<PAGE>   1

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

                                    FORM 10-Q

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

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

   FOR 26-WEEK PERIOD ENDED JUNE 30, 2001    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.

                     8,573,954 SHARES OF COMMON STOCK, $0.01
                        PAR VALUE, AS OF AUGUST 13, 2001


<PAGE>   2

                             MARTIN INDUSTRIES, INC.

                                      INDEX

<TABLE>
<CAPTION>
                                                                                         PAGE

<S>      <C>                                                                             <C>
PART I.  FINANCIAL INFORMATION

         Item 1.       Financial Statements:

                       Unaudited Condensed Consolidated Balance Sheets as of
                       June 30, 2001 and December 31, 2000                                 2

                       Unaudited Condensed Consolidated Statements of
                       Operations and Comprehensive Loss for the 13-Week
                       and 26-Week Periods Ended June 30, 2001 and July 1, 2000            4

                       Unaudited Condensed Consolidated Statements of
                       Cash Flows for the 13-Week and 26-Week Periods Ended
                       June 30, 2001 and July 1, 2000                                      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                                                        22


PART II. OTHER INFORMATION

         Item 4.       Submission of Matters to a Vote of Security Holders                24

         Item 6.       Exhibits and Reports on Form 8-K                                   24
</TABLE>


<PAGE>   3

PART 1  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                         June 30,        December 31,
                                                                           2001              2000
                                                                       ------------      ------------

<S>                                                                    <C>               <C>
Current assets:
   Cash and short-term investments                                     $      7,000      $      3,000
   Accounts and notes receivable, less allowance for
      doubtful accounts of $1,499,000 and $1,634,000, respectively        9,921,000         8,365,000
   Inventories                                                           15,234,000        16,974,000
   Prepaid expenses and other assets                                        889,000           800,000
                                                                       ------------      ------------

      Total current assets                                               26,051,000        26,142,000
                                                                       ------------      ------------

   Property, plant and equipment, net                                    11,877,000        12,904,000
   Goodwill, net of accumulated amortization of
      $268,000 and $246,000, respectively                                   453,000           483,000
   Cash value of life insurance                                           1,174,000         1,638,000
   Other                                                                    182,000           341,000
                                                                       ------------      ------------

                                                                          1,809,000         2,462,000
                                                                       ------------      ------------

      Total assets                                                     $ 39,737,000      $ 41,508,000
                                                                       ============      ============
</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>
                                                               June 30,        December 31,
                                                                 2001              2000
                                                             ------------      ------------

<S>                                                          <C>               <C>
LIABILITIES
   Current Liabilities:
     Short-term borrowings                                   $ 11,052,000      $  8,519,000
     Current portion of long-term debt                          2,450,000         2,461,000
     Accounts payable                                           8,604,000         6,833,000
     Accrued liabilities:
      Payroll and employee benefits                             2,199,000         2,135,000
      Product liability                                         1,015,000         1,076,000
      Warranty                                                    731,000           707,000
      Workers' compensation                                       833,000           777,000
      Other                                                       916,000           787,000
                                                             ------------      ------------

        Total current liabilities                              27,800,000        23,295,000
                                                             ------------      ------------

   Deferred compensation                                        1,824,000         1,917,000
                                                             ------------      ------------

        Total liabilities                                      29,624,000        25,212,000
                                                             ------------      ------------

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; 9,766,099 shares issued at June 30,
      2001 and 9,764,802 at December 31, 2000                      98,000            98,000
   Paid-in capital                                             26,301,000        26,801,000
   Accumulated deficit                                         (9,825,000)       (3,596,000)
   Accumulated other comprehensive loss                          (882,000)         (831,000)
                                                             ------------      ------------

                                                               15,692,000        22,472,000
   Less:
   Treasury stock at cost (1,192,145 shares at
      June 30, 2001 and at December 31, 2000)                   3,789,000         3,789,000
   Unearned compensation                                        1,790,000         2,387,000
                                                             ------------      ------------

        Total stockholders' equity                             10,113,000        16,296,000
                                                             ------------      ------------

        Total liabilities and stockholders' equity           $ 39,737,000      $ 41,508,000
                                                             ============      ============
</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 LOSS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                            13-WEEK                        26-WEEK
                                                          PERIOD ENDED                   PERIOD ENDED
                                                  ----------------------------    ----------------------------
                                                    JUNE 30,         JULY 1,        JUNE 30,        JULY 1,
                                                      2001            2000            2001            2000
                                                  ------------    ------------    ------------    ------------

<S>                                               <C>             <C>             <C>             <C>
NET SALES                                         $ 13,199,000    $ 14,753,000    $ 28,465,000    $ 37,388,000

Cost of sales                                       12,891,000      15,284,000      26,912,000      34,979,000
                                                  ------------    ------------    ------------    ------------

GROSS PROFIT (LOSS)                                    308,000        (531,000)      1,553,000       2,409,000
                                                  ------------    ------------    ------------    ------------

Operating expenses:
  Selling                                            1,816,000       2,133,000       3,860,000       4,899,000
  General and administrative                         1,694,000       2,342,000       3,272,000       4,463,000
  Non-cash ESOP compensation                            32,000         136,000          95,000         266,000
  Restructure credit                                         0               0               0        (100,000)
                                                  ------------    ------------    ------------    ------------
                                                     3,542,000       4,611,000       7,227,000       9,528,000
                                                  ------------    ------------    ------------    ------------

OPERATING LOSS                                      (3,234,000)     (5,142,000)     (5,674,000)     (7,119,000)

Gain on sales of assets                                      0        (637,000)              0        (712,000)
Interest expense                                       301,000         222,000         593,000         389,000
Interest and other income                              (15,000)        (37,000)        (38,000)       (133,000)
                                                  ------------    ------------    ------------    ------------

LOSS BEFORE INCOME TAXES                            (3,520,000)     (4,690,000)     (6,229,000)     (6,663,000)

Provision for income taxes                                   0               0               0               0
                                                  ------------    ------------    ------------    ------------

NET LOSS                                          $ (3,520,000)   $ (4,690,000)   $ (6,229,000)   $ (6,663,000)
                                                  ============    ============    ============    ============

Other comprehensive income (loss), net of tax:
  Foreign currency translation adjustment              166,000        (155,000)        (51,000)       (178,000)
                                                  ------------    ------------    ------------    ------------

Comprehensive loss                                $ (3,354,000)   $ (4,845,000)   $ (6,280,000)   $ (6,841,000)
                                                  ============    ============    ============    ============

