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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

|                                                                                          |  | 
|----------------------------------------------------------------------------------------- |  | 
|xQuarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934  |  | 
|                                                                                          |  | 
|oTransition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 |  | 
|                                                                                          |  | 
|For 39-Week Period Ended September 28, 2002      Commission File No. 0-26228              |  | 

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

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)

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

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

8,579,960 shares of Common Stock, $0.01
par value, as of September 28, 2002





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TABLE OF CONTENTS



|                                                  |                                                                                                |                                         |  |  |  |  |  | 
|------------------------------------------------- | ---------------------------------------------------------------------------------------------- | --------------------------------------- |  |  |  |  |  | 
|PART 1  FINANCIAL INFORMATION                    
|                                                  | Item 1. Financial Statements                                                                  
|                                                  |                                                                                                | CONDENSED BALANCE SHEETS               
|                                                  |                                                                                                | CONDENSED STATEMENTS OF OPERATIONS     
|                                                  |                                                                                                | CONDENSED STATEMENTS OF CASH FLOWS     
|                                                  |                                                                                                | NOTES TO CONDENSED FINANCIAL STATEMENTS
|                                                  | ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                  | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                             
|                                                  | ITEM 4. CONTROLS AND PROCEDURES                                                               
|PART II.  OTHER INFORMATION                      
|                                                  | Item 6.  Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                       
|EX-10.(A) LETTER AGREEMENT, DATED AUGUST 30, 2002



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##### Table of Contents



MARTIN INDUSTRIES, INC.

INDEX

|                               |                                                                                               |                                                                                                                                  |  |      |   | 
|------------------------------ | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- |  | ---- | - | 
|                               |                                                                                               |                                                                                                                                  |  | Page
|                               |                                                                                               |                                                                                                                                  |  |     
|PART I.  FINANCIAL INFORMATION |                                                                                               |                                                                                                                                  |  |     
|                               | Item 1. Financial Statements:                                                                 |                                                                                                                                  |  |      |  
|                               |                                                                                               | Unaudited Condensed Balance Sheets as of September 28, 2002
and December 31, 2001                                                |  |      | 2 | 
|                               |                                                                                               | Unaudited Condensed Statements of Operations for the
13-Week and 39-Week Periods Ended September 28, 2002
and September 29, 2001 |  |      | 4 | 
|                               |                                                                                               | Unaudited Condensed Statements of Cash Flows for the
39-Week Periods Ended September 28, 2002 and
September 29, 2001             |  |      | 5 | 
|                               |                                                                                               | Notes to Unaudited Condensed Financial Statements                                                                                |  |      | 6 | 
|                               | Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations |                                                                                                                                  |  | 12   |  
|                               | Item 3. Quantitative and Qualitative Disclosure About
Market Risk                             |                                                                                                                                  |  | 20   |  
|                               | Item 4. Controls and Procedures                                                               |                                                                                                                                  |  | 20   |  
|PART II.  OTHER INFORMATION    |                                                                                               |                                                                                                                                  |  |     
|                               | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                                  |  | 21   |  

1



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##### Table of Contents






PART 1  FINANCIAL INFORMATION




Item 1.  Financial Statements




CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS

|                                       |                                                                                                      |  |               |            |              |  |            |            | 
|-------------------------------------- | ---------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | ------------ |  | ---------- | ---------- | 
|                                       |                                                                                                      |  | September 28, |            | December 31,
|                                       |                                                                                                      |  | 2002          |            | 2001        
|                                       |                                                                                                      |  |               |            |             
|Current Assets:                        |                                                                                                      |  |               |            |              |  |            |           
|                                       | Cash                                                                                                 |  | $             | 36,000     |              |  | $          | 0          | 
|                                       | Accounts receivable, less allowance for doubtful
accounts of $1,128,000 and $1,278,000, respectively |  |               | 3,229,000  |              |  |            | 3,654,000  | 
|                                       | Inventories                                                                                          |  |               | 3,898,000  |              |  |            | 6,414,000  | 
|                                       | Refundable income taxes                                                                              |  |               | 0          |              |  |            | 0          | 
|                                       | Prepaid expenses and other assets                                                                    |  |               | 348,000    |              |  |            | 305,000    | 
|                                       |                                                                                                      |  |               |            |              |  |            |           
|                                       |                                                                                                      |  | 7,511,000     |            |              |  | 10,373,000 |           
|                                       |                                                                                                      |  |               |            |              |  |            |           
|Property, plant and equipment, net     |                                                                                                      |  | 6,884,000     |            |              |  | 8,189,000  |           
|                                       |                                                                                                      |  |               |            |              |  |            |           
|Cash surrender value of life insurance |                                                                                                      |  | 0             |            |              |  | 1,344,000  |           
|Other                                  |                                                                                                      |  | 200,000       |            |              |  | 300,000    |           
|                                       |                                                                                                      |  |               |            |              |  |            |           
|                                       | Total other non-current assets                                                                       |  |               | 200,000    |              |  |            | 1,644,000  | 
|                                       |                                                                                                      |  |               |            |              |  |            |           
|                                       | Total assets                                                                                         |  | $             | 14,595,000 |              |  | $          | 20,206,000 | 
|                                       |                                                                                                      |  |               |            |              |  |            |           

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

2



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CONDENSED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS EQUITY

|                        |                                                                                       |                                                                                                                                              |                                            |             |               |            |              |             |           |            | 
|----------------------- | ------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------- | ------------- | ---------- | ------------ | ----------- | --------- | ---------- | 
|                        |                                                                                       |                                                                                                                                              |                                            |             | September 28, |            | December 31,
|                        |                                                                                       |                                                                                                                                              |                                            |             | 2002          |            | 2001        
|                        |                                                                                       |                                                                                                                                              |                                            |             |               |            |             
|LIABILITIES:            |                                                                                       |                                                                                                                                              |                                            |             |               |            |              |            
|Current Liabilities:    |                                                                                       |                                                                                                                                              |                                            |             |               |            |              |            
|                        |                                                                                       | Short-term borrowings                                                                                                                        |                                            | $           | 8,377,000     |            |              | $           | 5,567,000 |           
|                        |                                                                                       | Capital lease obligations                                                                                                                    |                                            |             | 38,000        |            |              |             | 52,000    |           
|                        |                                                                                       | Accounts payable                                                                                                                             |                                            |             | 4,806,000     |            |              |             | 5,491,000 |           
|                        |                                                                                       | Accrued liabilities:                                                                                                                         |                                            |             |               |            |              |             |           |           
|                        |                                                                                       |                                                                                                                                              | Payroll and employee benefits              |             |               | 1,388,000  |              |             |           | 1,635,000  | 
|                        |                                                                                       |                                                                                                                                              | Product liability                          |             |               | 899,000    |              |             |           | 1,036,000  | 
|                        |                                                                                       |                                                                                                                                              | Warranty                                   |             |               | 217,000    |              |             |           | 218,000    | 
|                        |                                                                                       |                                                                                                                                              | Workers compensation                      |             |               | 833,000    |              |             |           | 819,000    | 
|                        |                                                                                       |                                                                                                                                              | Other                                      |             |               | 694,000    |              |             |           | 931,000    | 
|                        |                                                                                       |                                                                                                                                              |                                            |             |               |            |              |            
|                        |                                                                                       |                                                                                                                                              | Total current liabilities                  |             |               | 17,252,000 |              |             |           | 15,749,000 | 
|Noncurrent Liabilities: |                                                                                       |                                                                                                                                              |                                            |             |               |            |              |            
|                        |                                                                                       | Deferred compensation, net of present value discount
of $413,000 and $450,000, respectively                                                  |                                            |             | 1,671,000     |            |              |             | 1,745,000 |           
|                        |                                                                                       | Life insurance policy loans                                                                                                                  |                                            |             | 0             |            |              |             | 1,305,000 |           
|                        |                                                                                       |                                                                                                                                              |                                            |             |               |            |              |            
|                        |                                                                                       |                                                                                                                                              | Total non-current liabilities              |             |               | 1,671,000  |              |             |           | 3,050,000  | 
|                        |                                                                                       |                                                                                                                                              |                                            |             |               |            |              |            
|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; 9,772,105 at September 28, 2002 and
9,768,500 shares issued at December 31, 2001 |                                            |             | 98,000        |            |              |             | 98,000    |           
|                        | Paid-in capital                                                                       |                                                                                                                                              |                                            | 24,580,000  |               |            |              | 24,580,000  |          
|                        | Accumulated deficit                                                                   |                                                                                                                                              |                                            | (25,217,000 | )             |            |              | (19,482,000 | )        
|                        |                                                                                       |                                                                                                                                              |                                            |             |               |            |              |            
|                        |                                                                                       |                                                                                                                                              | (539,000                                   | )           |               |            | 5,196,000    |            
|                        | Less:                                                                                 |                                                                                                                                              |                                            |             |               |            |              |             |          
|                        | Treasury stock at cost (1,192,145 shares at
September 28, 2002 and December 31, 2001) |                                                                                                                                              |                                            | 3,789,000   |               |            |              | 3,789,000   |          
|                        |                                                                                       |                                                                                                                                              |                                            |             |               |            |              |            
|                        |                                                                                       |                                                                                                                                              | Total stockholders equity                 |             |               | (4,328,000 | )            |             |           | 1,407,000  | 
|                        |                                                                                       |                                                                                                                                              |                                            |             |               |            |              |            
|                        |                                                                                       |                                                                                                                                              | Total liabilities and stockholders equity |             | $             | 14,595,000 |              |             | $         | 20,206,000 | 
|                        |                                                                                       |                                                                                                                                              |                                            |             |               |            |              |            

