<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

  FOR 26-WEEK PERIOD ENDED JULY 1, 2000             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.

                     8,571,792 SHARES OF COMMON STOCK, $.01
                        PAR VALUE, AS OF AUGUST 14, 2000


<PAGE>   2

                             MARTIN INDUSTRIES, INC.

                                      INDEX

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

         Item 1.       Financial Statements:

                       Unaudited Condensed Consolidated Balance Sheets as of
                       July 1, 2000 and December 31, 1999                                                     2

                       Unaudited Condensed Consolidated Statements of
                       Operations and Comprehensive Income for the 13-Week and
                       26-Week Periods Ended July 1, 2000 and July 3, 1999                                    4

                       Unaudited Condensed Consolidated Statements of
                       Cash Flows for the 26-Week Periods Ended
                       July 1, 2000 and July 3, 1999                                                          5

                       Notes to Condensed Consolidated 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 4.       Submission of Matters to a Vote of Security Holders                                   22

         Item 6.       Exhibits and Reports on Form 8-K                                                      22
</TABLE>


                                       1
<PAGE>   3

PART 1   FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                  July 1,           December 31,
                                                                   2000                1999
                                                                -----------         ------------
<S>                                                             <C>                 <C>
Current assets:
   Cash and short-term investments                              $     5,000         $ 5,218,000
   Accounts and notes receivable, less
      allowance for doubtful accounts of
      $663,000 and $604,000, respectively                        12,919,000          13,153,000
   Inventories                                                   12,699,000          13,192,000
   Deferred tax benefits                                          2,564,000           2,970,000
   Prepaid expenses and other assets                                919,000           1,180,000
                                                                -----------         -----------
         Total current assets                                    29,106,000          35,713,000
                                                                -----------         -----------


   Property, plant and equipment, net                            13,893,000          13,579,000
   Deferred tax benefits                                          4,991,000           4,601,000
   Goodwill, net of accumulated amortization
        of $269,000 and $203,000, respectively                    1,755,000           1,827,000
   Cash value of life insurance                                   1,423,000           1,359,000
   Notes receivable                                                 482,000           1,181,000
   Other                                                            632,000             660,000
                                                                -----------         -----------
                                                                 23,176,000          23,207,000
                                                                -----------         -----------

         Total assets                                           $52,282,000         $58,920,000
                                                                ===========         ===========
</TABLE>

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


                                       2
<PAGE>   4

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

<TABLE>
<CAPTION>
                                                                  July 1,           December 31,
                                                                   2000                1999
                                                                -----------         ------------
<S>                                                             <C>                 <C>
LIABILITIES
   Current liabilities:
      Short-term borrowings                                     $ 4,641,000         $   944,000
      Current portion of long-term debt                           1,207,000           4,458,000
      Accounts payable                                            5,612,000           5,303,000
      Accrued liabilities:
         Payroll and employee benefits                            2,754,000           2,374,000
         Product liability                                        1,078,000           1,122,000
         Warranty                                                   869,000             878,000
         Workers' compensation                                      711,000             731,000
         Restructure charge                                         183,000             589,000
         Other                                                      875,000             873,000
                                                                -----------         -----------
            Total current liabilities                            17,930,000          17,272,000
                                                                -----------         -----------
   Long-term debt                                                 1,802,000           2,406,000
   Deferred compensation                                          2,070,000           2,187,000
                                                                -----------         -----------
                                                                  3,872,000           4,593,000
                                                                -----------         -----------
                  Total liabilities                              21,802,000          21,865,000
                                                                -----------         -----------

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; 9,763,937 shares issued at July 1,
      2000 and 9,763,054 at December 31, 1999                        98,000              98,000
   Paid-in capital                                               26,911,000          27,241,000
   Retained earnings                                             10,976,000          17,639,000
   Accumulated other comprehensive loss                            (732,000)           (554,000)
                                                                -----------         -----------
                                                                 37,253,000          44,424,000
   Less:
      Treasury stock at cost (1,192,145 shares at July 1,
         2000 and at December 31, 1999)                           3,789,000           3,789,000
      Unearned compensation - ESOP                                2,984,000           3,580,000
                                                                -----------         -----------
            Total stockholders' equity                           30,480,000          37,055,000
                                                                -----------         -----------
            Total liabilities and stockholders' equity          $52,282,000         $58,920,000
                                                                ===========         ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.



                                       3
<PAGE>   5

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

<TABLE>
<CAPTION>
                                                                13-WEEK                              26-WEEK
                                                              PERIOD ENDED                         PERIOD ENDED
                                                    -------------------------------       -------------------------------
                                                       JULY 1,            JULY 3,            JULY 1,            JULY 3,
                                                        2000               1999               2000               1999
                                                    ------------       ------------       ------------       ------------
<S>                                                 <C>                <C>                <C>                <C>
NET SALES                                           $ 13,988,000       $ 20,774,000       $ 35,627,000       $ 43,807,000

Cost of sales                                         14,519,000         17,930,000         33,218,000         37,133,000
                                                    ------------       ------------       ------------       ------------
GROSS PROFIT (LOSS)                                     (531,000)         2,844,000          2,409,000          6,674,000
                                                    ------------       ------------       ------------       ------------
Operating expenses:
   Selling                                             2,133,000          2,361,000          4,899,000          4,890,000
   General and administrative                          2,342,000          1,860,000          4,463,000          3,854,000
   Non-cash ESOP compensation expense                    136,000            174,000            266,000            354,000
   Restructure credit                                          0                  0           (100,000)                 0
                                                    ------------       ------------       ------------       ------------
                                                       4,611,000          4,395,000          9,528,000          9,098,000
                                                    ------------       ------------       ------------       ------------
OPERATING LOSS                                        (5,142,000)        (1,551,000)        (7,119,000)        (2,424,000)

Gain on sales of assets                                 (637,000)                 0           (712,000)        (1,231,000)
Interest expense                                         222,000            202,000            389,000            400,000
Interest income                                          (37,000)          (113,000)          (133,000)          (227,000)
                                                    ------------       ------------       ------------       ------------
LOSS BEFORE INCOME TAXES                              (4,690,000)        (1,640,000)        (6,663,000)        (1,366,000)