BASIC AND DILUTED PER SHARE DATA:

Net loss                                          $      (0.44)   $      (0.61)   $      (0.78)   $      (0.87)
                                                  ============    ============    ============    ============

Weighted average number of common
  shares outstanding                                 8,008,928       7,659,682       7,965,178       7,616,034
                                                  ============    ============    ============    ============
</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
                                                                         ------------------------------
                                                                           JUNE 30,          JULY 1,
                                                                             2001              2000
                                                                         ------------      ------------
<S>                                                                      <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                              $ (6,229,000)     $ (6,663,000)
   Adjustments to reconcile net loss to net cash
   used in operating activities:
      Depreciation and amortization                                         1,214,000         1,141,000
      Gain on sales of assets                                                       0          (712,000)
      Provision (credit) for doubtful accounts and notes receivable          (135,000)           59,000
      Non-cash ESOP compensation                                               95,000           266,000
      Other changes in operating assets and liabilities                     2,697,000         2,433,000
                                                                         ------------      ------------

          Net cash used in operating activities                            (2,358,000)       (3,476,000)
                                                                         ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                                      (196,000)       (1,876,000)
   Proceeds from sales of assets                                                5,000           267,000
                                                                         ------------      ------------

     Net cash used in investing activities                                   (191,000)       (1,609,000)
                                                                         ------------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net short-term borrowings                                                2,554,000         3,722,000
   Principal payments on long-term debt                                       (11,000)       (3,854,000)
                                                                         ------------      ------------
Net cash provided by (used in) financing activities                         2,543,000          (132,000)
                                                                         ------------      ------------

NET DECREASE IN CASH AND SHORT-TERM
   INVESTMENTS                                                                 (6,000)       (5,217,000)

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                        10,000             4,000

CASH AND SHORT-TERM INVESTMENTS AT THE
   BEGINNING OF THE PERIOD                                                      3,000         5,218,000
                                                                         ------------      ------------

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

Cash paid during the period for:
  Interest                                                               $    500,000      $    303,000
  Income taxes                                                           $          0      $          0
</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 accounting principles generally accepted in the U.S.
for interim financial information and are presented in accordance with the
requirements of Form 10-Q and Article 10 of Regulation S-X. The financial
statements should be read in conjunction with the audited financial statements
and notes thereto for the year ended December 31, 2000 included on Form 10-K, as
filed with the Securities and Exchange Commission on April 2, 2001.

         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

         During fiscal year 2000, the Company changed its method of accounting
for inventories from the last-in, first-out ("LIFO") method to the first-in,
first-out ("FIFO") method, whereby the LIFO reserve of $5.3 million was
retroactively restated in the consolidated financial statements in accordance
with Accounting Principles Board Opinion No. 20, Accounting Changes. There was
no effect of this restatement on the statement of operations for the 26-week
period ended July 1, 2000. Management believes the FIFO method provides a better
measurement of inventory valuation and operating results. Inventory costs
include material, labor and overhead, and the Company evaluates raw materials,
purchased parts, work-in-process and finished goods to ensure that inventory is
not recorded at amounts


                                       6
<PAGE>   8

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 June 30, 2001 and December 31, 2000,
the reserve for excess and obsolete inventory was $1,065,000 and $1,820,000,
respectively. An analysis of inventories at June 30, 2001 and December 31, 2000
follows:

<TABLE>
<CAPTION>
                                                                June 30,        December 31,
                                                                  2001              2000
                                                              ------------      ------------

<S>                                                           <C>               <C>
Inventories valued at first-in, first-out ("FIFO") cost:
     Raw materials and purchased parts                        $  7,492,000      $  7,756,000
     Work-in-process                                             2,149,000         2,129,000
     Finished goods                                              5,593,000         7,089,000
                                                              ------------      ------------

                                                              $ 15,234,000      $ 16,974,000
                                                              ============      ============
</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 $12,171,000 expiring in fiscal years 2019 through 2021, and NOL
carryforwards in Canada of approximately $2,628,000 expiring in fiscal years
2001 through 2008.

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

         In assessing the valuation allowance established at December 31, 2000,
the Company concluded that it should fully-reserve its net deferred tax assets
as a result of continuing losses from operations and realization of the assets
was not considered more likely than not. At June 30, 2001 and December 31, 2000,
the valuation allowance reserve for deferred taxes was $15,915,000 and
$13,533,000, respectively.

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. 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.


                                       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        26-Week Period Ended
                                        ------------------------    ------------------------
                                         June 30,       July 1,      June 30,       July 1,
                                           2001          2000          2001          2000
                                        ----------    ----------    ----------    ----------

<S>                                     <C>           <C>           <C>           <C>
Weighted average shares-basic
     and diluted, excluding ESOP and
     stock options effects               5,756,047     5,654,141     5,755,714     5,653,911

Weighted average effect of ESOP
     shares committed to be released     2,252,881     2,005,541     2,209,464     1,962,123
                                         ---------     ---------     ---------     ---------

Weighted average number of
     common shares outstanding-basic
     and diluted                         8,008,928     7,659,682     7,965,178     7,616,034
                                         =========     =========     =========     =========
</TABLE>

Options outstanding of 559,014 and 494,514 for the 13-week and 26-week periods
ended June 30, 2001 and July 1, 2000, 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.

         During 1998, the Company effected a settlement with all but two of the
former shareholders, and a contingent settlement with these two. The contingent
settlement with the two former shareholders 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 $107,000 (including
interest), and cancellation of notes and accrued interest totaling approximately
$239,000.

         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


                                       8
<PAGE>   10

damages and trials by jury. In the opinion of management, after consultation
with legal counsel responsible for these matters, the ultimate liability, if
any, with respect to the proceedings in which the Company is currently involved
is not presently expected to have a material adverse affect on the Company.
However, the potential exists for unanticipated material adverse judgments
against the Company.