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

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CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited)

|                                                     |                                   |   |                      |           |                      |   |               |           |               |   |            |           |  |   |             |           | 
|---------------------------------------------------- | --------------------------------- | - | -------------------- | --------- | -------------------- | - | ------------- | --------- | ------------- | - | ---------- | --------- |  | - | ----------- | --------- | 
|                                                     |                                   |   | 13-Week Period Ended |           | 39-Week Period Ended
|                                                     |                                   |   |                      |           |                     
|                                                     |                                   |   | September 28,        |           | September 29,        |   | September 28, |           | September 29,
|                                                     |                                   |   | 2002                 |           | 2001                 |   | 2002          |           | 2001         
|                                                     |                                   |   |                      |           |                      |   |               |           |              
|Net sales                                            |                                   | $ | 5,105,000            |           |                      | $ | 8,810,000     |           |               | $ | 20,412,000 |           |  | $ | 25,592,000  |          
|Cost of sales                                        |                                   |   | 5,679,000            |           |                      |   | 9,018,000     |           |               |   | 20,339,000 |           |  |   | 26,456,000  |          
|                                                     |                                   |   |                      |           |                      |   |               |           |               |   |            |           |  |   |             |          
|Gross profit (loss)                                  |                                   |   | (574,000             | )         |                      |   | (208,000      | )         |               |   | 73,000     |           |  |   | (864,000    | )        
|                                                     |                                   |   |                      |           |                      |   |               |           |               |   |            |           |  |   |             |          
|Operating expenses:                                  |                                   |   |                      |           |                      |   |               |           |               |   |            |           |  |   |             |          
|                                                     | Selling                           |   |                      | 687,000   |                      |   |               | 1,069,000 |               |   |            | 2,439,000 |  |   |             | 4,268,000 | 
|                                                     | General and administrative        |   |                      | 1,085,000 |                      |   |               | 1,524,000 |               |   |            | 3,430,000 |  |   |             | 4,323,000 | 
|                                                     | Non-cash ESOP compensation        |   |                      | 0         |                      |   |               | 23,000    |               |   |            | 0         |  |   |             | 118,000   | 
|                                                     | Loss on abandonment of subsidiary |   |                      | 0         |                      |   |               | 0         |               |   |            | 0         |  |   |             | 6,055,000 | 
|                                                     |                                   |   |                      |           |                      |   |               |           |               |   |            |           |  |   |             |          
|                                                     |                                   |   | 1,772,000            |           |                      |   | 2,616,000     |           |               |   | 5,869,000  |           |  |   | 14,764,000  |          
|                                                    
|Operating loss                                       |                                   |   | (2,346,000           | )         |                      |   | (2,824,000    | )         |               |   | (5,796,000 | )         |  |   | (15,628,000 | )        
|                                                    
|(Gain) loss on sales of assets                       |                                   |   | 2,000                |           |                      |   | 0             |           |               |   | (182,000   | )         |  |   | 0           |          
|Interest expense                                     |                                   |   | 196,000              |           |                      |   | 298,000       |           |               |   | 513,000    |           |  |   | 826,000     |          
|Interest and other income                            |                                   |   | 0                    |           |                      |   | (12,000       | )         |               |   | 0          |           |  |   | (51,000     | )        
|                                                     |                                   |   |                      |           |                      |   |               |           |               |   |            |           |  |   |             |          
|Loss before income taxes                             |                                   |   | (2,544,000           | )         |                      |   | (3,110,000    | )         |               |   | (6,127,000 | )         |  |   | (16,403,000 | )        
|                                                    
|Credit for income taxes                              |                                   |   | 0                    |           |                      |   | 0             |           |               |   | (392,000   | )         |  |   | 0           |          
|                                                     |                                   |   |                      |           |                      |   |               |           |               |   |            |           |  |   |             |          
|Loss from continuing operations                      |                                   |   | (2,544,000           | )         |                      |   | (3,110,000    | )         |               |   | (5,735,000 | )         |  |   | (16,403,000 | )        
|Gain (loss) from discontinued operations,
net of tax |                                   |   | 0                    |           |                      |   | 30,000        |           |               |   | 0          |           |  |   | 1,741,000   |          
|                                                     |                                   |   |                      |           |                      |   |               |           |               |   |            |           |  |   |             |          
|Net loss                                             |                                   | $ | (2,544,000           | )         |                      | $ | (3,080,000    | )         |               | $ | (5,735,000 | )         |  | $ | (14,662,000 | )        
|                                                     |                                   |   |                      |           |                      |   |               |           |               |   |            |           |  |   |             |          
|Basic and diluted per share data:                    |                                   |   |                      |           |                      |   |               |           |               |   |            |           |  |   |             |          
|Income (loss) from continuing operations             |                                   | $ | (.29                 | )         |                      | $ | (.38          | )         |               | $ | (.67       | )         |  | $ | (1.83       | )        
|Income (loss) from discontinued operations           |                                   |   | .00                  |           |                      |   | .00           |           |               |   | .00        |           |  |   | .22         |          
|                                                     |                                   |   |                      |           |                      |   |               |           |               |   |            |           |  |   |             |          
|Net loss                                             |                                   | $ | (.29                 | )         |                      | $ | (.38          | )         |               | $ | (.67       | )         |  | $ | (1.61       | )        
|                                                     |                                   |   |                      |           |                      |   |               |           |               |   |            |           |  |   |             |          
|Weighted average number of common
shares outstanding |                                   |   | 8,701,387            |           |                      |   | 8,096,795     |           |               |   | 8,618,443  |           |  |   | 8,009,054   |          