Credit for income taxes                                        0           (491,000)                 0           (381,000)
                                                    ------------       ------------       ------------       ------------
NET LOSS                                            $ (4,690,000)      $ (1,149,000)      $ (6,663,000)      $   (985,000)
                                                    ============       ============       ============       ============

Other comprehensive income (loss), net of tax:
  Foreign currency translation adjustment               (155,000)           171,000           (178,000)           347,000
                                                    ------------       ------------       ------------       ------------
Comprehensive loss                                  $ (4,845,000)      $   (978,000)      $ (6,841,000)      $   (638,000)
                                                    ============       ============       ============       ============

BASIC PER SHARE DATA:

Net loss                                            $      (0.61)      $      (0.16)      $      (0.87)      $      (0.14)
                                                    ============       ============       ============       ============
Weighted average number of common shares
      outstanding                                      7,659,682          7,277,975          7,616,034          7,219,051
                                                    ============       ============       ============       ============

DILUTED PER SHARE DATA:

Net loss                                            $      (0.61)      $      (0.16)      $      (0.87)      $      (0.14)
                                                    ============       ============       ============       ============

Weighted average number of common shares
      outstanding                                      7,659,682          7,277,975          7,616,034          7,219,051
                                                    ============       ============       ============       ============

DIVIDENDS DECLARED PER SHARE                        $      0.000       $      0.021       $      0.000       $      0.042
                                                    ============       ============       ============       ============
</TABLE>

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


                                        4
<PAGE>   6

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

<TABLE>
<CAPTION>
                                                                            26-WEEK
                                                                          PERIOD ENDED
                                                                -------------------------------
                                                                  JULY 1,             JULY 3,
                                                                   2000                1999
                                                                -----------         -----------
<S>                                                             <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                     $(6,663,000)        $  (985,000)
   Adjustments to reconcile net loss to net cash
   used in operating activities:
      Depreciation and amortization                               1,141,000             772,000
      Gain on sales of assets                                      (712,000)         (1,231,000)
      Provision for doubtful accounts and notes receivable           59,000              76,000
      Non-cash ESOP compensation expense                            266,000             354,000
      Other changes in operating assets and liabilities           2,433,000             531,000
                                                                -----------         -----------
            Net cash used in operating activities                (3,476,000)           (483,000)
                                                                -----------         -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                          (1,876,000)         (3,028,000)
   Proceeds from sales of assets                                    267,000             989,000
                                                                -----------         -----------
      Net cash used in investing activities                      (1,609,000)         (2,039,000)
                                                                -----------         -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net short-term borrowings                                      3,722,000             738,000
   Net repayments of long-term debt                              (3,854,000)           (874,000)
   Exercise of stock options                                              0             105,000
   Cash dividends paid                                                    0            (227,000)
                                                                -----------         -----------
      Net cash used in financing activities                        (132,000)           (258,000)
                                                                -----------         -----------

NET DECREASE IN CASH AND SHORT-TERM
   INVESTMENTS                                                   (5,217,000)         (2,780,000)

EFFECT OF EXCHANGE RATE CHANGES ON CASH                               4,000               3,000

CASH AND SHORT-TERM INVESTMENTS AT THE
   BEGINNING OF THE PERIOD                                        5,218,000           9,818,000
                                                                -----------         -----------

CASH AND SHORT-TERM INVESTMENTS AT THE
   END OF THE PERIOD                                            $     5,000         $ 7,041,000
                                                                ===========         ===========

Cash paid during the period for:
  Interest, net                                                 $   303,000         $   174,000
  Income taxes, net                                             $         0         $    13,000
</TABLE>

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


                                       5
<PAGE>   7

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


1.       BASIS OF PRESENTATION

Unaudited Interim Condensed Consolidated Financial Statements

         The accompanying unaudited interim condensed consolidated financial
statements of Martin Industries, Inc. and subsidiary (the "Company") have been
prepared in accordance with generally accepted accounting principles 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, 1999 included on Form 10-K, as filed with the
Securities and Exchange Commission on March 30, 2000.

         In the opinion of management, the unaudited interim condensed
consolidated 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 consolidated results of
operations for the periods presented are not necessarily indicative of results
for the full year.

Principles of Consolidation and Fiscal Periods

         The unaudited interim condensed consolidated financial statements
include the accounts and transactions of the Company and its wholly owned
Canadian subsidiary, 1166081 Ontario Inc. All significant intercompany accounts
and transactions have been eliminated in consolidation.

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

Prior Year Reclassification

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


2.       INVENTORIES

         The Company's inventories are determined by the last-in, first-out
("LIFO") method for approximately 64% and 63% of the Company's inventories at
July 1, 2000 and December 31, 1999, respectively, and by the first-in, first-out
("FIFO") method for all other inventories. Inventory costs include material,
labor and overhead, and the Company evaluates raw materials, purchase parts,
work-in-process and finished goods to ensure that inventory is not recorded at
amounts in excess of estimated net realizable value. Inherent in the estimates
of net realizable value are management's estimates related to the Company's
customer demand, product mix and salvage value. At July 1, 2000


                                       6
<PAGE>   8
and December 31, 1999, the reserve for excess and obsolete inventory was
$1,202,000 and $1,872,000, respectively. An analysis of inventories, net of
reserves, at July 1, 2000 and December 31, 1999 follows:

<TABLE>
<CAPTION>
                                                                           July 1,          December 31,
                                                                             2000              1999
                                                                         -----------        ------------
                                                                                  (Unaudited)
         <S>                                                             <C>                <C>
         Inventories valued at first-in, first-out ("FIFO") cost:
              Raw materials and purchased parts                          $ 6,734,000        $ 6,904,000
              Work-in-process                                              2,290,000          3,088,000
              Finished goods                                               8,935,000          8,617,000
                                                                         -----------        -----------
                                                                          17,959,000         18,609,000
              Less excess of FIFO over LIFO cost                           5,260,000          5,417,000
                                                                         -----------        -----------
                                                                         $12,699,000        $13,192,000
                                                                         ===========        ===========
</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 $5,646,000 expiring in fiscal years 2019 through 2020, and NOL
carryforwards in Canada of approximately $2,300,000 expiring in fiscal years
2000 through 2007.

