<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 39-Week Period Ended October 2, 1999            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.

                     8,567,628 shares of Common Stock, $.01
                       par value, as of November 15, 1999

<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
                  October 2, 1999 and December 31, 1998                               2

                  Unaudited Condensed Consolidated Statements of Operations and
                  Comprehensive Income for the 13-Week and 39-Week Periods
                  Ended October 2, 1999 and September 26, 1998                        4

                  Unaudited Condensed Consolidated Statements of
                  Cash Flows for the 39-Week Periods Ended
                  October 2, 1999 and September 26, 1998                              5

                  Notes to Condensed Consolidated Financial Statements                6

         Item 2.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                                11

         Item 3.  Quantitative and Qualitative Disclosure About
                  Market Risk                                                        21


PART II. OTHER INFORMATION

         Item 2.  Changes in Securities and Use of Proceeds                          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>
                                                                October 2,         December 31,
                                                                   1999                1998
                                                              -------------        -------------
<S>                                                           <C>                  <C>
Current assets:
Cash and short-term investments                               $   1,769,000        $   9,818,000
Accounts and notes receivable, less
   allowance for doubtful accounts of
   $724,000 and $627,000, respectively                           22,040,000           10,712,000
Inventories                                                      13,099,000           20,323,000
Refundable income taxes                                           2,713,000            1,712,000
Deferred tax benefits                                             4,204,000            3,924,000
Prepaid expenses and other assets                                 1,071,000            1,277,000
                                                              -------------        -------------

      Total current assets                                       44,896,000           47,766,000
                                                              -------------        -------------


Property, plant and equipment, net                               13,044,000           10,004,000
Deferred tax benefits                                               752,000              622,000
Goodwill, net of accumulated amortization                         1,801,000            1,746,000
Other noncurrent assets                                           2,997,000            2,241,000
                                                              -------------        -------------

                                                                 18,594,000           14,613,000
                                                              -------------        -------------

      Total assets                                            $  63,490,000        $  62,379,000
                                                              =============        =============
</TABLE>


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


                                       2
<PAGE>   4

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

<TABLE>
<CAPTION>
                                                                           October 2,           December 31,
                                                                              1999                   1998
                                                                         -------------         -------------
<S>                                                                      <C>                   <C>
LIABILITIES
   Current liabilities:
      Notes payable                                                      $   1,104,000         $     159,000
      Current portion of long-term debt                                      1,714,000             1,741,000
      Accounts payable                                                       7,253,000             3,139,000
      Accrued liabilities:
         Payroll and employee benefits                                       2,742,000             2,348,000
         Product liability                                                   1,140,000               961,000
         Warranty                                                              866,000             1,126,000
         Workers' compensation                                                 752,000               709,000
         Other                                                               1,218,000               985,000
                                                                         -------------         -------------

            Total current liabilities                                       16,789,000            11,168,000
                                                                         -------------         -------------

   Long-term debt                                                            5,159,000             6,864,000
   Deferred compensation                                                     2,214,000             2,304,000
                                                                         -------------         -------------

                                                                             7,373,000             9,168,000
                                                                         -------------         -------------

              Total liabilities                                             24,162,000            20,336,000
                                                                         -------------         -------------

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; 9,759,773 shares issued at October 2,
      1999 and 9,752,053 at December 31, 1998                                   98,000                98,000
   Paid-in capital                                                          27,129,000            27,397,000
   Retained earnings                                                        20,384,000            24,229,000
   Foreign currency translation adjustment                                    (712,000)             (996,000)
                                                                         -------------         -------------

                                                                            46,899,000            50,728,000
   Less:
      Treasury stock at cost (1,192,145 shares at October 2,
         1999 and 1,325,170 at December 31, 1998)                            3,789,000             4,008,000
      Unearned compensation - ESOP                                           3,782,000             4,677,000
                                                                         -------------         -------------

            Total stockholders' equity                                      39,328,000            42,043,000
                                                                         -------------         -------------

            Total liabilities and stockholders' equity                   $  63,490,000         $  62,379,000
                                                                         =============         =============
</TABLE>

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

                                       3
<PAGE>   5

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

<TABLE>
<CAPTION>
                                                                   13-WEEK                            39-WEEK
                                                                PERIOD ENDED                        PERIOD ENDED
                                                       ------------------------------      ------------------------------
                                                        OCTOBER 2,         SEPT. 26,        OCTOBER 2,        SEPT. 26,
                                                           1999              1998              1999              1998
                                                       ------------      ------------      ------------      ------------
<S>                                                    <C>               <C>               <C>               <C>
NET SALES                                              $ 21,415,000      $ 20,102,000      $ 65,222,000      $ 63,243,000

Cost of sales                                            20,279,000        17,975,000        57,501,000        52,108,000
                                                       ------------      ------------      ------------      ------------

GROSS PROFIT                                              1,136,000         2,127,000         7,721,000        11,135,000
                                                       ------------      ------------      ------------      ------------
Operating Expenses:
   Selling                                                2,501,000         1,939,000         7,449,000         6,796,000
   General and administrative                             1,927,000         1,612,000         5,568,000         4,874,000
   Non-cash ESOP compensation expense                       159,000           312,000           513,000         1,090,000
   Restructure charge                                             0                 0                 0           615,000
                                                       ------------      ------------      ------------      ------------
                                                          4,587,000         3,863,000        13,530,000        13,375,000
                                                       ------------      ------------      ------------      ------------

OPERATING LOSS                                           (3,451,000)       (1,736,000)       (5,809,000)       (2,240,000)

Interest expense                                            186,000           224,000           586,000           771,000

Interest and other income                                   (92,000)         (120,000)       (1,484,000)         (817,000)
                                                       ------------      ------------      ------------      ------------