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

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CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                  |                                                       |                                                               |        |                      |            |               |       |             |            |  
|------------------------------------------------- | ----------------------------------------------------- | ------------------------------------------------------------- | ------ | -------------------- | ---------- | ------------- | ----- | ----------- | ---------- | -
|                                                  |                                                       |                                                               |        | 39-Week Period Ended
|                                                  |                                                       |                                                               |        |                     
|                                                  |                                                       |                                                               |        | September 28,        |            | September 29,
|                                                  |                                                       |                                                               |        | 2002                 |            | 2001         
|                                                  |                                                       |                                                               |        |                      |            |              
|CASH FLOWS FROM OPERATING ACTIVITIES:             |                                                       |                                                               |        |                      |            |               |       |            
|                                                  | Net loss                                              |                                                               | $      | (5,735,000           | )          |               | $     | (14,662,000 | )         
|                                                  | Adjustments to reconcile net loss to net cash         |                                                               |        |                      |            |               |       |             |           
|                                                  | Used in operating activities:                         |                                                               |        |                      |            |               |       |             |           
|                                                  |                                                       | Loss on abandonment of subsidiary                             |        |                      | 0          |               |       |             | 6,055,000  |  
|                                                  |                                                       | Depreciation and amortization                                 |        |                      | 1,360,000  |               |       |             | 1,780,000  |  
|                                                  |                                                       | Gain on sales of assets                                       |        |                      | (3,000     | )             |       |             | 0          |  
|                                                  |                                                       | Provision (credit) for doubtful accounts and notes receivable |        |                      | 39,000     |               |       |             | (76,000    | )
|                                                  |                                                       | Increase in refundable income taxes                           |        |                      | 0          |               |       |             | 0          |  
|                                                  |                                                       | Non-cash ESOP compensation                                    |        |                      | 0          |               |       |             | 118,000    |  
|                                                  |                                                       | Other changes in operating assets and liabilities             |        |                      | 1,631,000  |               |       |             | 5,683,000  |  
|                                                  |                                                       |                                                               |        |                      |            |               |       |            
|                                                  |                                                       | Net cash used in operating activities                         |        |                      | (2,708,000 | )             |       |             | (1,102,000 | )
|                                                  |                                                       |                                                               |        |                      |            |               |       |            
|CASH FLOWS FROM INVESTING ACTIVITIES:             |                                                       |                                                               |        |                      |            |               |       |            
|                                                  | Capital expenditures                                  |                                                               |        | (54,000              | )          |               |       | (264,000    | )         
|                                                  | Proceeds from sales of assets                         |                                                               |        | 3,000                |            |               |       | 5,000       |           
|                                                  |                                                       |                                                               |        |                      |            |               |       |            
|                                                  |                                                       | Net cash used in investing activities                         |        |                      | (51,000    | )             |       |             | (259,000   | )
|                                                  |                                                       |                                                               |        |                      |            |               |       |            
|CASH FLOWS FROM FINANCING ACTIVITIES:             |                                                       |                                                               |        |                      |            |               |       |            
|                                                  | Net short-term borrowings                             |                                                               |        | 2,810,000            |            |               |       | 642,000     |           
|                                                  | Net principal borrowings (payments) on long-term debt |                                                               |        | 0                    |            |               |       | 719,000     |           
|                                                  | Payments on capital lease obligations                 |                                                               |        | (15,000              | )          |               |       | 0           |           
|                                                  |                                                       |                                                               |        |                      |            |               |       |            
|                                                  |                                                       | Net cash provided by financing activities                     |        |                      | 2,795,000  |               |       |             | 1,361,000  |  
|                                                  |                                                       |                                                               |        |                      |            |               |       |            
|NET INCREASE (DECREASE) IN CASH                   |                                                       |                                                               | 36,000 |                      |            |               | 0     |            
|CASH AT THE BEGINNING OF THE PERIOD               |                                                       |                                                               | 0      |                      |            |               | 0     |            
|                                                  |                                                       |                                                               |        |                      |            |               |       |            
|CASH AT THE END OF THE PERIOD                     |                                                       | $                                                             | 36,000 |                      |            | $             | 3,000 |            
|                                                  |                                                       |                                                               |        |                      |            |               |       |            
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |                                                       |                                                               |        |                      |            |               |       |            
|                                                  | Cash paid during the period for:                      |                                                               |        |                      |            |               |       |             |           
|                                                  |                                                       | Interest                                                      |        | $                    | 415,000    |               |       | $           | 741,000    |  
|                                                  |                                                       | Income taxes                                                  |        | $                    | 0          |               |       | $           | 0          |  

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

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MARTIN INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

1.  BASIS OF PRESENTATION

Unaudited Interim Condensed Financial Statements

The accompanying unaudited interim condensed financial statements of
Martin Industries, Inc. (the Company) have been prepared in accordance with
accounting principles generally accepted in the U.S. for interim financial
information and are presented in accordance with the requirements of Form 10-Q
and Article 10 of Regulation S-X. However, the interim condensed financial
statements of the Company have not been reviewed by an independent public
accountant prior to filing with the Securities and Exchange Commission as
required by Rule 10-01(d) of Regulation S-X. On July 11, 2002, the Company
dismissed its independent accountants, Arthur Andersen LLP, effective
immediately. As of the date of this filing, no replacement independent
accountant has been engaged. The financial statements should be read in
conjunction with the audited financial statements and notes thereto for the
year ended December 31, 2001 included on Form 10-K, as filed with the
Securities and Exchange Commission on April 1, 2002.

In the opinion of management, the unaudited interim condensed financial
statements included herein reflect all adjustments necessary to present fairly
the information set forth therein. The Companys business has been, and
continues to be, subject to severe cash constraints and operational stress and,
as discussed in this report, the Company has entered into a letter of intent
which contemplates the sale of substantially all of the assets of the Company.
Therefore, the results of operations for the interim periods presented are not
necessarily indicative of results for the full year.

Fiscal Periods

The Companys fiscal quarters end on the Saturday nearest each calendar
quarter-end. The Company utilizes a December 31 fiscal year-end.

Basis of Presentation

Due to the transfer of shares of the Companys Canadian subsidiary to the
subsidiarys manager and sole director effective January 1, 2001, certain prior
year amounts have been reclassified to conform with the current years
presentation.

2.  INVENTORIES

The Company uses the first in, first out (FIFO) method of accounting for
its inventories. Management believes the FIFO method provides an accurate
measurement of inventory valuation and operating results for the Company as a
going concern as of the dates presented. Inventory costs include material,
labor and overhead, and the Company evaluates raw materials, purchased 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. At September 28, 2002 and
December 31, 2001, the reserve for excess and obsolete inventory was $712,000
and $1,058,000, respectively. An analysis of inventories at September 28,
2002 and December 31, 2001 follows:

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|                                                         |                                   |   |               |           |              |   |           |           | 
|-------------------------------------------------------- | --------------------------------- | - | ------------- | --------- | ------------ | - | --------- | --------- | 
|                                                         |                                   |   | September 28, |           | December 31,
|                                                         |                                   |   | 2002          |           | 2001        
|                                                         |                                   |   |               |           |             
|Inventories valued at first-in, first-out (FIFO) cost: |                                   |   |               |           |              |   |           |          
|                                                         | Raw materials and purchased parts |   | $             | 2,530,000 |              |   | $         | 3,157,000 | 
|                                                         | Work-in-process                   |   |               | 620,000   |              |   |           | 778,000   | 
|                                                         | Finished goods                    |   |               | 748,000   |              |   |           | 2,479,000 | 
|                                                         |                                   |   |               |           |              |   |           |          
|                                                         |                                   | $ | 3,898,000     |           |              | $ | 6,414,000 |          
|                                                         |                                   |   |               |           |              |   |           |          

3.  INCOME TAXES

The Company has net deferred tax assets resulting primarily from net
operating loss (NOL) carryforwards in United States jurisdictions of
approximately $39 million expiring in fiscal years 2019 through 2021.

The Company establishes valuation allowances in accordance with Statement
of Financial Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes, and will continually review the adequacy of the valuation allowance.

In assessing the valuation allowance established at December 31, 2001, 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. At September 28, 2002 and December 31,
2001, the valuation allowance for deferred taxes was approximately $19 million
and $17 million, respectively.

Congress passed and President Bush signed the Job Creation and Worker
Assistance Act of 2002 into law in March, 2002. The tax provisions in the new
law extend the NOL carryback period to five years for NOLs arising in tax years
ending in 2001 and 2002. As a result of the new law, the Company filed an
amended 1996 corporate income tax return and received an income tax refund of
approximately $392,000 from the Internal Revenue Service.

