<PAGE>

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

                                    FORM 10-Q

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

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

FOR 13-WEEK PERIOD ENDED MARCH 30, 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                         (I.R.S. Employer
     incorporation or organization)                         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.

                     8,577,483 shares of Common Stock, $0.01
                          par value, as of May 14, 2002


<PAGE>

                             MARTIN INDUSTRIES, INC.

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                                          PAGE
                                                                                                                          ----
<S>                                                                                                                       <C>
PART I.           FINANCIAL INFORMATION

                  Item 1.           Financial Statements:

                                    Unaudited Condensed Balance Sheets as of
                                    March 30, 2002 and December 31, 2001                                                    2

                                    Unaudited Condensed Statements of Operations
                                    for the 13-Week Periods Ended March 30, 2002
                                    and March 31, 2001                                                                      4

                                    Unaudited Condensed Statements of Cash Flows for the
                                    13-Week Periods Ended March 30, 2002 and March 31, 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

PART II.          OTHER INFORMATION

                  Item 5.           Other Information                                                                      20

                  Item 6.           Exhibits and Reports on Form 8-K                                                       21
</TABLE>


                                       1
<PAGE>

PART 1  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                             MARTIN INDUSTRIES, INC.
                            CONDENSED BALANCE SHEETS
                                   (Unaudited)
                                     ASSETS

<TABLE>
<CAPTION>
                                                                                               March 30,             December 31,
                                                                                                 2002                    2001
                                                                                             -------------          -------------
<S>                                                                                          <C>                    <C>
Current assets:
   Cash                                                                                      $       3,000          $           0
   Accounts and notes receivable, less allowance for
      doubtful accounts of $1,206,000 and $1,278,000, respectively                               2,640,000              3,654,000
   Inventories                                                                                   5,932,000              6,414,000
   Refundable income taxes                                                                         350,000                      0
   Prepaid expenses and other assets                                                               665,000                305,000
                                                                                             -------------          -------------

      Total current assets                                                                       9,590,000             10,373,000
                                                                                             -------------          -------------

   Property, plant and equipment, net                                                            7,755,000              8,189,000
                                                                                             -------------          -------------

   Cash surrender value of life insurance                                                        1,496,000              1,344,000

                                                                                             -------------          -------------
   Other                                                                                           150,000                300,000
                                                                                             -------------          -------------

      Total other non-current assets                                                             1,646,000              1,644,000
                                                                                             -------------          -------------

      Total assets                                                                           $  18,991,000          $  20,206,000
                                                                                             =============          =============
</TABLE>

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


                                       2
<PAGE>

                             MARTIN INDUSTRIES, INC.
                            CONDENSED BALANCE SHEETS
                                   (Unaudited)
                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                March 30,             December 31,
                                                                                                  2002                   2001
                                                                                             -------------           -------------
<S>                                                                                          <C>                     <C>
LIABILITIES
  Current Liabilities:
    Short-term borrowings                                                                    $   5,943,000           $   5,567,000
    Capital lease obligations                                                                       46,000                  52,000
    Accounts payable                                                                             5,764,000               5,491,000
    Accrued liabilities:
      Payroll and employee benefits                                                              1,636,000               1,635,000
      Product liability                                                                          1,018,000               1,036,000
      Warranty                                                                                     215,000                 218,000
      Workers' compensation                                                                        806,000                 819,000
      Other                                                                                        617,000                 931,000
                                                                                             -------------           -------------

      Total current liabilities                                                                 16,045,000              15,749,000
                                                                                             -------------           -------------

  Deferred compensation                                                                          1,742,000               1,745,000
  Life insurance policy loans                                                                    1,305,000               1,305,000
                                                                                             -------------           -------------

      Total non-current liabilities                                                              3,047,000               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; 9,769,628 shares issued at March 30,
    2002 and 9,768,500 at December 31, 2001                                                         98,000                  98,000
  Paid-in capital                                                                               24,580,000              24,580,000
  Accumulated deficit                                                                          (20,990,000)            (19,482,000)
                                                                                             -------------           -------------

                                                                                                 3,688,000               5,196,000
  Less:
  Treasury stock at cost (1,192,145 shares at
    March 30, 2002 and December 31, 2001)                                                        3,789,000               3,789,000
                                                                                             -------------           -------------

      Total stockholders' equity                                                                  (101,000)              1,407,000
                                                                                             -------------           -------------

      Total liabilities and stockholders' equity                                             $  18,991,000           $  20,206,000
                                                                                             =============           =============
</TABLE>

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


                                       3
<PAGE>

                             MARTIN INDUSTRIES, INC.
                              CONDENSED STATEMENTS
                      OF OPERATIONS AND COMPREHENSIVE LOSS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                            13-WEEK
                                                                                                          PERIOD ENDED
                                                                                             -------------------------------------
                                                                                                MARCH 30,              MARCH 31,
                                                                                                  2002                   2001
                                                                                             -------------           -------------
<S>                                                                                          <C>                     <C>
NET SALES                                                                                    $   7,092,000           $   7,226,000