LOSS BEFORE CREDIT FOR INCOME TAXES                      (3,545,000)       (1,840,000)       (4,911,000)       (2,194,000)

Credit for income taxes                                  (1,135,000)         (426,000)       (1,516,000)         (462,000)
                                                       ------------      ------------      ------------      ------------

NET LOSS                                               $ (2,410,000)     $ (1,414,000)     $ (3,395,000)     $ (1,732,000)
                                                       ============      ============      ============      ============
Other comprehensive income (loss), net of tax:
  Foreign currency translation adjustment                   (63,000)         (267,000)          284,000          (514,000)
                                                       ------------      ------------      ------------      ------------

Comprehensive loss                                     $ (2,473,000)     $ (1,681,000)     $ (3,111,000)     $ (2,246,000)
                                                       ============      ============      ============      ============
BASIC PER SHARE DATA:

Net loss                                               $      (0.32)     $      (0.20)     $      (0.47)     $      (0.24)
                                                       ============      ============      ============      ============
Weighted average number of common and common
      equivalent shares outstanding                       7,420,515         7,133,756         7,286,036         7,099,251
                                                       ============      ============      ============      ============
DILUTED PER SHARE DATA:

Net loss                                               $      (0.32)     $      (0.20)     $      (0.47)     $      (0.24)
                                                       ============      ============      ============      ============
Weighted average number of common and common
      equivalent shares outstanding                       7,420,515         7,133,756         7,286,036         7,099,251
                                                       ============      ============      ============      ============

DIVIDENDS DECLARED PER SHARE                           $      0.021      $      0.042      $      0.063      $      0.122
                                                       ============      ============      ============      ============
</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>
                                                                                        39-WEEK
                                                                                      PERIOD ENDED
                                                                         -----------------------------------
                                                                          OCTOBER 2,             SEPT. 26,
                                                                             1999                   1998
                                                                         -------------         -------------
<S>                                                                      <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                              $  (3,395,000)        $  (1,732,000)
   Adjustments to reconcile net loss to net cash
   used in operating activities:
      Depreciation and amortization                                          1,222,000             1,259,000
      Gain on sales of assets                                                  (74,000)             (288,000)
      Gain on sale of division                                              (1,164,000)                    0
      Provision for doubtful accounts and notes receivable                      97,000                29,000
      Non-cash ESOP compensation expense                                       513,000             1,090,000
      Other changes in operating assets and liabilities                     (1,235,000)          (10,234,000)
                                                                         -------------         -------------

            Net cash used in operating activities                           (4,036,000)           (9,876,000)
                                                                         -------------         -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                                     (4,225,000)           (1,053,000)
   Proceeds from sale of assets                                                185,000               370,000
   Proceeds from sale of division                                            1,051,000                     0
                                                                         -------------         -------------

      Net cash used in investing activities                                 (2,989,000)             (683,000)
                                                                         -------------         -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Net short-term borrowings (repayments)                                      930,000                (7,000)
   Net repayments of long-term debt                                         (1,734,000)           (1,723,000)
   Purchase of treasury stock                                                        0            (1,729,000)
   Exercise of stock options                                                   105,000               121,000
   Cash dividends paid                                                        (330,000)             (676,000)
                                                                         -------------         -------------

      Net cash used in financing activities                                 (1,029,000)           (4,014,000)
                                                                         -------------         -------------
NET DECREASE IN CASH AND SHORT-TERM
   INVESTMENTS                                                              (8,054,000)          (14,573,000)

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                          5,000               (35,000)

CASH AND SHORT-TERM INVESTMENTS AT THE
   BEGINNING OF THE PERIOD                                                   9,818,000            15,157,000
                                                                         -------------         -------------
CASH AND SHORT-TERM INVESTMENTS AT THE
   END OF THE PERIOD                                                     $   1,769,000         $     549,000
                                                                         =============         =============
Cash paid during the period for:
  Interest, net                                                          $     525,000         $     693,000
  Income taxes, net                                                      $      22,000         $      18,000
</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, 1998 included on Form 10-K,
as filed with the Securities and Exchange Commission on March 31, 1999.

         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
expected 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.

New Accounting Standards and Statements

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities, which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. In June
1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133,
which amends FASB Statement No. 133 to be effective for all fiscal years
beginning after June 15, 2000 (January 1, 2001 for companies with calendar-year
fiscal years). This statement is not expected to have a material effect on the
consolidated financial statements.

         In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use. The SOP requires
capitalization of certain costs of internal-use software. The Company adopted
this statement on January 1, 1999 with no significant impact on the
consolidated financial statements.


                                       6
<PAGE>   8

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 primarily valued at last-in, first-out
("LIFO") cost, which is not in excess of market. Inventory costs include
material, labor and overhead. The Company evaluates raw materials, purchased
parts, work-in-process and finished goods to ensure that inventory is valued at
the estimated net realizable value. Inherent in the estimates of net realizable
value are management's estimates related to the Company's future customer
demand, product mix and salvage value. At December 31, 1998, the Company
recorded a reserve for excess and obsolete inventory of $1,716,000. At October
2, 1999, the reserve for excess and obsolete inventory was $2,295,000. An
analysis of inventories at October 2, 1999 and December 31, 1998 follows:

<TABLE>
<CAPTION>
                                                                               October 2,          December 31,
                                                                                  1999                  1998
                                                                              -------------        -------------
                                                                                          (Unaudited)
      <S>                                                                     <C>                  <C>
      Inventories valued at first-in, first-out ("FIFO") cost:
          Raw materials and purchased parts                                   $   8,932,000        $  10,644,000
          Work-in-process                                                         3,798,000            4,797,000
          Finished goods                                                          5,819,000           10,347,000
                                                                              -------------        -------------
                                                                                 18,549,000           25,788,000
          Less excess of FIFO over LIFO cost                                      5,450,000            5,465,000
                                                                              -------------        -------------
                                                                              $  13,099,000        $  20,323,000
                                                                              =============        =============
</TABLE>

3.  EARNINGS PER SHARE

         Basic earnings per share ("EPS") excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the 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 is
computed based on the weighted average number of shares outstanding, including
the effect of outstanding stock options, if dilutive, in each respective year.


