to be secured by an unencumbered
first mortgage in all of the real property of the Company. See Management's
Discussion and Analysis of Financial Condition and Results of Operations.

         On February 20, 2002, the Company transferred the shares of its
wholly-owned subsidiary, 1166081 Ontario Inc., to Roger Vuillod. 1166081 Ontario
Inc. holds all of the shares in Hunter Technologies, Inc., the Company's
Canadian subsidiary. Mr. Vuillod was the manager and sole director of Hunter at
the time of the transfer, but he is no longer affiliated with the Company. In
connection with this transfer, the Company assigned $4.3 million in intercompany
debt, which Hunter owed to the Company, to Mr. Vuillod. According to the terms
of the assignment, as Mr. Vuillod collects payment on the debt, he is required
to pay a percentage of the collection to the Company. In connection with the
transaction with Mr. Vuillod, the Company assigned to Hunter the assets used in
the manufacture and distribution of NuWay do-it-yourself trailers, which have
been manufactured by Hunter since the fourth quarter of 2000. Under the terms of
the share transfer, Mr. Vuillod has assumed all obligations and liabilities
associated with the ownership of the shares of the Canadian subsidiaries.


                                     PART IV

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

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

                  1.       Financial Statements.

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

Consolidated Balance Sheets as of December 31, 2001 and 2000...........................................         F-2

Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999.............         F-4

Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2001, 2000 and
  1999.................................................................................................         F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000, and
  1999 ................................................................................................         F-6

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


                                       19
<PAGE>

                  2.       Financial Statement Schedule.

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

                           Schedule Supporting the Consolidated Financial
                           Statements:

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

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

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

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

         (b)      Reports on Form 8-K.

                  On December 17, 2001, the Company filed a Current Report on
                  Form 8-K in which the Company reported under Item 2 the
                  closing of the sale of certain assets constituting its
                  Broilmaster premium gas barbecue grill business to Empire
                  Comfort Systems, Inc. An unaudited pro forma condensed
                  consolidated balance sheet as of September 29, 2001, an
                  unaudited pro forma condensed consolidated statement of
                  operations for the nine months ended September 29, 2001, and
                  an unaudited pro forma condensed consolidated statement of
                  operations for the year ended December 31, 2000, were included
                  in the report.

                  On October 19, 2001, the Company filed a Current Report on
                  Form 8-K in which the Company reported under Item 9 the
                  issuance of a press release with respect to the entering into
                  of a letter of intent with Empire Comfort Systems, Inc.
                  concerning the proposed sale of the Company's Broilmaster
                  premium gas barbecue grill business.

         (c)      Exhibits.

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


                                       20
<PAGE>

Exhibit
Number         Description of Exhibit

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       21
<PAGE>

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

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

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

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

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

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

*10(o)         Martin Industries, Inc. Amended and Restated 1994 Nonqualified
               Stock Option Plan which was filed as Exhibit 10(b) to the
               Company's Quarterly Report on Form 10-Q for the 26-week period
               ended June 27, 1998 (Commission File No. 0-26228).

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

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

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

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

*10(t)         Fourth Amendment to Loan Agreement and Other Loan Documents by
               and between Martin Industries, Inc. and AmSouth Bank dated as of
               January 1, 2000, which was filed as Exhibit 10(jj) to the
               Company's Annual Report on Form 10-K as filed with the Commission
               on March 31, 2000 (Commission File No. 0-26228).


                                       22
<PAGE>

*10(u)         Security Agreement by and between Martin Industries, Inc. and
               AmSouth Bank dated March 22, 2000 which was filed as Exhibit
               10(kk) to the Company's Annual Report on Form 10-K as filed with
               the Commission on March 31, 2000 (Commission File No. 0-26228).

*10(v)         Form of Stock Appreciation Rights Agreement dated January 3, 2000
               by and between Martin Industries, Inc. and each corporate officer
               which was filed as Exhibit 10(a) to the Company's Quarterly
               Report on Form 10-Q for the 13-week period ended April 1, 2000
               (Commission File No. 0-26228).

*10(w)         Form of Retention and Termination Agreement dated April 7, 2000
               by and between Martin Industries, Inc. and each corporate officer
               which was filed as Exhibit 10(b) to the Company's Quarterly
               Report on Form 10-Q for the 13-week period ended April 1, 2000
               (Commission File No. 0-26228).

*10(x)         Letter agreement of AmSouth Bank dated December 29, 2000, which
               was filed as Exhibit 10(hh) to the Company's Annual Report on
               Form 10-K as filed with the Commission on April 2, 2001
               (Commission File No. 0-26228).

*10(y)         Letter agreement of AmSouth Bank dated January 31, 2001, which
               was filed as Exhibit 10(ii) to the Company's Annual Report on
               Form 10-K as filed with the Commission on April 2, 2001
               (Commission File No. 0-26228).

*10(z)         Letter agreement of AmSouth Bank dated March 15, 2001, which was
               filed as Exhibit 10(jj) to the Company's Annual Report on Form
               10-K as filed with the Commission on April 2, 2001 (Commission
               File No. 0-26228).

*10(aa)        Letter agreement of AmSouth Bank dated May 15, 2001, which was
               filed as Exhibit 10(a) to the Company's Quarterly Report on Form
               10-Q for the 26 week period ended June 30, 2001 (Commission File
               No. 0-26228).

*10(bb)        Fifth Amendment to Loan Agreement and Other Loan Documents
               between Martin Industries, Inc. and AmSouth Bank dated June 15,
               2001, which was filed as Exhibit 10(b) to the Company's Quarterly
               Report on Form 10-Q for the 26 week period ended June 30, 2001
               (Commission File No. 0-26228).

*10(cc)        Modified, Amended and Restated Line of Credit Note dated as of
               June 15, 2001, made by Martin Industries, Inc. in favor of
               AmSouth Bank which was filed as Exhibit 10(c) to the Company's
               Quarterly Report on Form 10-Q for the 26 week period ended June
               30, 2001 (Commission File No. 0-26228).

*10(dd)        Modified, Amended and Restated Term Note dated as of May 15,
               2001, made by Martin Industries, Inc. in favor of AmSouth Bank
               which was filed as Exhibit 10(d) to the Company's Quarterly
               Report on Form 10-Q for the 26 week period ended June 30, 2001
               (Commission File No. 0-26228).

*10(ee)        Letter agreement of AmSouth Bank dated September 1, 2001, which
               was filed as Exhibit 10(a) to the Company's Quarterly Report on
               Form 10-Q for the 39 week period ended September 29, 2001
               (Commission File No. 0-26228).

*10(ff)        Letter agreement of AmSouth Bank dated October 22, 2001, which
               was filed as Exhibit 10(b) to the Company's Quarterly Report on
               Form 10-Q for the 39 week period ended September 29, 2001
               (Commission File No. 0-26228).


                                       23
<PAGE>

*10(gg)        Letter agreement of AmSouth Bank dated October 31, 2001, which
               was filed as Exhibit 10(c) to the Company's Quarterly Report on
               Form 10-Q for the 39 week period ended September 29, 2001
               (Commission File No. 0-26228).

*10(hh)        Letter agreement of AmSouth Bank dated November 9, 2001, which
               was filed as Exhibit 10(d) to the Company's Quarterly Report on
               Form 10-Q for the 39 week period ended September 29, 2001
               (Commission File No. 0-26228).

*10(ii)        Asset Purchase Agreement by and between Martin Industries, Inc.
               and Empire Comfort Systems, Inc., dated November 30, 2001, which
               was filed as Exhibit 2 to the Form 8-K filed by the Company with
               the Commission on December 17, 2001 (Commission File No.
               0-26228).

*10(jj)        Share Transfer Agreement and Assignment of Intercompany Debt by
               and among Roger Vuillod, 1166081 Ontario Inc., Hunter Technology
               Inc., and Martin Industries, Inc. dated February 20, 2002, which
               was filed as Exhibit 2 to the Form 8-K filed by the Company with
               the Commission on March 7, 2002 (Commission File No. 0-26228).

10(kk)         Letter Agreement of AmSouth Bank dated November 19, 2001.

10(ll)         Letter Agreement of AmSouth Bank dated November 26, 2001.

10(mm)         Letter Agreement of AmSouth Bank dated December 19, 2001.

10(nn)         Letter Agreement of AmSouth Bank dated January 14, 2002.

23             Consent of Arthur Andersen LLP.

24             Powers of Attorney.

99             Letter from Martin Industries, Inc. to the Securities and
               Exchange Commission dated March 28, 2002.


*  Incorporated by reference.


                                       24
<PAGE>
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:

With the exception of historical information, the matters and statements
discussed, made or incorporated by reference in this Annual Report on Form 10-K
constitute forward-looking statements and are discussed, made or incorporated by
reference, as the case may be, pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Specifically, this Annual
Report on Form 10-K contains forward-looking statements regarding:

         -        the Company's efforts to obtain replacement financing, and
                  equity investment in, or an acquisition of, the Company;

         -        the Company's efforts to obtain a $1.5 million term loan
                  from an entity controlled by three directors of the Company;

         -        the Company's beliefs with respect to the funding of its
                  operations during fiscal year 2002;

         -        the Company's expectations with respect to its ability to
                  obtain directors' and officers' liability insurance;

         -        the likely benefits from cost reductions and plant
                  consolidations;

         -        the short-term and long-term programs being undertaken by the
                  Company and expectations regarding the future competitiveness
                  of the Company's products;

         -        the Company's future ability to meet the needs and
                  expectations of its customers;

         -        results in future quarters;

         -       the estimated reserve for excess and obsolete inventories;

         -        the utilization of deferred tax assets related to net
                  operating loss carryforwards; and

         -        the Company's expectations and estimates regarding its
                  interest rate risk.

Wherever possible, the Company has identified these forward-looking statements
(as defined in Section 21E of the Securities Exchange Act of 1934) by words such
as "anticipates," "may," "believes," "estimates," "projects," "expects,"
"intends," and words of similar import. In addition to the statement included in
this Annual Report of Form 10-K, the Company and its representatives may from
time to time make other oral or written statements that are also forward-looking
statements.