4.  EARNINGS PER SHARE

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

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|                                                                                      |  |  |                      |  |                      |  |               |  |               |  |           |  |  |  |           |  | 
|------------------------------------------------------------------------------------- |  |  | -------------------- |  | -------------------- |  | ------------- |  | ------------- |  | --------- |  |  |  | --------- |  | 
|                                                                                      |  |  | 13-Week Period Ended |  | 39-Week Period Ended
|                                                                                      |  |  |                      |  |                     
|                                                                                      |  |  | September 28,        |  | September 29,        |  | September 28, |  | September 29,
|                                                                                      |  |  | 2002                 |  | 2001                 |  | 2002          |  | 2001         
|                                                                                      |  |  |                      |  |                      |  |               |  |              
|Weighted average shares  basic and diluted, excluding ESOP and stock
options effects |  |  | 6,014,158            |  |                      |  | 5,757,078     |  |               |  | 5,931,214 |  |  |  | 5,756,171 | 
|                                                                                      |  |  |                      |  |                      |  |               |  |               |  |           |  |  |  |           |  | 
|Weighted average effect of ESOP shares
committed to be released                       |  |  | 2,687,229            |  |                      |  | 2,339,717     |  |               |  | 2,687,229 |  |  |  | 2,252,883 | 
|                                                                                      |  |  |                      |  |                      |  |               |  |               |  |           |  |  |  |           | 
|Weighted average number of common
shares outstanding  basic and diluted              |  |  | 8,701,387            |  |                      |  | 8,096,795     |  |               |  | 8,618,443 |  |  |  | 8,009,054 | 
|                                                                                      |  |  |                      |  |                      |  |               |  |               |  |           |  |  |  |           | 

Options outstanding of 392,697 and 506,644 for the 13-week periods ended
September 28, 2002 and September 29, 2001, respectively, were not included in
the table above as they were anti-dilutive.

5.  COMMITMENTS AND CONTINGENCIES

Three former officers of the Company have sued the Company in separate
suits pending in the Alabama Circuit Courts in Lauderdale and
Limestone Counties, The
former officers have alleged that the Company has breached the terms of a
supplemental income agreement entered into between the Company and each of the
former officers. The Company disputes the allegations and has filed an answer
in each case. Discovery is ongoing.

The Company is also a
defendant in two cases pending in New Jersey
arising out of an apartment fire alleged to have been caused by a gas heater
manufactured by Locke Home Products and which resulted in the death of two
individuals and personal injury to another. The Company purchased certain
assets of Locke Home Products in 1990 through a proceeding in bankruptcy and
did not assume liability with respect to the present cases. However, the cases
have been allowed to proceed against the Company and others in the New Jersey
courts. The Company is insured with respect to these cases, but is subject to
self insured retainage of $250,000, $180,000 of which has been expended by the
Company to date. Due to the severe cash constraints experienced by the
Company, the Company has been unable to fund its remaining self
insured retainage and a settlement agreed to in one of
the cases and is discussing with its
insurer available options.

The Company is also a party to various legal proceedings brought by
certain of its vendors seeking payment of accounts and other actions 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. While these
suits normally would not be expected to have a material adverse affect on the
Company, the weakness of the Companys current financial position could, in the
opinion of management, cause self insured amounts or a normally insignificant award of damages to have
a material adverse effect on the Company.

6.  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 September 28, 2002 and December 31, 2001, the outstanding
balance on the existing line of credit was $6.3 million and $5.6 million,
respectively. The line of credit is secured by the

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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 Company has received an extension from its primary lender of its
current line of credit through November 29, 2002. The lender has also agreed
to waive the Companys current defaults of debt covenants contained in its loan
agreement through November 29, 2002 and has suspended interest payments by the
Company. 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 August 30, 2002. The lender agreed to
extend the payment of this fee until November 29, 2002. The Company was also
required to amend the warrants previously earned by the lender to purchase
common stock in the Company equal to 10% of the Companys outstanding shares to
decrease the exercise price of $0.14 per share to $0.01 per share.

On September 17, 2002, the Company suspended manufacturing operations due
to a lack of working capital. The Company had been operating under severe cash
constraints and had been aggressively searching for alternative financing.
However, it was not successful and the lack of adequate funding forced the
Company to suspend operations while it continued discussions with its primary
lender as to the available options.

On September 25, 2002, the Company announced that it had arranged
temporary financing from its primary lender to restart limited operations.
Under the new financing arrangement, the Company was entitled to borrow up to
an additional $750,000 under its line of credit with its primary lender until
the earliest of (i) October 14, 2002, or (ii) further default by the Company of
its agreements with its primary lender, or (iii) another suspension of
operations or a filing for bankruptcy protection by the Company.

On October 8, 2002, the Companys primary lender amended its line of
credit to extend the maturity date to November 29, 2002. The amended loan
agreement provides for an additional credit line of up to $2.1 million. This
amount is an increase from the original $750,000 additional credit availability
announced on September 25, 2002. The additional line can expand up to $2.1
million in order to complete confirmed customer orders, but then must decrease
each week from October 18, 2002 or the Company will be in default of the loan
agreement. As of November 15, 2002, the amount outstanding under the Companys
line of credit with its primary lender was $6.3 million, which included $1.2
million of the funds available to the Company under the increased line. The
Company is obligated to stay within the operating budget defined within the
extension agreement and to continue to retain an independent management
consultant that specializes in assisting businesses who are in under-funded or
distressed situations. The extension to November 29, 2002 was conditioned upon
the Company entering into a letter of intent from a potential buyer of the
Company and receiving payment from the potential buyer of a nonrefundable
deposit of $100,000 by October 28, 2002. On November 8, 2002, the Company
announced that it had entered into a letter of intent to sell substantially all
of its assets and business.

On April 5, 2002, the Company entered into an agreement with M-TIN, LLC, a
limited liability company controlled by two individuals who were directors at
the time and one former director of the Company, to provide a $1.5 million term
loan to the Company. The loan was for a six-month term, subject to renewal for
an additional six months at the option of the Company provided that the Company
pays a 5% renewal fee. The loan was renewed effective October 4, 2002. The
loan bears 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% prepayment fee on the
amount prepaid. The loan is secured by an unencumbered first mortgage in all
of the real property of the Company.

On May 9, 2002, the Company entered into an additional agreement with
M-TIN, LLC to provide a $500,000 line of credit to the Company. The line of
credit, with an original maturity of October 5, 2002, was renewed under its
terms for an additional six months effective October 4, 2002. The line of
credit bears interest on the unpaid balance at an annual rate of 12%. The line
of credit is also subject to a placement fee equal to 5% of the available
credit and an additional 3% prepayment fee on the amount prepaid. The line of
credit is secured by the first mortgage in all of the real property of the
Company. As of September 28, 2002, $500,000 of the line
of credit had been utilized and no further credit was available.

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See also Note 8 to Notes to Condensed Financial Statements, Going Concern
Matters, below.

7.  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 products segment
includes vented and vent-free gas heaters and furnaces, pre-engineered gas and
wood-burning fireplaces and gas logs. Following the disposition of the
Companys Canadian subsidiaries in February 2002, the other products segment
consists only of replacement parts for the home heating products segment. The
accounting policies for each segment are the same as those used by the Company.
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 and identifiable net assets for the
two reportable segments of the Company are included in the following table.