Cost of sales                                                                                    6,821,000               7,735,000
                                                                                             -------------           -------------

GROSS PROFIT (LOSS)                                                                                271,000                (509,000)
                                                                                             -------------           -------------

Operating expenses:
  Selling                                                                                          861,000               1,742,000
  General and administrative                                                                     1,262,000               1,325,000
  Non-cash ESOP compensation                                                                             0                  63,000
  Loss on abandonment of subsidiary                                                                      0               6,055,000
                                                                                             -------------           -------------
                                                                                                 2,123,000               9,185,000
                                                                                             -------------           -------------

OPERATING LOSS                                                                                  (1,852,000)             (9,694,000)

Gain on sales of assets                                                                           (138,000)                      0
Interest expense                                                                                   144,000                 262,000
Interest and other income                                                                                0                 (24,000)
                                                                                             -------------           -------------

LOSS BEFORE INCOME TAXES                                                                        (1,858,000)             (9,932,000)

Credit for income taxes                                                                           (350,000)                      0
                                                                                             -------------           -------------

LOSS FROM CONTINUING OPERATIONS                                                              $  (1,508,000)          $  (9,932,000)

Gain (loss) from discontinued operations, net
   of tax                                                                                                0               1,463,000
                                                                                             -------------           -------------

NET LOSS                                                                                     $  (1,508,000)          $  (8,469,000)
                                                                                             -------------           -------------

BASIC AND DILUTED PER SHARE DATA:

Income (loss) from continuing operations                                                     $        (.18)          $       (1.25)
                                                                                             -------------           -------------
Income (loss) from discontinued operations                                                               0                     .18
                                                                                             -------------           -------------

Net loss                                                                                     $        (.18)          $       (1.07)
                                                                                             =============           =============

Weighted average number of common
  shares outstanding                                                                             8,576,910               7,921,426
                                                                                             =============           =============
</TABLE>


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


                                       4
<PAGE>

                             MARTIN INDUSTRIES, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                          13-WEEK
                                                                                                         PERIOD ENDED
                                                                                             -----------------------------------
                                                                                               MARCH 30,              MARCH 31,
                                                                                                 2002                   2001
                                                                                             ------------           ------------
<S>                                                                                          <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                                  $ (1,508,000)          $ (8,469,000)
   Adjustments to reconcile net loss to net cash
   used in operating activities:
      Loss on abandonment of subsidiary                                                                 0              6,055,000
      Depreciation and amortization                                                               467,000                605,000
      Gain on sales of assets                                                                      (3,000)                     0
      Provision (credit) for doubtful accounts and notes receivable                               (23,000)               (47,000)
      Increase in refundable income taxes                                                        (350,000)                     0
      Non-cash ESOP compensation                                                                        0                 63,000
      Other changes in operating assets and liabilities                                         1,081,000               (799,000)
                                                                                             ------------           ------------

          Net cash used in operating activities                                                  (336,000)            (2,592,000)
                                                                                             ------------           ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                                                           (33,000)               (94,000)
   Proceeds from sales of assets                                                                    3,000                  5,000
                                                                                             ------------           ------------

     Net cash used in investing activities                                                        (30,000)               (89,000)
                                                                                             ------------           ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net short-term borrowings                                                                      375,000              2,689,000
   Payments on capital lease obligations                                                           (6,000)                (6,000)
                                                                                             ------------           ------------
                                                                                                  369,000              2,683,000
Net cash provided by financing activities
                                                                                             ------------           ------------

NET INCREASE IN CASH                                                                                3,000                  2,000

CASH AT THE BEGINNING OF THE PERIOD                                                                     0                  3,000
                                                                                             ------------           ------------

CASH AT THE END OF THE PERIOD                                                                $      3,000           $      5,000
                                                                                             ============           ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
  Interest                                                                                   $    133,000           $    233,000
  Income taxes                                                                               $          0           $          0

</TABLE>

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


                                       5
<PAGE>

                             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. 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 is seasonal and
cyclical with the potential for significant fluctuations in quarterly earnings;
therefore, the results of operations for the 2002 and 2001 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. 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 March 30, 2002 and
December 31, 2001, the reserve for excess and obsolete inventory was $927,000
and $1,058,000, respectively. An analysis of inventories at March 30, 2002 and
December 31, 2001 follows:


                                       6
<PAGE>

<TABLE>
<CAPTION>
                                                                                               March 30,           December 31,
                                                                                                 2002                  2001
                                                                                             ------------          ------------
<S>                                                                                          <C>                   <C>
Inventories valued at first-in, first-out ("FIFO") cost:
  Raw materials and purchased parts                                                          $  3,391,000          $  3,157,000
  Work-in-process                                                                                 796,000               778,000
  Finished goods                                                                                1,745,000             2,479,000
                                                                                             ------------          ------------

                                                                                             $  5,932,000          $  6,414,000
                                                                                             ============          ============
</TABLE>

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 March 30, 2002 and December 31,
2001, the valuation allowance for deferred taxes was approximately $18 million
and $17 million, respectively.