Forward-looking statements contained in this Annual Report on Form 10-K and
those that may be made in the future involve certain assumptions, risks and
uncertainties that could cause actual results to differ materially from those
included in or contemplated by the statements. In particular, there can be no
assurance that, pending the securing of new financing, the Company will
continue to generate funds or have credit available to it that is sufficient to
continue to fund its operations; that the Company's cost reduction and plant
consolidations will be successful or that the Company will achieve a level of
revenue that will allow the Company to return to profitability; that the
Company will be able to successfully implement or complete the short-term and
long-term programs being undertaken by the Company; that the Company's new
products will meet its expectations; that the Company will be able in the
future to meet the needs and expectations of its customers; that the Company
will not exceed the estimated reserve for excess and obsolete inventories or
will utilize deferred tax assets related to net operating loss carryforwards.
These assumptions, risks and uncertainties include, but are not limited to,
those associated with general economic cycles; the cyclical nature of the
industries in which the Company operates and the factors related thereto,
including consumer confidence levels, inflation, employment and income levels,
the availability of credit, and factors affecting the housing industry; the
potential in the Company's business to experience significant fluctuations in
quarterly earnings; the Company's ability to generate cash or secure adequate
financing to fund its operations; the Company's business strategy, including
its strategy of pursuing new product development; potential losses from product
liability and personal injury lawsuits; the effects of seasonality and weather
conditions on the Company's home heating product sales and other sales;
fluctuations in quarterly earnings due to ESOP accounting; the effect of
existing and new governmental and environmental regulations applicable to the
Company; the dependence of the Company on key personnel; the highly competitive
nature of each of the industries in which the Company operates; the volatility
of the stock price at which outstanding shares of the Company may trade from
time to time; and the other risks and uncertainties discussed or indicated in
all documents filed by the Company with the Commission. The Company expressly
disclaims any obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.


                                       25
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Martin Industries, Inc.:

We have audited the accompanying consolidated balance sheets of MARTIN
INDUSTRIES, INC. (a Delaware corporation) AND SUBSIDIARY as of December 31, 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 December
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 financial position of Martin Industries, Inc. and
subsidiary as of December 31, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2001 in conformity with accounting principles generally accepted in the
United States.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As explained in Note 14 to
the consolidated financial statements, the Company has suffered recurring losses
from operations and its existing line of credit is due on April 1, 2002, which
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also explained in Note 14. The
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.


                                          /s/ ARTHUR ANDERSEN LLP


Birmingham, Alabama
March 1, 2002 (except with respect to
the matter explained in Note 14,
as to which the date is March 26, 2002)


                                       F-1

<PAGE>
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS


<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,
                                                                               2001                2000
                                                                            -----------          -----------
<S>                                                                         <C>                  <C>
CURRENT ASSETS:
   Cash and short-term investments                                          $         0          $     3,000
   Accounts receivable, less allowance for doubtful
     accounts of $1,278,000 and $1,469,000, respectively                      3,654,000            7,867,000
   Inventories                                                                6,414,000           16,974,000
   Prepaid expenses and other assets                                            305,000              800,000
                                                                            --------------------------------

                                                                             10,373,000           25,644,000
                                                                            --------------------------------

PROPERTY, PLANT AND EQUIPMENT:
   Land and improvements                                                        370,000            1,038,000
   Projects in progress                                                          58,000              597,000
   Buildings                                                                  5,801,000            7,575,000
   Machinery and equipment                                                   16,125,000           17,893,000
                                                                            --------------------------------

                                                                             22,354,000           27,103,000
   Less accumulated depreciation and amortization                            14,165,000           14,199,000
                                                                            --------------------------------

                                                                              8,189,000           12,904,000
                                                                            --------------------------------

OTHER NONCURRENT ASSETS:
   Goodwill, net of accumulated amortization of
      $0 and $246,000, respectively                                                   0              483,000
   Cash value of life insurance                                               1,344,000            1,638,000
   Notes receivable                                                                   0              498,000
   Other                                                                        300,000              341,000
                                                                            --------------------------------

                                                                              1,644,000            2,960,000
                                                                            --------------------------------

                                                                            $20,206,000          $41,508,000
                                                                            ================================
</TABLE>

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


                                      F-2
<PAGE>

                           CONSOLIDATED BALANCE SHEETS

                      LIABILITIES AND STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,
                                                                                2001                  2000
                                                                            ------------           ------------
<S>                                                                         <C>                    <C>
CURRENT LIABILITIES:
   Short-term borrowings                                                    $  5,567,000           $  8,519,000
   Capital lease obligations                                                      52,000              2,461,000
   Accounts payable                                                            5,491,000              6,833,000
   Accrued liabilities:
      Payroll and employee benefits                                            1,635,000              2,135,000
      Product liability                                                        1,036,000              1,076,000
      Warranty                                                                   218,000                707,000
      Workers' compensation                                                      819,000                777,000
     Other                                                                       931,000                787,000
                                                                            -----------------------------------
                                                                              15,749,000             23,295,000
                                                                            -----------------------------------

NONCURRENT LIABILITIES:
   Deferred compensation                                                       1,745,000              1,917,000
   Life insurance policy loans                                                 1,305,000                      0
                                                                            -----------------------------------

                                                                               3,050,000              1,917,000
                                                                            -----------------------------------

COMMITMENTS AND CONTINGENCIES (NOTE 9)

STOCKHOLDERS' EQUITY:
   Preferred stock, $.01 par value; 1,000,000 shares
     authorized; no shares issued and outstanding                                      0                      0
   Common stock, $.01 par value; 20,000,000 shares
     authorized; 9,768,500 at December 31, 2001 and
     9,764,802 shares issued at December 31, 2000                                 98,000                 98,000
   Paid-in capital                                                            24,580,000             26,801,000
   Accumulated deficit                                                       (19,482,000)            (3,596,000)
   Accumulated other comprehensive loss                                                0               (831,000)
                                                                            -----------------------------------

                                                                               5,196,000             22,472,000
   Less:
   Treasury stock at cost (1,192,145 shares at
        December 31, 2001 and 2000)                                            3,789,000              3,789,000
   Unearned compensation                                                               0              2,387,000
                                                                            -----------------------------------

                                                                               1,407,000             16,296,000
                                                                            -----------------------------------

                                                                            $ 20,206,000           $ 41,508,000
                                                                            ============           ============
</TABLE>

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


                                      F-3
<PAGE>

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                             2001                  2000                 1999
                                                          ------------         ------------         ------------
<S>                                                       <C>                  <C>                  <C>
NET SALES                                                 $ 34,924,000         $ 47,380,000         $ 74,441,000
Cost of sales                                               34,878,000           47,942,000           68,684,000
                                                          ------------------------------------------------------
GROSS PROFIT (LOSS)                                             46,000             (562,000)           5,757,000
                                                          ------------------------------------------------------

Operating expenses:
   Selling                                                   4,609,000            6,516,000            7,830,000
   General and administrative                                4,361,000            7,167,000            6,901,000
   Non-cash ESOP compensation                                  166,000              458,000              629,000
   Restructure charge (credit)                                       0             (100,000)             489,000
   Loss on abandonment
     of subsidiary (Note 15)                                 6,055,000                    0                    0
   Impairment charge                                                 0            1,379,000                    0
                                                          ------------------------------------------------------
                                                            15,191,000           15,420,000           15,849,000
                                                          ------------------------------------------------------

OPERATING LOSS                                             (15,145,000)         (15,982,000)         (10,092,000)
(Gain) loss on sales of assets                                  63,000           (1,039,000)          (1,268,000)
Interest expense                                               832,000              714,000              751,000
Interest and other income                                      (30,000)            (175,000)            (318,000)
                                                          ------------------------------------------------------

LOSS BEFORE INCOME TAXES                                   (16,010,000)         (15,482,000)          (9,257,000)
Provision (credit) for income taxes                                  0            5,339,000           (2,722,000)
                                                          ------------------------------------------------------
NET LOSS FROM CONTINUING OPERATIONS                        (16,010,000)         (20,821,000)          (6,535,000)
                                                          ------------------------------------------------------

Income (loss) from discontinued operations                  (2,042,000)          (3,772,000)             396,000
Gain on disposal of discontinued operations                  2,166,000                    0                    0
                                                          ------------------------------------------------------
Income (loss) from discontinued operations                     124,000           (3,772,000)             396,000
                                                          ------------------------------------------------------

NET LOSS                                                  $(15,886,000)        $(24,593,000)        $ (6,139,000)
                                                          ======================================================

BASIC PER SHARE DATA:
Income (loss) from continuing operations                  $      (1.98)        $      (2.70)        $      (0.89)
Income (loss) from discontinued operations                        0.02                (0.49)                0.05
                                                          ------------------------------------------------------
Net income (loss)                                         $      (1.96)        $      (3.19)        $      (0.84)
                                                          ======================================================

Weighted average number of common
    shares outstanding                                       8,098,927            7,703,315            7,338,821
                                                          ======================================================

DILUTED PER SHARE DATA:
Income (loss) from continuing operations                  $      (1.98)        $      (2.70)        $      (0.89)
Income (loss) from discontinued operations                        0.02                (0.49)                0.05
                                                          ------------------------------------------------------
Net income (loss)                                         $      (1.96)        $      (3.19)        $      (0.84)
                                                          ======================================================

Weighted average number of common
    shares outstanding                                       8,098,927            7,703,315            7,338,821
                                                          ======================================================

Dividends Declared Per Share                              $      0.000         $      0.000         $      0.063
                                                          ======================================================
</TABLE>

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


                                      F-4
<PAGE>

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                        For the Years Ended December 31, 1999, 2000 and 2001
                                       -----------------------------------------------------------------------------------------
                                                                                     Retained
                                             Common Stock              Paid-in       Earnings                Treasury Stock
                                         Shares          Amount        Capital      (Deficit)            Shares         Amount
                                        ---------        ------    -------------   ------------       -----------     ----------
<S>                                     <C>              <C>       <C>             <C>                <C>             <C>
BALANCE,
   DECEMBER 31, 1998                    9,752,050       $98,000      $27,397,000     $27,587,000        1,325,170     $4,008,000

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

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

BALANCE,
   DECEMBER 31, 1999                    9,763,054        98,000       27,241,000      20,997,000        1,192,145      3,789,000

