<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549


                                  FORM 10-K

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

FOR THE FISCAL YEAR ENDED: AUGUST 31, 1996

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
       EXCHANGE ACT OF 1934 (NO FEE REQUIRED)


COMMISSION FILE NUMBER 0-5940

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

               DELAWARE                                  75-1321869
  (State or other jurisdiction of                     (I.R.S. Employer
   incorporation or organization)                    Identification No.)

5400 LBJ FREEWAY, SUITE 1375, DALLAS, TEXAS              75240
(Address of principal executive offices)                Zip Code

        Company's telephone number, including area code: 972/726-7175

         Securities Registered Pursuant to Section 12(b) of the act:

                                    NONE

         Securities Registered Pursuant to Section 12(g) of the act:

                   COMMON STOCK, PAR VALUE $0.20 PER SHARE
                              (Title of Class)

Indicate by check mark whether the registrant (a) 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 by check mark if disclosure of delinquent filers pursuant to Item 
405 of Regulation S-K is not contained herein, and will not be contained, to 
the best of registrant's knowledge, in definitive proxy or information 
statements incorporated by reference in Part III of this Form 10-K or any 
amendment to this Form 10-K.  X
                             ---

As of November 13, 1996, the aggregate market value of the voting stock held 
by nonaffiliates of Temtex Industries, Inc. was $7,268,628.

As of August 31, 1996 there were 3,467,141 shares of common stock, par value 
$0.20 per share, of Temtex Industries, Inc. outstanding.

<PAGE>

                                PART I

ITEM 1.  BUSINESS

GENERAL DEVELOPMENT OF BUSINESS

The Company is a major producer of metal fireplace products (woodburning and 
gas) and face brick products used in the residential and commercial building 
markets.  The Company manufactures woodburning metal fireplaces as well as 
those utilizing natural gas and liquified petroleum products.  The Company in 
1992, introduced its Temco American Dream-TM- ventfree gas log product line.  
The ventfree fireplace units provide heat from glowing artificial logs 
without the use of a vent, flue or similar device.  The Company also 
manufactures and markets a line of face brick products in varying styles, 
textures, sizes and colors.  The Company was organized in 1969 under the name 
Monnfield Industries, Inc. and in 1971 changed its name to Temtex Industries, 
Inc.  In August 1971, the Company merged with Texas Clay Industries, Inc., 
thereby acquiring several businesses, including its face brick business.

NARRATIVE DESCRIPTION OF BUSINESS

FIREPLACE PRODUCTS

Through its wholly owned subsidiary, Temco Fireplace Products, Inc. ("TFPI"), 
formerly Temtex Products, Inc., the Company manufactures and distributes zero 
clearance metal fireplace units and gas fireplace equipment.  For the fiscal 
year ended August 31, 1996, the Company had aggregate sales of fireplace 
products of approximately $33.1 million.

ZERO CLEARANCE METAL FIREPLACE PRODUCTS.  A zero clearance metal fireplace is 
similar in function to a masonry fireplace, except that the firebox and flue 
pipe chimney are fabricated from stainless and coated steels and shipped as a 
unit to the purchaser or construction site.  The inside of the firebox of a 
zero clearance metal fireplace is completely lined with an embossed brick 
pattern refractory, giving the appearance of a masonry surface.  The inner 
pipe of the flue is made from stainless steel.  Because zero clearance metal 
fireplaces are prefabricated, contractors can install them more easily and at 
lower cost than is the case with traditional masonry fireplaces.  In 
addition, because zero clearance metal fireplaces utilize a metal flue 
instead of a masonry chimney, they offer enhanced placement flexibility.  The 
Company manufactures and distributes zero clearance fireplaces in a full 
range of prices for each of the common fuel categories (i.e., wood logs, 
natural gas and liquified petroleum products).  In addition, the Company 
either manufactures or purchases from others for use in conjunction with its 
fireplace products certain essential components or optional enhancements such 
as glass doors, blower kits, outside air kits, screens and grates.  These 
items are incorporated into the zero clearance metal fireplace units during 
the assembly process or shipped in conjunction with a fireplace unit for 
subsequent assembly, depending upon customer specifications.  The Company 
does not currently manufacture accessories for fireplace units manufactured 
by third parties or for existing masonry fireplaces.

VENTFREE GAS LOGS AND VENTFREE FIREPLACES.  During fiscal 1992, the Company 
introduced its American Dream-TM- ventfree gas log and a related ventfree 
fireplace unit.  The American Dream-TM- ventfree gas log is a simulated wood 
log and burner set assembly utilizing a patented design licensed to the 
Company.  This design permits the burning of natural gas or liquefied 
petroleum products, such as propane, to provide heat without the necessity of 
venting carbon monoxide from the combustion area.  The simulated wood logs 
utilized in the American Dream-TM- ventfree gas log set are made of a soft 
ceramic material to resemble wood logs and the embers produced by the burning 
of wood logs.  As the soft ceramic material is heated by the burner set, it 
radiates heat and produces a red glow resembling that produced by wood logs 
in a masonry fireplace.  The Company also markets its ventfree gas logs as 
the Firetech 2000-Registered Trademark- ventfree gas log, depending upon the 
customer.  Unlike vented fireplaces, which must be located where outside 
venting can be effected, the Company's ventfree gas logs may be placed in any 


                                       2

<PAGE>

location where a heat source is desired, including existing fireplaces.  
Existing fireplaces can be modified to accommodate the use of the Company's 
ventfree gas logs at a nominal cost.

The Company markets ventfree gas log products, which consists of several 
different sizes of ventfree gas log sets and ventfree gas heaters and 
fireplace units.  The current fireplace products are marketed under either 
the American Dream-TM- ventfree name or the Firetech 2000-Registered 
Trademark- ventfree name, depending upon the customer.  Sales of the combined 
ventfree gas log and fireplace unit have been primarily to new home 
contractors, while significant quantities of the ventfree gas log sets not 
associated with a zero clearance fireplace unit have been sold to independent 
distributors and contractors serving the remodeling and retrofit markets.