         Congress passed and President Bush signed the Job Creation and Worker
Assistance Act of 2002 (P.L. 107-147) 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 expects to obtain an income tax refund of approximately $350,000 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:


                                       7
<PAGE>

<TABLE>
<CAPTION>
                                                                                                   13-Week Period Ended
                                                                                             ----------          ----------
                                                                                              March 30,           March 31,
                                                                                                2002                2001
                                                                                             ----------          ----------
<S>                                                                                          <C>                 <C>
Weighted average shares-basic
   and diluted, excluding ESOP and
   stock options effects                                                                      5,889,681           5,755,379

Weighted average effect of ESOP
   shares committed to be released                                                            2,687,229           2,166,047
                                                                                             ----------          ----------

Weighted average number of
   common shares outstanding-basic
   and diluted                                                                                8,576,910           7,921,426
                                                                                             ==========          ==========
</TABLE>

Options outstanding of 426,823 and 630,514 for the 13-week period ended March
30, 2002 and March 31, 2001, respectively, were not included in the table above
as they were anti-dilutive.

5.  COMMITMENTS AND CONTINGENCIES

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

         During 1998, the Company effected a settlement with all but two of the
former shareholders, and a contingent settlement with these two. The contingent
settlement with the two former shareholders will result (if the contingency is
satisfied and that portion of the settlement effectuated) in receipt by the
Company of an additional $106,000 (including interest), and cancellation of
notes and accrued interest totaling approximately $234,000.

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

         The Company is a party to various legal proceedings that are incidental
to its business. Certain of these cases filed against the Company and other
companies engaged in businesses similar to the


                                       8
<PAGE>

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

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 March 30, 2002 and December 31, 2001, the outstanding balance
on the existing line of credit was $5,943,000 and $5,567,000, respectively. The
line of credit is secured by the receivables, inventory and equipment of the
Company. Interest on the line of credit is payable monthly at a variable rate
based on the prime rate plus 2%.

         On April 1, 2002, the Company received an extension from its primary
lender of its current line of credit through July 1, 2002. The lender also
agreed to waive the Company's current defaults of debt covenants contained in
its loan agreement through March 31, 2002. The extension does not effect a
change in the amount available to the Company under the line, which varies based
on the value of certain assets securing the line 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 March 31,
2002. The lender has agreed to extend the payment of this fee until July 1, 2002
and, in the event the line of credit is paid in full on or before May 31, 2002,
the fee will be reduced to $50,000. In the event the Company does not repay the
line of credit in full by June 30, 2002, the lender will receive warrants to
purchase common stock in the Company equal to 10% of the Company's outstanding
shares at an exercise price of $0.14 per share. The Company also granted the
lender a second mortgage in all of the real property of the Company.

         On April 5, 2002, the Company entered into an agreement with M-TIN,
LLC, a limited liability company controlled by three of its directors to provide
a $1.5 million term loan to the Company. The loan is 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 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% fee at repayment. The loan is secured by an
unencumbered first mortgage in all of the real property of the Company. M-TIN,
LLC has also agreed to make an additional $500,000 line of credit available to
the Company. The term of the line of credit will be the same as the term loan,
including the option of the Company to extend the line for an additional six
months. The line of credit will bear interest at an annual rate of 12% and also
be subject to a placement fee equal to 5% of the available credit due when the
documentation is delivered by the parties and an additional 3% fee due at
repayment. The parties are presently completing the documentation for the line
of credit.

         The Company is in negotiations with a prospective lender and has
received a non-binding proposal for a new asset-based, secured line of credit to
replace its existing credit facility. In addition to the completion of the
prospective lender's due diligence and negotiations with the Company, the


                                       9
<PAGE>
prospective lender will require the Company to obtain additional financing or
equity investment in the Company of approximately $4.5 million (or $2.5 million
in excess of the existing $1.5 million term loan and $500,000 line of credit
from M-TIN, LLC) as a condition to providing financing. The Company is pursuing
this additional financing from M-TIN, LLC and has approved terms under which
this amount may be made available. The Company is also pursuing other sources
for this financing or equity investment. However, there can be no assurance that
the Company will be able to consummate the transaction with the prospective
lender, that M-TIN, LLC will agree to or be able to provide additional financing
to the Company or that other sources will be identified or agree to provide the
necessary financing. The Company is also continuing to pursue a sale of the
Company with the assistance of its investment bankers. However, there can be no
assurance that any transaction will be completed.

         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.