6. SHORT-TERM BORROWINGS

         Effective June 15, 2001, the Company entered into an amended bank line
of credit agreement with its primary lender for up to a maximum of $11,000,000
which has been utilized to finance inventories, receivables and operations. The
amount available to the Company under the line of credit is based upon the value
from time to time of certain assets securing the line of credit. The amount
available under the revised credit line is to be reduced to $6.0 million on
October 31, 2001. The amendment extended the line of credit to January 1, 2002.
As of June 30, 2001 and December 31, 2000, the outstanding balance on the line
of credit was $9,492,000 and $7,023,000, respectively. As of June 30, 2001, the
Company's borrowing capacity under the line of credit was $127,000. 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 based on the lender's prime rate plus 1%,
which at June 30, 2001 was 7.75%. Borrowings in excess of $10,000,000 accrue
interest at the lender's prime rate plus 3%. Further, under the terms of the
amended credit agreement, the Company must meet certain monthly and quarterly
debt covenants. As of June 30, 2001, the Company was in compliance with each of
the debt covenants. The monthly covenant regarding earnings before interest,
taxes, depreciation and amortization ("EBITDA") for the one-month period ended
August 4, 2001 was not met. The Company has requested a waiver of its
non-compliance with this covenant from its primary lender. As of the date of
this filing, the decision of the lender was still pending. There can be no
assurance that a waiver of non-compliance with the covenant will be granted by
the Company's primary lender. In the absence of a waiver, the Company's lender
will have all rights and remedies provided for in the amended credit agreement
between the lender and the Company. The amendment to the credit facility also
provides that the principal payments under the Company's $2.4 million term loan
would be amortized and payable in monthly installments of $159,000 instead of
semi-annually. Interest on the term loan is payable monthly at the lender's
prime rate plus 1%. The debt outstanding under the line of credit and term loan
has been classified as current maturities.

         During the second quarter of 2001, Hunter entered into an amended bank
line of credit with a Canadian financial institution. The documentation
reflecting the amendment is presently being completed. The credit agreement, as
amended, provides for borrowings up to approximately $1,500,000. The credit line
is subject to an annual renewal on April 1 each year. The line of credit is
secured by Hunter's receivables, inventory, building 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 1%, which at June 30, 2001 was
7.25%. As of June 30, 2001, and December 31, 2000, the outstanding balance of
the line of credit was $1,400,000 and $1,334,000, respectively. The amendment
also provides for the reduction of the maximum borrowing amount to approximately
$905,000 upon the execution of a first mortgage loan. This reduction was
implemented effective July 5, 2001 upon the execution of a two-year first
mortgage loan agreement with a lending consortium for approximately $1,200,000.
The mortgage loan is secured by Hunter's real property and building. Interest is
payable monthly at a fixed rate of 10.75%. Principal payments are not due until
the expiration of the agreement. In connection with the mortgage loan, the
Company's principal Canadian lender took a second position with respect to its
security interest in Hunter's real property and building.


                                       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, utility trailer kits and replacement parts. The accounting
policies for each segment are the same as those used by the Company. The Company
evaluates performance based on gross sales and gross margin. As such, the
Company does not allocate other items of income or expense to the reportable
operating segments. The results and identifiable net assets for the two
reportable segments of the Company are included in the following table.

<TABLE>
<CAPTION>
                                                                Segment Information
                                            ------------------------------------------------------------
                                                13-Week Period Ended            26-Week Period Ended
                                            ----------------------------    ----------------------------
                                              June 30,         July 1,        June 30,        July 1,
                                                2001            2000            2001            2000
                                            ------------    ------------    ------------    ------------

<S>                                         <C>             <C>             <C>             <C>
Gross sales:
Home heating products                       $ 10,172,000    $  9,346,000    $ 18,176,000    $ 19,564,000
Leisure and other products                     3,120,000       5,504,000      10,449,000      17,966,000
                                            ------------    ------------    ------------    ------------
                                            $ 13,292,000    $ 14,850,000    $ 28,625,000    $ 37,530,000
                                            ============    ============    ============    ============

Reconciliation to net sales:
Gross sales                                 $ 13,292,000    $ 14,850,000    $ 28,625,000    $ 37,530,000
Freight revenue                                   95,000         106,000         198,000         337,000
Discounts and royalties                         (188,000)       (203,000)       (358,000)       (479,000)
                                            ------------    ------------    ------------    ------------

Net sales                                   $ 13,199,000    $ 14,753,000    $ 28,465,000    $ 37,388,000
                                            ============    ============    ============    ============

Gross margin:
Home heating products                       $  3,141,000    $  2,782,000    $  6,002,000    $  6,632,000
Leisure and other products                     1,011,000       1,976,000       3,391,000       6,655,000
                                            ------------    ------------    ------------    ------------
                                            $  4,152,000    $  4,758,000    $  9,393,000    $ 13,287,000
                                            ============    ============    ============    ============

Reconciliation to gross profit (loss):
Gross margin                                $  4,152,000    $  4,758,000    $  9,393,000    $ 13,287,000
Freight revenue                                   95,000         106,000         198,000         337,000
Discounts and royalties                         (188,000)       (203,000)       (358,000)       (479,000)
Fixed costs, variances, reserves & other      (3,751,000)     (5,192,000)     (7,680,000)    (10,736,000)
                                            ------------    ------------    ------------    ------------

Gross profit (loss)                         $    308,000    $   (531,000)   $  1,553,000    $  2,409,000
                                            ============    ============    ============    ============
</Table>


                                       10
<PAGE>   12

<Table>
<Caption>
                                      June 30,        December 31,
                                        2001              2000
                                    ------------      ------------

<S>                                 <C>               <C>
Identifiable net assets(1):
Home heating products               $ 18,326,000      $ 18,898,000
Leisure and other products             5,073,000         6,480,000
Other(2)                               3,712,000         4,500,000
                                    ------------      ------------
                                    $ 27,111,000      $ 29,878,000
                                    ============      ============
</TABLE>

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

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

8. GOING CONCERN MATTERS

         The financial statements as of and for the year ended December 31, 2000
were prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. As
shown in the financial statements, as presented in the Company's Annual Report
on Form 10-K, as filed with the Securities and Exchange Commission on April 2,
2001, during the year ended December 31, 2000, the Company incurred a net loss
of $24,593,000. The Company also had short-term borrowings of $8,519,000 as of
December 31, 2000. See Note 6 to Notes to Condensed Consolidated Financial
Statements for a discussion of the Company's short-term borrowings.

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

         Although the Company incurred a substantial net loss in fiscal 2000,
management began implementing and focusing on strategies to return the Company
to profitability. During 2000, payroll expenses were reduced approximately
$10,000,000 (on an annualized basis). The Company's manufacturing facilities
were consolidated into a single US factory and its Canadian factory. The
significant production variances experienced during fiscal 2000 have been, and
continue to be, addressed. The Company intends to continue reducing production
scrap to acceptable minimal levels. Further, the Company intends to demonstrate
to its customers that the Company will return to its historic position of being
a reliable supplier by shipping quality products in a timely manner. Overall,
the Company's operations have been, and will continue to be, restructured so
that costs are in line with the expected level of sales.