MARKETING AND DISTRIBUTION.  The Company sells its fireplaces, ventfree gas 
logs and related accessories nationwide through its own sales force and 
through third party sales representatives primarily to contractors, wholesale 
distributors and retailers.  A majority of the Company's fireplaces are 
ultimately purchased by home builders and others engaged in the construction 
of new housing or remodeling of existing homes.  The Company has distributors 
in all regions of the country serving builders and remodelers.  The Company's 
fireplace products are used by many of the country's best known builders.

Although the Company ships its fireplace products nationwide, its sales tend 
to be somewhat concentrated in the states where housing construction is 
active.  Because the Company typically produces its products to meet specific 
orders by contractors, large distributors or retailers, it does not maintain 
material amounts of inventories in excess of anticipated short-term demand.  
The raw materials for the Company's fireplace products are readily available 
from a variety of sources.  During fiscal ended August 31, 1996, no single 
customer for fireplace products accounted for more than 10% of the Company's 
consolidated sales during such period.  A material portion of the Company's 
fireplace products are currently being sold to several of the nation's 
largest home center retailers.

MANUFACTURING.  The Company currently fabricates its zero clearance fireplace 
units from stainless and coated steels acquired from vendors and brick 
pattern refractory of its own manufacture.  During the fabrication process, 
the Company adds components and other hardware purchased from vendors.  Glass 
doors, fan kits and blowers designed for the Company's zero clearance 
fireplace units are usually shipped separately.  The Company produces a 
variety of sizes and styles of zero clearance fireplace units for both the 
single family and multi-family markets.  In the case of the ventfree gas log 
units, the Company incorporates an oxygen depletion sensor and a pilot light 
and valve acquired from vendors.  The ventfree gas log units are then further 
assembled and placed under an arrangement of soft ceramic simulated wood 
logs.  The Company, during fiscal year 1995, began manufacturing the 
simulated wood logs at the Manchester facility.

COMPETITION; PATENTS.  There are a number of manufacturers producing zero 
clearance metal fireplaces and related accessories similar to the products of 
the Company and the market for these products is very competitive.  The 
Company believes that it is among the larger producers of such products and 
that it markets a full range of zero clearance fireplace units at competitive 
prices.  The Company's ventfree gas log products utilize a patented design, 
which is currently being licensed by the Company from the holder of the 
applicable patent.  Under the terms of this license, the Company has the 
exclusive right to manufacture and distribute ventfree gas logs in the United 
States and Mexico in conjunction with a prefabricated fireplace unit or other 
burn chamber, and the non-exclusive right to produce and sell ventfree gas 
logs independently of fireplace units. Although the patented design of the 
Company's ventfree gas log product cannot be utilized by other manufacturers 
marketing fireplace units employing gas burning logs, there can be no 
assurance that a competitive product employing a different method to achieve 
the same or similar results could not be developed in the future.  The 
Company knows of one other entity which is licensed by the patent holder to 
produce separate ventfree gas logs.  Other companies have introduced products 
which compete with the Company's ventfree log sets, but the Company does not 
believe that they are using the patented concept which provides glowing logs 
and embers.  There can be no assurance that the holder of the patent will not 
license such non-exclusive rights to additional parties, thereby increasing 
the competition for the Company's 


                                       3

<PAGE>

ventfree gas logs sold separately.

FACE BRICK PRODUCTS

The Company manufactures a broad line of face brick in a variety of styles, 
textures, sizes and colors.  The Company's face brick products are 
manufactured in Malakoff, Texas (approximately 75 miles southeast of Dallas, 
Texas), through its Texas Clay Division.  For the fiscal year ended August 
31, 1996, the Company had sales of face brick products of approximately $8.9 
million.

MANUFACTURING.  Approximately 90% of the clay deposits presently utilized in 
the manufacturing of face brick products by the Company are located within 
twelve miles of its Malakoff operating facilities. The Company owns 
approximately 552 acres of land, most of which the Company believes have clay 
deposits, and leases an aggregate of approximately 460 additional acres which 
it also believes to contain clay deposits.  Generally, the leases will 
continue so long as clay is mined in paying quantities or minimum royalties 
are paid.  Royalties under the leases range from $0.25 to $0.35 per cubic 
yard of merchantable clay removed.  The Company normally maintains at least a 
120 day supply of raw clay at its operating facilities.  Historically, Texas 
Clay has obtained approximately 25% of its raw clay requirements from its own 
land and the remaining 75% from leased land.  The Company believes that its 
clay reserves necessary for making face bricks are adequate for the 
foreseeable future, although the Company does not have sufficient engineering 
data to permit it to predict the extent of such reserves with accuracy.  
Additionally, the Company believes that there is an abundance of clay 
deposits located near its Malakoff operating facility which would be 
available to the Company on acceptable terms if additional clay deposits are 
needed.

The Malakoff operating facility includes two plants that are capable of 
producing approximately 55 million bricks annually operating one shift per 
day, five days a week.  For energy efficiency reasons, three of the Company's 
kilns are operated 24 hours a day, notwithstanding staffing of other 
production facilities.  In the manufacture of face brick, the raw clay is 
mined on the surface of the ground by open pit. The principal type of clay 
mined by the Company is a highly refractory type of material.  A variety of 
clay pits are worked by the Company at any given time since the type and 
grade of clay determine the characteristics and color of finished brick.  
After the raw clay is mined, it is crushed, screened and blended, warmed and 
tempered into an amorphous mass which is extruded through a die and cut to 
size automatically.  The brick is then dried to reduce the moisture content, 
burned at heat ranging up to 2200 degrees Fahrenheit, and gathered and 
packaged for shipment in bundles of the same shade or color or of mixed 
shades or colors.  The Company utilizes a grinding system which permits it to 
automatically mix ingredients, thereby producing more consistency in color.

MARKETING AND DISTRIBUTION.  The face brick products manufactured by the 
Company are distributed primarily in Texas and adjacent states to commercial 
and residential contractors, architects and interior and commercial 
decorators.  The Company markets its face brick products primarily through 
independent distributors.  In addition, the Company currently employs one 
full-time salesperson.  Sales made to the residential market generally 
produce higher profit margins than sales made to the commercial markets.  
During the fiscal year ended August 31, 1996, no single face brick customer 
accounted for more than 10% of the Company's consolidated net sales during 
such period.