Comprehensive loss:
  Net loss                                      0             0                0     (24,593,000)               0              0
  Unrealized loss on foreign
1 currency translation                          0             0                0               0                0              0

  Total comprehensive loss

Issuance of stock under dividend
   reinvestment plan                        1,748             0            2,000               0                0              0
Fair value of stock
   released to ESOP, net of tax                 0             0         (442,000)              0                0              0
                                       -------------------------------------------------------------------------------------------

BALANCE,
   DECEMBER 31, 2000                    9,764,802        98,000       26,801,000      (3,596,000)       1,192,145      3,789,000

Comprehensive loss:
  Net loss                                      0             0                0     (15,886,000)               0              0
  Realized loss on foreign
    currency translation                        0             0                0               0                0              0
  Total comprehensive loss

Issuance of stock under dividend
   reinvestment plan                        3,698             0                0               0                0              0
Fair value of stock
   released to ESOP, net of tax                 0             0       (2,221,000)              0                0              0
                                       -------------------------------------------------------------------------------------------

BALANCE,
   DECEMBER 31, 2001                    9,768,500     $  98,000    $  24,580,000   $ (19,482,000)       1,192,145   $  3,789,000
                                       ===========================================================================================

<CAPTION>
                                   For the Years Ended December 31, 1999, 2000 and 2001
                                  -------------------------------------------------------
                                                         Accumulated
                                                            Other
                                      Unearned          Comprehensive
                                    Compensation            Loss              Total
                                  ------------------   --------------    ----------------
<S>                               <C>                  <C>               <C>
BALANCE,
   DECEMBER 31, 1998                    $ 4,677,000      $   (996,000)    $  45,401,000

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

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

BALANCE,
   DECEMBER 31, 1999                      3,580,000          (554,000)       40,413,000

Comprehensive loss:
  Net loss                                        0                 0       (24,593,000)
  Unrealized loss on foreign
1 currency translation                            0          (277,000)         (277,000)
                                                                          -------------
  Total comprehensive loss                                                  (24,870,000)
                                                                          -------------

Issuance of stock under dividend
   reinvestment plan                              0                 0             2,000
Fair value of stock
   released to ESOP, net of tax          (1,193,000)                0           751,000
                                       ------------------------------------------------

BALANCE,
   DECEMBER 31, 2000                      2,387,000          (831,000)       16,296,000

Comprehensive loss:
  Net loss                                        0                 0       (15,886,000)
  Realized loss on foreign
    currency translation                          0           831,000           831,000
                                                                          -------------
  Total comprehensive loss                                                  (15,055,000)
                                                                          -------------

Issuance of stock under dividend
   reinvestment plan                              0                 0                 0
Fair value of stock
   released to ESOP, net of tax          (2,387,000)                0           166,000
                                       ------------------------------------------------

BALANCE,
   DECEMBER 31, 2001                   $          0     $           0     $   1,407,000
                                       ================================================
</TABLE>

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


                                      F-5
<PAGE>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                         YEAR ENDED DECEMBER 31,
                                                                             2001                 2000                 1999
                                                                         ------------         ------------         ------------
<S>                                                                      <C>                  <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                              $(15,886,000)        $(24,593,000)        $ (6,139,000)
   Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities:
     Loss on abandonment of subsidiary                                      6,055,000                    0                    0
     Impairment charge                                                              0            1,379,000                    0
     Depreciation and amortization                                          2,085,000            2,352,000            1,794,000
     Loss (gain) on sale of assets                                             63,000           (1,039,000)          (1,268,000)
     Gain on disposal of discontinued operations                           (2,166,000)                   0                    0
     Provision for doubtful accounts receivable                               131,000            1,469,000              102,000
     Provision (credit) for deferred income taxes                                   0            5,770,000           (2,962,000)
     Non-cash ESOP compensation                                               166,000              458,000              629,000
     Provision for deferred compensation                                      172,000              125,000              244,000
     (Increase) decrease in operating assets:
       Accounts receivable                                                  2,896,000            4,433,000           (2,194,000)
       Inventories                                                          4,666,000            1,573,000            6,369,000
       Refundable income taxes                                                      0                    0            1,696,000
       Prepaid expenses and other assets                                      539,000              376,000              113,000
       Other noncurrent assets                                                371,000               39,000              (37,000)
     Increase (decrease) in operating liabilities:
       Accounts payable                                                       520,000            1,549,000            2,110,000
       Accrued liabilities                                                   (498,000)          (1,069,000)             513,000
       Other noncurrent liabilities                                           514,000             (395,000)            (363,000)
                                                                         ------------------------------------------------------
         Net cash provided by (used in) operating activities                 (372,000)          (7,573,000)             607,000
                                                                         ------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                                      (145,000)          (2,394,000)          (5,661,000)
   Proceeds from sales of assets                                               10,000            1,527,000            1,658,000
   Proceeds from sale of division                                           4,560,000                    0                    0
                                                                         ------------------------------------------------------
     Net cash provided by (used in) investing activities                    4,425,000             (867,000)          (4,003,000)
                                                                         ------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net proceeds (repayments) on short-term borrowings                      (2,952,000)           7,621,000              754,000
   Principal payments on long-term debt                                    (2,409,000)          (4,402,000)          (1,741,000)
   Proceeds from life insurance policy loans                                1,305,000                    0                    0
   Exercise of stock options                                                        0                    0              105,000
   Cash dividends paid                                                              0                    0             (330,000)
                                                                         ------------------------------------------------------
     Net cash provided by (used in) financing activities                   (4,056,000)           3,219,000           (1,212,000)
                                                                         ------------------------------------------------------
NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS                                (3,000)          (5,221,000)          (4,608,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH                                             0                6,000                8,000
CASH AND SHORT-TERM INVESTMENTS AT THE BEGINNING
 OF THE YEAR                                                                    3,000            5,218,000            9,818,000
                                                                         ------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT THE END OF THE YEAR                   $          0         $      3,000         $  5,218,000
                                                                         ======================================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:
   Cash paid during the period for:
     Interest                                                            $  1,059,000         $    716,000         $    672,000
     Income taxes                                                        $          0         $          0         $     31,000
</TABLE>

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


                                      F-6
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       BUSINESS AND ORGANIZATION

         Martin Industries, Inc. (the "Company") is a manufacturer of products
in two operating segments (see Note 13), which includes home heating products
and leisure and other products. Home heating products are sold primarily to
distributors and dealers in the United States and Canada. Prior to the sale of
its assets associated with the Broilmaster premium gas barbecue grill business
in November 2001 and the transfer of its assets used in the production of NuWay
do-it-yourself trailers in February 2002, the Company manufactured gas barbecue
grills and utility trailers in the leisure and other products segment. Following
these dispositions, the leisure and other products segment includes only OEM
products and replacement parts.

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

         As shown in the financial statements during the years ended December
31, 2001 and 2000, the Company has incurred net losses of $15,886,000 and
$24,593,000, respectively. The Company has experienced significant losses
during the previous four years, which losses could continue during 2002. The
accompanying financial statements have been prepared on a going concern basis.
See Note 14 of Notes to Consolidated Financial Statements. As explained in Note
5, the Company's credit line with its primary lender will expire on April 1,
2002. There can be no assurance that any new credit arrangement will be
finalized or further extensions granted beyond that date. The Company's
continuation as a going concern is dependent upon its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to comply with
the terms of its existing credit line, to obtain additional financing or
refinancing as may be required, and ultimately to re-establish profitable
operations.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

         Effective January 1, 2001, the Company's Canadian subsidiary has been
excluded from the consolidated presentation as a result of the transfer of
shares to the subsidiary's manager and sole director as explained in Note 15 of
Notes to Consolidated Financial Statements. The consolidated financial
statements for fiscal year 2000 and 1999 include the accounts and transactions
of the Company and its wholly owned Canadian subsidiary, 1166081 Ontario Inc.
All significant intercompany accounts and transactions have been eliminated in
consolidation.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

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

CASH AND SHORT-TERM INVESTMENTS

         The Company considers cash equivalents in the consolidated statements
of cash flows to include investments that are highly liquid and have original
maturities of three months or less.

INVENTORIES

     Inventory


                                      F-7
<PAGE>

costs include material, labor and overhead, and the Company evaluates raw
materials, purchase parts, work-in-process and finished goods to ensure that
inventory is not recorded at amounts in excess of estimated net realizable
value. Inherent in the estimates of net realizable value are management's
estimates related to the Company's customer demand, product mix and salvage
value. Certain inventories were reduced to estimated net realizable value in
fiscal years 2001, 2000 and 1999 resulting in a reduction to pre-tax income of
approximately $567,000, $2,100,000 and $1,500,000, respectively. At December 31,
2001 and 2000, the reserve for excess and obsolete inventory was $1,058,000 and
$1,820,000, respectively. An analysis of inventories at December 31, 2001 and
2000 follows:

<TABLE>
<CAPTION>
                                                                           2001                2000
                                                                     ------------------------------------
<S>                                                                  <C>                    <C>
Inventories valued at first-in, first-out ("FIFO") cost:
      Raw material and purchased parts                               $   3,157,000          $   7,756,000
      Work-in-process                                                      778,000              2,129,000
      Finished goods                                                     2,479,000              7,089,000
                                                                     ------------------------------------
                                                                     $   6,414,000          $  16,974,000
                                                                     ====================================
</TABLE>

PROPERTY PLANT AND EQUIPMENT

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

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

CASH VALUE OF LIFE INSURANCE

         Cash value of life insurance consists primarily of contractual rights
under life insurance agreements on the lives of certain current and former
officers and directors. The Company owns the policies and pays the premiums.
Upon death of an insured, the Company utilizes the proceeds to fund the related
deferred compensation obligation (see Note 7). As of December 31, 2001, the
Company had loans outstanding of $1,305,000 against these policies to provide
funds for operations.

REVENUE RECOGNITION

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

FREIGHT REVENUES AND EXPENSES

         Freight revenues for 2001, 2000 and 1999 amounted to $337,000,
$470,000, and $659,000, respectively. Freight costs for 2001, 2000 and 1999
amounted to $2,103,000, $2,592,000, and $2,902,000, respectively, and are
included in cost of sales in the accompanying Consolidated Statements of
Operations.