<TABLE>
<CAPTION>
                                                                                                      Segment Information
                                                                                             -------------------------------------
                                                                                                     13-Week Period Ended
                                                                                             -------------------------------------
                                                                                               March 30,               March 31,
                                                                                                  2002                   2001
                                                                                             -------------           -------------
<S>                                                                                          <C>                     <C>
Gross sales:
Home heating products                                                                        $   6,967,000           $   6,911,000
Other products                                                                                     190,000                 387,000
                                                                                             -------------           -------------
                                                                                             $   7,157,000           $   7,298,000
                                                                                             =============           =============
Reconciliation to net sales:
Gross sales                                                                                  $   7,157,000           $   7,298,000
Freight revenue                                                                                     61,000                  92,000
Discounts and royalties                                                                           (126,000)               (164,000)
                                                                                             -------------           -------------
Net sales                                                                                    $   7,092,000           $   7,226,000
                                                                                             =============           =============

Gross margin:
Home heating products                                                                        $   2,536,000           $   2,423,000
Other products                                                                                     133,000                 215,000
                                                                                             -------------           -------------
                                                                                             $   2,669,000           $   2,638,000
                                                                                             =============           =============

Reconciliation to gross profit (loss):
Gross margin                                                                                 $   2,669,000           $   2,638,000

Freight revenue                                                                                     61,000                  92,000
Discounts and royalties                                                                           (126,000)               (164,000)
Fixed costs, variances, reserves & other                                                        (2,333,000)             (3,075,000)
                                                                                             -------------           -------------

Gross profit (loss)                                                                          $     271,000           $    (509,000)
                                                                                             =============           =============
</TABLE>


                                       10
<PAGE>

<TABLE>
<CAPTION>
                                                                                               March 30,              March 31,
                                                                                                  2002                   2001
                                                                                             -------------          -------------
<S>                                                                                          <C>                    <C>
Identifiable net assets (1) :
Home heating products                                                                        $  12,964,000          $  17,757,000
Other products                                                                                     723,000                941,000
Other (2)                                                                                        2,726,000              4,256,000
                                                                                             -------------          -------------
                                                                                             $  16,413,000          $  22,954,000
                                                                                             =============          =============
</TABLE>

(1)      Represents Property, Plant and 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 July 1, 2002 by the current bank lender. The Company is
aggressively pursuing a more permanent form of financing. There can be no
assurance, however, that any new credit arrangement will be finalized or further
extensions granted beyond July 1, 2002.

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

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


                                       11
<PAGE>

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 first quarter of
2002 and the first quarter of 2001 are referring to the 13-week periods ended
March 30, 2002 and March 31, 2001, respectively.

OVERVIEW

         On April 1, 2002, the Company received an extension from its primary
lender of its current line of credit through July 1, 2002. The lender also
agreed to waive the Company's current defaults of debt covenants contained in
its loan agreement through March 31, 2002. The extension does not effect a
change in the amount available to the Company under the line, which varies based
on the value of certain assets securing the line 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 March 31,
2002. The lender has agreed to extend the payment of this fee until July 1, 2002
and, in the event the line of credit is paid in full on or before May 31, 2002,
the fee will be reduced to $50,000. In the event the Company does not repay the
line of credit in full by June 30, 2002, the lender will receive warrants to
purchase common stock in the Company equal to 10% of the Company's outstanding
shares at an exercise price of $0.14 per share. The Company also granted the
lender a second mortgage in all of the real property of the Company.

         On April 5, 2002, the Company entered into an agreement with M-TIN,
LLC, a limited liability company controlled by three of its directors to provide
a $1.5 million term loan to the Company. The loan is 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 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% fee at repayment. The loan is secured by an
unencumbered first mortgage in all of the real property of the Company. M-TIN,
LLC has also agreed to make an additional $500,000 line of credit available to
the Company. The term of the line of credit will be the same as the term loan,
including the option of the Company to extend the line for an additional six
months. The line of credit will bear interest at an annual rate of 12% and also
be subject to a placement fee equal to 5% of the available credit due when the
documentation is delivered by the parties and an additional 3% fee due at
repayment. The parties are presently completing the documentation for the line
of credit.

         The Company is in negotiations with a prospective lender and has
received a non-binding proposal for a new asset-based, secured line of credit to
replace its existing credit facility. In addition to the completion of the
prospective lender's due diligence and negotiations with the Company, the
prospective lender will require the Company to obtain additional financing or
equity investment in the Company of approximately $4.5 million (or $2.5 million
in excess of the existing $1.5 million term loan and proposed $500,000 line of
credit from M-TIN, LLC) as a condition to providing financing. The Company is
pursuing this additional financing from M-TIN, LLC and has approved terms under
which this amount may be made available. The Company is also pursuing other
sources for this financing or equity investment. However, there can be no
assurance that the Company will be able to consummate the transaction with


                                       12
<PAGE>
the prospective lender, that M-TIN, LLC will agree to or be able to provide
additional financing to the Company or that other sources will be identified or
agree to provide the necessary financing. The Company is also continuing to
pursue a sale of the Company with the assistance of its investment bankers.
However, there can be no assurance that any transaction will be completed.