                                       7
<PAGE>   9

         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             39-Week Period Ended
                                                               ------------------------------    ------------------------------
                                                                October 2,      September 26,     October 2,      September 26,
                                                                  1999              1998             1999             1998
                                                               ------------     -------------    ------------     -------------
        <S>                                                    <C>              <C>              <C>              <C>
        Weighted average shares-basic,
            excluding ESOP and stock
            option effects                                        5,461,086        5,296,817        5,413,441        5,349,146

        Weighted average effect of ESOP
            shares committed to be
            released                                              1,959,429        1,836,939        1,872,595        1,750,105
                                                               ------------     ------------     ------------     ------------

        Weighted average shares-basic                             7,420,515        7,133,756        7,286,036        7,099,251

        Dilutive effect of stock options                                  0                0                0                0
                                                               ------------     ------------     ------------     ------------
        Weighted average number of
            common and common
            equivalent shares
            outstanding-diluted                                   7,420,515        7,133,756        7,286,036        7,099,251
                                                               ============     ============     ============     ============
</TABLE>

         Options outstanding of 525,014 and 691,973 for the 13-week and 39-week
periods ended October 2, 1999 and September 26, 1998, respectively, were not
included in the table above as they were antidilutive.


4.  COMMITMENTS AND CONTINGENCIES

Product Contingency

         The Company experienced production and design problems with certain
products manufactured by Hunter Technology Inc. ("Hunter"), a wholly-owned
subsidiary of 1166081 Ontario Inc. These product problems, in some cases,
caused the production to be suspended and, therefore, shipments were also
suspended. Corrections have been implemented and the affected products are back
in production. The Company has completed its evaluation of the potential
exposure to deal with problems related to products shipped prior to these
corrections, and it currently believes that the ultimate liability will not
have a material adverse effect on the Company.

Legal

         On February 1, 1996, 1166081 Ontario Inc. acquired all of the capital
stock of Hunter for a purchase price of approximately $1,943,000 that included
$850,000 in cash, $729,000 in promissory notes payable and $364,000 paid into
escrow. The escrow fund was established at the closing to make funds available
to meet the sellers' indemnification obligations to the Company. During the
first quarter


                                       8
<PAGE>   10


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. 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 will
result (if the contingency is satisfied and that portion of the settlement
effectuated) in receipt by the Company of an additional $80,000, and
cancellation of notes and accrued interest totaling approximately $219,000.

         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.


5.  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
October 2, 1999 and December 31, 1998 totaled $128,000 and $251,000,
respectively.


6.  SALE OF CERTAIN ASSETS

         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 $1,164,000 which is
included in interest and other income in the Condensed Consolidated Statements
of Operations and Comprehensive Income.


                                       9
<PAGE>   11

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. The leisure and other products segment
includes premium gas barbecue grills and utility trailer kits. 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 fixed manufacturing and selling
expenses. 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             39-Week Period Ended
                                                               ------------------------------    ------------------------------
                                                                October 2,      September 26,     October 2,      September 26,
                                                                  1999              1998             1999             1998
                                                               ------------     -------------    ------------     -------------
                                                                                        (In thousands)
        <S>                                                    <C>              <C>              <C>              <C>
        Net sales:
               Home heating products                           $     19,519     $     18,484     $     45,383     $     45,726
               Leisure and other products                             1,896            1,618           19,839           17,517
                                                               ------------     ------------     ------------     ------------
                                                               $     21,415     $     20,102     $     65,222     $     63,243
                                                               ============     ============     ============     ============
        Gross profit (loss):
               Home heating products                           $      1,292     $      2,041     $      4,361     $      7,429
               Leisure and other products                              (156)              86            3,360            3,706
                                                               ------------     ------------     ------------     ------------
                                                               $      1,136     $      2,127     $      7,721     $     11,135
                                                               ============     ============     ============     ============
        Segment contribution (loss): (1)
               Home heating products                           $       (408)    $        445     $       (416)    $      2,676
               Leisure and other products                              (957)            (340)             688            1,429
                                                               ------------     ------------     ------------     ------------
                                                               $     (1,365)    $        105     $        272     $      4,105
                                                               ============     ============     ============     ============
</TABLE>



<TABLE>
<CAPTION>
                                                                October 2,      September 26,
                                                                  1999              1998
                                                               ------------     -------------
        <S>                                                    <C>              <C>
        Identifiable net assets: (2)
               Home heating products                           $     17,067     $     21,778
               Leisure and other products                             5,567            6,868
               Other (3)                                              3,509            1,681
                                                               ------------     ------------
                                                               $     26,143     $     30,327
                                                               ============     ============
</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.


                                       10
<PAGE>   12


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 third
quarter of 1999 and the third quarter of 1998 are referring to the 13-week
periods ended October 2, 1999 and September 26, 1998, respectively. All
references to the 1999 year-to-date period and the 1998 year-to-date period are
referring to the 39-week periods ended October 2, 1999 and September 26, 1998,
respectively.

OVERVIEW

         The Company manufactures products in two industry segments: home
heating products and leisure and other products such as do-it-yourself utility
trailer kits and premium gas barbecue grills. Each of the industry segments in
which the Company operates is cyclical in nature, with sales being affected by
general economic cycles, consumer confidence levels, inflation, employment and
income levels and the availability of credit generally. The Company's fireplace
business is also influenced by factors affecting the housing industry, such as
housing demand, the availability of financing and the level and stability of
interest rates. The Company's NuWay utility trailer kits and Broilmaster
premium gas barbecue grills historically have been contraseasonal to the
Company's home heating products, with higher sales during warm weather months.