RESEARCH AND DEVELOPMENT

         Research and development expenses are charged against income in the
period in which the expenses are incurred. Research and development expenses
were $1.3 million, $2.1 million and $2.4 million in 2001, 2000 and 1999,
respectively, which are included in general and administrative expenses in the
Consolidated Statements of Operations.

INSURANCE ARRANGEMENTS

         The Company is partially self-insured for worker's compensation,
product liability, and employee medical/dental claims. The Company purchases
insurance coverage for all worker's compensation claims in excess of $250,000
per occurrence, for all product liability claims in excess of $75,000 per
occurrence ($50,000 effective January 1, 2002), and for all medical claims in
excess of $200,000 per occurrence ($100,000 effective January 1, 2002).


                                      F-8
<PAGE>

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

PRODUCT WARRANTIES

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

EMPLOYEE STOCK OWNERSHIP PLAN

         Prior to the retirement of the debt associated with the Company's
Employee Stock Ownership Plan ("ESOP") in November 2001, the Company recognized
non-cash compensation expense as shares of stock owned by the ESOP were
committed to be released to participant accounts based on the average fair value
of the shares during the year. Shares of stock owned by the ESOP were committed
to be released to participant accounts based on scheduled principal payments to
be made on the ESOP debt. The difference in the average fair value of the
committed shares and the original cost of those shares, net of income taxes, if
applicable, was charged or credited to paid-in capital (see Notes 4 and 7).

POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS

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

         The Company also maintains a plan whereby the Company provides medical
insurance coverage through its self-insured medical/dental plan to certain
former officers and directors who have terminated their employment and have not
reached retirement age. The plan also provides medical/dental coverage until age
65 for certain former employees who terminated their employment in 2001 under
the terms of a Voluntary Early Retirement Incentive Plan. The Company accounts
for these benefits in accordance with SFAS No. 112, Employer's Accounting for
Postemployment Benefits, which requires the accrual of postemployment benefits
as they are earned by employees.

ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS

         The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining balance of its long-lived assets and
intangibles may be impaired and not be recoverable. In performing this
evaluation, the Company uses an estimate of the related cash flows expected to
result from the use of the asset and its eventual disposition. When this
evaluation indicates the asset has been impaired, the Company will measure such
impairment based on the asset's fair value. During 2000, the Company recorded an
impairment charge as explained in Note 11.

ACCOUNTING FOR STOCK-BASED COMPENSATION

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

EARNINGS PER SHARE

         Basic earnings per share ("EPS") excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the


                                      F-9
<PAGE>

potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the Company.

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

<TABLE>
<CAPTION>
                                                                       2001             2000            1999
                                                                    ---------         ---------       ---------
<S>                                                                 <C>               <C>             <C>
Weighted average shares-basic, excluding ESOP
   and stock option effects                                         5,756,708         5,654,357       5,426,323

Weighted average effect of ESOP shares
   committed to be released                                         2,342,219         2,048,958       1,912,498
                                                                    -------------------------------------------
Weighted average number of common
   shares outstanding-basic and diluted                             8,098,927         7,703,315       7,338,821
                                                                    ===========================================
</TABLE>

         Options outstanding of 505,234, 505,514, and 525,014 for the years
ended December 31, 2001, 2000 and 1999, respectively, were not included in the
table above as they were not dilutive.

NEW ACCOUNTING STANDARDS

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
which establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In June 1999, the FASB issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133, which delays the effective date of SFAS No. 133. This
statement was adopted January 1, 2001 and did not have a material effect on the
Company's consolidated financial statements.

         On July 20, 2001, the FASB issued SFAS No. 141, Business Combinations
("SFAS 141") and No. 142, Goodwill and Other Intangible Assets ("SFAS 142").
Business combinations initiated after June 30, 2001, must be accounted for under
the provisions of these two statements. The Company must also apply these
provisions to previously recorded business combinations as of January 1, 2001.
The principal provisions of SFAS 141 and SFAS 142 are as follows:

-        All business combinations initiated after June 30, 2001, will be
         accounted for using the "purchase" method, under which the identifiable
         assets and liabilities of the acquired business are recorded at their
         respective fair market values with the residual amount being recorded
         as goodwill. The "pooling-of-interests" method, under which the
         financial statements of the acquirer and the acquiree were combined as
         if the two businesses had always been one, will no longer be used.

-        Goodwill and identifiable intangible assets will no longer be amortized
         over a maximum period of forty years. Goodwill will not be amortized
         but will instead be tested for impairment annually or upon the
         occurrence of certain "triggering events." Identifiable intangible
         assets will be amortized over their expected useful lives; those with
         indefinite expected useful lives will not be amortized. Identifiable
         intangible assets will continue to be tested for impairment under
         previously existing accounting standards.

         The Company will adopt SFAS 141 and SFAS 142 on January 1, 2002, and
the adoption of these standards did not have a material impact on its financial
condition, results of operations or cash flows.

         In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which supercedes both SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, and the accounting and reporting provisions for the disposal of
a segment of a business contained in APB Opinion No. 30, Reporting the Results
of Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS
No. 144 establishes a single accounting model for long-lived assets to be
disposed of by sale and broadens the presentation of discontinued operations.
The provisions of SFAS No. 144 are effective beginning in 2002 and the Company
has not yet quantified the impact of adopting SFAS No. 144 on its financial
statements.


                                      F-10
<PAGE>

FOREIGN CURRENCY TRANSLATION

         Prior to fiscal 2001, the Company determined that the local currency of
its former Canadian subsidiary was the functional currency. In accordance with
SFAS No. 52, Foreign Currency Translation, the assets and liabilities
denominated in foreign currency were translated into U.S. dollars at the
current rate of exchange existing at year-end and revenues and expenses for the
year were translated at average monthly exchange rates. Related translation
adjustments have been reported as a separate component of stockholders' equity,
whereas gains or losses resulting from foreign currency transactions have been
included in results of operations. See Note 15.

PRIOR YEAR RECLASSIFICATION

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

3.       INCOME TAXES

         An analysis of the provision (credit) for income taxes from continuing
operations for the years ended December 31, 2001, 2000, and 1999 follows:

<TABLE>
<CAPTION>
                                                          2001             2000                 1999
                                                         ------        ------------         ------------
<S>                                                      <C>           <C>                  <C>
Federal:
   Current                                                $   0        $          0         $    209,000
   Deferred                                                   0           4,538,000           (2,652,000)
                                                          ----------------------------------------------
                                                              0           4,538,000           (2,443,000)
                                                          ----------------------------------------------
State:
   Current                                                    0                   0              209,000
   Deferred                                                   0             801,000             (488,000)
                                                          ----------------------------------------------
                                                              0             801,000             (279,000)
                                                          ----------------------------------------------
                                                          $   0        $  5,339,000         $ (2,722,000)
                                                          ==============================================
</TABLE>

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

<TABLE>
<CAPTION>
                                                                             2001                 2000                  1999
                                                                         ------------         ------------         ------------
<S>                                                                      <C>                  <C>                  <C>
Tax provision (credit) at the federal statutory rate                     $ (5,401,000)        $ (5,264,000)        $ (3,147,000)
State income taxes, net of federal income tax benefit                        (524,000)            (521,000)            (184,000)
Increase in deferred tax valuation allowance                                3,509,000           10,449,000              767,000
Effect on deferred taxes associated with abandonment of
    Canadian subsidiaries                                                   1,337,000                    0                    0
Other                                                                       1,079,000              675,000             (158,000)
                                                                         ------------------------------------------------------
                                                                         $          0         $  5,339,000         $ (2,722,000)
                                                                         ======================================================
</TABLE>


                                      F-11
<PAGE>

Temporary differences which create net deferred tax assets at December 31, 2001
and 2000 are as follows:

<TABLE>
<CAPTION>
                                                                   2001                 2000
                                                               ------------         ------------
<S>                                                            <C>                  <C>
Net operating loss carryforwards                               $ 14,347,000         $ 12,417,000
Loss on abandonment of Canadian subsidiary                        1,342,000                    0
Deferred compensation                                               654,000              721,000
Reserve for excess and obsolete inventory                           396,000              684,000
Inventory                                                           197,000              633,000
Accrued vacation                                                    158,000              311,000
Accrued workers' compensation                                       307,000              289,000
Accrued warranty                                                    470,000              617,000
 Accrued medical claims                                             271,000              182,000
Other                                                               598,000              543,000
                                                               ---------------------------------
  Gross deferred tax assets                                      18,740,000           16,397,000
                                                               ---------------------------------

 Inventory valuation (LIFO to FIFO)                                (986,000)          (2,059,000)
Depreciation                                                       (712,000)            (805,000)
                                                               ---------------------------------
  Gross deferred tax liabilities                                 (1,698,000)          (2,864,000)

Net deferred tax assets before allowance                         17,042,000           13,533,000
Valuation allowance                                             (17,042,000)         (13,533,000)
                                                               ---------------------------------
Net deferred tax assets                                        $          0         $          0
                                                               =================================
</TABLE>

         The Company has net deferred tax assets resulting primarily from net
operating loss ("NOL") carryforwards in United States jurisdictions of
approximately $37.8 million expiring in fiscal years 2019 through 2021. At
December 31, 2000, NOL carryforwards in Canada of approximately $2,361,000
expiring in fiscal years 2001 through 2007 were deconsolidated in fiscal 2001
associated with the transfer of the Company's Canadian subsidiaries as
explained in Note 15.

         The Company establishes valuation allowances in accordance with SFAS
No. 109, Accounting for Income Taxes, and will continually review the adequacy
of the valuation allowance. The Company concluded that it should fully-reserve
its net deferred tax assets as a result of continuing losses from operations and
realization of the assets was not considered more likely than not.