                                       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 2001 and the second quarter of 2000 are referring to the 13-week
periods ended June 30, 2001 and July 1, 2000, respectively. All references to
the 2001 year-to-date period and the 2000 year-to-date period are referring to
the 26-week periods ended June 30, 2001 and July 1, 2000, respectively.

GENERAL

         Effective June 15, 2001, the Company entered into an amended bank line
of credit agreement with its primary lender for up to a maximum of $11,000,000
which has been utilized to finance inventories, receivables and operations. The
amount available to the Company under the line of credit is based upon the value
from time to time of certain assets securing the line of credit. The amount
available under the revised credit line is to be reduced to $6.0 million on
October 31, 2001. The amendment extended the line of credit to January 1, 2002.
As of June 30, 2001 and December 31, 2000, the outstanding balance on the line
of credit was $9,492,000 and $7,023,000, respectively. As of June 30, 2001, the
Company's borrowing capacity under the line of credit was $127,000. 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 based on the lender's prime rate plus 1%,
which at June 30, 2001 was 7.75%. Borrowings in excess of $10,000,000 accrue
interest at the lender's prime rate plus 3%. Further, under the terms of the
amended credit agreement, the Company must meet certain monthly and quarterly
debt covenants. As of June 30, 2001, the Company was in compliance with each of
the debt covenants. The monthly covenant regarding earnings before interest,
taxes, depreciation and amortization ("EBITDA") for the one-month period ended
August 4, 2001 was not met. The Company has requested a waiver of its
non-compliance with this covenant from its primary lender. As of the date of
this filing, the decision of the lender was still pending. There can be no
assurance that a waiver of non-compliance with the covenant will be granted by
the Company's primary lender. In the absence of a waiver, the Company's lender
will have all rights and remedies provided for in the amended credit agreement
between the lender and the Company. The amendment to the credit facility also
provides that the principal payments under the Company's $2.4 million term loan
would be amortized and payable in monthly installments of $159,000 instead of
semi-annually. Interest on the term loan is payable monthly at the lender's
prime rate plus 1%.

          In addition to the financial covenants contained in the amended loan
agreement, the Company has covenanted with its primary lender that it will use
its reasonable best efforts to pursue one or more of the strategic alternatives
available to the Company and that by not later than August 15, 2001, the Company
shall have either made material progress toward the implementation of a
strategic alternative, as reasonably determined by the lender, or obtained a
letter of intent from an alternate lender to refinance and pay in full the
indebtedness of the Company then outstanding under the amended loan agreement.

         As part of the Company's strategic plan of increasing its emphasis and
focus on its home heating and hearth products, the Company is considering and
pursuing the sale of its Broilmaster premium gas barbecue grill product line. As
previously reported, the Company has engaged McDonald Investments, an affiliate
of Key Corp. and full service investment banking firm headquartered in
Cleveland, Ohio ("McDonald"). McDonald is assisting the Company in its effort
to sell the Broilmaster product line. It is the Company's belief that its
actions with respect to the proposed sale of the Broilmaster product line will
satisfy the covenant made with its lender. However, there can be no assurance
that the lender will determine that the Company's actions are sufficient to
meet the requirements of the covenant. Nor can there be any assurance that a
sale of the Broilmaster product line will be completed successfully. If a sale
of the Broilmaster product line cannot be completed, the Company expects to
continue to produce and sell Broilmaster premium barbeque grills as it has in
the past and to continue to pursue other available strategic alternatives. The
Company does not currently expect to publicly disclose developments regarding
its pursuit of its strategy with respect to the Broilmaster product line, or
other strategic alternatives, unless and until it is in a position to announce
it has successfully negotiated the sale of the Broilmaster product line or has
decided to pursue a different definitive transaction or strategic alternative.

                                       12
<PAGE>   14
         As a result of the $24.6 million net loss incurred during fiscal 2000
and the uncertainty of the Company's borrowing capacity, the Company received a
going concern qualification from its independent public accountants in
connection with its audited financial statements for the year ended December 31,
2000, as described more fully in the Report of Independent Public Accountants
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on April 2, 2001.

         Although the Company incurred a substantial net loss in fiscal 2000,
management began implementing and focusing on strategies to return the Company
to profitability. During 2000, payroll expenses were reduced approximately $10
million (on an annualized basis). The Company's manufacturing facilities were
consolidated into a single US factory and its Canadian factory. The significant
production variances experienced during fiscal 2000 have been, and continue to
be, addressed. The Company intends to continue reducing production scrap to
acceptable minimal levels. Further, the Company intends to demonstrate to its
customers that the Company will return to its historic position of being a
reliable supplier by shipping quality products in a timely manner. Overall, the
Company's operations have been, and will continue to be, restructured so that
costs are in line with the expected level of sales. However, there can be no
assurance that the Company's cost reductions and plant consolidations will be
successful, that the Company will be able to meet the needs and expectations of
its customers, or that the Company will achieve a level of revenue that will
allow it to return to profitability.

          On March 13, 2001, the Company was notified by Nasdaq staff of
Nasdaq's determination that the Company's Common Stock would be delisted from
The Nasdaq National Market at the opening of business on March 20, 2001, unless
the Company requested a hearing within seven days. The notification from Nasdaq
was due to the Common Stock's failure to maintain a minimum market value of
public float of at least $5 million as required by Nasdaq's rules for continued
listing on the National Market. The Company's Common Stock had not met this
market capitalization requirement, as well as Nasdaq's requirement that the
stock maintain a minimum per share bid price of $1.00. On March 16, 2001, the
Company requested a hearing before the Nasdaq Listing Qualification Panel to
review the Nasdaq staff's decision. The hearing was held April 26, 2001. The
Panel's decision was to delist the Company's Common Stock at the opening of
business on May 22, 2001. Coincident with the delisting, the Company's Common
Stock began trading on the Over-the-Counter Bulletin Board ("OTCBB"). The
Company expects that its Common Stock will continue trading on the OTCBB,
provided the Company remains current in its filings with the Securities and
Exchange Commission (the "Commission") and market makers in the Company's Common
Stock and other broker-dealers continue to make a market in the stock. There can
be no assurance, however, that the Company's Common Stock will continue to trade
at the same volume or in the same price range on the OTCBB as it has
historically traded on The Nasdaq National Market.