         Congress passed and President Bush signed the Job Creation and Worker
Assistance Act of 2002 (P.L. 107-147) 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 expects to claim an income tax refund of approximately $350,000 from the
Internal Revenue Service.

         As a result of the $15.9 million net loss incurred during fiscal 2001,
and the fact that there can be no assurance that any new credit arrangement will
be finalized or further extensions granted beyond the current extension, the
Company received a going concern qualification from its independent public
accountants in connection with its audited financial statements for the year
ended December 31, 2001, as described more fully in the Report of Independent
Public Accountants included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on April 1, 2002.

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

         On February 20, 2002, the Company transferred the shares of its
wholly-owned subsidiary, 1166081 Ontario Inc., to Roger Vuillod, the manager and
sole director of the Company's Canadian subsidiary Hunter Technologies Inc.
("Hunter"). 1166081 Ontario Inc. holds all of the shares in Hunter. In
connection with this transfer, the Company also assigned $4.3 million in
intercompany debt, which Hunter owed to the Company, to Mr. Vuillod. According
to the terms of the assignment, as Mr. Vuillod collects payment on the debt, he
is required to pay a percentage of the collection to the Company. In connection
with the transaction with Mr. Vuillod, the Company assigned to Hunter the assets
used in the manufacture and distribution of NuWay do-it-yourself trailers, which
have been manufactured by Hunter since the fourth quarter of 2000. Under the
terms of the share transfer, Mr. Vuillod assumed all obligations and liabilities
associated with the ownership of the shares of the Canadian subsidiaries.

         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.


                                       13
<PAGE>

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.

<TABLE>
<CAPTION>
                                                                                                13-Week Period Ended
                                                                                            ----------------------------
                                                                                            March 30,          March 31,
                                                                                              2002               2001
                                                                                            ---------          ---------
<S>                                                                                         <C>                <C>
Net sales                                                                                      100.0%             100.0%
Cost of sales                                                                                   96.2              107.0
                                                                                             -------            -------
Gross profit (loss)                                                                              3.8               (7.0)
                                                                                             -------            -------

Operating expenses:
   Selling                                                                                      12.1               24.1
   General and administrative                                                                   17.8               18.3
   Non-cash ESOP compensation expense                                                              0                 .9
   Loss on abandonment of subsidiary                                                               0               83.8
                                                                                             -------            -------
                                                                                                29.9              127.1
                                                                                             -------            -------

Operating loss                                                                                 (26.1)            (134.1)
Gain on sales of assets                                                                          1.9                  0
Net interest and other income                                                                   (2.0)               3.3
                                                                                             -------            -------

Loss before income taxes                                                                       (26.2)            (137.4)
Credit for income taxes                                                                          4.9                0.0
                                                                                             -------            -------

Loss from continuing operations                                                                (21.3)            (137.4)

 Income from discontinued operations                                                               0               20.2
                                                                                             -------            -------

 Net income (loss)                                                                             (21.3)%           (117.2)%
                                                                                             =======             ======
</TABLE>


                                       14
<PAGE>

13-WEEK PERIOD ENDED MARCH 30, 2002 COMPARED TO 13-WEEK PERIOD ENDED MARCH 31,
2001

Net Sales

         Net sales in the 13-week period ended March 30, 2002 decreased to $7.1
million from $7.2 million in the 13-week period ended March 31, 2001, a decrease
of $100,000, or 1.4%.

Home Heating Products. Gross sales of home heating products increased to
$6,967,000 in the first quarter of 2002 from $6,911,000 in the first quarter
2001, an increase of $56,000 or .8%. Home heating products sales remained
relatively stable despite difficult economic conditions that caused housing
starts and improvements to falter.

Other Products. Gross sales of other products decreased $197,000, or 50.9%, in
the first quarter of 2002 to $190,000 as compared to $387,000 in the first
quarter of 2001. The decrease in sales is primarily due to a reduction in OEM
business.

Gross Profit (Loss)

         Gross profit in the first quarter of 2002 was $271,000 as compared to a
gross loss of $509,000 in the first quarter of 2001, an increase of $780,000.
Gross margin, defined as gross sales less production costs, increased slightly
to $2,669,000 in the first quarter of 2002 from $2,638,000 in the first quarter
of 2001.

Home Heating Products. The gross margin on sales of home heating products in the
first quarter of 2002 was $2.5 million, or 35.7% of home heating sales. The
gross margin on home heating products in the first quarter of 2001 was $2.4
million, or 34.8% of home heating sales. The slight increase in gross margin
percentage was primarily the result of the increase in gross sales of higher
margin wood burning fireplaces and unvented fireboxes.

Other Products. The gross margin on sales of other products in the first quarter
of 2002 was $133,000 or 70% of other sales. The gross margin on sales of other
products in the first quarter of 2001 was $215,000, or 55.6% of other products
sales. The increase in gross margin percentage in the other segment was
primarily the result of a price increase in home heating replacement parts in
August 2001.