|                                       |                                          |   |                      |            |                      |   |               |            |               |   |            |            |   |   |            |            |  
|-------------------------------------- | ---------------------------------------- | - | -------------------- | ---------- | -------------------- | - | ------------- | ---------- | ------------- | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                       |                                          |   | 13-Week Period Ended |            | 39-Week Period Ended
|                                       |                                          |   |                      |            |                     
|                                       |                                          |   | September 28,        |            | September 29,        |   | September 28, |            | September 29,
|                                       |                                          |   | 2002                 |            | 2001                 |   | 2002          |            | 2001         
|                                       |                                          |   |                      |            |                      |   |               |            |              
|Gross sales:                           |                                          |   |                      |            |                      |   |               |            |               |   |            |            |   |   |            |           
|                                       | Home heating products                    |   | $                    | 5,171,000  |                      |   | $             | 8,655,000  |               |   | $          | 20,308,000 |   |   | $          | 24,854,000 |  
|                                       | Other products                           |   |                      | 43,000     |                      |   |               | 273,000    |               |   |            | 357,000    |   |   |            | 932,000    |  
|                                       |                                          |   |                      |            |                      |   |               |            |               |   |            |            |   |   |            |           
|                                       |                                          | $ | 5,214,000            |            |                      | $ | 8,928,000     |            |               | $ | 20,665,000 |            |   | $ | 25,786,000 |           
|                                       |                                          |   |                      |            |                      |   |               |            |               |   |            |            |   |   |            |           
|Reconciliation to net sales:           |                                          |   |                      |            |                      |   |               |            |               |   |            |            |   |   |            |           
|                                       | Gross sales                              |   | $                    | 5,214,000  |                      |   | $             | 8,928,000  |               |   | $          | 20,665,000 |   |   | $          | 25,786,000 |  
|                                       | Freight revenue                          |   |                      | 22,000     |                      |   |               | 78,000     |               |   |            | 135,000    |   |   |            | 259,000    |  
|                                       | Discounts and royalties                  |   |                      | (131,000   | )                    |   |               | (196,000   | )             |   |            | (388,000   | ) |   |            | (453,000   | )
|                                       |                                          |   |                      |            |                      |   |               |            |               |   |            |            |   |   |            |           
|                                       | Net sales                                |   | $                    | 5,105,000  |                      |   | $             | 8,810,000  |               |   | $          | 20,412,000 |   |   | $          | 25,592,000 |  
|                                       |                                          |   |                      |            |                      |   |               |            |               |   |            |            |   |   |            |           
|Gross margin:                          |                                          |   |                      |            |                      |   |               |            |               |   |            |            |   |   |            |           
|                                       | Home heating products                    |   | $                    | 1,618,000  |                      |   | $             | 2,895,000  |               |   | $          | 7,159,000  |   |   | $          | 5,308,000  |  
|                                       | Other products                           |   |                      | 35,000     |                      |   |               | 149,000    |               |   |            | 244,000    |   |   |            | 358,000    |  
|                                       |                                          |   |                      |            |                      |   |               |            |               |   |            |            |   |   |            |           
|                                       |                                          | $ | 1,653,000            |            |                      | $ | 3,044,000     |            |               | $ | 7,403,000  |            |   | $ | 5,666,000  |           
|                                       |                                          |   |                      |            |                      |   |               |            |               |   |            |            |   |   |            |           
|Reconciliation to gross profit (loss): |                                          |   |                      |            |                      |   |               |            |               |   |            |            |   |   |            |           
|                                       | Gross margin                             |   | $                    | 1,654,000  |                      |   | $             | 3,044,000  |               |   | $          | 7,403,000  |   |   | $          | 5,666,000  |  
|                                       | Freight revenue                          |   |                      | 22,000     |                      |   |               | 78,000     |               |   |            | 135,000    |   |   |            | 259,000    |  
|                                       | Discounts and royalties                  |   |                      | (132,000   | )                    |   |               | (196,000   | )             |   |            | (387,000   | ) |   |            | (453,000   | )
|                                       | Fixed costs, variances, reserves & other |   |                      | (2,118,000 | )                    |   |               | (3,134,000 | )             |   |            | (7,078,000 | ) |   |            | (6,336,000 | )
|                                       |                                          |   |                      |            |                      |   |               |            |               |   |            |            |   |   |            |           
|                                       | Gross profit (loss)                      |   | $                    | (574,000   | )                    |   | $             | (208,000   | )             |   | $          | 73,000     |   |   | $          | 864,000    |  
|                                       |                                          |   |                      |            |                      |   |               |            |               |   |            |            |   |   |            |           

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|                             |                       |   |               |           |             |   |            |            | 
|---------------------------- | --------------------- | - | ------------- | --------- | ----------- | - | ---------- | ---------- | 
|                             |                       |   | September 28, |           | December 31
|                             |                       |   | 2002          |           | 2001       
|                             |                       |   |               |           |            
|Identifiable net assets (1): |                       |   |               |           |             |   |            |           
|                             | Home heating products |   | $             | 8,322,000 |             |   | $          | 11,284,000 | 
|                             | Other products        |   |               | 129,000   |             |   |            | 387,000    | 
|                             | Other (2)             |   |               | 2,331,000 |             |   |            | 2,932,000  | 
|                             |                       |   |               |           |             |   |            |           
|                             |                       | $ | 10,782,000    |           |             | $ | 14,603,000 |           
|                             |                       |   |               |           |             |   |            |           



---

|(1) |  | Represents Property, Plant, Equipment and Inventory (each net respective
reserves)
|--- |  | ----------------------------------------------------------------------------------
|   
|(2) |  | Represents amount attributable to the Companys corporate administration.         

8.  GOING CONCERN MATTERS

The financial statements as of and for the year ended December 31, 2001
were 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, as presented in the Companys Annual
Report on Form 10-K, as filed with the Securities and Exchange Commission on
April 1, 2002, during the year ended December 31, 2001, the Company incurred a
net loss of $15.9 million. The Company also had short-term borrowings of $5.6
million 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 has been extended through November 29, 2002 by the current bank
lender and has been designated by the lender as non-performing.

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.

On November 8, 2002, the Company announced that it has entered into a
letter of intent to sell substantially all of its assets and business for a
purchase price of approximately $4.4 million. The purchase price includes a
variable component that is, among other things, dependent upon the inventory
and receivables on hand at the time of closing, and a majority of the
anticipated purchase price is scheduled to be paid in installments
following the closing. The real estate of the Company
is not included in the assets to be purchased; however, under the letter of
intent, the Company would lease its manufacturing facility in Athens, Alabama
to the buyer of the Companys business for a period of at least one year. The
proceeds from the sale will be used by the Company to pay down secured bank
debt owed to its primary lender. It is contemplated that the proposed sale
will be accomplished through a Chapter 11 reorganization. The proposed sale is
subject to certain other conditions including completion of a definitive
purchase agreement by November 29, 2002. The sale is anticipated to close
during the latter half of the first quarter of 2003.

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ITEM 2.  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 unaudited
interim condensed financial statements of the Company and notes thereto
appearing elsewhere in this Form 10-Q. All references to the third quarter of
2002 and the third quarter of 2001 are referring to the 13-week periods ended
September 28, 2002 and September 29, 2001, respectively. All references to the
2002 year-to-date period and the 2001 year-to-date period are referring to the
39-week periods ended September 28, 2002 and September 29, 2001, respectively.

OVERVIEW

On August 30, 2002, the Company received an extension from its primary
lender of its current line of credit through November 4, 2002. The lender also
agreed to waive the Companys current defaults of debt covenants contained in
its loan agreement through November 4, 2002. The extension did 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 that include 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 August 30, 2002. The lender agreed to extend the payment of this fee
until November 4, 2002. As a requirement of the extension, the Company was
required to amend the warrants previously earned by the lender to purchase
common stock in the Company equal to 10% of the Companys outstanding shares
from an exercise price of $0.14 per share to $0.01 per share.

On September 17, 2002, the Company suspended manufacturing operations due
to its lack of working capital. The Company had been operating under severe
cash constraints and had been aggressively searching for alternative financing.
However, it had not been successful and the lack of adequate funding forced
the Company to suspend operations while it continued discussions with its
primary lender as to the options available, which included securing additional
financing, selling some or all of the Companys manufacturing operations,
liquidating the Company, or filing a voluntary petition for reorganization
under Chapter 11 of the U. S. Bankruptcy Code.

On September 25, 2002, the Company announced that it had arranged
temporary financing from its primary lender to restart limited operations.
Under the new financing arrangement, the Company was entitled to borrow up to
an additional $750,000 under its line of credit with its primary lender until
the earliest of (i) October 14, 2002, or (ii) further default by the Company of
its agreements with its primary lender, or (iii) another suspension of
operation or a filing for bankruptcy protection by the Company. The Company
then resumed limited manufacturing operations in order to fill existing
customer orders. The Company engaged Philip + Company Inc. to oversee the
resumption of the manufacturing operations. Philip + Company Inc. specializes
in assisting businesses who are in under-funded or distressed situations. In
connection with this new agreement, the maturity date for the Companys
indebtedness to its primary lender was moved from November 4, 2002 to October
14, 2002.

On October 8, 2002, the Companys primary lender amended its line of
credit to extend the maturity date from October 14, 2002 to November 29, 2002.
The amended loan agreement provides for an additional credit line of up to $2.1
million. This amount is an increase from the original $750,000 additional
credit availability announced on September 25, 2002. The additional line can
expand up to $2.1 million in order to complete confirmed customer orders, but
then must decrease each week from October 18, 2002 or the Company will be in
default of the loan agreement. As of November 15, 2002, the amount outstanding
under the Companys line of credit with its primary lender was $6.3 million,
which included $1.2 million of the funds available to the Company under the
increased line. The Company is obligated to stay within the operating budget
defined within the extension agreement and to continue to retain an independent
management consultant that specializes in assisting businesses who are in
under-funded or distressed situations. The extension to November 29, 2002

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was conditioned upon the Company entering into a letter of intent from a
potential buyer of the Company and receiving payment from the potential buyer
of a nonrefundable deposit of $100,000 by October 28, 2002.