         The Company establishes valuation allowances in accordance with SFAS
No. 109, Accounting for Income Taxes. The Company continually reviews the
adequacy of the valuation allowance and is recognizing these benefits only as
reassessment indicates that it is more likely than not that the benefits will be
realized primarily through future taxable income and certain available tax
planning strategies.

         During 2000, the Company has not recognized a credit for income taxes
as the deferred tax assets resulting from the Company's operating losses were
fully reserved. In assessing the valuation allowance established at December 31,
1999, the Company recorded valuation allowances primarily related to the
Canadian NOL carryforwards to a level where management believes that it is more
likely than not that the remaining Canadian net deferred tax asset of
approximately $954,000 will be realized primarily through future taxable income
and available tax planning strategies.

         The total amount of future taxable income in the United States
necessary to realize the remaining deferred tax benefits is approximately $18.5
million. The Company expects to generate this income principally through the
implementation of reasonable and prudent tax planning strategies (including the
sale of certain divisions, property held for sale and other tax planning
strategies if necessary) to fully realize the net deferred tax assets.

         There can be no assurance that the Company will generate enough taxable
income through its operations to realize the net deferred tax assets; however,
management believes that the Company could generate future taxable income to
realize the net deferred tax asset of approximately $7.6 million primarily due
to the available tax planning strategies discussed above.

4.       EARNINGS PER SHARE

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


                                       7

<PAGE>   9

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:

<TABLE>
<CAPTION>
                                                      13-Week Period Ended             26-Week Period Ended
                                                  --------------------------        --------------------------
                                                    July 1,         July 3,          July 1,          July 3,
                                                     2000            1999             2000             1999
                                                  ---------        ---------        ---------        ---------
          <S>                                     <C>              <C>              <C>              <C>
          Weighted average shares-basic,
              excluding ESOP and stock
              option effects                      5,654,141        5,405,381        5,653,911        5,389,875

          Weighted average effect of ESOP
              shares committed to be
              released                            2,005,541        1,872,594        1,962,123        1,829,176
                                                  ---------        ---------        ---------        ---------

          Weighted average shares-basic           7,659,682        7,277,975        7,616,034        7,219,051

          Dilutive effect of stock options                0                0                0                0
                                                  ---------        ---------        ---------        ---------

          Weighted average shares-diluted         7,659,682        7,277,975        7,616,034        7,219,051
                                                  ---------        ---------        ---------        ---------
</TABLE>

Options outstanding of 494,514 and 485,708 for the 13-week and 26-week periods
ended July 1, 2000 and July 3, 1999, respectively, were not included in the
table above as they were anti-dilutive.

5.       COMMITMENTS

         On February 1, 1996, 1166081 Ontario Inc. acquired all of the capital
stock of Hunter Technology 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.


                                       8
<PAGE>   10

         During 1998, the Company effected a settlement with all but two of the
former shareholders, and a contingent settlement with these two. Pursuant to the
settlement, the Company has received approximately $315,000 (including interest)
of funds held in escrow, an additional payment of $32,000, and cancellation of
promissory notes and accrued interest totaling approximately $364,000.
Consequently, during the fourth quarter of 1998, the company recorded a gain on
settlement of litigation of $422,000. The contingent settlement with the two
former shareholders is subject to the adjudication or dismissal of certain
litigation assumed upon the acquisition of Hunter and will result (if the
contingency is satisfied and that portion of the settlement effectuated) in
receipt by the Company of an additional $103,000, and cancellation of notes and
accrued interest totaling approximately $229,000.

         The Company is a party to various legal proceedings that are incidental
to its business. Certain of these cases filed against the Company and other
companies engaged in businesses similar to the Company often allege, among other
things, product liability, personal injury and breach of contract and warranty.
Such 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.       RESTRUCTURE CHARGE

         As part of the continuing effort to reduce operating costs and improve
manufacturing efficiencies, the Company made the decision to close its
Washington Park, Illinois facility. The Company initiated the closing and the
transfer of the gas grill, gas log and freestanding vent-free stove production
into the Athens, Alabama and Huntsville, Alabama locations during the second
quarter of 1998. The Company recorded a non-recurring charge of $615,000, before
tax, in connection with the closing. The non-recurring charge includes plant
closing costs of $590,000 (primarily payroll, severance and payroll taxes of
$234,000 and group insurance of $255,000) and a property, plant and equipment
valuation charge of $25,000. The estimated reserve remaining as of July 1, 2000
and December 31, 1999 totaled $119,000 and $189,000, respectively.

         On December 9, 1999, the Company announced the planned closing and
consolidation of its Huntsville, Alabama manufacturing facility. The closing of
the facility began during the first quarter of 2000 and was complete at the end
of the second quarter. The production in Huntsville has been transferred to the
Company's existing facilities in Athens and Sheffield, Alabama and Orillia,
Ontario. At December 31, 1999, the Company recorded a restructure charge of
$400,000, before tax, in connection with the closing. The restructure charge
included employee termination costs of $125,000 and other exit costs of $275,000
(primarily payroll and benefits of $69,000 and group insurance of $159,000).
During 2000, the Company recorded a $100,000 reduction of the reserve based on
management's analysis that the original reserve for group insurance claims
should be reduced based on a lower-than-anticipated number of terminated
employees participating in the Company's self-insured insurance plan. The
estimated reserve remaining as of July 1, 2000 totaled $63,000.


                                       9
<PAGE>   11

7.       SALE OF CERTAIN ASSETS

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

         During the first quarter of 2000, the Company sold certain undeveloped
land and rental property and recorded a $75,000 gain.

          On March 31, 1999, the Company completed the sale of all of the assets
of its Ashley solid fuel division to United States Stove Company. The Company
recorded a gain on the sale of the Ashley division of $1,165,000 which is
included in gain on sales of assets in the Condensed Consolidated Statements of
Operations and Comprehensive Income. In connection with this sale, the Company
received cash of $1.1 million, during 1999, and accepted notes receivable
totaling approximately $1.1 million. The notes bear interest at 7% and are due
in installments through the end of 2001. The Company is holding common stock as
collateral and also obtained a personal guarantee from the buyer.