         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 $1,164,000 which is
included in interest and other income in the Condensed Consolidated Statements
of Operations and Comprehensive Income.

         Sales of home heating products and, in particular, gas heaters (other
than fireplaces), historically have been seasonal in nature, with sales being
directly affected by weather conditions. In an effort to better control its
production schedule and inventory of finished products in light of this
seasonality, the Company utilizes early booking programs, which allow the
Company to project sales early in the year and plan production accordingly. In
general, the Company takes early booking orders for its heating products in the
first and second quarters and fills the majority of these orders in the second
and third quarters, with fill-in orders being shipped in the fourth quarter and
to a lesser degree in the ensuing first quarter. Unseasonably warm weather
results in higher customer inventories that in turn result in fewer fourth
quarter customer fill-in orders and lower response to the Company's early
booking programs for the following year.

         Notwithstanding the early booking programs, sales are recognized by the
Company when the product is shipped. A majority of sales of gas heaters under
the Company's early booking programs historically have occurred in the second
and third quarters, with products being shipped throughout this period. Because
of program terms, the shipping period often extends over several months.
Customer orders for products other than orders placed under the early booking
programs are accepted and filled by the Company as received and shipped at the
customer's request. As used in the following discussion and elsewhere in this
Form 10Q, the term "gross sales"


                                       11
<PAGE>   13

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 Form 10Q, reflects gross sales less deductions for
cash discounts, freight and special program credits allowed by the Company.

YEAR 2000 COMPLIANCE

         The efficient operation of the Company's business is dependent in part
on its computer software programs and operating systems (collectively,
"Programs and Systems"). These Programs and Systems are used in several key
areas of the Company's business, including inventory management, pricing,
sales, and financial reporting, as well as in various administrative functions.
Many of the Company's Programs and Systems, as well as the programs and systems
of third parties doing business with the Company, are subject to the "Year
2000" issue, which is the inability of a computer to correctly process dates
after December 31, 1999. This inability could potentially cause affected
computers to shut down or perform incorrect calculations, ultimately resulting
in a system failure, disruption of operations, and the inability to engage in
normal business activities. This issue also affects products or systems which
contain embedded computer chips with date sensitive programming, such as
manufacturing equipment, security systems, telephone equipment and office
equipment ("non-IT systems"). As a result, many companies' software and
computer systems need to be upgraded or replaced in order to address the Year
2000 issue.

         The Company has evaluated its Programs and Systems to identify and
address potential Year 2000 compliance problems. As a result, the Company has
purchased Year 2000 compliant versions of its packaged Programs and Systems and
has decided to modify its custom Programs and Systems. The Company has incurred
approximately $135,000 during 1997, 1998 and 1999 and expects to incur an
additional $20,000 during 1999 to modify or make selective improvements to its
Programs and Systems. The Company plans to complete the replacement and
modification of its IT Programs and Systems by the end of 1999. While some
non-critical systems may not be addressed until after December 1999, the
Company believes such systems will not disrupt its operations in a material
manner. With respect to the Company's non-IT systems, the Company has completed
its evaluation, but currently believes the significant non-IT systems are not
date dependent.

         The process of inquiring into Year 2000 compliance by significant or
critical third parties has been completed. Based on the responses it has
received, the Company has not identified any such third parties which need to
be replaced due to non-compliance.

         Because of the subjective nature of and inherent uncertainty in the
Year 2000 compliance issue, the actual costs to address and resolve any
non-compliance issues may differ materially from those anticipated. In
particular, this estimate assumes that the Company will not encounter material
Year 2000 compliance issues with its non-IT systems, that it has correctly
identified and assessed the material Year 2000 compliance issues associated
with its IT Programs and Systems, and that its suppliers, customers and others
with which it does business correctly communicate with the Company and do not
experience significant Year 2000 compliance issues.

         The Company could be affected if the Year 2000 issue impacts
suppliers' abilities to provide raw materials and other supplies needed in the
manufacturing process or if its customers' ability to take shipments are
affected. The Company is also dependent on third parties or government agencies
to (1) supply sufficient electrical power and other utilities, transportation
and other services to sustain the manufacturing process and other Company
operations, (2) process, pay and maintain records of certain employee benefits,
and (3) supply funds and information in a timely fashion for its distributors
and


                                       12
<PAGE>   14


customers to purchase products. Any failure on the part of these third parties
could have a material adverse effect on the business, results of operations and
financial condition of the Company.

         If the Company's efforts to resolve the Year 2000 issue are not
adequate or implemented in a timely manner, the Company could experience a
disruption in its normal business activities. Management of the Company
currently believes that the most reasonably likely worst case scenario would be
the delay in collections from third parties which could result in liquidity
issues for the Company, the delay of financial reporting due to any accounting
processes which may need to be performed manually, a delay in purchasing
supplies and shipping products, and increased costs associated with obtaining
alternative sources of supply and other business, in each case until all Year
2000 issues are resolved. However, the potential consequences of the Year 2000
issues are inherently uncertain, and consequently, no assurance can be given
that this will be the reasonably likely worst case scenario.

        A contingency plan has been developed by the Company which consists
primarily of entering into a proposed contract with a third party supplier to
provide operating systems off-site to run the Company's computer software
programs that support the Company's essential business functions in the event
Year 2000 issues disrupt significantly the Company's essential business
functions. The contract is currently being negotiated and is subject to review
and approval by senior management. The Company's contingency plan also includes
performing additional training and testing activities in the final months of
1999 and scheduling the availability of key personnel in the event Year 2000
problems are encountered.