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


                                       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    26-Week Period Ended
                                             --------------------    --------------------
                                             June 30,     July 1,    June 30,     July 1,
                                               2001        2000        2001        2000
                                             --------     -------    --------     -------

<S>                                          <C>          <C>        <C>          <C>
Net sales                                      100.0%      100.0%      100.0%      100.0%
Cost of sales                                   97.7       103.6        94.5        93.6
                                              ------      ------      ------      ------
Gross profit (loss)                              2.3        (3.6)        5.5         6.4

Operating expenses:
     Selling                                    13.8        14.4        13.6        13.1
     General and administrative                 12.8        15.9        11.5        11.9
     Non-cash ESOP compensation expense          0.2         1.0         0.3         0.7
     Restructure credit                          0.0         0.0         0.0        (0.3)
                                              ------      ------      ------      ------
                                                26.8        31.3        25.4        25.4
                                              ------      ------      ------      ------

Operating loss                                 (24.5)      (34.9)      (19.9)      (19.0)
Gain on sales of assets                          0.0        (4.3)        0.0        (1.9)
Interest expense                                 2.3         1.5         2.1         1.0
Interest income                                 (0.1)       (0.3)       (0.1)       (0.3)
                                              ------      ------      ------      ------

Loss before income taxes                       (26.7)      (31.8)      (21.9)      (17.8)
Provision for income taxes                       0.0         0.0         0.0         0.0
                                              ------      ------      ------      ------

Net loss                                       (26.7)%     (31.8)%     (21.9)%     (17.8)%
                                              ======      ======      ======      ======
</TABLE>


                                       14
<PAGE>   16

13-WEEK PERIOD ENDED JUNE 30, 2001 COMPARED TO 13-WEEK PERIOD ENDED JULY 1, 2000

Net Sales

         Net sales in the 13-week period ended June 30, 2001 decreased to $13.2
million from $14.8 million in the 13-week period ended July 1, 2000, a decrease
of $1.6 million, or 10.5%.

Home Heating Products. Gross sales of home heating products increased to $10.2
million in the second quarter of 2001 from $9.3 million in the second quarter
2000, an increase of $826,000, or 8.8%. The increase in gross sales of home
heating products was primarily the result of an increase in gross sales of
heating appliances, such as infrared heaters, of $1.3 million. During the second
quarter of 2001, the Company was successful in meeting customer demand for these
heaters as a result of revised manufacturing processes that enabled the Company
to produce and ship higher volumes. During the second quarter of 2000, the
Company did not have adequate inventory levels to meet customer demand. The
increase in gross sales of heating appliances was partially offset by a $601,000
decrease in gross sales of gas fireplace inserts produced primarily by Hunter,
the Company's Canadian facility. However, gross sales of hearth products,
primarily fireplaces, increased $1.7 million, or 22.5%, over the first quarter
of 2001. The increase compared to the first quarter was due to the improvement
in weather conditions that negatively affected housing starts during the first
quarter of 2001.

Leisure and Other Products. Gross sales of leisure and other products decreased
$2.4 million, or 43.3%, in the second quarter of 2001 to $3.1 million as
compared to $5.5 million in the second quarter of 2000. Gross sales of barbecue
gas grills decreased $1.7 million, or 50.3%, in the second quarter of 2001, as
compared to the second quarter of 2000. Sales orders have been lower this year
as customers depleted overstocks from the 2000 grill season. Sales of NuWay
utility trailers decreased $443,000, or 28.2%, to $1.1 million in the second
quarter of 2001. The Company believes the decrease in gross sales of utility
trailer kits was the result of customer efforts to reduce inventory levels. The
production of utility trailers and related sales efforts were transferred to
Hunter during the fourth quarter of 2000.

Gross Profit

         Gross profit in the second quarter of 2001 was $308,000 as compared to
a gross loss of $531,000 in the second quarter of 2000, an improvement of
$839,000, or 158.0%. Gross margin, defined as gross sales less production costs,
decreased to $4.2 million in the second quarter of 2001 from $4.8 million in the
second quarter of 2000.

Home Heating Products. The gross margin on sales of home heating products in the
second quarter of 2001 was $3.1 million, or 30.9% of home heating sales. The
gross margin on home heating products in the second quarter of 2000 was $2.8
million, or 29.8% of home heating sales. The increase in gross margin percentage
was primarily the result of an improvement in the gross margin of heating
appliances. The gross margin percentage on hearth products during the second
quarter of 2001 was unchanged compared to the second quarter of 2000.

Leisure and Other Products. The gross margin on sales of leisure and other
products in the second quarter of 2001 was $1.0 million, or 32.4% of leisure and
other sales. The gross margin on sales of leisure and other products in the
second quarter of 2000 was $2.0 million, or 35.9% of leisure and other


                                       15
<PAGE>   17
sales. The decrease in gross margin percentage in the leisure and other segment
was primarily the result of the decrease in sales of higher margin barbecue
grills, as a percentage of total leisure and other sales.

Selling Expenses

         Selling expenses in the second quarter of 2001 decreased to $1.8
million from $2.1 million in the second quarter of 2000, a decrease of $317,000,
or 14.9%, primarily as a result of decreased administrative, promotion and
advertising expenses, partially offset by an increase in commissions. Selling
expenses as a percentage of net sales decreased to 13.8% in the second quarter
of 2001 from 14.5% in the second quarter of 2000.

General and Administrative Expenses

         General and administrative expenses decreased $648,000, or 27.7%, in
the second quarter of 2001 as compared to the second quarter of 2000. The
decrease was primarily the result of a decrease in payroll and related expenses,
partially offset by an increase in depreciation and amortization expense
associated with an additional phase of a computer systems change implemented on
January 1, 2001.

Non-cash ESOP Compensation Expense

         Non-cash ESOP compensation expense was $32,000 in the second quarter of
2001 as compared to $136,000 in the second quarter of 2000, a decrease of
$104,000, or 76.5%. In the second quarter of 2001, 86,835 shares of unallocated
ESOP stock were committed to be released as compensation at an average fair
value of $0.37 per share as compared to 86,835 shares committed to be released
as compensation at an average fair value of $1.57 per share in the second
quarter of 2000.

Restructure Credit

         The restructure credit of $100,000 recorded during the second quarter
of 2000 represents a reduction of the reserve for the Huntsville, Alabama plant
closing. The reduction was based on the Company's analysis that the original
reserve for group insurance claims should be reduced based on a
lower-than-anticipated number of terminated employees participating in the
Company's self-insured insurance plan. The estimated reserve remaining at June
30, 2001 and December 31, 2000 was $0.