On November 8, 2002, the Company announced that it has entered into a
letter of intent to sell substantially all of its assets and business for a
purchase price of approximately $4.4 million. The purchase price includes a
variable component that is, among other things, dependent upon the inventory
and receivables on hand at the time of closing, and a majority of the
anticipated purchase price is scheduled to be paid in installments
following the closing. The real estate of the Company
is not included in the assets to be purchased; however, under the letter of
intent, the Company would lease its manufacturing facility in Athens, Alabama
to the buyer of the Companys business for a period of at least one year. The
proceeds from the sale will be used by the Company to pay down secured bank
debt owed to its primary lender.

It is contemplated that the proposed sale will be accomplished through a
Chapter 11 reorganization, in which case it would need approvals required under
the U.S. Bankruptcy Code. The proposed sale is subject to certain other
conditions including completion of a definitive purchase agreement by November
29, 2002. The sale is anticipated to close during the latter half of the first
quarter of 2003. In conjunction with the signing of the letter of intent, the
proposed buyer has provided a deposit of $100,000. This deposit and the letter
of intent address conditions imposed on the Company by its primary lender in
the extension of the Companys line of credit to November 29, 2002. Pending
completion of the proposed sale, the Company expects to continue manufacturing
to fill existing and future customer orders, with certain operational
assistance from the proposed buyer of the Companys business. The Company continues to engage Philip + Company Inc. to oversee its
operations.

The Company also announced on November 8, 2002, that three of its
Directors, Jim D. Caudle, Sr., John L. Duncan, and Charles R. Martin, had
resigned from the Companys Board of Directors. Mr. Caudle and Mr. Duncan are
principals in M-TIN, LLC. Each of the three resigning Directors advised the
Company that they are supportive of the Companys restructuring efforts and the
proposed sale of its assets. In light of these resignations, the Board
established the number of Directors at three and elected William Neitzke as a
Director. The Board also promoted Mr. Neitzke to the position of President and
Chief Financial Officer to replace Mr. Duncan and James W. Truitt,
respectively, who resigned their positions with the Company. Mr. Neitzke is a
Senior Vice President of Philip + Company Inc. The
Company had previously appointed Mr. Neitzke as Executive Vice President, a position he
relinquished in connection with assuming his new position as President and CFO.

As used in the following discussion and elsewhere in this Quarterly 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 Quarterly Report, reflects gross
sales less deductions for cash discounts and royalties paid by the Company.

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Results of Operations

The following tables set forth, for the periods indicated, information
derived from the Companys financial statements expressed as a percentage of
net sales.

|                                    |                                    |  |                      |      |                      |  |               |      |               |  |       |      |  |  |       |      | 
|----------------------------------- | ---------------------------------- |  | -------------------- | ---- | -------------------- |  | ------------- | ---- | ------------- |  | ----- | ---- |  |  | ----- | ---- | 
|                                    |                                    |  | 13-Week Period Ended |      | 39-Week Period Ended
|                                    |                                    |  |                      |      |                     
|                                    |                                    |  | September 28,        |      | September 29,        |  | September 28, |      | September 29,
|                                    |                                    |  | 2002                 |      | 2001                 |  | 2002          |      | 2001         
|                                    |                                    |  |                      |      |                      |  |               |      |              
|Net sales                           |                                    |  | 100.0                | %    |                      |  | 100.0         | %    |               |  | 100.0 | %    |  |  | 100.0 | %   
|Cost of sales                       |                                    |  | 111.2                |      |                      |  | 102.4         |      |               |  | 99.6  |      |  |  | 103.4 |     
|                                    |                                    |  |                      |      |                      |  |               |      |               |  |       |      |  |  |       |     
|Gross profit (loss)                 |                                    |  | (11.2                | )    |                      |  | (2.4          | )    |               |  | .4    |      |  |  | (3.4  | )   
|                                    |                                    |  |                      |      |                      |  |               |      |               |  |       |      |  |  |       |     
|Operating expenses:                 |                                    |  |                      |      |                      |  |               |      |               |  |       |      |  |  |       |     
|                                    | Selling                            |  |                      | 13.5 |                      |  |               | 12.1 |               |  |       | 11.9 |  |  |       | 16.7 | 
|                                    | General and administrative         |  |                      | 21.3 |                      |  |               | 17.3 |               |  |       | 16.8 |  |  |       | 16.9 | 
|                                    | Non-cash ESOP compensation expense |  |                      | .0   |                      |  |               | 0.3  |               |  |       | .0   |  |  |       | 0.5  | 
|                                    | Loss
on abandonment of subsidiary  |  |                      | .0   |                      |  |               | .0   |               |  |       | .0   |  |  |       | 23.7 | 
|                                    |                                    |  |                      |      |                      |  |               |      |               |  |       |      |  |  |       |     
|                                    |                                    |  | 34.8                 |      |                      |  | 29.7          |      |               |  | 28.7  |      |  |  | 57.8  |     
|                                    |                                    |  |                      |      |                      |  |               |      |               |  |       |      |  |  |       |     
|Operating loss                      |                                    |  | (46.0                | )    |                      |  | (32.1         | )    |               |  | (28.4 | )    |  |  | (61.1 | )   
|Gain on sales of assets             |                                    |  | (0.0                 | )    |                      |  | 0.0           |      |               |  | (.9   | )    |  |  | 0.0   |     
|Net interest and other income       |                                    |  | 3.8                  |      |                      |  | 3.2           |      |               |  | 2.5   |      |  |  | 3.0   |     
|                                    |                                    |  |                      |      |                      |  |               |      |               |  |       |      |  |  |       |     
|Loss before income taxes            |                                    |  | (49.8                | )    |                      |  | (35.3         | )    |               |  | (30.0 | )    |  |  | (64.1 | )   
|Credit for income taxes             |                                    |  | (0.0                 | )    |                      |  | 0.0           |      |               |  | (1.9  | )    |  |  | 0.0   |     
|                                    |                                    |  |                      |      |                      |  |               |      |               |  |       |      |  |  |       |     
|Loss from continuing operations     |                                    |  | (49.8                | )    |                      |  | (35.3         | )    |               |  | (28.1 | )    |  |  | (64.1 | )   
|Income from discontinued operations |                                    |  | .0                   |      |                      |  | 0.3           |      |               |  | .0    |      |  |  | 6.8   |     
|                                    |                                    |  |                      |      |                      |  |               |      |               |  |       |      |  |  |       |     
|Net income (loss)                   |                                    |  | (49.8                | )%   |                      |  | (35.0         | )%   |               |  | (28.1 | )%   |  |  | (57.3 | )%  
|                                    |                                    |  |                      |      |                      |  |               |      |               |  |       |      |  |  |       |     

13-Week Period Ended September 28, 2002 Compared to 13-Week Period Ended
September 29, 2001

Net Sales

Net sales in the 13-week period ended September 28, 2002 decreased $3.7
million, to $5.1 million from $8.8 million in the 13-week period ended
September 29, 2001, a 42.0% decline. The decrease in net sales was primarily a
result of the severe cash constraints experienced by the Company which resulted
in the suspension of manufacturing operations on September 17, 2002.

Gross Profit (Loss)

Gross loss in the
third quarter of 2002 was $574,000 as compared to a
gross loss of $208,000 in the third quarter of 2001. Gross margin, defined as
gross sales less production costs, decreased from $3,044,000 in the third
quarter of 2001 to $1,653,000 in the third quarter of 2002, a decline of 45.7%.
The decline in gross margin was a result of the Company suspending
manufacturing operations on September 17, 2002, but still incurring overhead
expenses such as insurance, utilities, and warranty cost.

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Selling Expenses

Selling expenses in the third quarter of 2002 decreased to $687,000 from
$1.1 million in the third quarter of 2001, a decrease of $382,000 or 35.7%.
The decrease was attributable primarily to a decrease in advertising and
related expenses of $286,000, a decrease in personnel and administrative
expenses of $52,000, and a decrease in travel and entertainment expenses of
$44,000. Selling expenses as a percentage of net sales rose to 13.5% in the
third quarter of 2002 from 12.1% in the third quarter of 2001, due to the
Company suspending manufacturing operations on September 17, 2002, but still
incurring residual selling expenses.