         The Company, in the normal course of its business, has evaluated the
need for a system-wide replacement of its Programs and Systems without regard to
the Year 2000 compliance issue. As a result of the evaluation and as part of the
Company's long-term strategic plan, the Company made the decision to purchase
fully integrated Enterprise Resource Planning ("ERP") Programs and Systems that
will replace its current Program and Systems. Such ERP Programs and Systems are
designed to be Year 2000 compliant. The Company has incurred approximately $1.9
million through October 2, 1999 and expects to incur an additional $1.2 million
during 1999 and 2000 to complete the installation of the new Programs and
Systems.

         Many of the statements in this section constitute forward-looking
statements and are subject to a number of assumptions, risks and uncertainties
that could cause actual results to differ materially from those expressed or
contemplated by these statements. See "Safe Harbor' Statement under the Private
Securities Litigation Reform Act of 1995" appearing on page 23 of this report.











                                       13
<PAGE>   15


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             39-Week Period Ended
                                                       ------------------------------    ------------------------------
                                                        October 2,      September 26,     October 2,      September 26,
                                                          1999              1998             1999             1998
                                                       ------------     -------------    ------------     -------------
<S>                                                    <C>              <C>              <C>              <C>
Net sales                                                     100.0%           100.0%           100.0%           100.0%
Cost of sales                                                  94.7             89.4             88.2             82.4
                                                       ------------     ------------     ------------     ------------
Gross profit                                                    5.3             10.6             11.8             17.6

Operating expenses:
     Selling                                                   11.7             10.1             11.4             11.1
     General and administrative                                 9.0              7.6              8.5              7.3
     Non-cash ESOP compensation expense                         0.7              1.5              0.8              1.7
     Restructure charge                                         0.0              0.0              0.0              1.0
                                                       ------------     ------------     ------------     ------------
                                                               21.4             19.2             20.7             21.1
                                                       ------------     ------------     ------------     ------------

Operating income (loss)                                       (16.1)            (8.6)            (8.9)            (3.5)
Interest expense                                                0.9              1.1              0.9              1.2
Interest and other income                                      (0.4)            (0.6)            (2.3)            (1.3)
                                                       ------------     ------------     ------------     ------------

Income (loss) before income taxes                             (16.6)            (9.1)            (7.5)            (3.4)
Provision (credit) for income taxes                            (5.3)            (2.1)            (2.3)            (0.7)
                                                       ------------     ------------     ------------     ------------

Net income (loss)                                             (11.3)%           (7.0)%           (5.2)%           (2.7)%
                                                       ============     ============     ============     ============
</TABLE>


                                       14
<PAGE>   16


13-WEEK PERIOD ENDED OCTOBER 2, 1999 COMPARED TO 13-WEEK PERIOD ENDED
SEPTEMBER 26, 1998

Net Sales

         Net sales in the 13-week period ended October 2, 1999 increased to
$21.4 million from $20.1 million in the 13-week period ended September 26,
1998, an increase of $1.3 million, or 6.5%.

Home Heating Products. Net sales of home heating products increased to $19.5
million in the third quarter of 1999 from $18.5 million in the third quarter of
1998, an increase of $1.0 million, or 5.6%. The increase in net sales of home
heating products was primarily the result of a 23.4% increase in gas heating
net sales to $11.3 million. Gas heating sales benefited from the acceptance of
the Company's imported heaters in the domestic marketplace and the shift in gas
heating shipments into the second half of the year. The increase in gas heating
net sales was partially offset by a 4.4% decrease in Martin Fireplace net sales
to $7.1 million. Martin Fireplace sales were adversely affected by the impact
of lower inventory levels resulting from temporary capacity restraints, along
with inefficiencies associated with the August change in the temporary labor
agency that services the Company's Athens, Alabama facility. These factors,
together with increased demand, contributed to the Martin Fireplace order file
increasing $1.4 million, or 119%, as of the end of the quarter compared with
the same date in 1998.

Leisure and Other Products. Net sales of leisure and other products increased
$278,000, or 17.2%, in the third quarter of 1999 to $1.9 million, as compared to
$1.6 million in the third quarter of 1998. Net sales of barbecue gas grills were
$1.6 million in the third quarter of 1999 compared with $727,000 in the same
period of 1998. The increase in net sales was primarily the result of sales
shifting into the third quarter due to cooler weather earlier this year and the
continued acceptance of premium gas grills in the marketplace. Net sales of
NuWay utility trailers decreased $535,000 to $123,000 in the third quarter of
1999. Trailer sales were adversely affected by a provision for anticipated
returns from a retail customer. In addition, during the quarter, the Company
established a reserve in connection with the payment of certain advertising and
promotional costs associated with this same retail customer which is included in
selling expenses. The Company has instituted legal proceedings against this
customer to collect amounts owed to the Company from sales of trailers to the
customer. The outcome of which is uncertain at this time.

Gross Profit

         Gross profit in the third quarter of 1999 was $1.1 million as compared
to $2.1 million in the third quarter of 1998, a decrease of $1.0 million, or
46.6%. Gross margin, defined as gross profit as a percentage of net sales,
decreased to 5.3% in the third quarter of 1999 from 10.6% in the third quarter
of 1998.

Home Heating Products. Gross profit on net sales of home heating products in
the third quarter of 1999 was $1.3 million as compared to $2.0 million in the
third quarter of 1998, a decrease of $749,000, or 36.7%. The decrease in gross
profit principally resulted from a $726,000 charge for excess and obsolete
inventory, competitive pressures on selling prices for gas heaters and
fireplaces, and a continued shift in mix to lower margin products. The third
quarter inventory charge was primarily the result of the development of new
products, the planned consolidation of certain product lines, and the write
down of slow-moving, discontinued products. Gross margin was 6.6% in the third
quarter of 1999 as compared to 11.0% in the third quarter of 1998.