FUEL REQUIREMENTS.  In order to manufacture the Company's face brick 
products, significant quantities of natural gas must be obtained from the 
local public utility or from private parties.  The Company historically has 
obtained most of its natural gas requirements from the local public utility, 
but has obtained, and currently continues to obtain, a significant portion of 
its gas supply from one or more private parties.

The Company's manufacturing operations have, from time to time, experienced 
minor disruptions resulting primarily from the imposition by the local public 
utility of allocations during peak usage periods, but such disruptions have 
not had and are not expected in the foreseeable future to have, a material 
adverse effect on the Company's operations.  However, since the cost of 
natural gas historically 


                                       4

<PAGE>

has constituted the largest single component of the Company's face brick 
manufacturing operating costs (other than labor and maintenance parts) and is 
expected in the foreseeable future to continue to be material, any 
significant increase in the cost of natural gas without an accompanying price 
increase in the products sold by the Company could adversely affect its 
operating results.  The Company purchases all of its natural gas at 
prevailing rates and does not have any long-term supply agreements.

INVENTORIES AND PAYMENT TERMS

As a general rule, the Company's customers are not permitted to return 
fireplace units or face brick products, nor are they granted extended payment 
terms on any of these products.  As a result, the Company's working capital 
needs are less than would be the case if it carried significant amounts of 
inventory, accepted returns of merchandise or granted extended payment terms.

PATENTS AND TRADEMARKS

The Company does not own any material patents, but does own a variety of 
trademarks and trade names.  The consumer products manufactured by the 
Company are sold primarily under the trademark or trade names of 
Temco-Registered Trademark-, Amberlight-Registered Trademark-, Temco American 
Dream-TM-, Firetech 2000-Registered Trademark- and Masterworks 280-Registered 
Trademark- direct vent fireplace.  The Company believes that its trademarks 
and trade names as a whole have significant value.  However, the Company does 
not consider any one or group of its trademarks or trade names or any 
licenses granted to or by it to be material to its business as a whole, 
except for the patent license (the "Patent License") relating to its ventfree 
fireplace products and direct vent fireplaces.

The original Patent License provided for an initial term of four years, 
commencing April 1, 1992 and expiring on March 31, 1996, subject to 
termination in the event of default by the Company.  The Company exercised 
its option to extend the initial term of the Patent License for an additional 
four year term, expiring on March 31, 2000. During fiscal 1995, the Patent 
License was extended again for an additional two year term, expiring on March 
31, 2002.














                                       5

<PAGE>

BACKLOG

The table set forth below gives certain information with respect to the 
approximate backlog of the Company by business segment.

                                FACE           FIREPLACE
                           BRICK PRODUCTS      PRODUCTS      TOTAL
                           --------------      ---------    ------
                                          (IN THOUSANDS)
Balance at
 8/31/95                       $1,453           $2,034      $3,487

Balance at
 8/31/96                       $1,626           $2,256      $3,882

As of August 31, 1996, the amount of backlog of orders shown above is 
believed to be firm and the orders are expected to be filled during 1997.  
The Company does not consider backlog amounts to be significant due to the 
nature of the customer's order patterns.

GOVERNMENT REGULATIONS

The Company does not anticipate that compliance with Federal, State and local 
provisions which have been enacted or adopted regulating the discharge of 
materials into the environment, or otherwise relating to the protection of 
the environment, will have any material effect upon capital expenditures or 
earnings and will not affect the competitive position of the Company and its 
subsidiaries in any of the Company's segments of business.

EMPLOYEES

As of August 31, 1996, the Company employed approximately 628 persons 
(including employees of wholly-owned subsidiaries) of whom approximately 130 
were salaried and 498 were hourly employees.















                                       6

<PAGE>

ITEM 2.  PROPERTIES

CORPORATE OFFICE

The executive offices of the Company are located at 5400 LBJ Freeway, 
Suite 1375, Dallas, Texas 75240. Such offices consist of a small office suite 
which is leased under a five year lease expiring on September 30, 2001. The 
current monthly rental is $5,185.

FIREPLACE PRODUCTS

The Company manufactures and assembles its fireplace products in its facilities
at Manchester, Tennessee, Perris, California and Mexicali, Baja California, 
Mexico.  Management of the Company believes the availability of two plants 
located in different geographic areas of the United States allows it to ship 
products nationwide at a lower average freight cost than many of its 
competitors operating out of a single plant.

The Company's Manchester facility contains approximately 127,000 square feet 
and includes a main building of metal construction and three adjacent smaller 
buildings, generally of metal construction. The Manchester facility is leased 
by the Company from HUTCO, a California partnership of which Mr. James E. 
Upfield (Chairman of the Board of the Company) and a former director of the 
Company are the general partners. The original lease provided for a 
twenty-five year term, expiring in 2014 with a monthly rental of $13,020, 
subject to certain scheduled rental escalations based upon increases in the 
consumer price index. During fiscal 1994, the Company entered into a new 
lease agreement with HUTCO whereby HUTCO expanded the Manchester facility by 
30,000 square feet to a total of approximately 157,000 square feet. The 
monthly rental beginning January, 1995 increased to $21,500 and is subject to 
certain scheduled rent escalations based upon increases in the consumer price 
index. The new lease provides for a twenty-five year term, expiring in 2020. 
In the opinion of the management of the Company, the leases from HUTCO were 
consummated on terms and conditions as favorable to the Company as terms and 
conditions obtainable from non-affiliated parties.

The Company's manufacturing facility in Perris is located on ten acres of 
land and contains approximately 78,000 square feet. The facility is leased by 
the Company from a former director of the Company under a long-term lease 
originally expiring in 1999. During fiscal 1995, the Company exercised a ten 
year option extending the lease through September 30, 2008.  The monthly 
rental rate remains the same at $6,368.  In the opinion of the management of 
the Company, the Perris lease was consummated on terms and conditions as 
favorable to the Company as terms and conditions obtainable from 
non-affiliated parties.