General and Administrative Expenses

General and administrative expenses in the third quarter of 2002 decreased
to $1,085,000 from $1,524,000 in the third quarter of 2001, a decrease of
$439,000, or 28.8%. The decrease was primarily the result of a reduction in
personnel and related expenses of $105,000, and a decrease in other expenses of
$330,000 due to the Company suspending manufacturing operations on September
17, 2002.

Non-cash ESOP Compensation Expense

Non-cash ESOP compensation expense was $0 in the third quarter of 2002 as
compared to $23,000 in the third quarter of 2001 due to the payment in full of
the principal and interest of the ESOP debt in the fourth quarter of 2001.
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. 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. 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.

Interest Expense

Interest expense in the third quarter of 2002 was $196,000 as compared to
$298,000 in the third quarter of 2001, a decrease of $102,000, or 34.2%. The
decrease was attributable to the decline in the actual amount available under
the line of credit which is 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.
The decrease is also a result of a reduction in the prime interest rate.

Interest and Other Income

Interest and other income in the third quarter of 2002 was $0 as compared
to $12,000 in the third quarter of 2001. The decrease was attributable to a
decrease in average outstanding investments.

39-Week Period Ended September 28, 2002 Compared to 39-Week Period Ended
September 29, 2001

Net Sales

Net sales in the 39-week period ended September 28, 2002 decreased to
$20.4 million from $25.6 million in the 39-week period ended September 29,
2001, a decrease of $5.2 million, or 20.1%. The decrease in net sales
was primarily a result of the severe cash constraints experienced by the
Company which resulted in the suspension of manufacturing operations on
September 17, 2002.

15



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Gross Profit (Loss)

Gross profit in the 2002 year-to-date period increased to $73,000 as
compared to a gross loss of $864,000 in the 2001 year-to-date period, an
improvement of $937,000, despite the $5.2 million decrease in net sales. Gross
margin, defined as gross sales less production costs, was $7.4 million in the
third quarter of 2002 compared to $5.7 million in the third quarter of 2001, an
increase of 23.0%. The improvement in gross margin resulted from increased
control over production variances and the implementation of new computer
software that provided an improved way to monitor production costs.

Selling Expenses

Selling expenses in the 2002 year-to-date period decreased to $2.4 million
from $4.3 million in the 2001 year-to-date period, a decrease of $1.9 million
or 44.2%, primarily as a result of a decrease in advertising and other selling
expenses of $1.3 million, a decrease in travel expense of $210,000, and a
decrease in personnel and administrative expenses of $346,000. Selling
expenses as a percentage of net sales decreased to 11.8% in the 2002
year-to-date period from 16.8% in the 2001 year-to-date period, due to
continued efforts to decrease selling expenses in proportion to sales.

General and Administrative Expenses

General and administrative expenses in the 2002 year-to-date period
decreased to $3.4 million from $4.3 million in the 2001 year-to-date period, a
decrease of $900,000, or 20.9%. The decrease consists primarily of a reduction
in personnel and related expenses of $217,000, reduced professional services
expense of $101,000, and a decrease in supplies and other expense of $582,000 due
to concentrated efforts to streamline administrative operations and to cut
costs and cash outlays.

Non-cash ESOP Compensation Expense

Non-cash ESOP compensation expense was $0 in the 2002 year-to-date period
as compared to $118,000 in the 2001 year-to-date period due to the payment in
full of the principal and interest of the ESOP debt in the fourth quarter of
2001. 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. 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. 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.

Loss on Abandonment of Subsidiary

As a result of the transfer of the shares of 1166081 Ontario, Inc. to Mr.
Roger Vuillod, effective January 1, 2001, the Company incurred a $6.1 million
loss on the abandonment of the subsidiary in the first quarter of 2001, as
explained in the Companys Annual Report on Form 10-K for the year ended
December 31, 2001, as filed with the Securities and Exchange Commission on
April 1, 2002. As the loss is nonrecurring, no expense was recorded for the
2002 year-to-date period.

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Gain on Sale of Assets

The gain on sales of assets of $182,000 is due to the final transfers of
Broilmaster premium barbecue gas grill inventory to the purchaser of the
Broilmaster line that occurred in the first and second quarters of 2002.

Interest Expense

Interest expense in the 2002 year-to-date period was $513,000 as compared
to $826,000 in the 2001 year-to-date period, a decrease of $313,000, or 37.9%.
The decrease was attributable to the decline in the actual amount available
under the line of credit which is 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. The decrease is also a result of a reduction in the prime interest
rate.

Interest and Other Income

Interest and other income in the 2002 year-to-date period was $0 as
compared to $51,000 in the 2001 year-to-date period. The decrease was
attributable to a decrease in average outstanding investments.

Credit for Income Taxes

Due to the enactment of the Job Creation and Worker Assistance Act of 2002
in March 2002, which extends the NOL carryback period to five years for NOLs
arising in tax years ending in 2001 and 2002, the Company filed a 1996 amended
income tax return and received an income tax refund of approximately $392,000
from the Internal Revenue Service.

Recent Accounting Pronouncements

On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards No. 141, Business Combinations
(FAS 141) and No. 142, Goodwill and Other Intangible Assets (FAS 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 FAS 141 and FAS 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 adopted FAS 141 and FAS 142 on January 1, 2002, and expects
the adoption of these standards to have no material impact on its financial
condition, results of operations or cash flows.

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In August 2001, the FASB issued FAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which supercedes both FAS 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. FAS 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 FAS No. 144 are effective beginning
in 2002 and the Company has not yet quantified the impact of adopting FAS No.
144 on its financial statements. As of the date of this filing, the Company
has not had an occurrence that required reporting under FAS No. 144.

LIQUIDITY AND CAPITAL RESOURCES

The financial statements for the year ended December 31, 2001 were
prepared on a going concern basis. As shown in the financial statements, as
presented in the Companys Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission on April 1, 2002, during the year ended
December 31, 2001, the Company incurred a net loss of $15.9 million. The
Company has experienced significant losses during the previous four years, and
will report a loss for fiscal year 2002. Such losses have resulted in the
Company having negative net worth of $4.3 million at September 28, 2002.

The Company has financed interim 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
September 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 September 28,
2002, the outstanding balance was $6.3 million with $0 available.

As previously discussed, on September 17, 2002, the Company suspended
manufacturing operations due to its lack of working capital. The Company had
been operating under severe cash constraints and had been aggressively
searching for alternative financing. However, it was not successful and the
lack of adequate funding forced the Company to suspend operations while it
continued discussions with its primary lender as to the options available.

The Company has arranged temporary financing from its primary lender to
fund limited operations in order to fill existing customer orders and is
considering the feasibility of future orders. The Companys amended line of
credit has a current maturity date of November 29, 2002. The Companys primary
lender has suspended interest payments by the Company during the extension
period and has designated the credit as non-performing. The amended loan
agreement provides for an additional credit line of up to $2.1 million. This
amount is an increase from the original $750,000 additional credit availability
announced on September 25, 2002. The additional line can expand up to $2.1
million in order to complete confirmed customer orders, but then must decrease
each week from October 18, 2002 or the Company will be in default of the loan
agreement. As of November 15, 2002, the amount outstanding under the Companys
line of credit with its primary lender was $6.3 million, which included $1.2
million of the funds available to the Company under the increased line. The
Company is obligated to stay within the operating budget defined within the
extension agreement and to continue to retain an independent management
consultant that specializes in assisting businesses who are in under-funded or
distressed situations.

On November 8, 2002, the Company announced that it had entered into a
letter of intent to sell substantially all of its assets and business for a
purchase price of approximately $4.4 million. The purchase price
includes a variable component that is, among other things, dependent upon
the inventory and receivables on hand at the time of closing, and a
majority of the anticipated purchase price is scheduled to be paid in
installments following the closing. The real estate
of the Company is not included in the assets to be purchased;

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however, under
the letter of intent, the Company would lease its manufacturing facility in
Athens, Alabama to the buyer of the Companys business for a period of at least
one year. The proceeds from the sale will be used by the Company to pay down
secured bank debt owed to its primary lender.