Leisure and Other Products. Gross loss on net sales of leisure and other
products in the third quarter of 1999 was $156,000 as compared to a gross
profit of $86,000 in the third quarter of 1998, a decrease of


                                      15
<PAGE>   17
$242,000. The decrease in gross profit was primarily the result of a $257,000
charge for excess and obsolete inventory, the reasons for which are noted in the
preceding paragraph. Gross margin was (8.2%) in the third quarter of 1999 as
compared to 5.3% in the third quarter of 1998.

Selling Expenses

         Selling expenses in the third quarter of 1999 increased to $2.5
million from $1.9 million in the third quarter of 1998, an increase of
$562,000, or 29.0%, primarily the result of an increase in sales during the
period and advertising and promotion expenses.

Segment Contribution (Loss)

         Total segment loss, defined as gross profit less selling expenses, was
$1.4 million in the third quarter of 1999, compared to a segment contribution
of $105,000 in the third quarter of 1998. The decrease was the result of the
46.6% decrease in gross profit and the 23.7% increase in selling expenses.

General and Administrative Expenses

         General and administrative expenses increased $315,000, or 19.5%, in
the third quarter of 1999 as compared to the third quarter of 1998. The
increase was primarily the result of increased data processing and design and
development expenses and increased expenses associated with certain
post-employment benefits accrued as the result of the termination of a
corporate officer.

Non-cash ESOP Compensation Expense

         Non-cash ESOP compensation expense was $159,000 in the third quarter
of 1999 as compared to $312,000 in the third quarter of 1998, a decrease of
$153,000, or 49.0%. In the third quarter of 1999, 71,661 shares of unallocated
ESOP stock were committed to be released as compensation at an average fair
value of $2.22 per share as compared to 74,040 shares committed to be released
as compensation at an average fair value of $4.21 per share in the third
quarter of 1998.

Interest Expense

         Interest expense in the third quarter of 1999 was $186,000 as compared
to $224,000 in the third quarter of 1998, a decrease of $38,000, or 17.0%. The
decrease was primarily attributable to a decrease in average outstanding debt.

Interest and Other Income

         Interest and other income in the third quarter of 1999 was $92,000 as
compared to $120,000 in the third quarter of 1998, a decrease of $28,000, or
23.3%. The decrease was primarily attributable to a decrease in the average
amount of short-term investments.

Credit for Income Taxes

         The credit for income taxes was $1.1 million in the third quarter of
1999 as compared to $426,000 in the third quarter of 1998. The effective tax
rate was (32.0%) in the third quarter of 1999 as compared to (23.2%) in the
third quarter of 1998. The effective tax rate differs from the amount computed
by


                                      16
<PAGE>   18

applying the federal statutory rate primarily due to the non-recognition of a
tax benefit on the pre-tax loss of Hunter during the periods presented because
realization of any additional tax benefit was not assured.

Net Loss and Net Loss Per Share

         The net loss in the third quarter of 1999 was $2.4 million as compared
to $1.4 million in the third quarter of 1998. The change was primarily the
result of the factors discussed above.

         The net loss per share-basic was $0.32 in the third quarter of 1999 as
compared to $0.20 in the third quarter of 1998. The change in net loss per
share-basic was primarily the result of the change in net loss to $2.4 million
from a net loss of $1.4 million, partially offset by the increase in the
weighted average shares outstanding. The increase in the weighted average
shares outstanding was primarily the result of stock options exercised and ESOP
shares released and committed to be released to participants.

         The net loss per share-diluted was $0.32 in the third quarter of 1999
as compared to $0.20 in the third quarter of 1998 as the effect of outstanding
stock options was antidilutive.


39-WEEK PERIOD ENDED OCTOBER 2, 1999 COMPARED TO 39-WEEK PERIOD ENDED
SEPTEMBER 26, 1998

Net Sales

         Net sales in the 39-week period ended October 2, 1999 increased to
$65.2 million as compared to $63.2 million in the 39-week period ended
September 26, 1998, an increase of $2.0 million, or 3.1%.

Home Heating Products. Net sales of home heating products decreased to $45.4
million in the 1999 year-to-date period as compared to $45.7 million in the
1998 year-to-date period, a decrease of $343,000, or 0.8%. The decrease in net
sales of home heating products was primarily the result of a decrease in gas
and solid fuel heating products sales of $1.4 million, partially offset by an
increase in fireplace sales of $1.1 million.

Leisure and Other Products. Net sales of leisure and other products increased
$2.3 million, or 13.3%, in the 1999 year-to-date period to $19.8 million as
compared to $17.5 million in the 1998 year-to-date period. The increase was
primarily the result of a $2.7 million, or 21.7%, increase in net sales of
barbecue gas grills. The increase in barbecue gas grill net sales was primarily
due to the continued acceptance of premium gas grills in the marketplace. Net
sales of utility trailer kits decreased $378,000, or 8.3%, in the 1999
year-to-date period to $4.2 million as compared to $4.6 million in the 1998
year-to-date period. Trailer sales were adversely affected by the introduction
of new products by competitors and a provision for anticipated returns from a
retail customer.

Gross Profit

         Gross profit in the 1999 year-to-date period was $7.7 million as
compared to $11.1 million in the 1998 year-to-date period, a decrease of $3.4
million, or 30.7%. Gross margin decreased to 11.8% in the 1999 year-to-date
period from 17.6% in the 1998 year-to-date period.

Home Heating Products. Gross profit on net sales of home heating products was
$4.4 million in the 1999 year-to-date period as compared to $7.4 million in the
1998 year-to-date period, a decrease of


                                      17
<PAGE>   19
 $3.1 million, or 41.3%. Gross margin decreased to 9.6% in the 1999 year-to-date
period from 16.2% in the 1998 year-to-date period. The decrease in gross margin
was primarily the result of increased manufacturing costs, competitive pressures
on selling prices for gas heaters, a continued shift to lower margin products,
reduced sales volume and margins on gas heating products, reduced sales volume
of solid fuel heating products and a charge for excess and obsolete inventory
during the third quarter of 1999.