4.       LONG-TERM DEBT

         The Company's long-term debt as of December 31, 2001 and 2000 is as
follows:

<TABLE>
<CAPTION>
                                                                                     2001                2000
                                                                                   -----------        ----------
<S>                                                                                <C>                <C>
Bank term loan (ESOP), variable rate, 8.51% at December 31, 2000, repaid
   in 2001                                                                         $         0        $ 2,387,000
Capitalized lease obligations, interest rates ranging from 6.44% to 13.00%
   at December 31, 2001 and 5.90% to 13.00% at December 31, 2000,
   secured by automotive and computer equipment                                         52,000             74,000
                                                                                   ------------------------------
                                                                                        52,000          2,461,000
Less current maturities                                                                 52,000          2,461,000
                                                                                   ------------------------------
                                                                                   $         0        $         0
                                                                                   ==============================
</TABLE>

         In connection with the establishment of the ESOP, on January 7, 1993,
the Company obtained a bank term loan amounting to $11,934,000 due over a
ten-year period at a rate of 79.5% of prime plus 1.35%. The bank term loan
proceeds were loaned by the Company to the ESOP (see Notes 2 and 7), which
utilized the funds together with a $54,000 cash contribution from the Company to
purchase 3,489,115 shares of common stock from existing stockholders. The terms
of the Company loan to the ESOP were substantially similar to the terms under
the bank term loan. The Company repaid the bank


                                      F-12
<PAGE>

term loan in fiscal 2001 in connection with the renewal of its short-term
borrowings (see Note 5) from the proceeds generated from the sale of Broilmaster
(see Note 16). See Note 7 for a discussion of the ESOP.

5.       SHORT-TERM BORROWINGS

         Effective December 19, 2001, the Company entered into an amended bank
line of credit agreement with its principal lender for up to a maximum of $7.5
million which has been utilized to finance inventories, receivables and
operations. As of December 31, 2001, the outstanding balance on the existing
line of credit was $5,567,000 and $46,000 was available. See Note 14 of Notes
to Consolidated Financial Statements. The line of credit is secured by the
receivables, inventory and equipment of the Company. Interest on the line of
credit is payable monthly at a variable rate based on the prime rate plus 2%.
The existing credit line will expire on April 1, 2002. The Company is pursuing a
more permanent form of financing as it continues its restructuring and product
development efforts. There can be no assurance, however, that any new credit
arrangement will be finalized or further extensions granted beyond April 1,
2002.

         During 2001, the maximum and average amounts of borrowings outstanding
under the existing line of credit were $9,620,000 and $8,154,000, respectively,
and the weighted average interest rate on these borrowings was 7.3%.

6.       STOCKHOLDER RIGHTS PLAN AND PREFERRED SHARE PURCHASE RIGHTS

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

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

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

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

7.       EMPLOYEE BENEFIT AND COMPENSATION PLANS

         EMPLOYEE AND DIRECTOR STOCK OPTION PLANS

         In 1988, the Company adopted the 1988 Stock Option Plan for certain key
management personnel. Options granted under the 1988 plan were issued at a total
purchase price determined by the Board of Directors, to be satisfied 50% in cash
upon exercise of the options and 50% in previously earned but unpaid
compensation accrued. The previously earned but unpaid compensation accrued
represents compensation utilized to reduce the cash exercise price of the option
at the date of grant. The difference in the total purchase price of the options
and the estimated fair value of the common stock at the date of grant was not
material to the Company's consolidated financial statements. Options granted
under the 1988 plan are


                                      F-13
<PAGE>

exercisable over a ten-year period beginning one year after the date of grant.
At December 31, 2001, there were 14,280 options available for grant under this
plan.

         In 1994, the Company adopted the 1994 Stock Option Plan for certain
officers, directors, and key management employees of the Company. Options
granted under the 1994 plan were issued at prices which approximated the fair
value of the common stock and are exercisable over a ten-year period beginning
one year after the date of grant, with the exception of one grant during 2000 of
45,500 options of which one-half of the grant is exercisable two years after the
date of grant. Total options issuable under this plan amount to 525,000, of
which 155,000, 284,927, and 94,566 were granted in 2001, 2000 and 1999,
respectively. At December 31, 2001, there were 147,544 options available for
grant under this plan. Forfeitures of previously granted options are utilized
for future grants.

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

         During 1996, the Company adopted the 1996 Non-Employee Directors' Stock
Option and Deferred Compensation Plan whereby directors may elect to receive
stock options in lieu of directors' fees. Further, directors may elect to defer
all or any portion of the directors' fees in accordance with the terms of the
1996 plan. Options granted under the 1996 plan were issued at prices which
approximated the fair value of the common stock and are exercisable over a
ten-year period beginning one year after the date of grant. Total options
issuable under this plan amount to 100,000, of which no options were granted in
2001, 2000 or 1999. At December 31, 2001, there were 3,852 options available for
grant under this plan.

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

<TABLE>
<CAPTION>
                                           2001                   2000                   1999
                                      --------------         --------------         --------------
<S>                                   <C>                    <C>                    <C>
Net loss:
   As reported                        $  (15,886,000)        $  (24,593,000)        $   (6,139,000)
   Pro forma                          $  (16,015,000)        $  (24,708,000)        $   (6,292,000)

Net loss per share:
   As reported - diluted              $        (1.96)        $        (3.19)        $        (0.84)
   Pro forma - diluted                $        (1.98)        $        (3.21)        $        (0.86)
</TABLE>

         Information with respect to stock options is summarized as follows:

<TABLE>
<CAPTION>
                                                  2001                      2000                        1999
                                        -----------------------   ------------------------    -------------------------
                                         Shares       Wtd. Avg.     Shares       Wtd. Avg.      Shares        Wtd. Avg.
                                         (000)        Ex Price      (000)        Ex Price        (000)        Ex Price
                                        -------      ----------   ---------    -----------    --------      -----------
<S>                                     <C>          <C>          <C>          <C>            <C>           <C>

Outstanding at beginning of year          505          $3.64          525          $4.89          766          $5.00
Granted                                   155            .47          285           1.69           95           3.07
Exercised                                   0              0            0           0.00         (133)          1.57
Forfeited                                (155)          3.16         (305)          3.92         (203)          6.70
                                        -------------------------------------------------------------------------------
Outstanding at end of year                505          $2.76          505          $3.64          525          $4.89
                                        -------------------------------------------------------------------------------
Exercisable at end of year                374          $3.52          299          $4.99          380          $5.29
                                        -------------------------------------------------------------------------------
Weighted average fair value of options
  granted                                              $ .42                       $1.29                       $1.34
</TABLE>

         The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2001, 2000 and 1999, respectively: risk-free
interest rates of 4.89, 6.20, and 5.41 percent; expected dividend yields of
zero, zero and zero percent; expected lives of ten, six, and six years; expected
volatility of 116 percent, 105 percent, and 50 percent.

         The following table summarizes information about stock options
outstanding at December 31, 2001.


<TABLE>
<CAPTION>
                                    Options Outstanding                 Options Exercisable
                       -------------------------------------------  --------------------------
                                         Weighted
                          Number          Average        Weighted      Number        Weighted
                       Outstanding at    Remaining       Average    Exercisable at    Average
       Range of         December 31,    Contractual      Exercise   December 31      Exercise
   Exercise Prices         2001         Life (Years)      Price         2001           Price
   ---------------     --------------   ------------    ----------  -------------   ----------
   <S>                 <C>              <C>             <C>         <C>             <C>
   $.47  to $ .87         151,640           8.2           $ .54         31,640       $ .80
   $1.69 to $2.69         191,366           8.8           $1.83        179,866       $1.84
   $4.00 to $6.00         105,970           5.8           $5.21        105,970       $5.21
   $6.38 to $9.50          56,258           5.4           $7.25         56,258       $7.25
</TABLE>




                                      F-14
<PAGE>

         During 1999, the Company recognized tax benefits related to the
exercise of stock options in the amount of $193,000. The tax benefits were
credited to paid-in capital. No stock options were exercised during 2000 and
2001.

         EMPLOYEE STOCK OWNERSHIP PLAN

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

         On January 7, 1993, the ESOP received a loan from the Company in the
amount of $11,934,000 under substantially similar terms as the Company's bank
term loan discussed in Note 4. The ESOP utilized the funds together with a
$54,000 initial cash contribution from the Company to purchase 3,489,115 shares
of Company common stock from existing stockholders. The ESOP pledged the common
stock purchased as security on the loan from the Company. During the fourth
quarter of 2001, the Company paid in full the principal and interest due under
the ESOP loan from the bank and cancelled the loan from the Company to the ESOP.
In connection with the retirement of the ESOP debt, all unallocated shares of
common stock remaining in the ESOP's suspense account were credited to the ESOP
participants' accounts.

         The outstanding balance due on the loan, which is reflected as unearned
compensation in the accompanying consolidated balance sheets, as of December 31,
2001, and 2000 was $0 and $2,387,000, respectively. Prior to the retirement of
the ESOP debt, the Company contributions were made to the ESOP in such amounts
as determined by the Company's Board of Directors; however, the Company's
contributions had to be sufficient to cover principal and interest on the loan
to the ESOP.

         During the years ended December 31, 2001, 2000 and 1999, the Company
recognized interest expense related to the ESOP debt of $148,000, $265,000, and
$392,000, respectively. Non-cash ESOP compensation expense recognized by the
Company during the years ended December 31, 2001, 2000 and 1999, which was based
on the average fair value of the shares committed to be released as
compensation, amounted to $166,000, $458,000, and $629,000, respectively.
Additionally, the fair value of shares released in payment of dividends on
allocated shares amounted to $0, $0, and $51,000 in 2001, 2000 and 1999,
respectively.

         The difference in the average fair value and the original cost of
shares committed to be released as compensation or dividends on allocated
shares, net of income taxes, if applicable, was (charged) credited to paid-in
capital during the years ended December 31, 2001, 2000 and 1999 and amounted to
($2,221,000), ($442,000), and ($362,000), respectively.

         SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("SERP")

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

         During 2001, 2000 and 1999, phantom shares of the Company's common
stock totaling 8,370, 0, and 6,329, respectively, were allocated to participant
accounts. Compensation expense equal to the fair value of phantom shares granted
is accrued annually together with any change in the fair value of shares
previously allocated and resulted in credits to the consolidated statements of
operations in 2001, 2000 and 1999 in the amount of $49,000, $103,000, and
$91,000, respectively.