It is contemplated that the proposed sale will be accomplished through a
Chapter 11 reorganization. The proposed sale is subject to certain other
conditions including completion of a definitive purchase agreement by November
29, 2002. The sale is anticipated to close during the latter half of the first
quarter of 2003. Pending completion of the proposed sale, the Company expects
to continue manufacturing to fill existing and future customer orders, with
certain operational assistance from the proposed purchaser of the business. As
previously reported, the Company continues to engage Philip + Company Inc. to
oversee its operations.

CRITICAL ACCOUNTING POLICIES

The Securities and Exchange Commission has indicated that a critical
accounting policy is one which is both important to the portrayal of a
companys financial condition and results and requires managements most
difficult, subjective or complex judgements, 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. It is possible
that the accuracy of the reserve could be affected substantially due to the
Companys financial position and the proposed sale of substantially all of the
assets of the Company. 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.

Excess and obsolete reserve.The Company has estimated that at September
28, 2002, it has approximately $712,000 of raw material, purchased parts, and
work-in-process inventory that has not been utilized in the production of
finished goods, as well as finished goods that are not saleable items due to
obsolescence, as compared to $1,058,000 for the period ended December 31, 2001.
A reserve is calculated 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. It is recorded annually and reduced each
accounting period by the amount of excess and obsolete inventory sold or
scrapped. The adequacy of the reserve may be materially affected in the future
by the Companys proposed sale of substantially all of its assets as discussed
elsewhere in this report and its discontinuation as a going concern.

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, carryforward of approximately
$39 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. However, due to the enactment of the Job Creation and Worker
Assistance Act of 2002 in March, 2002, which extends the NOL carry back period
to five years for NOLs arising in tax years ending in 2001 and 2002, the
Company received an income tax refund of approximately $392,000 from the
Internal Revenue Service.

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ITEM 3.  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. At September 28, 2002, the Company had $6.3
million 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.




ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

Based on their evaluation of the Companys disclosure controls and
procedures as of a date within 90 days of the filing of this Report, the Chief
Executive Officer and Chief Financial Officer has concluded that such controls
and procedures are effective.

Changes in Internal Controls.

As previously reported, on July 11, 2002, the Company dismissed its
independent accountants, Arthur Andersen LLP (Andersen), effective
immediately. The decision to terminate the engagement of Andersen was approved
by the Companys Board of Directors upon the recommendation of its Audit
Committee. Andersens report on the Companys 2001 financial statements was
issued in March 2002, in conjunction with the filing of the Companys
Annual Report on Form 10-K for the year ended December 31, 2001. The Company
has not yet engaged replacement independent auditors. Accordingly, the
Companys interim financial statements for the period ended September 28, 2002
have not been reviewed by an independent accounting firm.

On November 6, 2002, John L. Duncan, Chief Executive Officer, and James W.
Truitt, Chief Financial Officer, resigned from the Company. The Board of
Directors appointed William Neitzke as President and Chief Financial Officer.
Mr. Neitzke, who is a Senior Vice President of Philip + Company Inc., has been
running the operations of the Company since September 25, 2002. A large number
of employees were laid off as a result of the Company suspending manufacturing
operations on September 17, 2002. Although the Company has retained
experienced employees in certain key areas, the effect of the Companys
financial condition and recent resignations by senior management could affect
the Companys internal controls subsequent to the date of their evaluation.

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PART II.  OTHER INFORMATION




Item 6.  Exhibits and Reports on Form 8-K



|(a) |  | Exhibits                                                                                                                                                                                                                                                                                                                                  
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | 10(a) Letter Agreement of AmSouth Bank dated August 30, 2002.                                                                                                                                                                                                                                                                             
|   
|    |  | * 10(b) Letter Agreement of AmSouth Bank dated September 24, 2002,
filed as Exhibit 99.1 to the Companys Current Report on
Form 8-K filed September 25, 2002.                                                                                                                                                                            
|   
|    |  | * Incorporated by reference.                                                                                                                                                                                                                                                                                                              
|   
|(b) |  | Reports on Form 8-K                                                                                                                                                                                                                                                                                                                       
|   
|    |  | On July 12, 2002, the Company
filed a Current Report on Form 8-K in which the Company reported
under Item 4 that it had dismissed its independent accountants,
Arthur Andersen, LLP, effective immediately.                                                                                                                               
|   
|    |  | On September 17, 2002, the Company filed a Current Report
on Form 8-K in which the Company reported under Item 9 the
suspension of manufacturing operations due to its lack of working
capital.                                                                                                                                           
|   
|    |  | On September 25, 2002, the Company filed a Current Report
on Form 8-K in which the Company reported under Item 9 certain
agreements with its lender which allow the Company to draw an
additional $750,000 and require the Company to retain a
representative of Philip + Company Inc. to serve as Chief
Operating Officer of the Company.

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 Quarterly Report on Form
10-Q 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 Quarterly Report on Form 10-Q contains forward-looking
statements regarding:



| |  |  | the sale of substantially all of the Companys assets, the
terms of such proposed sale, and the anticipated close of the
proposed sale of assets;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the Companys ability to
continue to fill customer orders;                                                                                       
|
| |  |  | the likelihood of a bankruptcy
filing;                                                                                                           
|
| |  |  | the Companys beliefs with respect to the funding of its
operations during fiscal year 2002, including the period up to
November 29, 2002;       
|
| |  |  | the Companys future ability to meet the needs and expectations of its customers;                                                                
|
| |  |  | results in future quarters;                                                                                                                      
|
| |  |  | the estimated reserves for
doubtful accounts and 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.                                                                       

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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 statements included
in this Quarterly Report of Form 10-Q, 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 Quarterly Report on Form 10-Q 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 the proposed sale of the assets of the Company will be completed
or that, if completed, the sale will yield the anticipated purchase price; that
the Company will be able to comply with the terms of its agreements with its
lender and thereby be able to borrow the full amount necessary to continue
manufacturing operations, or fund completion of the proposed sale of assets; or
that the Companys primary lender will extend its current credit facility
beyond November 29, 2002. These assumptions, risks and uncertainties include,
but are not limited to, those associated with the Companys current financial
condition; the Companys ability to generate cash or secure adequate financing
to fund its operations; potential losses from product liability and personal
injury lawsuits; general economic cycles; the cyclical nature of the
industry 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 effects
of seasonality and weather conditions on the Companys home heating product
sales and other sales; 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 the industry in
which the Company operates; and the other risks and uncertainties discussed or
indicated in all documents filed by the Company with the Commission, including
the Companys Annual Report on Form 10-K filed with the Commission on April 1,
2002. The Company expressly disclaims any obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                                                 |  |    |  |                                                                                                                            
|------------------------------------------------ |  | -- |  | ---------------------------------------------------------------------------------------------------------------------------
|MARTIN INDUSTRIES, INC.
Date:  November 18, 2002 |  | By |  | /s/ William Neitzke                                                                                                        
|                                                 |  |    |  |                                                                                                                            
|                                                 |  |    |  | William
Neitzke
President and Chief Financial Officer
(Executed on behalf of Registrant and
as Principal Financial Officer)

CERTIFICATIONS

Due to its current financial difficulties and the resignation of both its
Chief Executive Officer and its Chief Financial Officer on November 6, 2002,
the Company has not filed either of the certifications required by Sections 302
and 906 of the Sarbanes-Oxley Act of 2002. This Quarterly Report on Form 10-Q
is not in compliance with the requirements of the Securities Exchange Act of
1934, as amended, because the Company does not currently have an outside
auditor and therefore the Form 10-Q has not been reviewed by an outside auditor
as required by Rule 10-01(d) of Regulation S-X.

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##### Table of Contents



INDEX TO EXHIBITS

|        |  |                                                                                                                                                       
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                       
|Number  |  | Description of Exhibits                                                                                                                               
|        |  |                                                                                                                                                       
|10(a)   |  | Letter Agreement of AmSouth Bank dated August 30, 2002.                                                                                               
|        |  |                                                                                                                                                       
|*10(b)  |  | Letter Agreement of AmSouth Bank dated
September 24, 2002, filed as Exhibit 99.1 to the
Companys Current Report on Form 8-K filed
September 25, 2002.



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

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