Leisure and Other Products. Gross profit on net sales of leisure and other
products decreased $346,000, or 9.3%, in the 1999 year-to-date period to $3.4
million as compared to $3.7 million in the 1998 year-to-date period. Gross
margin decreased to 16.9% in the 1999 year-to-date period from 21.2% in the
1998 year-to-date period. The decrease was primarily the result of increased
manufacturing costs due to quality improvement initiatives associated with the
gas grill production line and a charge for excess and obsolete inventory during
the third quarter of 1999.

Selling Expenses

         Selling expenses in the 1999 year-to-date period were $7.4 million as
compared to $6.8 million in the 1998 year-to-date period, an increase of
$653,000, or 9.6%. The increase was primarily due to an increase in sales
volume and advertising and promotion expenses, primarily offset by a decrease in
co-op advertising. Selling expenses as a percentage of net sales increased to
11.4% in the 1999 year-to-date period from 11.1% in the 1998 year-to-date
period.

Segment Contribution

         Total segment contribution was $272,000 in the 1999 year-to-date
period compared to $4.1 million in the 1998 year-to-date period. The $3.8
million decrease was primarily the result of the decrease in gross profit and
the increase in selling expenses discussed above.

General and Administrative Expenses

         General and administrative expenses increased $694,000, or 14.2%, in
the 1999 year-to-date period as compared to the 1998 year-to-date period. The
increase was primarily the result of increased human resources, data processing
and design and development expenses and increased expenses associated with
certain post-employment benefits accrued as the result of the termination of a
corporate officer.

Non-cash ESOP Compensation Expense

         Non-cash ESOP compensation expense decreased $577,000, or 52.9%, in
the 1999 year-to-date period to $513,000, as compared to $1.1 million in the
1998 year-to-date period. In the 1999 year-to-date period, 214,755 shares of
unallocated ESOP stock were committed to be released as compensation at an
average fair value of $2.39 per share, as compared to 224,568 shares committed
to be released as compensation at an average fair value of $4.85 per share in
the 1998 year-to-date period.

Restructure Charge

         As reported in the Company's Form 10-Q for the 13-week period ended
March 28, 1998, the Company made the decision to close its Washington Park,
Illinois facility. The Company initiated the


                                      18
<PAGE>   20


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 third quarter of 1998.

Interest Expense

         Interest expense decreased $185,000, or 24.0%, in the 1999
year-to-date period to $586,000, as compared to $771,000 in the 1998
year-to-date period. The decrease was primarily attributable to a decrease in
average outstanding debt during the year-to-date period.

Interest and Other Income

         Interest and other income increased $667,000, or 81.6%, in the 1999
year-to-date period to $1.5 million, as compared to $817,000 in the 1998
year-to-date period. The increase was primarily the result of the $1.2 million
gain on the sale of the Ashley division recorded in the first quarter of 1999,
offset by the $288,000 gain on sale of marketable securities recorded during
the third quarter of 1998 and a decrease in interest income on short-term
investments.

Credit for Income Taxes

         The credit for income taxes was $1.5 million in the 1999 year-to-date
period as compared to $462,000 in the 1998 year-to-date period. The effective
tax rate was 30.9% in the 1999 year-to-date period as compared to 21.1% in the
1998 year-to-date period. The effective tax rate differs from the amount
computed by applying the federal statutory rate primarily due to the
non-recognition of a tax benefit on the net loss of Hunter during the periods
presented because realization of any additional tax benefit was not assured.

Net Loss and Net Loss Per Share

         The net loss in the 1999 year-to-date period was $3.4 million as
compared to the net loss of $1.7 million in the 1998 year-to-date period. The
change was primarily the result of the factors discussed above.

         The net loss per share-basic was $0.47 in the 1999 year-to-date period
as compared to $0.24 in the 1998 year-to-date period. The change in net loss
per share-basic was primarily the result of the increase in net loss to $3.4
million from a net loss of $1.7 million, partially offset by the increase in
the weighted average shares outstanding. The increase in weighted average
shares outstanding was primarily the result of stock options exercised and ESOP
shares released and committed to be released to participants.

         The net loss per share on a diluted basis was the same as the net loss
per share on a basic basis for the 1999 year-to-date period and the 1998
year-to-date period as the effect of outstanding stock options was antidilutive

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, debt service
and capital expenditures.


                                      19
<PAGE>   21
         The Company's operations in the 39-week period ended October 2, 1999
used $4.0 million in cash primarily to finance the operating loss and increases
in extended term ("dating") receivables. The Company's initial public offering
investments and proceeds from the sales of certain assets were utilized to
provide these funds and those needed for capital expenditures of $4.2 million,
long-term debt repayments of $1.7 million and dividends for the period.

         As discussed above, the Company finances temporary working capital
requirements under a bank line of credit with its principal lender. The credit
agreement provides a line of $20 million for a term expiring July 31, 2000. The
line of credit is secured by a lien on the receivables and inventory of Martin
Industries, Inc. (exclusive of the receivables and inventory of Hunter).
Interest on the line of credit is payable monthly at a variable rate equivalent
to 30-day London Interbank Offered Rate ("LIBOR") plus 1.25%, which at November
15, 1999 was 6.6575%. During the 1999 year-to-date period there were no
borrowings on the line of credit.

         During 1998, Hunter established a bank line of credit with a Canadian
financial institution. The credit agreement provides a line of $2,250,000
(Canadian). The credit line is subject to an annual review on April 30 each
year. The financial institution's review could result in the cancellation of the
line or a revision of its terms. As of November 15, 1999, the financial
institution had not communicated the results of the review for 1999. In the
event that the financial institution terminates the line of credit or proposes
amended terms that are unacceptable to the Company, the Company believes it has
adequate capital resources available to fund Hunter's operations in the near
term. 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 one-half of
one percent, which at November 15, 1999 was 6.75%. As of October 2, 1999, the
outstanding balance of the line of credit was $1.4 million (Canadian).