Selling Expenses

         Selling expenses in the first quarter of 2002 decreased to $861,000
from $1.7 million in the first quarter of 2001, a decrease of $881,000, or
50.6%, primarily as a result of a decrease in advertising and promotion expenses
of $509,000 a decrease in commission expense of $229,000 and a decrease in
personnel and administrative expenses of $143,000. Selling expenses as a
percentage of net sales decreased to 12.1% in the first quarter of 2002 from
24.1% in the first quarter of 2001, due to the decrease in selling expenses
verses stable net sales.


                                       15
<PAGE>

General and Administrative Expenses

         General and administrative expenses in the first quarter of 2002
decreased to $1,262,000 from $1,325,000 in the first quarter of 2001, a decrease
of $63,000, or 4.8%. The decrease was primarily the result of a reduction in
personnel and related expenses of $34,000, reduced professional services expense
of $15,000, and a reduction in supplies and other expense of $25,000, partially
offset by increases in contract help of $11,000.

Non-cash ESOP Compensation Expense

         Non-cash ESOP compensation expense was $0 in the first quarter of 2002
as compared to $63,000 in the first 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 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 first
quarter of 2002.

Gain on Sale of Assets

         The gain on sales of assets of $138,000 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 quarter of 2002.

Interest Expense

         Interest expense in the first quarter of 2002 was $144,000 as compared
to $262,000 in the first quarter of 2001, a decrease of $118,000, or 45%. The
decrease was attributable to a decrease in average outstanding debt.

Interest and Other Income

         Interest and other income in the first quarter of 2002 was $0 as
compared to $23,000 in the first quarter of 2001, a decrease of $23,000, or
100%. The decrease was attributable to a decrease in average outstanding
investments.


                                       16
<PAGE>

Credit for Income Taxes

         Due to the enactment of the Job Creation and Worker Assistance Act of
2002 (P.L. 107-147) by Congress and President Bush 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 expects to obtain an income tax refund of
approximately $350,000 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.

         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.

LIQUIDITY AND CAPITAL RESOURCES

         The Company has historically financed its operations from internally
generated funds and borrowings under its bank lines of credit. The Company's
primary capital requirements are for working capital, capital expenditures and
debt service. In addition, the Company's ESOP provides that participants will
have the option from time to time to cause the Company to repurchase shares
distributed


                                       17
<PAGE>

to them from the ESOP for the then fair market value of the shares. Based on the
amount of currently distributed shares, the Company anticipates that ESOP
participants could require the Company to repurchase up to approximately 150,000
shares from time to time. The Company further estimates that ESOP participants
eligible for retirement during the next five years could require the Company to
repurchase approximately 35,000 shares of Common Stock per year over the next
five years. However, these estimates rely on information currently available to
the Company and there can be no assurance that the actual number of shares which
the Company is obligated to repurchase will not be materially different from the
Company's estimates.

         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 these
losses could continue during 2002. Such losses have resulted in the Company
having negative net worth of $101,000 at March 30, 2002. The Company's
continuation as a going concern is dependent upon its ability to obtain
replacement permanent financing from alternate sources. In addition, the Company
must be able to generate sufficient cash flow to meet its obligations on a
timely basis, must be able to comply with the terms of its existing credit line,
and, if replaced, with the terms of its replacement financing, and ultimately
must be able to return to profitable operations.

         The Company finances 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
March 30, 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 March 30, 2002, the
outstanding balance was $5.9 million with $43,000 available.

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

         On April 5, 2002, the Company entered into an agreement with M-TIN,
LLC, a limited liability company controlled by three of the Company's directors,
to provide a $1.5 million term loan to the Company. The loan is 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 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% fee at repayment. The loan is secured
by an unencumbered first mortgage in all of the real property of the Company.
M-TIN, LLC has also agreed to make an additional $500,000 line of credit
available to the Company. The term of the line of credit will be the same as the
term loan, including the option of the Company to extend the line for an
additional six months. The line of credit will bear interest at an annual rate
of 12% and also be subject to a placement fee equal to 5% of the available
credit due when the documentation is delivered by the parties and an additional
3% fee due at repayment. The parties are presently completing the documentation
for the line of credit.


                                       18
<PAGE>

         Additionally, the Company expects to obtain an income tax refund of
approximately $350,000 from the Internal Revenue Service due to the enactment of
the Job Creation and Worker Assistance Act of 2002 (P.L. 107-147) by Congress
and President Bush 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 is in negotiations with a prospective lender and has
received a non-binding proposal for a new asset-based, secured line of credit to
replace its existing credit facility. Although the Company currently believes
that funds generated from operations, together with the Company's line of credit
and the $1.5 million term loan and $500,000 line of credit from M-TIN, LLC,
should be sufficient to fund the Company's operating needs until July 1, 2002,
there can be no assurance that the Company's liquidity position will not be
adversely affected through July 1, 2002. Further, if the Company is not able to
refinance its line of credit by July 1, 2002, or to obtain a further extension,
the Company will be unable to continue to operate and its principal lender will
have all rights and remedies provided for in the amended credit agreement
between the lender and the Company. There can be no assurance that any new
credit arrangements will be finalized or further extensions granted beyond July
1, 2002.