Gain on Sales of Assets

         The gain on sales of assets of $637,000 recorded during the second
quarter of 2000 represents the sale of the Company's Huntsville, Alabama
manufacturing plant and certain equipment. In connection with this sale, the
Company received total proceeds of $953,000.

Interest Expense

         Interest expense in the second quarter of 2001 was $301,000 as compared
to $222,000 in the second quarter of 2000, an increase of $79,000, or 35.6%. The
increase was attributable to an increase in average outstanding debt.


                                       16
<PAGE>   18

Interest Income

         Interest income in the second quarter of 2001 was $15,000 as compared
to $37,000 in the second quarter of 2000, a decrease of $22,000, or 59.5%. The
decrease was attributable to a decrease in average outstanding investments.

Provision for Income Taxes

         During the second quarter of 2001 and 2000, the Company did not record
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.

26-WEEK PERIOD ENDED JUNE 30, 2001 COMPARED TO 26-WEEK PERIOD ENDED JULY 1, 2000

Net Sales

         Net sales in the 26-week period ended June 30, 2001 decreased to $28.5
million from $37.4 million in the 26-week period ended July 1, 2000, a decrease
of $8.9 million, or 23.9%.

Home Heating Products. Gross sales of home heating products decreased to $18.2
million in the 2001 year-to-date period from $19.6 million in the 2000
year-to-date period, a decrease of $1.4 million, or 7.1%. The decrease in gross
sales of home heating products was primarily the result of a decrease in gross
hearth products sales of $2.4 million, or 12.6%, to $16.4 million. During the
first quarter of 2001, hearth product sales were negatively impacted by lower
housing starts, due to inclement weather, particularly in the South and
Southeast, and the continued depression in the manufactured home industry. Gross
sales of heating appliances increased $1.1 million during the 2001 year-to-date
period as compared to the 2000 year-to-date period. The improvement was due to
the Company's ability to meet customer demand. During the comparable period of
2000, the Company did not have adequate inventory levels to meet the demand.

Leisure and Other Products. Gross sales of leisure and other products decreased
$7.5 million, or 41.8%, in the 2001 year-to-date period to $10.4 million as
compared to $18.0 million in the 2000 year-to-date period. Gross sales of
barbecue gas grills decreased $7.0 million, or 47.9%, in the 2001 year-to-date
period, as compared to the 2000 year-to-date period, primarily as a result of
delays in orders received from the Company's customers. According to several of
these customers, the delays in orders have been caused by a desire to reduce
customer inventory levels. As fiscal year 2001 began, there was an overall
carryover of 2000 purchases remaining in the field. In previous years, customers
have generally purchased the majority of their forecasted inventory requirements
during the first quarter under the Company's "dating" program. Rather than
continue to purchase under the dating program, many customers have elected to
purchase over a longer period of time as consumer demand dictates. Sales of
NuWay utility trailers decreased $193,000, or 9.0%, to $1.9 million in the 2001
year-to-date period. The production of utility trailers and related sales
efforts were transferred to Hunter, the Company's Canadian facility, during the
fourth quarter of 2000.


                                       17
<PAGE>   19

Gross Profit

         Gross profit in the 2001 year-to-date period was $1.6 million as
compared to $2.4 million in the 2000 year-to-date period, a decrease of
$856,000, or 35.5%. Gross margin, defined as gross sales less production costs,
decreased to $9.4 million in the 2001 year-to-date period from $13.3 million in
the 2000 year-to-date period.

Home Heating Products. The gross margin on sales of home heating products in the
2001 year-to-date period was $6.0 million, or 33.0% of home heating sales. The
gross margin on home heating products in the 2000 year-to-date period was $6.6
million, or 33.9% of home heating sales. The decrease in gross margin percentage
was primarily the result of the increase in sales of lower margin gas heating
appliances, as a percentage of total home heating sales.

Leisure and Other Products. The gross margin on sales of leisure and other
products in the 2001 year-to-date period was $3.4 million, or 32.5% of leisure
and other sales. The gross margin on sales of leisure and other products in the
2000 year-to-date period was $6.7 million, or 37.0% of leisure and other sales.
The decrease in gross margin percentage was primarily the result of the decrease
in sales of higher margin barbecue grills.

Selling Expenses

         Selling expenses in the 2001 year-to-date period decreased to $3.9
million from $4.9 million in the 2000 year-to-date period, a decrease of $1.0
million, or 21.2%, primarily the result of decreased administrative, promotion,
advertising and co-op advertising expenses, partially offset by an increase in
commissions. Selling expenses as a percentage of net sales increased to 13.6% in
the 2001 year-to-date period from 13.1% in the 2000 year-to-date period.

General and Administrative Expenses

         General and administrative expenses decreased $1.2 million, or 26.7%,
in the 2001 year-to-date period as compared to the 2000 year-to-date period. The
decrease was primarily the result of a decrease in payroll and related expenses,
partially offset by an increase in depreciation and amortization expense
associated with an additional phase of a computer systems change implemented on
January 1, 2001.

Non-cash ESOP Compensation Expense

         Non-cash ESOP compensation expense was $95,000 in the 2001 year-to-date
period as compared to $266,000 in the 2000 year-to-date period, a decrease of
$171,000, or 64.3%. In the 2001 year-to-date period, 173,670 shares of
unallocated ESOP stock were committed to be released as compensation at an
average fair value of $0.55 per share as compared to 173,670 shares committed to
be released as compensation at an average fair value of $1.53 per share in the
2000 year-to-date period.


                                       18
<PAGE>   20

Restructure Credit

         The restructure credit of $100,000 recorded during the 2000
year-to-date period 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. The estimated reserve remaining at June
30, 2001, and December 31, 2000 was $0.

Gain on Sales of Assets

         The gain on sales of assets of $712,000 recorded during the 2000
year-to-date period includes the gain on sale of certain undeveloped land and
rental property of $75,000 and the gain on sale of the Company's Huntsville,
Alabama manufacturing plant and certain equipment of $637,000. In connection
with these sales, the Company received total proceeds of $124,000 and $953,000,
respectively.

Interest Expense

         Interest expense in the 2001 year-to-date period was $593,000 as
compared to $389,000 in the 2000 year-to-date period, an increase of $204,000,
or 52.4%. The increase was attributable to an increase in average outstanding
debt.