         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 this time and to invest those funds in the business in support and
furtherance of the Company's strategic plan and enhancement of stockholder
value.  The 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 1999 year-to-date period
decreased $8.0 million as a result of the factors discussed above. Accounts
receivable increased $11.3 million in the 1999 year-to-date period. Inventory
decreased $7.2 million in the 1999 year-to-date period. The increase in
accounts receivable was primarily the result of an $8.3 million increase in
dating receivables. In an effort to better control its production schedule in
light of the seasonal nature of its home heating products and barbecue gas
grill business, the Company utilizes early booking programs under which
customers receive favorable dating terms for placing their orders early and
permitting the Company to ship the products at "factory convenience."

         The decrease in inventories was primarily attributable to the
Company's plan to improve inventory turns and reduce inventory levels, the sale
of the Ashley solid fuel heating division and the charge for excess and
obsolete inventory during the third quarter of 1999. The inventory charge was
primarily the result of the development of new products, the planned
consolidation of certain product lines, and the write-down of slow-moving,
discontinued products.

         During the 1999 year-to-date period, net property, plant and equipment
increased $3.0 million. The increase was the result of $4.2 million in capital
expenditures during the 1999 year-to-date period offset by depreciation expense
of $1.2 million. Capital expenditures primarily include machinery and


                                      20
<PAGE>   22

equipment for the the Company's production facilities and costs incurred in
conjunction with the purchase of fully integrated Enterprise Resource Planning
Programs and Systems (see "Year 2000 Compliance").


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
calculated each month and translates the Canadian dollar balance sheet to U.S.
dollars using the closing rate of exchange as of the balance sheet date. 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 nine-month period ended October 2,
1999 would have increased the unrealized foreign currency translation adjustment
(a loss) by $791,000.

Interest Rate Risk

         To manage its exposure to changes in interest rates, the Company uses
both fixed and variable rate debt. At October 2, 1999, the Company had
$3,580,000 of debt outstanding at a variable interest rate of 79.5% of prime
plus 1.35%. However, the Company is also a party to an interest rate swap which
effectively converts the interest rate on the debt to a fixed rate of 8.21%.
The debt is scheduled to mature in September 2002. The interest rate swap is
scheduled to expire in January 2000. Therefore, the Company would be exposed to
interest rate fluctuations on the January 2000 debt balance upon expiration of
the interest rate swap. A hypothetical increase of 10% in the prime lending
rate would not cause the Company's interest expense to increase significantly.

         In addition, the Company maintains a secured bank line of credit of up
to a maximum of $20,000,000 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 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 $2,250,000 (Canadian) 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
one-half of one percent. A hypothetical increase of 10% in the prime lending
rate would not cause the Company's interest expense to increase significantly.



                                      21
<PAGE>   23

         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.


PART II.     OTHER INFORMATION


ITEM 2.      CHANGES IN SECURITIES AND USE OF PROCEEDS

         On July 18, 1995, the Company closed the sale of 2,300,000 shares of
common stock at a price of $9.50 per share in connection with the initial
public offering of its stock. The proceeds of the offering, net of an
underwriting discount of $1,530,000 and expenses of $923,000, were $19,397,000.
Through the date of this Quarterly Report, the Company has used approximately
$17.7 million of the proceeds to fund capital expenditures, acquire Hunter
Technology Inc., repay outstanding indebtedness, acquire shares of its Common
Stock in accordance with the Company's share repurchase program, and for
working capital and other general corporate purposes. During the 1999
year-to-date period, the Company used approximately $8.1 million for capital
expenditures, to repay outstanding indebtedness and for working capital and
other general corporate purposes. See "Condensed Consolidated Balance Sheets,"
"Condensed Consolidated Statements of Cash Flows," and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources and -- Financial Position," appearing elsewhere in this
report.


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 39-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).
</TABLE>


                                      22
<PAGE>   24

<TABLE>
         <S>            <C>
         10(a)    Operating Credit Line Agreement by and between Hunter
                  Technology Inc. and Canadian Imperial Bank of Commerce dated
                  October 21, 1998 for a credit limit of $2,250,000 (Canadian).

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

   (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 factual 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 Washington Park facility, the Company's expectations
regarding the possible exposure as a result of Hunter Technology Inc.'s design
and production problems, the provision for anticipated returns and reserves
established in connection with the payment of certain advertising and
promotional costs associated with a retail customer of NuWay utility trailers,
the Company's expectations and estimates of the foreign currency exchange rate
and interest rate risk, and the Company's plans and expectations regarding its
Year 2000 issues, 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 incur costs
related to products of Hunter Technology Inc., costs related to remediation of
the Year 2000 issue, restructuring charges associated with the closing of the
Washington Park facility, or costs associated with sales to a NuWay utility
trailer customer 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 new product development and making
improvements in its manufacturing processes; 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; the ability of the Company and third parties with which it does
business to identify and correct, with respect to the Year 2000 issue, all
relevant computer codes and embedded chips, unanticipated delays or difficulties
in the implementation of the Company's Year 2000 project plans and the ability
of the third parties to redress their respective computer systems as they relate
to the Year 2000 issue; and the other risks and uncertainties discussed or
indicated in all documents filed by the Company with the



                                      23
<PAGE>   25

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: November 15, 1999     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 39-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)    Operating Credit Line Agreement by and between Hunter
         Technology Inc. and Canadian Imperial Bank of Commerce dated
         October 21, 1998 for a credit limit of $2,250,000 (Canadian).

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


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