8.       SHORT-TERM BORROWINGS

         Management of the Company currently believes that its existing cash and
funds generated from operations, together with the Company's unused borrowing
capacity under the Company's secured line of credit, will be sufficient to fund
the Company's operating needs during fiscal year 2000. The Company, however, has
experienced significant losses during the last two years, and losses have
continued in fiscal year 2000. Such continued losses could result in a material
reduction of internally generated funds and could also result in the use of a
substantial portion or all of the Company's secured line of credit.
Consequently, there can be no assurances that the Company's liquidity position
will not be adversely affected during fiscal year 2000. Further, although the
Company currently believes it has other internal sources of liquidity, there can
be no assurance that additional financing or, if the Company's current line of
credit is not renewed, financing to replace the existing line of credit will be
available beyond fiscal year 2000 on terms acceptable to the Company. It is
anticipated that during 2000 the Company will expend less than $3.0 million for
capital expenditures as compared to $5.7 million in 1999.

9.       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. The leisure and other products segment includes premium
gas barbecue grills, utility trailer kits and repair parts. The accounting
policies for each segment are the same as those used by the Company. The Company
evaluates performance based on net sales, gross profit and segment contribution,
defined as gross profit less selling expenses. As such, the Company does not
allocate general and administrative expense, non-cash ESOP compensation expense,
interest expense, interest and other income or income taxes to the reportable
operating segments. The segment results include certain overhead allocations,
primarily related to production variances, fixed manufacturing and selling
expenses. The results and


                                       10
<PAGE>   12


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             26-Week Period Ended
                                         -------------------------         ------------------------
                                          July 1,          July 3,         July 1,           July 3,
                                           2000             1999             2000             1999
                                         --------         --------         --------         -------
Net sales:                                                    (In thousands)
<S>                                      <C>              <C>              <C>              <C>
       Home heating products             $  8,652         $ 13,756         $ 18,099         $25,219
       Leisure and other products           5,336            7,018           17,528          18,588
                                         --------         --------         --------         -------
                                         $ 13,988         $ 20,774         $ 35,627         $43,807
                                         ========         ========         ========         =======
Gross profit (loss)
       Home heating products             $   (254)        $  1,570         $    903         $ 3,472
       Leisure and other products            (277)           1,274            1,506           3,202
                                         --------         --------         --------         -------
                                         $   (531)        $  2,844         $  2,409         $ 6,674
                                         ========         ========         ========         =======
Segment contribution (loss): (1)
       Home heating products             $ (1,436)        $     51         $ (1,548)        $   431
       Leisure and other products          (1,228)             432             (942)          1,353
                                         --------         --------         --------         -------
                                         $ (2,664)        $    483         $ (2,490)        $ 1,784
                                         ========         ========         ========         =======

<CAPTION>
                                          July 1,         Dec. 31,
                                           2000             1999
                                         --------         --------
<S>                                      <C>              <C>
Identifiable net assets: (2)
       Home heating products             $ 12,716         $ 16,170
       Leisure and other products           9,133            6,621
       Other (3)                            4,743            3,980
                                         --------         --------
                                         $ 26,592         $ 26,771
                                         ========         ========
</TABLE>

(1)      Segment contribution (loss) consists of gross profit less selling
         expenses.

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

(3)      Represents amount attributable to the Company's corporate
         administration.


                                       11
<PAGE>   13

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 consolidated financial statements of the Company and notes
thereto appearing elsewhere in this Form 10-Q. All references to the second
quarter of 2000 and the second quarter of 1999 are referring to the 13-week
periods ended July 1, 2000 and July 3, 1999, respectively. All references to the
2000 year-to-date period and the 1999 year-to-date period are referring to the
26-week periods ended July 1, 2000 and July 3, 1999, respectively.

GENERAL

         The Company announced on March 29, 2000, that it had engaged J.C.
Bradford & Co., LLC, of Nashville, Tennessee, to assist the Company in exploring
its strategic alternatives, which could include the sale of the Company or some
or all of its operating divisions or product lines. On May 31, 2000, the Company
announced that its Board of Directors appointed John L. Duncan to replace Robert
L. Goucher as its President and Chief Executive Officer. Mr. Duncan, who has
been a Director of the Company since May 1999, is the former president and CEO
of Murray Ohio Manufacturing Company. The Company also announced that it has
engaged the investment banking firm of McDonald Investments, Inc. to replace
J.C. Bradford & Co., LLC as the Company's investment bank. McDonald Investments,
an affiliate of Key Corp., is a full service investment banking firm
headquartered in Cleveland, Ohio. There can be no assurance that any transaction
or other strategic alternative will occur or be pursued or as to the form that
any possible transaction or other strategic alternative might take. The Company
does not currently expect to disclose developments regarding its pursuit of
strategic alternatives unless and until it is in a position to announce it has
decided upon a definitive transaction or strategic alternative.

         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, freight and royalties paid by
the Company.

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.


                                       12
<PAGE>   14

<TABLE>
<CAPTION>
                                                 13-Week Period Ended        26-Week Period Ended
                                                ---------------------        --------------------
                                                July 1,        July 3,       July 1,       July 3,
                                                 2000           1999          2000          1999
                                                ------         ------        ------        ------
<S>                                             <C>            <C>           <C>           <C>
Net sales                                        100.0 %        100.0 %       100.0 %       100.0 %
Cost of sales                                    103.8           86.3          93.2          84.8
                                                ------         ------        ------        ------
Gross profit (loss)                               (3.8)          13.7           6.8          15.2

Operating expenses:
      Selling                                     15.2           11.4          13.8          11.2
      General and administrative                  16.8            9.0          12.5           8.8
      Non-cash ESOP compensation expense           1.0            0.8           0.7           0.7
      Restructure credit                           0.0            0.0          (0.3)          0.0
                                                ------         ------        ------        ------
                                                  33.0           21.2          26.7          20.7
                                                ------         ------        ------        ------