         PROFIT-SHARING PLAN


                                      F-15
<PAGE>

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

         401(K) RETIREMENT PLAN

         The Company offers a savings retirement provision under Section 401(k)
of the Internal Revenue Code to substantially all of its employees. Under these
provisions, employees may contribute up to 15% of their total compensation to
the plan. The Company makes matching contributions up to a maximum of 1% of the
employee's compensation, as defined, which amounted to $58,000, $75,000, and
$69,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

         DEFERRED COMPENSATION PLAN

         The Company maintains a supplemental income plan for certain current or
retired employees. The Plan provides for 120 monthly payments starting at age 65
equal to 40% of the employee's regular compensation, as defined. The Company is
accruing the net present value of the estimated benefits from the dates of the
agreements to the estimated retirement dates. As part of this program, the
Company purchased life insurance on the participants to utilize in funding these
obligations. Deferred compensation expense recognized by the Company in the
years ended December 31, 2001, 2000 and 1999 amounted to $172,000, $125,000, and
$244,000, respectively. In October 2001, payments to certain individuals were
suspended due to the liquidity requirements of the Company.

         SALARY CONTINUATION (TERMINATION) BENEFITS

         In 1998, the Company entered into certain salary continuation
agreements with certain key employees which provide for termination benefits to
be paid to these employees. The termination benefits are payable only in the
event employment with the Company is terminated for any reason other than death,
permanent disability, voluntary termination or for cause. The period covered by
the agreements extended through December 31, 1999, with the exception of two
agreements which extended through July 11, 2000 and December 31, 2001,
respectively. Due to the termination of one participant during 1999, the Company
paid $53,000 and $54,000 in salary continuation in 2001 and 2000, respectively.
Due to the termination of the remaining participant during 2000, the Company
paid $94,000 and $131,000 in salary continuation in 2001 and 2000, respectively.

         DIVIDEND REINVESTMENT PLAN ("DRIP")

         The DRIP was adopted by the Company in 1997 to provide holders of
common stock with an opportunity to invest cash dividends in shares of common
stock and optional cash payments for additional shares of common stock without
payment of any brokerage, commission or service charge. During fiscal year 2001,
2000 and 1999, 3,698, 1,748, and 11,004 shares, respectively, of common stock
were issued in connection with this plan.

8.       FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL
         INSTRUMENTS

         SFAS No. 107, Disclosure About Fair Value of Financial Instruments,
requires all businesses to disclose the fair value of financial instruments,
both assets and liabilities recognized and not recognized on the balance sheet,
for which it is practicable to estimate fair value. Based upon their remaining
term to maturity and the current interest environment, the estimated fair values
of the Company's financial instruments on the balance sheet at December 31, 2001
and 2000 approximate their carrying values at those dates.

9.       COMMITMENTS AND CONTINGENCIES

         LEGAL

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


                                      F-16
<PAGE>

arising out of the purchase transaction. The Company also claimed the entire
amount in escrow and instituted litigation to recover these amounts and
additional amounts from certain sellers in the purchase transaction, and certain
of the sellers sued to enforce collection of their notes.

         During 1998, the Company effected a settlement with all but two of the
former shareholders, and a contingent settlement with these two. Pursuant to the
settlement, the Company has received approximately $315,000 (including interest)
of funds held in escrow, an additional payment of $32,000, and cancellation of
promissory notes and accrued interest totaling approximately $364,000.
Consequently, during the fourth quarter of 1998, the Company recorded a gain on
settlement of litigation of $422,000, which is included in interest and other
income in the 1998 Consolidated Statements of Operations. The contingent
settlement with the two former shareholders will result (if the contingency is
satisfied and that portion of the settlement effectuated) in receipt by the
Company of an additional $106,000 (including interest), and cancellation of
notes and accrued interest totaling approximately $234,000.

         With regard to the foregoing, on February 20, 2002, the Company
transferred the shares of its wholly-owned subsidiary, 1166081 Ontario Inc. to
Roger Vuillod. All shares of Hunter are held by 1166081 Ontario Inc. Under the
terms of the transfer, Mr. Vuillod assumed all obligations and liabilities
associated with the ownership of the shares of 1166081 Ontario Inc. The transfer
of shares of 1166081 Ontario Inc. did not effect a transfer of the Company's
rights and obligations under the contingent settlement noted above.

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

         LEASES

         The Company had financing lease obligations for a portion of its
manufacturing facilities and its central office building. These obligations were
classified as financing leases as they contained bargain purchase options which
the Company intends to exercise. Although the Company satisfied the financing
lease obligations in a prior year, the bargain purchase options had not been
exercised as of December 31, 2001. A summary of the asset balances of the leased
facilities follows:

<TABLE>
<CAPTION>
                                                2001                 2000
                                           ---------------       -------------
<S>                                        <C>                   <C>
Class of property:
       Land                                $       192,000       $     192,000
       Buildings and machinery                   2,223,000           2,223,000
                                           -----------------------------------
                                                 2,415,000           2,415,000
       Less accumulated depreciation             1,748,000           1,702,000
                                           -----------------------------------
                                           $       667,000       $     713,000
                                           ===================================
</TABLE>

         In addition, the Company has various items of machinery and equipment
under operating leases that expire during the next one to six years or are on
month-to-month rental terms. Rent expense under all operating leases amounted to
$381,000, $655,000, and $552,000 in the years ended December 31, 2001, 2000 and
1999, respectively.

         The following is a schedule of future minimum rental payments by year
under operating leases having initial or remaining noncancelable lease terms in
excess of one year as of December 31, 2001:

<TABLE>
                    <S>                           <C>
                    2002                          $    146,000
                    2003                               111,000
                    2004                                87,000
                    2005                                14,000
                    Thereafter                               0
                                                  ------------
                                                  $    358,000
                                                  ============
</TABLE>


                                      F-17
<PAGE>

10.      SALE OF CERTAIN ASSETS

         During the fourth quarter of 2001, the Company sold certain assets
related to the Broilmaster premium gas barbecue business. The Company recorded a
gain on sale of $2,166,000, which is included in gain on disposal of
discontinued operations in the Consolidated Statements of Operations. In
connection with this sale, the Company received total proceeds of $4,560,000.
See Note 16 of Notes to Consolidated Financial Statements.

         During the fourth quarter of 2000, the Company sold its Washington
Park, Illinois manufacturing plant and certain equipment. The Company recorded a
gain on sale of $392,000, which is included in gain on sales of assets in the
Consolidated Statements of Operations. In connection with this sale, the Company
received total proceeds of $407,000.

         During the second quarter of 2000, the Company sold its Huntsville,
Alabama manufacturing plant and certain equipment. The Company recorded a gain
on sale of $637,000, which is included in gain on sales of assets in the
Consolidated Statements of Operations. In connection with this sale, the Company
received total proceeds of $953,000.

         During the first quarter of 2000, the Company sold certain undeveloped
land and rental property and recorded a gain on sale of $75,000, which is
included in gain on sales of assets in the Consolidated Statements of
Operations. In connection with this sale, the Company received total proceeds of
$124,000.

         On March 31, 1999, the Company completed the sale of all of the assets
of its Ashley solid fuel division. The Company recorded a gain on the sale of
the Ashley division of $1,167,000 which is included in gain on sales of assets
in the Consolidated Statements of Operations. In connection with this sale, the
Company received cash of $1,100,000 and accepted notes receivable totaling
approximately $1,100,000. The notes were paid in full in 2001.

11.      IMPAIRMENT CHARGE

         The Company accounts for its long-lived assets in accordance with SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. The Company reviews for impairment of long-lived
assets and goodwill related to those assets to be held and used in the business
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. During 2000, the Company recorded an impairment
charge of $1,379,000, which reduced the carrying amount of goodwill associated
with the acquisition of Hunter by $1,207,000 and property, plant and equipment
at the Sheffield, Alabama facility by $172,000.

12.      RESTRUCTURING COSTS

         As part of the continuing effort to reduce operating costs and improve
manufacturing efficiencies, the Company made the decision to close its
Washington Park, Illinois facility in fiscal 1998. The Company initiated the
closing and the transfer of the gas grill, gas log and freestanding vent-free
stove production into the Athens, Alabama and Huntsville, Alabama locations
during the second quarter of 1998. During 1999, the Company increased
the reserve by $89,000, primarily due to higher than originally anticipated
expenses such as legal fees and group insurance. There was no reserve remaining
as of December 31, 2001.

         On December 9, 1999, the Company announced the closing and
consolidation of its Huntsville, Alabama manufacturing facility. The Company
transferred the production of gas heating products to the Athens, Alabama and
Orillia, Ontario, Canada plants, and transferred the production of gas logs and
NuWay utility trailers to the Sheffield, Alabama plant during the first two
quarters of 2000. The Company transferred the production of gas logs and utility
trailers from Sheffield to Athens and Orillia, respectively, during the fourth
quarter of 2000. The Company recorded a restructure charge of $400,000, before
tax, in connection with the closing. The restructure charge includes employee
termination costs of $125,000 and other exit costs of $275,000 (primarily
payroll and benefits of $69,000 and group insurance of $159,000). During fiscal
2000, the Company recorded a restructure credit of $100,000. This credit
represents a reduction of the reserve based on the Company's analysis that the
original reserve for group insurance claims should be reduced based on a
lower-than-anticipated number of terminated employees participating in the
Company's self-insured insurance plan. There was no reserve remaining as of
December 31, 2001.