Interest Income

         Interest income in the 2001 year-to-date period was $38,000 as compared
to $133,000 in the 2000 year-to-date period, a decrease of $95,000, or 71.4%.
The decrease was attributable to a decrease in average outstanding investments.

Provision for Income Taxes

         During the 2001 year-to-date period and 2000 year-to-date period, the
Company did not record 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.

Recent Accounting Pronouncements

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

         -        All business combinations initiated after June 30, 2001, will
                  be accounted for using the "purchase" method, under which the
                  identifiable assets and liabilities of the acquired business
                  are recorded at their respective fair market values with the
                  residual amount being recorded as goodwill. The
                  "pooling-of-interests" method, under which the


                                       19
<PAGE>   21

                  financial statements of the acquirer and the acquiree were
                  combined as if the two businesses had always been one, will no
                  longer be used.

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

         The Company will adopt FAS 141 and FAS 142 on January 1, 2002, and
expects the adoption of these standards to have no material impact on its
financial condition, results of operations or cash flows depending upon the
outcome of certain events between July 1, 2001 and December 31, 2001.

LIQUIDITY AND CAPITAL RESOURCES

         The Company has historically financed its operations from internally
generated funds and seasonal borrowings under its bank lines of credit. The
Company's primary capital requirements are for working capital, capital
expenditures and debt service. In addition, as a result of the Company's Common
Stock being delisted from Nasdaq, the terms of the Company's Employee Stock
Ownership Plan ("ESOP") provide that participants will have the option to cause
the Company to repurchase shares distributed to them for the then fair market
value of the shares. The Company anticipates that ESOP participants could
require the Company to, upon demand, repurchase up to approximately 150,000
shares. In addition to the foregoing, the Company estimates that participating
employees eligible for retirement during the next five years could require the
Company to repurchase approximately 35,000 shares of Common Stock per year over
the next five years. However, these estimates rely on information currently
available to the Company and there can be no assurance that the actual number of
shares which the Company is obligated to repurchase will not be materially
different from the Company's estimates.

         The financial statements as of and for the year ended December 31, 2000
were prepared on a going concern basis. As shown in the financial statements, as
presented in the Company's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission on April 2, 2001, during the year ended
December 31, 2000, the Company incurred a net loss of $24.6 million. The Company
has experienced significant losses during the previous two years, which losses
are likely to continue during 2001. The Company's continuation as a going
concern is dependent upon its ability to generate sufficient cash flow to meet
its obligations on a timely basis, to comply with the terms of its existing
credit line, as amended and extended, to obtain additional financing or
refinancing as may be required, and ultimately to return to profitable
operations.

         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. Under the terms of the amended agreement dated June 15,
2001, the line of credit with its principal lender expires on January 1, 2002.
In addition to the extension through January 1, 2002, the amendment provides
that up to $11.0 million will be available based on the value from time to time
of certain assets securing the credit facility. The amount available under the
revised line of credit is to be reduced to $6.0 million on October 31, 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 based on the lender's prime rate
plus 1%, which at June 30, 2001 was 7.75%. Borrowings in excess of


                                       20
<PAGE>   22

$10.0 million accrue interest at the lender's prime rate plus 3%. As of June 30,
2001, the Company's borrowing capacity under the line of credit was $127,000 and
the outstanding balance was $9.5 million.

         The term loan ("Bank Loan") obtained by the Company in 1993 to finance
the purchase of 3,489,115 shares of Company Common Stock by the Company's ESOP
was also amended effective June 15, 2001 to provide for monthly principal
payments of $159,000. The Bank Loan is due on September 15, 2002. Interest on
the Bank Loan is payable monthly at a variable rate based on the lender's prime
rate plus 1%, which at June 30, 2001 was 7.75%. The Bank Loan is secured by a
lien on the Company's buildings and equipment (exclusive of Hunter). As of June
30, 2001, the outstanding balance of the Bank Loan was $2.4 million. The debt
owing under the line of credit with the Company's principal lender and the Bank
Loan has been classified as current maturities.

         During the second quarter of 2001, Hunter entered into an amended bank
line of credit with a Canadian financial institution. The documentation
reflecting the amendment is presently being completed. The credit agreement, as
amended, provides for borrowings up to approximately $1,500,000. The credit line
is subject to an annual renewal on April 1 each year. The line of credit is
secured by Hunter's receivables, inventory, building 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 1%, which at June 30, 2001 was
7.25%. As of June 30, 2001, the outstanding balance of the line of credit was
$1,400,000. The amendment also provides for the reduction of the maximum
borrowing amount to approximately $905,000 upon the execution of a first
mortgage loan. This reduction was implemented effective July 5, 2001 upon the
execution of a two-year first mortgage loan agreement with a lending consortium
for approximately $1,200,000. The mortgage loan is secured by Hunter's real
property and building. Interest is payable monthly at a fixed rate of 10.75%.
Principal payments are not due until the expiration of the agreement. In
connection with the mortgage loan, the Company's principal Canadian lender took
a second position with respect to its security interest in Hunter's real
property and building.

         The Company believes that cash flow from operations and available
financing should be sufficient to fund its anticipated working capital needs,
capital expenditures and debt service requirements. However, because future cash
flows and the availability of financing depend on a number of factors, including
prevailing economic conditions and financial, business and other factors beyond
the Company's control, no assurance can be given in this regard.

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


                                       21
<PAGE>   23

FINANCIAL POSITION

         Cash and short-term investments in the 2001 year-to-date period
decreased $6,000 primarily as a result of a net loss of $6.2 million, partially
offset by net short-term borrowings of $2.7 million. Additionally, accounts
payable increased $1.8 million. In an effort to reduce its carrying costs, the
Company reduced inventory levels by $1.7 million. Accounts receivable increased
$1.6 million in the 2001 year-to-date period. The increase in accounts
receivable was primarily the result of an increase in dating receivables for
grills and heating appliances. In an effort to better control its production
schedule in light of the seasonal nature of its barbecue gas grill and heating
appliance 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." However,
as noted previously, participation in the dating program for grills has
decreased as customers desire to reduce their inventory levels in response to
general economic conditions.

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 June 30, 2001 would have increased the unrealized foreign currency
translation adjustment (a loss) by $483,000.

INTEREST RATE RISK

         At June 30, 2001, the Company had $2.4 million of debt outstanding at a
variable interest rate of the lender's prime rate plus 1%. 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 6.75% would increase to 7.425%) 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 $11.0 million 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 the lender's prime rate plus 1%. A
hypothetical increase of 10% in the prime rate would not cause the Company's
interest expense to increase significantly.