Operating loss                                   (36.8)          (7.5)        (19.9)         (5.5)
Gain on sales of assets                           (4.6)           0.0          (2.0)         (2.8)
Interest expense                                   1.6            1.0           1.2           0.9
Interest income                                   (0.3)          (0.6)         (0.4)         (0.5)
                                                ------         ------        ------        ------

Loss before income taxes                         (33.5)          (7.9)        (18.7)         (3.1)
Credit for income taxes                            0.0           (2.4)          0.0          (0.9)
                                                ------         ------        ------        ------

Net loss                                         (33.5)%         (5.5)%       (18.7)%        (2.2)%
                                                ======         ======        ======        ======
</TABLE>


13-WEEK PERIOD ENDED JULY 1, 2000 COMPARED TO 13-WEEK PERIOD ENDED JULY 3, 1999

Net Sales

         Net sales in the 13-week period ended July 1, 2000 decreased to $14.0
million from $20.8 million in the 13-week period ended July 3, 1999, a decrease
of $6.8 million, or 32.7%.

Home Heating Products. Net sales of home heating products decreased to $8.7
million in the second quarter of 2000 from $13.8 million in the second quarter
of 1999, a decrease of $5.1 million, or 37.1%. The decrease in net sales of home
heating products was primarily the result of a decrease in hearth products gross
sales of $3.0 million, or 23.7%, to $9.5 million. Hearth product sales continued
to be negatively impacted by lower housing starts and a significant depression
in the manufactured home industry. Sales of heating appliances during the second
quarter decreased $2.4 million. The decrease is primarily the result of a
decrease in customer orders and delays in shipping early season orders. The
shipping delays were primarily caused by the transfer of the manufacturing of
vent-free and vented


                                       13
<PAGE>   15


heaters. During 1999, the Company both manufactured and imported vent-free
heaters. Rather than continuing to manufacture, the Company entered into a
sourcing agreement with one of its significant vendors whereby the Company will
purchase all of its infrared and blue-flame heater requirements from the vendor
for a period of four years or 400,000 units, whichever comes first. Near the end
of the second quarter of 2000, the Company received its first shipment of
vent-free heaters. Furthermore, in connection with the Huntsville, Alabama plant
closing, the production of vented room heaters was transferred to the Company's
facility in Orillia, Ontario. The first shipment of these vented heaters was
received at the end of the second quarter of 2000.

Leisure and Other Products. Net sales of leisure and other products decreased
$1.7 million, or 24.0%, in the second quarter of 2000 to $5.3 million, as
compared to $7.0 million in the second quarter of 1999. Sales of Broilmaster
premium barbecue gas grills decreased $1.1 million, or 25.0%, in the second
quarter of 2000, as compared to the second quarter of 1999, primarily as a
result of the Company's improved delivery of early season orders during the
first quarter of 2000 and a decline in fill-in orders as inventory quantities at
distributor locations were at adequate levels. Sales of NuWay utility trailers
decreased $625,000, or 28.5%, to $1.6 million in the second quarter of 2000. The
loss of one significant NuWay customer in late 1999 and the decrease in volume
from another customer negatively impacted trailer sales.

Gross Loss

         The gross loss in the second quarter of 2000 was $531,000 as compared
to the gross profit of $2.8 million in the second quarter of 1999. The gross
deficit, defined as gross loss as a percentage of net sales, was 3.8% in the
second quarter of 2000. The gross margin was 13.7% in the second quarter of
1999.

Home Heating Products. The gross loss on net sales of home heating products in
the second quarter of 2000 was $254,000 as compared to the gross profit of $1.6
million in the second quarter of 1999. The change was primarily the result of
the decrease in sales volume, an increase in manufacturing costs and a provision
for excess, obsolete and discontinued product of $457,000. The gross deficit was
2.9% in the second quarter of 2000. The gross margin was 11.4% in the second
quarter of 1999.

Leisure and Other Products. The gross loss on net sales of leisure and other
products in the second quarter of 2000 was $277,000 as compared to a gross
profit of $1.3 million in the second quarter of 1999. The gross loss was
primarily due to the decrease in sales volume, a decrease in Broilmaster product
margins, an increase in manufacturing costs allocated to the segment and a
provision for excess, obsolete and discontinued product of $122,000. The gross
deficit was 5.2% in the second quarter of 2000. Gross margin was 18.2% in the
second quarter of 1999.

Selling Expenses

         Selling expenses in the second quarter of 2000 decreased to $2.1
million from $2.4 million in the second quarter of 1999, a decrease of $228,000,
or 9.7%, primarily the result of decreases in commissions, advertising and
promotion expenses. Selling expenses as a percent of net sales increased to
15.2% in the second quarter of 2000 from 11.4% in the second quarter of 1999.


                                       14
<PAGE>   16


Segment Loss

         Total segment loss, defined as gross profit (loss) less selling
expenses, was $2.7 million in the second quarter of 2000, as compared to segment
contribution of $483,000 during the second quarter of 1999.

General and Administrative Expenses

         General and administrative expenses increased $482,000, or 25.9%, in
the second quarter of 2000 as compared to the second quarter of 1999. The
increase was primarily the result of severance expense incurred in connection
with certain officer and other salaried employee terminations and an increase in
depreciation and amortization expense associated with a computer systems change
implemented in 1999 and the first quarter of 2000.

Non-cash ESOP Compensation Expense

         Non-cash ESOP compensation expense was $136,000 in the second quarter
of 2000 as compared to $174,000 in the second quarter of 1999, a decrease of
$38,000, or 21.8%. In the second quarter of 2000, 86,835 shares of unallocated
ESOP stock were committed to be released as compensation at an average fair
value of $1.57 per share as compared to 72,432 shares committed to be released
as compensation at an average fair value of $2.40 per share in the second
quarter of 1999.

Gain on Sales of Assets

         During the second quarter of 2000, the Company sold its Huntsville,
Alabama manufacturing plant and certain equipment. The Company recorded a gain
of $637,000. See Note 7 to Notes to Condensed Consolidated Financial Statements.