The Company's Mexicali, Mexico facility contains approximately 13,000 square 
feet. The lease for this facility commenced on August 1, 1993, provides for 
monthly rental of $3,410 (U.S.) and expires in July 1998. During the 1994 
fiscal year, the Company entered into a second lease for an additional 7,250 
square feet with a monthly rental of $2,100 (U.S.) and this lease also 
expires in July 1998.  This facility manufactures fireplace component parts 
for use by the Company's Manchester and Perris plants.

FACE BRICK PRODUCTS

The Company's face brick products are manufactured in Malakoff, Texas through 
its Texas Clay division. The Company owns and operates office and 
manufacturing facilities on a seventy-six acre tract of land at this 
location, consisting of multiple buildings constructed on steel frames with 
sheet metal siding and roofs which contain approximately 268,000 square feet 
of floor space. The Company's facilities house manufacturing equipment, three 
active kilns, storage areas for raw materials and finished products and 
loading areas for trucks.



                                      7

<PAGE>

ITEM 3.   LEGAL PROCEEDINGS

There are legal actions in which the Company is a party, however, in the 
opinion of management, the Company's ultimate loss, if any, will not be 
significant.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.

                                   PART II

ITEM 5.   MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED 
          STOCK-HOLDER MATTERS

The following table summarizes the high and low sales prices of the Common 
Stock provided to the Company by the National Association of Securities Dealers
Automated Quotation System  ("NASDAQ").  The Company's Common Stock trades on 
the NASDAQ market under the symbol TMTX.

                                     PRICE (1)
                                  --------------
                                   HIGH     LOW
                                   ----     ---
               FISCAL 1995
               First Quarter      $12.13   $9.50
               Second Quarter      10.38    7.75
               Third Quarter        8.50    6.00
               Fourth Quarter       6.41    4.13

               FISCAL 1996
               First Quarter      $ 4.75   $3.63
               Second Quarter       5.25    3.38
               Third Quarter        5.00    3.50
               Fourth Quarter       4.50    2.94

(1) The prices shown represent quotations between dealers and do not include 
mark-ups, mark-downs or commissions, and may not represent actual transactions.

The number of shareholders of record and beneficial shareholders of the Company
as of November 13, 1996 was approximately 1,570. The only stock of the Company
outstanding is Common Stock par value $0.20 per share.

No cash dividends were declared or paid during fiscal 1995 or 1996. The Company
currently intends to reinvest its earnings for use in its business and to 
finance future growth. Accordingly, the Company does not anticipate paying 
dividends in the foreseeable future.



                                      8

<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA
<TABLE>
                                                                           YEARS ENDED AUGUST 31,
                                                --------------------------------------------------------------
                                                     1996         1995        1994         1993          1992
                                                     ----         ----        ----         ----          ----
                                                                   (in thousands, except share amounts)
<S>                                              <C>          <C>          <C>          <C>          <C>
SELECTED STATEMENT OF OPERATIONS DATA:
  Net Sales
   Fireplace products ......................... $   33,110   $   34,504   $   35,324   $   26,371   $   19,708
   Face brick products ........................      8,862        8,400        8,611        7,736        6,698
                                                ----------   ----------   ----------   ----------   ----------
      Total net sales .........................     41,972       42,904       43,935       34,107       26,406
  Cost of goods sold ..........................     30,977       30,962       29,391       23,657       19,913
                                                ----------   ----------   ----------   ----------   ----------
  Gross profit ................................     10,995       11,942       14,544       10,450        6,493
  Selling, general and administrative
    expenses ..................................      9,548       10,782       10,291        7,735        5,875
  Interest expense ............................        583          424          526          903          985
  Other income ................................         (2)        (122)         (71)         (45)        (256)
                                                ----------   ----------   ----------   ----------   ----------
  Income (loss) from continuing operations
    before income taxes .......................        866          858        3,798        1,857         (111)
  Income tax expense (benefit) ................        324          369         (280)         713           28
                                                ----------   ----------   ----------   ----------   ----------
  Income (loss) from continuing operations
    before extraordinary item .................        542          489        4,078        1,144         (139)
  Loss from discontinued operations,
    less applicable federal taxes .............         --           --           --          (87)        (226)
  Extraordinary gain from utilization of
    operating loss carryforward ...............         --           --           --          530           --
                                                ----------   ----------   ----------   ----------   ----------
  Net income (loss) ........................... $      542   $      489   $    4,078   $    1,587   $     (365)
                                                ----------   ----------   ----------   ----------   ----------
                                                ----------   ----------   ----------   ----------   ----------

  Income (loss) per common share:
    Income (loss) from continuing operations,
      before extraordinary item ............... $      .16   $      .14   $     1.25   $      .45   $     (.06)
    Loss from discontinued operations .........         --           --           --         (.03)        (.09)
    Extraordinary item ........................         --           --           --          .21           --
                                                ----------   ----------   ----------   ----------   ----------
    Net income (loss) per common share ........ $      .16   $      .14   $     1.25   $      .63   $     (.15)
                                                ----------   ----------   ----------   ----------   ----------
                                                ----------   ----------   ----------   ----------   ----------
  Weighted average common and common
    equivalent shares outstanding .............  3,491,131    3,502,887    3,272,568    2,520,189    2,456,641
                                                ----------   ----------   ----------   ----------   ----------
                                                ----------   ----------   ----------   ----------   ----------

CASH DIVIDENDS DECLARED PER COMMON SHARE....... $       --   $       --   $       --   $       --   $       --
                                                ----------   ----------   ----------   ----------   ----------
                                                ----------   ----------   ----------   ----------   ----------
</TABLE>

<TABLE>
                                                                               AUGUST 31,
                                                -------------------------------------------------------------
                                                     1996         1995        1994         1993          1992
                                                     ----         ----        ----         ----          ----
<S>                                              <C>          <C>          <C>          <C>          <C>
SELECTED BALANCE SHEET DATA:

  Working capital ............................. $    8,329   $    9,014   $   10,189   $    1,582   $      766
  Total assets (1) ............................     27,808       27,116       23,643       16,903       13,482
  Short-term debt (2) .........................      3,343        2,770          595        4,969        4,530
  Long-term debt, excluding current
    maturities (3) ............................      2,218        3,099        1,346        2,166        2,687
  Stockholders' equity ........................     15,970       15,416       14,916        4,309        2,722

</TABLE>

------------------------
(1)  Excludes assets related to discontinued operations.
(2)  Includes amounts borrowed under a revolving credit agreement and debt
     payable within one year,  including capitalized lease obligations to
     related parties.
(3)  Includes capitalized lease obligations to related parties.