                                       22
<PAGE>   24

         Further, Hunter maintains a secured bank line of credit of up to a
maximum of approximately $1.5 million 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 1.0%. 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.


                                       23
<PAGE>   25

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 18, 2001. At the annual meeting, the stockholders elected three members
to the board of directors of the Company to serve as a class until the annual
meeting to be held in 2004. The nominees to the board of directors to serve
until the annual meeting to be held in 2004 received the following number of
votes:

<TABLE>
<CAPTION>

NOMINEES TO SERVE       SHARES VOTED           SHARES       ABSTENTIONS AND
   UNTIL 2004                FOR              WITHHELD         NON-VOTES
   ----------           ------------          --------      ---------------

<S>                     <C>                   <C>           <C>
William D. Biggs          6,847,528            647,311             0

Jim D. Caudle, Sr.        7,251,006            243,833             0

James J. Tanous           7,066,852            427,987             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,
2001. 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 AND
     FOR               AGAINST              NON-VOTES
------------        ------------         ---------------
<S>                 <C>                  <C>
  7,438,884            46,108                 9,847
</TABLE>

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

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

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

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

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

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


                                       24
<PAGE>   26

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

                  10(a)    Letter agreement of AmSouth Bank dated May 15, 2001.

                  10(b)    Fifth Amendment to Loan Agreement and Other Loan Documents by and
                           between Martin Industries, Inc. and AmSouth Bank dated as of June 15,
                           2001.

                  10(c)    Modified, Amended and Restated Line of Credit Note by and between
                           Martin Industries, Inc., as Company, and AmSouth Bank, as Lender, dated
                           as of June 15, 2001.

                  10(d)    Modified, Amended and Restated Term Note by and between Martin
                           Industries, Inc., as Company, and AmSouth Bank, as Lender, dated as of
                           June 15, 2001.

                  (b)      Reports on Form 8-K

                  No reports were filed on Form 8-K during the period.
</TABLE>

---------------
*Incorporated by reference


                                       25
<PAGE>   27

"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995:

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

         -        the Company's beliefs with respect to the funding of its
                  operations during fiscal year 2001;

         -        the Company's belief concerning the performance of certain
                  covenants contained in its current loan agreement with its
                  primary lender;

         -        the Company's engagement of McDonald Investments, Inc. to
                  assist the Company in exploring and pursuing strategic
                  alternatives, including the proposed sale of the Company's
                  Broilmaster product line;

         -        the ability of the Company's Common Stock to continue to trade
                  on the OTCBB and the likely trading volume and price as the
                  Company's Common Stock trades on the OTCBB;

         -        the likely benefits from cost reductions and plant
                  consolidations;

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

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

         -        results in future quarters;

         -        the estimated reserve for excess and obsolete inventories;

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

         -        the Company's expectations and estimates regarding its foreign
                  currency exchange.

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


                                       26
<PAGE>   28

Forward-looking statements contained in this Quarterly Report on Form 10-Q and
those that may be made in the future involve certain assumptions, risks and
uncertainties that could cause actual results to differ materially from those
included in or contemplated by the statements. In particular, there can be no
assurance that the Company will be successful in completing the proposed sale of
its Broilmaster product line or in its pursuit of other strategic alternatives;
that the Company will continue to generate funds or have credit available to it
that is sufficient to continue to fund its operations; that the Company will be
able to perform the covenants contained in its current loan agreement with its
primary lender or that if it fails to perform the covenants, the Company will be
able to obtain necessary waivers from its lenders; that the Company's cost
reduction and plant consolidations will be successful or that the Company will
achieve a level of revenue that will allow the Company to return to
profitability; that the current market makers and other broker-dealers will
continue to make a market in the Company's Common Stock as it trades on the
OTCBB; that the Company's Common Stock will continue to trade at the same volume
or in the same price range on the OTCBB as it has historically traded on The
Nasdaq National Market; that the Company will be able to successfully implement
or complete the short-term and long-term programs being undertaken by the
Company; that the Company's new products will meet its expectations; that the
Company will be able in the future to meet the needs and expectations of its
customers; that the Company will not exceed the estimated reserve for excess and
obsolete inventories or will utilize deferred tax assets related to net
operating loss carryforwards. These assumptions, risks and uncertainties
include, but are not limited to, those associated with general economic cycles;
the cyclical nature of the industries in which the Company operates and the
factors related thereto, including consumer confidence levels, inflation,
employment and income levels, the availability of credit, and factors affecting
the housing industry; the potential in the Company's business to experience
significant fluctuations in quarterly earnings; the Company's ability to
generate cash or secure adequate financing to fund its operations; the Company's
business strategy; potential losses from product liability and personal injury
lawsuits; the effects of seasonality and weather conditions on the Company's
home heating product sales and other sales; fluctuations in quarterly earnings
due to ESOP accounting; the effect of existing and new governmental and
environmental regulations applicable to the Company; the dependence of the
Company on key personnel; the highly competitive nature of each of the
industries in which the Company operates; the volatility of the stock price at
which outstanding shares of the Company may trade from time to time; and the
other risks and uncertainties discussed or indicated in all documents filed by
the Company with the Commission, including the Company's Annual Report on Form
10-K filed with the Commission on April 2, 2001. 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 14, 2001    By /s/ James W. Truitt
                                     --------------------------------
                                     James W. Truitt
                                     Vice President and Chief Financial Officer
                                     and Secretary
                                     (Executed on behalf of Registrant and
                                     as Principal Financial Officer)


                                       27
<PAGE>   29

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit

Number            Description of Exhibits                                                 Page No.
------            -----------------------                                                 -------

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

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

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

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

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

10(a)             Letter agreement of AmSouth Bank dated May 15, 2001.

10(b)             Fifth Amendment to Loan Agreement and Other Loan Documents
                  by and between Martin Industries, Inc. and AmSouth Bank dated
                  as of June 15, 2001.

10(c)             Modified, Amended and Restated Line of Credit Note by and
                  between Martin Industries, Inc., as Company, and AmSouth
                  Bank, as Lender, dated as of June 15, 2001.

10(d)             Modified, Amended and Restated Term Note by and between
                  Martin Industries, Inc., as Company, and AmSouth Bank, as Lender,
                  dated as of June 15, 2001.
</TABLE>

---------------
*Incorporated by reference


                                       28