Interest Expense

         Interest expense in the second quarter of 2000 was $222,000 as compared
to $202,000 in the second quarter of 1999, an increase of $20,000, or 9.9%. The
increase was primarily attributable to an increase in average short-term
borrowings.


Interest Income

         Interest income in the second quarter of 2000 was $37,000 as compared
to $113,000 in the second quarter of 1999, a decrease of $76,000, or 67.3%. The
decrease was primarily attributable to a decrease in average outstanding
investments.

Credit for Income Taxes

         During the second quarter of 2000, the Company has not recognized a
credit for income taxes as the deferred tax assets resulting from the Company's
operating losses were fully reserved. See Note 3 to


                                       15
<PAGE>   17


Notes to Condensed Consolidated Financial Statements. During the second quarter
of 1999, the Company recorded a credit for income taxes of $491,000.

Net Loss and Net Loss Per Share

         The net loss in the second quarter of 2000 was $4.7 million as compared
to the net loss of $1.1 million in the second quarter of 1999. The change was
primarily the result of the factors discussed above.

         The net loss per share-basic was $0.61 in the second quarter of 2000 as
compared to the net loss per share-basic of $0.16 in the second quarter of 1999.
The increase in the net loss per share-basic in the second quarter of 2000 was
partially offset by the increase in the weighted average shares outstanding. The
increase in the weighted average shares outstanding was primarily the result of
ESOP shares committed to be released to participants.

         The net loss per share-diluted was $0.61 in the second quarter of 2000
as compared to the net loss per share-diluted of $0.16 in the second quarter of
1999. The effect of stock options was not dilutive.

         The Company's orders as of August 14, 2000 for its home heating and
leisure and other products were approximately 8.0 million, as compared with
$16.1 million at the same time last year. The Company attributes this decline
primarily to the loss of orders for home heating appliances (particularly,
vent-free heaters). The Company believes that this decline may have an adverse
effect on the Company's net sales and earnings for the remainder of 2000.

26-WEEK PERIOD ENDED JULY 1, 2000 COMPARED TO 26-WEEK PERIOD ENDED JULY 3, 1999

Net Sales

         Net sales in the 26-week period ended July 1, 2000 decreased to $35.6
million as compared to $43.8 million in the 26-week period ended July 3, 1999, a
decrease of $8.2 million, or 18.7%.

Home Heating Products. Net sales of home heating products decreased to $18.1
million in the 2000 year-to-date period as compared to $25.2 million in the 1999
year-to-date period, a decrease of $7.1 million, or 28.2%. The decrease in net
sales of home heating products was primarily the result of a decrease of $5.1
million in hearth products gross sales to $18.8 million. Hearth product sales
were negatively impacted by lower housing starts, a significant depression in
the manufactured home industry and declining consumer confidence. Sales of
heating appliances decreased $2.3 million to $676,000. The decrease was
primarily the result of a decrease in customer orders and delays in shipping
early season orders.

Leisure and Other Products. Net sales of leisure and other products decreased
$1.1 million, or 5.7%, in the 2000 year-to-date period to $17.5 million as
compared to $18.6 million in the 1999 year-to-date period. The decrease was the
result of a $1.9 million, or 47.0%, decrease in sales of NuWay utility trailers.
The loss of a significant NuWay customer in late 1999 and the decrease in volume
from another customer negatively impacted trailer sales. Also, the planned
introduction of the redesigned trailer late in the first quarter, which resulted
in the loss of some early season orders, negatively impacted trailer sales.
Sales of Broilmaster premium barbeque grills increased $1.2 million, or 8.6%,
primarily due to enhancements to the 2000 product offering and strong brand
recognition.


                                       16
<PAGE>   18

Gross Profit

         The gross profit in the 2000 year-to-date period was $2.4 million as
compared to $6.7 million in the 1999 year-to-date period, a decrease of $4.3
million, or 63.9%. The gross margin decreased to 6.8% in the 2000 year-to-date
period from 15.2% in the 1999 year-to-date period.

Home Heating Products. The gross profit on net sales of home heating products
was $903,000 in the 2000 year-to-date period as compared to $3.5 million in the
1999 year-to-date period, a decrease of $2.6 million or 74.0%. The gross margin
decreased to 5.0% in the 2000 year-to-date period from 13.7% in the 1999
year-to-date period. The decrease in gross profit was primarily the result of a
decrease in sales volume, an increase in manufacturing costs and a provision for
excess, obsolete and discontinued product of $498,000.

Leisure and Other Products. The gross profit on net sales of leisure and other
products decreased $1.7 million, or 53.0%, in the 2000 year-to-date period to
$1.5 million as compared to $3.2 million in the 1999 year-to-date period. The
gross margin decreased to 8.6% in the 2000 year-to-date period from 17.2% in the
1999 year-to-date period. The decrease in gross profit was primarily the result
of the decrease in sales volume, a decrease in Broilmaster product margins, an
increase in the amount of manufacturing costs allocated to the segment and a
provision for excess, obsolete and discontinued product of $144,000.

Selling Expenses

         Selling expenses in the 2000 year-to-date period were $4.9 million as
compared to $4.9 million in the 1999 year-to-date period. Selling expenses as a
percentage of net sales increased to 13.8% in the 2000 year-to-date period from
11.2% in the 1999 year-to-date period.

Segment Contribution

         Total segment loss was $2.5 million in the 2000 year-to-date period
compared to a segment contribution of $1.8 million in the 1999 year-to-date
period. The change was primarily the result of the decrease in gross profit.

General and Administrative Expenses

         General and administrative expenses increased $609,000, or 15.8%, in
the 2000 year-to-date period as compared to the 1999 year-to-date period. The
increase was primarily the result of severance expense incurred in connection
with the termination of officers and other salaried employees and an increase in
depreciation and amortization expense associated with a computer systems change
implemented in 1999 and the first quarter of 2000.