                                      F-18
<PAGE>

13.      INDUSTRY SEGMENT INFORMATION

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

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                                    2001              2000             1999
                                                              ---------------    --------------   -------------
<S>                                                           <C>                <C>              <C>
Gross sales:
   Home heating products                                      $    33,977,000    $   43,046,000   $  66,799,000
   Leisure and other products                                       1,283,000         4,690,000       7,842,000
                                                              -------------------------------------------------
                                                              $    35,260,000    $   47,736,000   $  74,641,000
                                                              =================================================

Reconciliation to net sales:
   Gross sales                                                $    35,260,000    $   47,736,000   $  74,641,000
   Freight revenue                                                    335,000           419,000         906,000
   Discounts and royalties                                           (671,000)         (775,000)     (1,106,000)
                                                              -------------------------------------------------
   Net sales                                                  $    34,924,000    $   47,380,000   $  74,441,000
                                                              =================================================

Gross margin:
   Home heating products                                      $    10,444,000    $   15,474,000   $  22,631,000
   Leisure and other products                                         712,000         1,939,000       3,289,000
                                                              -------------------------------------------------
                                                              $    11,156,000    $   17,413,000   $  25,920,000
                                                              =================================================
Reconciliation to gross profit:
   Gross margin                                               $    11,156,000    $   17,413,000   $  25,920,000
   Freight revenue                                                    335,000           419,000         906,000
   Discounts and royalties                                           (671,000)         (775,000)     (1,106,000)
   Fixed costs, variances, reserves and other                     (10,774,000)      (17,619,000)    (19,963,000)
                                                              -------------------------------------------------

Gross profit (loss)                                           $        46,000    $     (562,000)  $   5,757,000
                                                              =================================================

Identifiable net assets (1):
   Home heating products                                      $    11,284,000    $   18,898,000   $  21,587,000
   Leisure and other products                                         387,000         6,480,000       6,621,000
   Other (2)                                                        2,932,000         4,500,000       3,980,000
                                                              -------------------------------------------------
                                                              $    14,603,000    $   29,878,000   $  32,188,000
                                                              =================================================

Depreciation and amortization:
   Home heating products                                      $     1,214,000    $    1,071,000   $   1,083,000
   Leisure and other products                                          43,000           398,000         301,000
   Other (2)                                                          828,000           883,000         410,000
                                                              -------------------------------------------------
                                                              $    $2,085,000    $    2,352,000   $   1,794,000
                                                              =================================================
Capital expenditures:
   Home heating products                                      $       140,000    $      706,000   $   2,420,000
   Leisure and other products                                           5,000           222,000         674,000
   Other (2)                                                                0         1,466,000       2,567,000
                                                              -------------------------------------------------
                                                              $       145,000    $    2,394,000   $   5,661,000
                                                              =================================================
</TABLE>

----------------
(1)      Represents Property, Plant and Equipment and Inventory (each net of
         respective reserves).

(2)      Represents amounts attributable to the Company's corporate
         administration.


                                      F-19
<PAGE>


The Company also reported revenues from customers and held assets in different
geographic areas as illustrated in the following table prior to January 1, 2001
(see Note 15).

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                             2001                2000              1999
                                                       ----------------    ---------------    ---------------
<S>                                                    <C>                 <C>                <C>
GROSS SALES (1):
   United States                                       $     34,924,000    $    47,380,000    $    74,441,000
   Canada                                                             0          8,429,000          7,437,000
   Elimination of intersegment net sales                              0         (2,496,000)          (901,000)
                                                       -------------------------------------------------------
                                                       $     34,924,000    $    53,313,000    $    80,977,000
                                                       ======================================================

LONG-LIVED ASSETS:
   United States                                       $      8,189,000    $    10,447,000    $    10,997,000
   Canada (2)                                                         0          2,940,000          4,409,000
                                                       ------------------------------------------------------
                                                       $      8,189,000    $    13,387,000    $    15,406,000
                                                       ======================================================
</TABLE>

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

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

(2)      Decrease in fiscal 2000 primarily related to impairment charge
         discussed in Note 11 of Notes to Consolidated Financial Statements, and
         decrease in fiscal 2001 related to transfer of Canadian subsidiary
         shares to the manager and sole director as discussed in Note 15 of
         Notes to Consolidated Financial Statements.


14.      GOING CONCERN MATTERS

         The accompanying 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 financial
statements during the year ended December 31, 2001 and 2000, the Company
incurred net losses of $15,886,000 and $24,593,000, respectively. The Company
also has short-term borrowings of $5,567,000 as of December 31, 2001. The
balance is payable to the Company's primary lender under a bank line of credit
agreement. The line of credit agreement expires on April 1, 2002. However, the
Company is aggressively pursuing a more permanent form of financing. There can
be no assurance, however, that any new credit arrangement will be finalized or
further extensions granted beyond April 1, 2002.

         Although the Company incurred a net loss in 2001, management continued
to implement and focus on strategies to return the Company to profitability.
During 2001, payroll expenses were reduced approximately $3 million (on an
annualized basis). The production variances experienced during fiscal 2000
improved significantly during 2001. However, the Company continued to experience
overhead variances because, due to lower sales volume, production levels were
not high enough to cover the overhead in the plant. The Company's operations
have been, and continue to be, restructured in an attempt to bring costs in line
with the expected level of sales. However, there can be no assurance that the
Company's cost reductions will be successful, that the Company will be able to
meet the needs and expectations of its customers, or that the Company will
achieve a level of revenue that will allow it to return to profitability.

         The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern. The Company's continuation as a going concern is
dependent upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to comply with the terms of its existing credit
line agreement, as extended, to obtain additional financing or refinancing as
may be required, and ultimately to re-establish profitable operations.

15.      TRANSACTION AFFECTING SUBSIDIARY LOCATION

         On February 20, 2002, the Company completed the transfer of all of the
shares of its wholly-owned subsidiary, 1166081 Ontario Inc., an Ontario
corporation ("1166081") to Roger Vuillod. All shares of the Company's indirect
subsidiary, Hunter Technology Inc., an Ontario corporation ("Hunter"), are held
by 1166081. Mr. Vuillod was the manager and sole director of Hunter at the time
of the transfer.


                                      F-20
<PAGE>

         The transfer of 1166081 was effected pursuant to a Share Transfer
Agreement and Assignment of Intercompany Debt (the "Agreement"), dated February
20, 2002, among the Company, 1166081, Hunter and Mr. Vuillod. The terms of the
transfer were determined by arm's length negotiation. Under the terms of the
transfer, Mr. Vuillod assumed all obligations and liabilities associated with
the ownership of the shares of 1166081. Further, in connection with the
transfer, the Company assigned $4.3 million in intercompany debt, which Hunter
owed to the Company, to Mr. Vuillod. According to the terms of the assignment,
as Mr. Vuillod collects payment on the debt, he will pay a percentage of the
collection to the Company. No amounts will be recognized by the Company until
such amounts are realized. Also, the Company assigned to Hunter the assets used
in the manufacture and distribution of NuWay do-it-yourself trailers, which have
been manufactured by Hunter since the fourth quarter of 2000.

         As a condition to the consummation of the transfer, the Company, Mr.
Vuillod, 1166081 and Hunter entered into and delivered a Mutual General Release
pursuant to which Mr. Vuillod, 1166081 and Hunter released the Company from any
liability, obligation or claim arising out of any matter, cause or thing
occurring prior to the delivery of the release, with the exception of the
Company's obligations under the Agreement and certain severance obligations
owing by the Company to Mr. Vuillod. The Mutual General Release also effected a
release by the Company of Mr. Vuillod from any liability, obligation or claim
arising out of any matter, cause or thing occurring prior to the delivery of the
release, except for Mr. Vuillod's obligations under the Agreement.

         As a result of the transfer of the shares of the subsidiary to Mr.
Vuillod, effective January 1, 2001, the subsidiary has been excluded from the
Company's consolidated financial statement presentation. Related to the
deconsolidation, the Company recognized net charges of $6,055,000.

         Separately, Hunter Technology Inc. self-appointed a Receiver to provide
protection from its creditors as it evaluates its options for restructuring, to
include a sale or merger, or liquidation. The Company is not subject to the
receivership, nor is the Company subject to any guarantee for any liabilities of
Hunter.

         Net sales, expenses, and net loss of 1166081 Ontario Inc. which are
included in the Consolidated Statements of Operations for the years ended
December 31, 2000 and 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                  2000                 1999
                                             ---------------       -------------

                  <S>                        <C>                   <C>
                  Net Sales                  $         8,429       $       7,226
                  Expenses                            11,183               7,870
                                             -----------------------------------
                  Net Loss                   $        (2,754)      $        (644)
                                             ====================================
</TABLE>

16.      DISCONTINUED OPERATIONS

         On November 30, 2001, the Company completed the sale of certain assets
constituting its Broilmaster premium gas barbecue grill business (the
"Broilmaster Assets") to Empire Comfort Systems, Inc., an Illinois corporation
("Empire"). The sale of the Broilmaster Assets was effected pursuant to an Asset
Purchase Agreement (the "Asset Purchase Agreement"), dated November 30, 2001,
between the Company and Empire. The purchase price, which was determined by
arm's length negotiations, was $4,960,000 in cash, of which $400,000 will be
held in escrow accounts pending a final physical inventory and to make funds
available for future product warranty claims and to meet indemnification
requirements.

         The result of the sale of the Broilmaster premium gas barbecue grill
business has been reflected as Discontinued Operations in the accompanying
financial statements. The operating results of discontinued operations are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                      2001               2000               1999
                                                    ------------------------------------------------

<S>                                                  <C>                <C>                <C>
Net sales                                           $  8,214           $ 16,300           $ 14,796

Gross profit                                             593              1,613              2,739
                                                    ------------------------------------------------

Income (loss) from discontinued operations          $ (2,042)          $ (3,772)            $  396
                                                    ================================================
</TABLE>


                                      F-21
<PAGE>


17.      SUBSEQUENT EVENTS (UNAUDITED)


         ECONOMIC STIMULUS BILL

         In March 2002, Congress passed an economic stimulus bill containing
certain temporary business tax incentives. The tax provisions in the stimulus
bill will extend the net operating loss ("NOL") carryback period to five years
for NOLs arising in tax years ending in 2001 and 2002, and allow use of NOL
carrybacks and carryforwards to offset 100 percent of alternative minimum
taxable income (AMTI). These NOL carryback provisions will allow the Company to
carry its loss back to 1996 and the years following. With this change the
estimated benefit of such changes will result in refunds of $391,000 in fiscal
2002.

         FINANCING STATUS

         On April 1, 2002, the Company received an extension from its primary
lender of its current line of credit through July 1, 2002. The lender also
agreed to waive the Company's current defaults of debt covenants contained in
its loan agreement through March 31, 2002. The extension does not effect a
change in the amount available to the Company under the line, which varies
based on the value of certain assets securing the line. The line of credit is
secured by the Company's equipment, inventory and accounts receivable. Under a
previous extension, the Company agreed to pay to the lender a fee in the amount
of $100,000 in the event the Company was unable to obtain replacement financing
on or before March 31, 2002. The lender has agreed to extend the payment of
this fee until July 1, 2002 and, in the event the line of credit is paid in
full by April 30, 2002, to waive the fee. In the event the line of credit is
repaid in full after April 30, 2002, but on or before May 31, 2002, the fee
will be reduced to $50,000. In the event the Company does not repay the line of
credit in full by June 30, 2002, the lender will receive warrants to purchase
common stock in the Company equal to 10% of the Company's outstanding shares.
The Company also agreed to grant the lender a second mortgage in all of the
real property of the Company.