                                      9

<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

OVERVIEW

The Company is a producer of metal fireplace products and face brick products 
used in the residential and commercial building and remodeling markets.  The 
Company manufactures and distributes its fireplace products through Temco 
Fireplace Products, Inc., a wholly owned subsidiary of the Company, and its 
face brick products through its Texas Clay division.  The Company's fireplace 
products are sold nationwide to a network of contractors, distributors and 
retailers, and its face brick products are sold to contractors and 
distributors principally in Texas and surrounding states.

The Company provides products to contractors and others engaged in the 
construction and remodeling markets which usually are more active in the 
summer and fall months.  The Company's sales are affected by this seasonality 
since contractors and other users do not maintain inventories of products for 
construction purposes. In addition, the Company provides goods to the 
building products industry which is cyclical in nature and can be affected by 
changes in consumer credit, interest rates and general economic conditions.

FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995

NET SALES

FIREPLACE PRODUCTS.  Net sales decreased $1.4 million or 4% in fiscal 1996 
compared with fiscal 1995. Although the Company shipped a greater quantity of 
fireplaces and ventfree gas log sets in 1996 compared with 1995, the average 
price received for each unit was less in 1996 than in 1995. Competition 
within the industry, especially for ventfree gas products, had a negative 
impact on net sales in 1996.

FACE BRICK PRODUCTS. Net sales increased $0.5 millon or 6% in fiscal 1996 
compared with fiscal 1995. An increase in the quantity of face brick shipped 
in 1996 along with a small increase in the selling price which the Company 
received for its product, were responsible for the overall increase in net 
sales.

GROSS PROFIT

FIREPLACE PRODUCTS. Gross profit decreased approximately 11% in fiscal 1996 
compared with fiscal 1995. A portion of the decrease is attributable to the 
decrease in sales. The reduction in the average unit sales price received for 
the product also contributed to the lower gross profit recorded in 1996.

FACE BRICK PRODUCTS. Gross profit increased approximately 3% in fiscal 1996 
compared with fiscal 1995. The increase was a direct result of the increase 
in net sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling expenses decreased 15% in fiscal 1996 compared with fiscal 1995.  As 
a percentage of sales, the decrease was 2% between the two years.  The 
decrease was mainly due to a decrease in advertising expenses.  Advertising 
expenses in fiscal 1995 were greater than usual due to the introduction of 
several new gas fireplace and gas log products.

General and administrative expenses decreased approximately 6% in fiscal 1996 
compared with fiscal 1995.  As a percentage of sales, the decrease was less 
than 1%.

INTEREST EXPENSE

Interest expense increased $159,000 or 38% in fiscal 1996 compared with 
fiscal 1995.  The increase in interest expense was the direct result of the 
increase in the average indebtedness of the Company in 1996.


                                      10

<PAGE>

OTHER INCOME

Other income for both fiscal 1996 and 1995 includes small amounts from 
various sources.

INCOME TAXES

Income tax expense, both current and deferred, decreased from $369,000 in 
fiscal 1995 to $324,000 in fiscal 1996.  In fiscal 1996, income tax expense 
consisted of $154,000 in federal, $146,000 in state and $24,000 in foreign 
income taxes.

FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994

NET SALES

FIREPLACE PRODUCTS.  Net sales decreased $0.8 million or 2% in fiscal 1995 
compared with fiscal 1994.  The Company shipped approximately the same 
quantity of fireplaces and ventfree gas log sets in 1995 compared with 1994.  
A change in the mix of products shipped was primarily responsible for the 
reduction in sales.

FACE BRICK PRODUCTS.  Net sales decreased $0.2 million or 2% in fiscal 1995 
compared with fiscal 1994.  The reduction in the quantity of face brick 
shipped in 1995 was partially offset by an increase in sales price which the 
Company received for its product.

GROSS PROFIT

FIREPLACE PRODUCTS.  Gross profit decreased approximately 22% in fiscal 1995 
compared with fiscal 1994.  A portion of the decrease is attributable to the 
decrease in sales.  Also adding to the increase in cost of goods sold was the 
increase in depreciation expense resulting from the greater than normal 
expenditures for capital items in fiscal 1995.  In addition, costs related to 
changes for product improvement as well as packaging changes to prevent 
product damage in shipment also added to the cost without a corresponding 
increase in sales price to the customers.

FACE BRICK PRODUCTS.  Gross profit decreased approximately 2% in fiscal 1995 
compared with fiscal 1994.  The decrease was a direct result of the reduction 
in sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling expenses increased 15% in fiscal 1995 compared with fiscal 1994.  As 
a percentage of sales, the increase was 2.4% between the two years.  The 
increase was due primarily to an increase in advertising expenses related to 
the Company's gas fireplace and gas log products.

General and administrative expenses decreased approximately 9% in fiscal 1995 
compared with fiscal 1994.  As a percentage of sales, expenses decreased by 
0.7%.  The major portion of the decrease was attributed to the decrease in 
management bonuses accrued at fiscal 1995 year end.

INTEREST EXPENSE

Interest expense decreased approximately $102,000 or 19% in fiscal 1995 
compared with fiscal 1994.  Although indebtedness increased significantly in 
the third and fourth quarters of fiscal 1995, the average indebtedness of the 
Company throughout the entire year was slightly less than the average for 
fiscal 1994. The reduction in interest expense is the direct result of the 
decrease in the average indebtedness.


                                      11

<PAGE>

OTHER INCOME

Other income for both fiscal 1995 and 1994 includes small amounts from 
various sources.