CRITICAL ACCOUNTING POLICIES

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

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

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

         Income taxes. The Company has a history of unprofitable operations from
losses incurred in 2001 as well as prior years. These losses generated a
sizeable federal tax net operating loss, or NOL, carry forward of approximately
$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


                                       19
<PAGE>

been recognized. However, due to the enactment of the Job Creation and Worker
Assistance Act of 2002 (P.L. 107-147) by Congress and President Bush 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 expects to claim an income tax
refund of approximately $350,000 from the Internal Revenue Service.
Additionally, it is possible that the Company may become profitable in the
future in which case management may conclude that it is more likely than not
that all or a portion of the deferred tax asset could be recouped. In that
situation the tax asset would be recorded at net realizable value at that time
and then provide for income taxes at a rate equal to the combined federal and
state effective rates. Subsequent changes to the estimated net realizable value
of the deferred tax asset could cause the provision for income taxes to vary
significantly from period to period, although the cash tax payments would remain
unaffected until the effect of the NOL is utilized.

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

FOREIGN CURRENCY EXCHANGE RATE RISK

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

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

INTEREST RATE RISK

         At March 30, 2002, the Company had $5.9 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.

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


                                       20
<PAGE>

PART II.  OTHER INFORMATION

ITEM 5.  OTHER INFORMATION

         The Company has delayed the date for its 2002 annual meeting more than
30 days from the date of its 2001 annual meeting. The Company currently
anticipates that the 2002 annual meeting will be held on Friday, August 23,
2002. Stockholders of the Company may submit proposals for consideration for
inclusion in the proxy statement of the Company relating to the 2002 annual
meeting. However, in order for such proposals to be considered for inclusion in
the form of proxy and proxy statement of the Company relating to the 2002 annual
meeting, the proposals must be received by the Company not later than May 21,
2002. According to the Company's By-laws, for a stockholder proposal to be
properly brought before the 2002 annual meeting (other than a proposal to be
considered for inclusion in the proxy materials), it must be delivered to the
secretary of the Company no earlier than May 25, 2002, but no later than June
24, 2002.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

<TABLE>
         <S>      <C>
         *3(a)    Form of Restated Certificate of Incorporation of Martin
                  Industries, Inc. which was filed as Exhibit 3(a) to the
                  Registrant's Registration Statement on Form S-1 filed with the
                  Commission on July 10, 1995 (Registration No. 33-90432).

         *3(b)    Bylaws of Martin Industries, Inc. as amended and restated on
                  May 16, 1997 which were filed as Exhibit 3(b) to the
                  Registrant's Quarterly statement on Form 10-Q for the 26-week
                  period ended June 28, 1997 (Commission File No. 0-26228).

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

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

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

         *10(a)   Letter agreement of AmSouth Bank dated January 14, 2002, which
                  was filed as Exhibit 10(nn) to the Company's Annual Report on
                  Form 10-K for the fiscal year ended December 31, 2001.

         *10(b)   Share Transfer Agreement and Assignment of Intercompany Debt
                  by and among Roger Vuillod, 1166081 Ontario Inc., Hunter
                  Technology Inc., and Martin Industries, Inc. dated February
                  20, 2002, which was filed as Exhibit 2 to the Form 8-K filed
                  by
</TABLE>


                                       21
<PAGE>

<TABLE>
         <S>      <C>
                  the Company with the Commission on March 7, 2002 (Commission
                  File No. 0-26228).

         10(c)    Letter Agreement of M-TIN, LLC dated April 4, 2002.

         10(d)    $1,500,000 Promissory Note made by Martin Industries, Inc. in
                  favor of M-TIN, LLC dated April 4, 2002.

         10(e)    Real Estate Mortgage, Security Agreement and Financing
                  Statement by and between Martin Industries, Inc. and M-TIN,
                  LLC dated April 4, 2002.

         10(f)    Letter Agreement of AmSouth Bank dated April 1, 2002.

         10(g)    Real Estate Mortgage, Security Agreement and Financing
                  Statement by and between Martin Industries, Inc. and AmSouth
                  Bank dated April 4, 2002.