         The Company is working to complete negotiations with an entity
controlled by three of its directors to provide a $1.5 million term loan
to the Company. The loan will be for a six month term, subject to renewal
for an additional six months at the option of the Company. The loan will
bear interest at an annual rate of 12% and is subject to a placement fee
of 5% due at the funding of the loan and an additional 3% fee at repayment.
The loan is to be secured by an unencumbered first mortgage in all of the
real property of the Company. Although the Company believes that this
transaction will be completed and funds made available to the Company
thereunder during the first half of April, 2002, the transaction is
subject to the entity closing its own funding and the completion of the
lending documents. Therefore, there can be no assurance given that this
proposed transaction will be completed.


                                     F-22
<PAGE>


                                                                       EXHIBIT S

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS






To Martin Industries, Inc.:


         We have audited in accordance with auditing standards generally
accepted in the United States, the consolidated financial statements of MARTIN
INDUSTRIES, INC. included in this Form 10-K and have issued our report thereon
dated March 1, 2002 (except with respect to the matters explained in Note 14, as
to which the date is March 26, 2002). Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed in the accompanying index is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

         The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As explained in Note
14 to the consolidated financial statements, the Company has suffered recurring
losses from operations and its existing line of credit is due on April 1, 2002,
which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also explained in Note 14. The
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.


                                          ARTHUR ANDERSEN LLP


Birmingham, Alabama
March 1, 2002 (except with respect to Note 14
  as to which the date is March 26,  2002)


                                       S-1


<PAGE>



                                                                     SCHEDULE II



                             MARTIN INDUSTRIES, INC.

                        VALUATION AND QUALIFYING ACCOUNTS

              FOR THE YEARS ENDED DECEMBER 31, 1999, 2000, AND 2001







<TABLE>
<CAPTION>
                                                                     Charged/
                                               Balance at           (Credited)       (Deductions)/
                                                Beginning            to Costs          Recoveries        Balance at
                                                 of Year           and Expenses            Net           End of Year
                                               ------------       ------------        -----------       -----------

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

FOR THE YEAR ENDED DECEMBER 31, 2000:
Allowance for doubtful accounts                $    604,000       $  1,469,000        $  (604,000)      $ 1,469,000

FOR THE YEAR ENDED DECEMBER 31, 2001:
Allowance for doubtful accounts                $  1,469,000       $    131,000        $  (322,000)      $ 1,278,000
</TABLE>


                                       S-2


<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.

                                                MARTIN INDUSTRIES, INC.

                                    By:           /s/ JOHN L. DUNCAN
                                        ----------------------------------------
                                                    John L. Duncan
                                         President and Chief Executive Officer

Date: April 1, 2002

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

<TABLE>
<CAPTION>
               Signature                                           Title                               Date
               ---------                                           -----                               ----
<S>                                                 <C>                                          <C>

             /s/ JOHN L. DUNCAN                         President, Chief Executive               April 1, 2002
--------------------------------------------                Officer and Director
                John L. Duncan                         (Principal Executive Officer)

             /s/ JAMES W. TRUITT                    Vice President and Chief Financial           April 1, 2002
--------------------------------------------               Officer and Secretary
               James W. Truitt                       (Principal Financial Officer and
                                                       Principal Accounting Officer)

         /s/ WILLIAM H. MARTIN, III*                             Director                        April 1, 2002
--------------------------------------------
           William H. Martin, III


            /s/ WILLIAM D. BIGGS*                                Director                        April 1, 2002
--------------------------------------------
              William D. Biggs


           /s/ JIM D. CAUDLE, SR.*                               Director                        April 1, 2002
--------------------------------------------
             Jim D. Caudle, Sr.


           /s/ CHARLES R. MARTIN*                                Director                        April 1, 2002
--------------------------------------------
              Charles R. Martin


            /s/ JAMES J. TANOUS*                                 Director                        April 1, 2002
--------------------------------------------
               James J. Tanous


           *By /s/ JAMES W. TRUITT                                                               April 1, 2002
--------------------------------------------
               James W. Truitt
              Attorney-In-Fact
</TABLE>



<PAGE>


                                INDEX TO EXHIBITS

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

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

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

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

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

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

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

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

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

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

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

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


<PAGE>

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

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

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

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

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

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

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

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

*10(o)         Martin Industries, Inc. Amended and Restated 1994 Nonqualified
               Stock Option Plan which was filed as Exhibit 10(b) to the
               Company's Quarterly Report on Form 10-Q for the 26-week period
               ended June 27, 1998 (Commission File No. 0-26228).

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

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

<PAGE>

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

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

*10(t)         Fourth Amendment to Loan Agreement and Other Loan Documents by
               and between Martin Industries, Inc. and AmSouth Bank dated as of
               January 1, 2000, which was filed as Exhibit 10(jj) to the
               Company's Annual Report on Form 10-K as filed with the Commission
               on March 31, 2000 (Commission File No. 0-26228).

*10(u)         Security Agreement by and between Martin Industries, Inc. and
               AmSouth Bank dated March 22, 2000 which was filed as Exhibit
               10(kk) to the Company's Annual Report on Form 10-K as filed with
               the Commission on March 31, 2000 (Commission File No. 0-26228).

*10(v)         Form of Stock Appreciation Rights Agreement dated January 3, 2000
               by and between Martin Industries, Inc. and each corporate officer
               which was filed as Exhibit 10(a) to the Company's Quarterly
               Report on Form 10-Q for the 13-week period ended April 1, 2000
               (Commission File No. 0-26228).

*10(w)         Form of Retention and Termination Agreement dated April 7, 2000
               by and between Martin Industries, Inc. and each corporate officer
               which was filed as Exhibit 10(b) to the Company's Quarterly
               Report on Form 10-Q for the 13-week period ended April 1, 2000
               (Commission File No. 0-26228).

*10(x)         Letter agreement of AmSouth Bank dated December 29, 2000, which
               was filed as Exhibit 10(hh) to the Company's Annual Report on
               Form 10-K as filed with the Commission on April 2, 2001
               (Commission File No. 0-26228).

*10(y)         Letter agreement of AmSouth Bank dated January 31, 2001, which
               was filed as Exhibit 10(ii) to the Company's Annual Report on
               Form 10-K as filed with the Commission on April 2, 2001
               (Commission File No. 0-26228).

*10(z)         Letter agreement of AmSouth Bank dated March 15, 2001, which was
               filed as Exhibit 10(jj) to the Company's Annual Report on Form
               10-K as filed with the Commission on April 2, 2001 (Commission
               File No. 0-26228).

*10(aa)        Letter agreement of AmSouth Bank dated May 15, 2001, which was
               filed as Exhibit 10(a) to the Company's Quarterly Report on Form
               10-Q for the 26 week period ended June 30, 2001 (Commission File
               No. 0-26228).

*10(bb)        Fifth Amendment to Loan Agreement and Other Loan Documents
               between Martin Industries, Inc. and AmSouth Bank dated June 15,
               2001, which was filed as Exhibit 10(b) to the Company's Quarterly
               Report on Form 10-Q for the 26 week period ended June 30, 2001
               (Commission File No. 0-26228).

*10(cc)        Modified, Amended and Restated Line of Credit Note dated as of
               June 15, 2001, made by Martin Industries, Inc. in favor of
               AmSouth Bank which was filed as Exhibit 10(c) to the Company's
               Quarterly Report on Form 10-Q for the 26 week period ended June
               30, 2001 (Commission File No. 0-26228).

*10(dd)        Modified, Amended and Restated Term Note dated as of May 15,
               2001, made by Martin Industries, Inc. in favor of AmSouth Bank
               which was filed as Exhibit 10(d) to the Company's Quarterly
               Report on Form 10-Q for the 26 week period ended June 30, 2001
               (Commission File No. 0-26228).
</TABLE>

<PAGE>

<TABLE>
<S>            <C>
*10(ee)        Letter agreement of AmSouth Bank dated September 1, 2001, which
               was filed as Exhibit 10(a) to the Company's Quarterly Report on
               Form 10-Q for the 39 week period ended September 29, 2001
               (Commission File No. 0-26228).

*10(ff)        Letter agreement of AmSouth Bank dated October 22, 2001, which
               was filed as Exhibit 10(b) to the Company's Quarterly Report on
               Form 10-Q for the 39 week period ended September 29, 2001
               (Commission File No. 0-26228).

*10(gg)        Letter agreement of AmSouth Bank dated October 31, 2001, which
               was filed as Exhibit 10(c) to the Company's Quarterly Report on
               Form 10-Q for the 39 week period ended September 29, 2001
               (Commission File No. 0-26228).

*10(hh)        Letter agreement of AmSouth Bank dated November 9, 2001, which
               was filed as Exhibit 10(d) to the Company's Quarterly Report on
               Form 10-Q for the 39 week period ended September 29, 2001
               (Commission File No. 0-26228).

*10(ii)        Asset Purchase Agreement by and between Martin Industries, Inc.
               and Empire Comfort Systems, Inc., dated November 30, 2001, which
               was filed as Exhibit 2 to the Form 8-K filed by the Company with
               the Commission on December 17, 2001 (Commission File No.
               0-26228).

*10(jj)        Share Transfer Agreement and Assignment of Intercompany Debt by
               and among Roger Vuillod, 1166081 Ontario Inc., Hunter Technology
               Inc., and Martin Industries, Inc. dated February 20, 2002, which
               was filed as Exhibit 2 to the Form 8-K filed by the Company with
               the Commission on March 7, 2002 (Commission File No. 0-26228).

10(kk)         Letter Agreement of AmSouth Bank dated November 19, 2001.

10(ll)         Letter Agreement of AmSouth Bank dated November 26, 2001.

10(mm)         Letter Agreement of AmSouth Bank dated December 19, 2001.

10(nn)            Letter Agreement of AmSouth Bank dated January 14, 2002.

23             Consent of Arthur Andersen LLP.

24             Powers of Attorney.

99             Letter from Martin Industries, Inc. to the Securities and
               Exchange Commission dated March 28, 2002.
</TABLE>

*  Incorporated by reference.