INCOME TAXES

Income tax expense, both current and deferred, decreased from $1,394,000 in 
fiscal 1994 (before change in valuation allowance), to $369,000 in fiscal 
1995, due to diminished operating results.  In fiscal 1995, income tax 
expense consisted of $296,000 in federal income taxes and $73,000 in state 
income taxes.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $2,161,000, $1,358,000 and 
$341,000 in fiscal 1996, 1995 and 1994, respectively.  Although there was an 
increase in cash provided by operations in fiscal 1996, working capital 
decreased by $685,000 mainly due to an increase in notes payable.  In fiscal 
1995, working capital decreased by $1,175,000 mainly due to a decrease in 
accounts receivable and an increase in notes payable and current maturities 
of long term obligations.

Capital expenditures and capitalized lease obligations for fireplace and face 
brick products totalled $2,057,000 ($1,722,000 for fireplace products and 
$335,000 for face brick products), $5,294,000 ($4,030,000 for fireplace 
products and $1,264,000 for face brick products) and $1,997,000 ($1,561,000 
for fireplace products and $436,000 for face brick products) in fiscal 1996, 
1995 and 1994, respectively.  The majority of expenditures in each of the 
years was for tooling, replacement items and major repairs to manufacturing 
equipment.  In fiscal 1995, equipment was purchased for the Tennessee 
location which was expanded to increase its fireplace manufacturing capacity. 
The Company entered into a new lease agreement for the Tennessee facility at 
that time in consideration of the expansion which was financed by the 
partnership which owns the facility.  In fiscal 1995, the Company also 
exercised its option to extend its lease of the fireplace manufacturing 
facility in California.  Also, in fiscal 1995, expenditures for face brick 
products included an amount for approximately 80 acres of land believed to 
contain an estimated 400,000 cubic feet of clay.  Construction of a 
replacement office building at the face brick products manufacturing facility 
was completed early in fiscal 1995.

In May 1996, the Company entered into a two year credit agreement with a bank 
whereby the Company may borrow a maximum of $4,000,000 under a revolving 
credit facility.  The outstanding principal balance may bear interest at a 
variable or fixed rate, at the Company's option, at the time funds are 
requested.  Interest is payable on a monthly basis and also at the end of the 
borrowing period if borrowing at a fixed rate.  The revolving credit facility 
had an outstanding balance of $3,099,000 at August 31, 1996.  The credit 
facility requires the Company to maintain certain minimum financial ratios.  
The Company was in compliance with all debt covenants at August 31, 1996.

Advances from the new revolving credit facility were used to repay the 
principal balance outstanding and accrued interest on a two year revolving 
credit note that expired, as scheduled, in May 1996.  In addition, a 
promissory term note that had been added to the expiring revolving credit 
note, was repaid at the same time.  The term note was scheduled for repayment 
in March 1998.

In fiscal 1996, borrowings under the revolving credit agreement combined with 
cash on hand, were used to purchase various items of tooling and 
manufacturing equipment.

The Company anticipates that cash flow from operations together with funds 
available from the revolving credit facility should provide the Company with 
adequate funds to meet its working capital requirements as well as 
requirements for capital expenditures for at least the next twelve months.


                                      12

<PAGE>

EFFECTS OF INFLATION

The Company believes that the effects of inflation on its operations have not 
been material during the past three fiscal years.  However, inflation could 
adversely affect the Company if inflation results in higher interest rates or 
a substantial weakness in economic conditions that could adversely affect the 
new housing market.

EARNINGS PER SHARE

In December 1993, the Company completed a secondary stock offering in which 
an additional 1,000,000 shares of common stock were issued.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this Item is submitted in a separate section of this report.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR ACCOUNTING AND
         FINANCIAL DISCLOSURES

Not applicable.



















                                      13

<PAGE>

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

     (A) DIRECTORS OF THE COMPANY

The names of the directors and nominees for the office of director and 
information about them, as furnished by the directors and nominees 
themselves, are set forth below:

                                 First       Positions and Offices with Company,
                                Became a     Business Experience During Past
    Name                Age   Director in    Five Years and Other Directorships
----------------        ---   -----------    -----------------------------------
James E. Upfield        76        1969       Chairman of the Board of the
                                             Company for more than the past five
                                             years; also Chairman of the Board
                                             of Temco Fireplace Products, Inc.,
                                             a wholly-owned subsidiary of the
                                             Company; serves as a director of
                                             Magnum  Petroleum, Inc. (formerly
                                             Hunter Resources, Inc.) which is
                                             engaged in the sale of oil, gas and
                                             oilfield services.

E. R. Buford            61        1973       President of the Company for more
                                             than five years and was elected
                                             Chief Executive Officer of the
                                             Company in February, 1986;
                                             President and a director of Temco
                                             Fireplace Products, Inc., a wholly-
                                             owned subsidiary of the Company,
                                             for more than the past five years.

Joseph V. Mariner, Jr.  76        1979       Retired as Chairman and Chief
                                             Executive Officer of Hydro-Metals,
                                             Inc., when it was acquired by
                                             Wallace Murray Corporation, a
                                             manufacturer of plumbing ware and
                                             cutting tools; serves as a director
                                             of Peerless Mfg. Co., a
                                             manufacturer of separators and
                                             filters used for removing liquids
                                             and solids from gases and air; the
                                             Dyson-Kissner-Moran Corporation, a
                                             New York based privately owned
                                             investment company; Kearney
                                             National, Inc., a manufacturer of
                                             electrical power distribution
                                             products; El Chico Restaurants,
                                             Inc., a Mexican restaurant chain;
                                             Renters Choice, Inc., operates 
                                             Rent-To-Own Stores; and Industrial
                                             Flexible Materials, Inc., a
                                             manufacturer of crumbs rubber from
                                             recycled tires.

Larry J. Parsons        67        1989       Retired in 1988 as partner of Ernst
                                             & Whinney (now known as Ernst &
                                             Young LLP), an international public
                                             accounting firm.  Mr. Parsons was a
                                             partner for more than five years
                                             before his retirement and holds no
                                             other directorships.