         10(h)    Subordination Agreement by and among Martin Industries, Inc.,
                  M-TIN, LLC and AmSouth Bank dated April 5, 2002.
</TABLE>

         (b)      Reports on Form 8-K

                  On March 7, 2002, the Company filed a Current Report on Form
                  8-K in which the Company reported under Item 2 the transfer of
                  all of the shares of its wholly-owned subsidiary, 1166081
                  Ontario Inc., an Ontario corporation ("1166081"), to Mr. Roger
                  Vuillod. An unaudited pro forma condensed balance sheet as of
                  September 29, 2001, an unaudited pro forma condensed statement
                  of operations for the nine months ended September 29, 2001,
                  and an unaudited pro forma condensed statement of operations
                  for the year ended December 31, 2000 were included in the
                  report.

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

* Incorporated by reference

"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 Company's efforts to obtain replacement financing and
                  equity investment in, or a sale of, the Company;

         -        the Company's beliefs with respect to the funding of its
                  operations during fiscal year 2002, including the period up to
                  July 1, 2002;

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


                                       22
<PAGE>

         -        the likely benefits from cost reductions and plant
                  consolidations;

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

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

         -        results in future quarters;

         -        the estimated reserve for excess and obsolete inventories;

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

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

Wherever possible, the Company has identified these forward-looking statements
(as defined in Section 21E of the Securities Exchange Act of 1934) by words such
as "anticipates," "may," "believes," "estimates," "projects," "expects,"
"intends," and words of similar import. In addition to the statement included in
this 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, pending the securing of new financing, the Company will continue
to generate funds or have credit available to it that is sufficient to continue
to fund its operations; that the Company will be able to obtain replacement
financing or equity investment in the Company; that the Company's cost reduction
and plant consolidations will be successful or that the Company will achieve a
level of revenue that will allow the Company to return to profitability; that
the Company will be able to successfully implement or complete the short-term
and long-term programs being undertaken by the Company; that the Company's new
products will meet its expectations; that the Company will be able in the future
to meet the needs and expectations of its customers; that the Company will not
exceed the estimated reserve for excess and obsolete inventories or will utilize
deferred tax assets related to net operating loss carryforwards. These
assumptions, risks and uncertainties include, but are not limited to, those
associated with general economic cycles; the cyclical nature of the industries
in which the Company operates and the factors related thereto, including
consumer confidence levels, inflation, employment and income levels, the
availability of credit, and factors affecting the housing industry; the
potential in the Company's business to experience significant fluctuations in
quarterly earnings; the Company's ability to generate cash or secure adequate
financing to fund its operations; the Company's business strategy, including its
strategy of pursuing new product development; potential losses from product
liability and personal injury lawsuits; the effects of seasonality and weather
conditions on the Company's home heating product sales and other sales; the
effect of existing and new governmental and environmental regulations applicable
to the Company; the dependence of the Company on key personnel; the highly
competitive nature of each of the industries in which the Company operates; the
volatility of the stock price at which outstanding shares of the Company may
trade from time to time; and the other risks and uncertainties discussed or
indicated in all documents filed by the Company with the Commission, 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.


                                       24
<PAGE>

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: May 14, 2002                 By /s/ James W. Truitt
                                     ------------------------------------------
                                     James W. Truitt
                                     Vice President and Chief Financial Officer
                                                 and Secretary
                                     (Executed on behalf of Registrant and
                                     as Principal Financial Officer)


                                       25
<PAGE>

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number                Description of Exhibits                                                              Page No.
-------               -----------------------                                                              -------
<S>                   <C>                                                                                  <C>
*3(a)                 Form of Restated Certificate of Incorporation of Martin Industries,
                      Inc. which was filed as Exhibit 3(a) to the Registrant's Registration
                      Statement on Form S-1 filed with the Commission on July 10, 1995
                      (Registration No. 33-90432).

*3(b)                 By-laws of Martin Industries, Inc. as amended and restated on May 16,
                      1997 which were filed as Exhibit 3(b) to the Registrant's Quarterly
                      Statement on Form 10-Q for the 26-week period ended June 28, 1997
                      (Commission File No. 0-26228).

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

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

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

*10(a)                Letter agreement of AmSouth Bank dated January 14, 2002, which was
                      filed as Exhibit 10(nn) to the Company's Annual Report on Form 10-K for
                      the fiscal year ended December 31, 2001.

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

10(c)                 Letter Agreement of M-TIN, LLC dated April 4, 2002.

10(d)                 $1,500,000 Promissory Note made by Martin Industries, Inc. in favor of
                      M-TIN, LLC dated April 4, 2002.

10(e)                 Real Estate Mortgage, Security Agreement and Financing Statement by and
                      between Martin Industries, Inc. and M-TIN, LLC dated April 4, 2002.

10(f)                 Letter Agreement of AmSouth Bank dated April 1, 2002.

10(g)                 Real Estate Mortgage, Security Agreement and Financing Statement by and
                      between Martin Industries, Inc. and AmSouth Bank dated April 4, 2002.

10(h)                 Subordination Agreement by and among Martin Industries, Inc., M-TIN,
                      LLC and AmSouth Bank dated April 5, 2002.
</TABLE>

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

*        Incorporated by reference

                                       26