Non-cash ESOP Compensation Expense

         Non-cash ESOP compensation expense decreased $88,000, or 24.9%, in the
2000 year-to-date period to $266,000, as compared to $354,000 in the 1999
year-to-date period. In the 2000 year-to-date period, 173,670 shares of
unallocated ESOP stock were committed to be released as compensation at an


                                       17
<PAGE>   19

average fair value of $1.53 per share, as compared to 143,094 shares committed
to be released as compensation at an average fair value of $2.47 per share in
the 1999 year-to-date period.

Restructure Charge

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

Gain on Sales of Assets

         The gain on sales of assets of $712,000 during the 2000 year-to-date
period includes the $75,000 gain recorded in connection with the sale of certain
undeveloped land and rental property and the $637,000 gain recorded in
connection with the sale of the Huntsville, Alabama manufacturing plant and
certain equipment. See Note 7 to Notes to Condensed Consolidated Financial
Statements. The $1.2 million gain on sales of assets during the 1999
year-to-date period represents the gain on sale of the Ashley division recorded
during the first quarter.

Interest Expense

         Interest expense decreased $11,000, or 2.8%, in the 2000 year-to-date
period to $389,000, as compared to $400,000 in the 1999 year-to-date period. The
decrease was primarily attributable to a decrease in average outstanding debt
during the year-to-date period.

Interest Income

         Interest income decreased $94,000, or 41.4%, in the 2000 year-to-date
period to $133,000, as compared to $227,000 in the 1999 year-to-date period. The
decrease was primarily the result of a decrease in average outstanding
investments.

Credit for Income Taxes

         During the 2000 year-to-date period, the Company has not recognized a
credit for income taxes as the deferred tax assets resulting from the Company's
operating losses were fully reserved. See Note 3 to Notes to Condensed
Consolidated Financial Statements. During the 1999 year-to-date period, the
Company recorded a credit for income taxes of $381,000.


Net Loss and Net Loss Per Share

         The net loss in the 2000 year-to-date period was $6.7 million as
compared to the net loss of $1.0 million in the 1999 year-to-date period. The
change was primarily the result of the factors discussed above.

         The net loss per share-basic was $0.87 in the 2000 year-to-date period
as compared to $0.14 in the 1999 year-to-date period. The increase in net loss
per share-basic was partially offset by the increase in


                                       18
<PAGE>   20

the weighted average shares outstanding. The increase in weighted average shares
outstanding was primarily the result of ESOP shares committed to be released to
participants.

         The net loss per share on a diluted basis was $0.87 in the 2000
year-to-date period as compared to $0.14 in the 1999 year-to-date period. The
effect of stock options was not dilutive.

LIQUIDITY AND CAPITAL RESOURCES

         The Company has historically financed its operations from internally
generated funds and seasonal borrowings under its bank line of credit. The
Company's primary capital requirements are for working capital, capital
expenditures and debt service.

         As a result of its seasonal business cycle, the Company finances
interim working capital requirements with cash and bank lines of credit, one
with its principal lender and one with a Canadian financial institution. The
line of credit with its principal lender was entered into effective January 1,
2000, has a current maximum of $10,000,000 and expires on January 1, 2001. The
line of credit is secured by the receivables and inventory of the Company
(exclusive of the receivables and inventory of Hunter). Interest on the line of
credit is payable monthly at a variable rate of 30-day LIBOR plus 1.25%, which
on August 14, 2000 was 7.87%. As of July 1, 2000, the outstanding balance of the
line of credit was $3.8 million. In connection with the renewal of the line in
March 2000, the Company repaid the $3.2 million term loan utilized to fund the
acquisition of Hunter.

         During 1998, Hunter established a bank line of credit with a Canadian
financial institution. The credit agreement initially provided a line of
approximately $1,550,000. The credit line is subject to an annual renewal on
April 30 each year. Pending completion of the current year annual review, the
financial institution has temporarily reduced the credit line availability to
approximately $1,012,000. The line of credit is secured by Hunter's receivables,
inventory and equipment. Interest on the line of credit is payable monthly at a
variable rate equivalent to the financial institution's prime lending rate plus
0.5%, which at August 14, 2000 was 8.0%. As of July 1, 2000, the outstanding
balance of the line of credit was $702,000.

         In January 1993, the Company obtained a term loan from its primary
lender, the proceeds of which were loaned to the Company's Employee Stock
Ownership Plan ("ESOP") to enable the ESOP to purchase 3,489,115 shares of
common stock from certain stockholders of the Company. The loan is due in
semi-annual principal payments of $596,700 over a ten-year period. Interest on
the loan is payable monthly at a variable rate of 79.5% of prime plus 1.35%. At
August 14, 2000, the interest rate was 8.90%. The loan is secured by a lien on
the Company's buildings and equipment and is cross collateralized with the
secured line of credit As of July 1, 2000, the outstanding balance of the loan
was $2,984,000.

         Management of the Company currently believes that its existing cash and
funds generated from operations, together with the Company's unused borrowing
capacity under the Company's secured line of credit, will be sufficient to fund
the Company's operating needs during fiscal year 2000. The Company, however, has
experienced significant losses during the last two years and during the 2000
year-to-date period, and losses could continue during the remainder of fiscal
year 2000. Such continued losses could result in a material reduction of
internally generated funds and could also result in the use of a substantial
portion or all of the Company's secured line of credit. Consequently, there can
be no assurances that the


                                       19
<PAGE>   21

Company's liquidity position will not be adversely affected during fiscal year
2000. Further, although the Company currently believes it has other internal
sources of liquidity, there can be no assurance that additional financing or,
if the Company's current line of credit is not renewed, financing to replace the
existing line of credit will be available beyond fiscal year 2000 on terms
acceptable to the Company. It is anticipated that during 2000 the Company will
expend less than $3.0 million for capital expenditures as compared to $5.7
million in 1999.

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

FINANCIAL POSITION

         Cash and short-term investments in the 2000 year-to-date period
decreased $5.2 million primarily as a result of the net loss of $6.7 million and
capital expenditures of $1.9 million. These factors were partially offset by the
collection of accounts and notes receivable.