Scott K. Upfield        37        1992       President, Treasurer and a director
                                             of Insurance Technologies
                                             Corporation, a company principally
                                             engaged in developing and marketing
                                             software to the insurance industry
                                             for more than the past five years.


                                      14

<PAGE>

Richard W. Griner       58        1995       Director, President and Chief
                                             Operating Officer of The Hart
                                             Group, a privately owned company
                                             which supplies managerial services
                                             to privately owned Rmax, Inc., a
                                             manufacturer and distributor of
                                             insulation wall board for more than
                                             the past five years; director and
                                             President of HC Industries, Inc.
                                             and of HC Industries NV., Inc.,
                                             subsidiaries of Rmax; and director
                                             of Axon, Inc., a multifaceted
                                             contracting and service company.
                                             Mr. Griner is also a director and
                                             President of Rmax.

Each of the above named nominees is a member of the present Board of 
Directors and was elected to such office at the Annual Meeting of 
Stockholders held March 6, 1996.  There are no family relationships among any 
of the directors or among any of the directors and any officers of the 
Company except Messrs. James E. Upfield and Scott K. Upfield who are father 
and son.

     (B) EXECUTIVE OFFICERS OF THE COMPANY

      Name           Age          Offices with Company
----------------     ---     -------------------------------------------------
James E. Upfield     76      Chairman of the Board and a director

E. R. Buford         61      President, Chief Executive Officer and a director

R. N. Stivers        60      Vice President-Finance, Secretary, Treasurer, Chief
                             Financial Officer and Chief Accounting Officer

Each of the officers has served in their respective capacity for more than 
the past five years.  There are no family relationships between any of the 
executive officers, nor any arrangement of understanding between any officer 
and any other person pursuant to which the officer was selected.  Officers 
are appointed annually by the Board of Directors immediately following the 
annual meeting of shareholders.


                                      15

<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

The following table provides certain disclosure of all compensation awarded 
to, earned by or paid to the chief executive officer of the Company and to 
each of the Company's four most highly compensated executive officers (other 
than the chief executive officer) whose total salary and bonus exceed 
$100,000.

                          SUMMARY COMPENSATION TABLE
                          --------------------------
<TABLE>
                                                                     Long Term Compensation
                                                          ------------------------------------------
                      Annual Compensation                           Awards               Payouts
                  ---------------------------             -----------------------   ----------------
                                               Other                   Securities             All
                                               Annual     Restricted   Underlying   LTIP     Other
Name and                                       Compen-       Stock      Options/    Pay-     Compen-
Principal         Fiscal    Salary     Bonus   sation        Awards       SARs      outs     sation
Position           Year      ($)        ($)      ($)          ($)         (#)        ($)      ($)
----------------------------------------------------------------------------------------------------
<S>                 <C>     <C>          <C>     <C>          <C>         <C>        <C>       <C>
E.R.Buford         1994    195,000    150,000    N/A          -0-         -0-        -0-      N/A
Chief              1995    205,300       -0-     N/A          -0-         -0-        -0-      N/A
Executive          1996    213,500       -0-     N/A          -0-         -0-        -0-      N/A
Officer and
President
----------------------------------------------------------------------------------------------------
J. E. Upfield      1994    145,000     25,000    N/A          -0-         -0-        -0-      N/A
Chairman of        1995    150,000       -0-     N/A          -0-         -0-        -0-      N/A
the Board          1996    150,000       -0-     N/A          -0-         -0-        -0-      N/A
----------------------------------------------------------------------------------------------------
R. N. Stivers      1994    102,500     30,000    N/A          -0-         -0-        -0-      N/A
Chief Financial    1995    107,800       -0-     N/A          -0-         -0-        -0-      N/A
Officer/Vice       1996    112,000       -0-     N/A          -0-         -0-        -0-      N/A
President-Finance
----------------------------------------------------------------------------------------------------
</TABLE>

Other annual compensation did not exceed the lesser of either $50,000 or 10% 
of total salary as disclosed in the summary compensation table.















                                      16

<PAGE>

EMPLOYMENT CONTRACT AGREEMENTS

The Company entered into three-year employment contracts with Mr. E. R. 
Buford and Mr. R. N. Stivers (the "Executives") as of June 7, 1994. Under the 
terms of the agreements, Mr. Buford receives an annual base salary of at 
least $201,300 and Mr. Stivers receives a base salary of at least $105,000.  
During the term of the agreements, the Company may increase the base salary 
of the Executives.  The Executives will also be eligible to participate in 
the regular employee benefit program now or hereafter established by the 
Company.

On each anniversary of these agreements, the term shall be extended for an 
additional period of one year unless the Board of Directors elects, at the 
directors' meeting following the annual stockholders' meeting, not to extend 
the agreements.

The agreements may be terminated by the Company without cause upon thirty 
days prior written notice.  In the event of termination without cause, the 
Company shall for a period of two and one-half years continue to pay Mr. 
Buford and for a period of one year continue to pay Mr. Stivers their base 
salaries effective at the time of termination.

If the Executives are involuntarily terminated, other than for cause, in 
contemplation of, or within three years following, a change of control, the 
Company shall pay the Executives (i) a lump sum severance payment equal to 
two and one-half times the Executives base salary in effect at the time of 
involuntary termination, payable as a lump sum, and (ii) continuation of all 
employee benefits, executive benefits and perquisites or benefits reasonably 
equivalent thereto, for a period of two and one-half years.

SELECT MANAGEMENT EMPLOYEE SECURITY PLAN

Except for the Company's Select Management Employee Security Plan, the 
Company does not have any plans that could be deemed long-term incentive 
plans or defined benefit or actuarial plans under which benefits are 
determined primarily by reference to final compensation.  The Select 
Management Employee Security Plan (the "Security Plan") provides certain 
death and retirement benefits to key employees of the Company.  During the 
fiscal year ended August 31, 1996, ten (10) employees were participating in 
the Security Plan (including the three named executive officers in the 
Summary Compensation Table above).  The Company's Compensation Committee has 
discretion to select additional employees (not more frequently than annually) 
to participate in the Security Plan.