         During the 2000 year-to-date period, net property, plant and equipment
increased $314,000. The increase was the result of $1.9 million in capital
expenditures during the quarter offset by the sale of certain assets and
depreciation expense of $1.5 million. Capital expenditures primarily include
equipment and tooling for the Company's production facilities and costs incurred
in conjunction with the continued implementation of the fully integrated
computer system.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         The Company is exposed to market risk from changes in foreign currency
exchange rates and interest rates as part of its normal operations. The Company
has estimated its market risk exposures using sensitivity analyses assuming a
10% change in market rates.

FOREIGN CURRENCY EXCHANGE RATE RISK

         Due to its Canadian operations, the Company has 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 translates the Canadian
dollar income statement to U.S. dollars using the average rate of exchange and
translates the Canadian dollar balance sheet to U.S. dollars using the closing
rate of exchange. Certain accounts (e.g., capital stock) are translated using an
historical exchange rate. Consequently, unrealized foreign currency translation
adjustments are reported as a separate component of stockholders' equity. To
illustrate the potential impact of changes in foreign currency exchange rates on
the unrealized foreign currency translation adjustment, a hypothetical 10%
change (decrease) in the average and closing exchange rates for the six-month
period ended July 1, 2000 would have increased the unrealized foreign currency
translation adjustment (a loss) by $703,000.


                                       20
<PAGE>   22

INTEREST RATE RISK

         At July 1, 2000, the Company had $2,984,000 of debt outstanding at a
variable interest rate of 79.5% of prime plus 1.35%. The debt is scheduled to
mature in September 2002. Therefore, the Company is exposed to interest rate
fluctuations on the debt balance. A hypothetical increase of 10% (for example,
the prime rate of 9.5% would increase to 10.45%) in the prime lending rate would
not cause the Company's interest expense to increase significantly.

         Effective January 1, 2000, the Company entered into a secured bank line
of credit of up to a maximum of $10,000,000 which is to be utilized to finance
inventories, receivables and operations on an interim basis. Interest on the
line of credit is payable monthly at a variable rate based on the 30-day London
Interbank Offered Rate ( LIBOR ) plus 1.25%. A hypothetical increase of 10% in
the LIBOR rate would not cause the Company's interest expense to increase
significantly.

         Further, Hunter maintains a secured bank line of credit of up to a
maximum of approximately $1,012,000 which is to be utilized to finance
inventories, receivables and operations. Interest on the line of credit is
payable monthly at a variable rate based on the lender's prime rate plus .5%. A
hypothetical increase of 10% 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.




                                       21
<PAGE>   23
PART II. OTHER INFORMATION


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

         The annual meeting of stockholders of Martin Industries, Inc. was held
on May 19, 2000. At the annual meeting, the stockholders elected two members to
the board of directors of the Company to serve as a class until the annual
meeting to be held in 2003. The nominees to the board of directors to serve
until the annual meeting to be held in 2003 received the following number of
votes:

<TABLE>
<CAPTION>
                                                   Shares Voted               Shares               Abstentions
                                                        For                  Withheld             and Non-Votes
                                                 ------------------        ------------           -------------
        <S>                                      <C>                       <C>                    <C>
        Bill G. Hughey                              7,113,739                  542,503                   0
        Charles R. Martin                           7,122,073                  534,169                   0
</TABLE>

         At the annual meeting, the stockholders also considered the selection
of the Company's independent auditors for the fiscal year ending December 31,
2000. The stockholders approved the selection by the board of directors of the
accounting firm of Arthur Andersen LLP as independent auditors for the Company
for said fiscal year by the following number of votes:

<TABLE>
<CAPTION>
                                     Shares Voted              Shares Voted            Abstentions
                                          For                    Against              and Non-Votes
                                     ------------              ------------           -------------
                                     <S>                       <C>                    <C>
                                       7,553,632                  89,951                  12,659
</TABLE>


         No other matters were considered or voted upon at the annual meeting.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

                  *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)).



                                       22
<PAGE>   24
                  *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).


                  **27     Financial Data Schedule (for SEC use only).

         (b)      Reports on Form 8-K

         No reports were filed on Form 8-K during the period.

-----------------------------------
  *Incorporated by reference
**Filed with electronic filing only

"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, including those regarding the restructuring charges resulting from
the closing of the Huntsville, Alabama facility and the Washington Park
facility, the Company's engagement of McDonald Investments, Inc. to assist the
Company in exploring strategic alternatives, the estimated reserve for excess
and obsolete inventories, the utilization of deferred tax assets related to net
operating loss carryforwards, the Company's beliefs with respect to the funding
of its operations during fiscal year 2000, and the Company's expectations and
estimates regarding its foreign currency exchange rate and interest rate risk,
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. 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, the Company and its representatives may from time to time
make other oral or written statements that are also forward-looking statements.
Such forward-looking statements involve certain assumptions, risks and
uncertainties that could cause actual results to differ materially from those
included in or contemplated by the statements. In particular, there can be no
assurance that the Company will not exceed the estimated reserve for excess and
obsolete inventories, will utilize deferred tax assets related to net operating
loss carryforwards, or will not incur costs related to products of Hunter
Technology Inc. in excess of those currently expected. 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
business strategy, including its strategy of pursuing new product development;
potential losses from product liability and personal injury lawsuits; the
effects of seasonality and weather conditions on the Company's home heating
product sales and other sales; fluctuations in quarterly earnings due to ESOP
accounting; the effect of existing and new governmental and environmental
regulations applicable to the Company; the dependence of the Company on key
personnel; the highly competitive nature of each of the industries in which the
Company operates; the volatility of the stock price at which outstanding shares
of the Company may trade from time to time; and


                                       23
<PAGE>   25

the other risks and uncertainties discussed or indicated in all documents filed
by the Company with the Commission. The Company expressly disclaims any
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.


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:  August 15, 2000     By  /s/ Roderick V. Schlosser
                                     ------------------------------------------
                                     Roderick V. Schlosser
                                     Vice President and Chief Financial Officer
                                     and Secretary
                                     (Executed on behalf of Registrant and
                                     as Principal Financial Officer)


                                       24
<PAGE>   26

                                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).

**27     Financial Data Schedule (for SEC use only).
</TABLE>

--------------------------
*Incorporated by reference
**Filed with electronic filing only