The Security Plan provides for benefits to be paid to each participant for a 
period of ten (10) years after retirement (or to the beneficiary or estate of 
a participant for a period of ten (10) years following the date of death of a 
participant) in an amount during each such year equal to approximately 50% of 
the participant's salary at the date of retirement or death.  All required 
benefit payments are provided by individual life insurance, retirement 
insurance or annuity type policies which the Company's Compensation Committee 
has deemed appropriate.  Pursuant to the Security Plan, the Company makes all 
contributions to fund the aggregate amount of insurance premiums required to 
purchase and maintain all applicable insurance or annuity type policies.

Any participant in the Security Plan who ceases to be an employee of the 
Company prior to attaining the age of fifty (50) and ten (10) years of 
employment and before normal retirement date may elect to purchase his 
insurance policy for one-third of its cash value on the date of termination.  
Any participant who ceases to be employed after attaining age fifty (50) and 
ten (10) years of service but before normal retirement will be assigned his 
insurance policy without any payment being required.

                                       17

<PAGE>

STOCK OPTION PLAN FOR KEY EMPLOYEES

In 1990, the Company adopted the 1990 Stock Plan for Key Employees of Temtex 
Industries, Inc. and its Subsidiaries (the "1990 Plan").  The 1990 Plan 
provides for the grant of stock options, including "incentive stock options" 
within the meaning of Section 422A of the Internal Revenue Code of 1986 and 
"non-qualified stock options" which do not constitute incentive stock 
options, the grant of stock appreciation rights in connection therewith, and 
the allotment of shares of restricted stock, to key employees of the Company.

The 1990 Plan is intended to attract, retain and provide incentives for 
eligible key employees.  The 1990 Plan is administered by a committee of the 
Board of Directors not eligible to receive awards under the 1990 Plan.  
Presently the Compensation Committee administers the Plan.  Such committee 
has authority, in its discretion, to determine the individuals to whom, and 
the time or times at which restricted stock will be allotted or options or 
stock appreciation rights will be granted, the number of shares to be subject 
to each allotment of restricted stock, stock options and appreciation rights, 
the option price for the duration of each option and other matters in 
connection with the administration of the 1990 Plan and the grant of awards 
thereunder.  The exercise price of any option granted under the 1990 Plan may 
not be less than the fair market value of the Common Stock at the date of 
grant.  Options and stock appreciation rights may be granted and restricted 
stock allotted under the 1990 Plan from time to time until December 31, 1999, 
on which date such 1990 Plan will terminate, unless it is sooner terminated 
as provided therein.

The stockholders at the annual meeting held March 7, 1995, approved a 
proposal increasing the shares eligible for issuance pursuant to the 1990 
Plan from 95,000 shares to 195,000 shares of Common Stock and the aggregate 
number of options (including stock appreciation rights) or shares of 
restricted stock which may be issued to any one employee in any fiscal year 
shall not exceed 25,000.


                                       18

<PAGE>

OPTION GRANTS DURING 1996 FISCAL YEAR

There were no stock options granted to the Company's executive officers named 
in the summary compensation table during fiscal year 1996.

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

The following table includes the number of shares received upon exercise, or if
no shares were received, the number of securities with respect to which the
options were exercised, the aggregate dollar value realized upon exercise and
the total value of unexercised options held at the end of the last completed
fiscal year for each of the Company's executive officers named in the Summary
Compensation Table.

               AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
               ---------------------------------------------------
                           AND FY-END OPTION/SAR VALUES
                           ----------------------------

                                                                Value of
                                          Number of Securities  Unexercised In-
                                          Underlying            the-Money
                                          Unexercised           Options/SARs at
                                          Options/SARs at FY-   FY-End ($)
                                          End (#)
             Shares
             Acquired on  Value Realized  Exercisable/          Exercisable/
Name         Exercise (#)      ($)        Unexercisable         Unexercisable
--------------------------------------------------------------------------------
E. R. Buford     -0-           -0-        Exercisable 50,000    $122,000
                                          Exercisable 5,000          -0- (1)
                                          Unexercisable 15,000       -0- (1)

J. E. Upfield    -0-           -0-                -0-                -0-

R. N. Stivers    -0-           -0-        Exercisable 10,000    $ 24,400
                                          Exercisable 2,500          -0- (1)
                                          Unexercisable 7,500        -0- (1)

(1)  The Company's stock price at August 31, 1996 was below the option price.
--------------------------------------------------------------------------------


                                       19

<PAGE>

STOCK OPTION PLAN FOR OUTSIDE DIRECTORS

In 1990, the Company also adopted the Outside Director Stock Option Plan (the
"Outside  Director Plan").  The Outside Director Plan is intended to encourage
more extensive ownership of the Common Stock, to provide incentives and to
attract and retain eligible outside directors of the Company.  Under the Outside
Director Plan, 30,000 shares of Common Stock were reserved.  The Outside
Director Plan is presently administered by the Board of Directors.  The Board of
Directors has authority, in its discretion, to determine the outside directors
to whom, and the time or times in which, options will be granted, the number of
shares to be subject to each option, and the purchase price of the shares
covered by each option.  The exercise price of any option granted under the
Outside Director Plan may not be less than the fair market value of the Common
Stock at the date of the grant.  Options granted under the Outside Director Plan
are non-qualified options for federal income tax purposes.

The following table shows stock options granted and presently exercisable to
outside directors from May 23, 1990 to August 31, 1996:


                             Options
                           Granted and              Value of Unexercised
                            Presently     Option    In-The-Money Options
  Name of Director         Exercisable    Price     At Fiscal Year End
----------------------     -----------    ------    --------------------

Joseph V. Mariner, Jr.        2,500        $2.00           $4,075
                              2,500        $1.44            5,475
                              -----                        ------
                              5,000                        $9,550
                              -----                        ------
                              -----                        ------
Larry J. Parsons              2,500        $2.00           $4,075
                              2,500        $1.44            5,475
                              -----                        ------
                              5,000                        $9,550
                              -----                        ------
                              -----                        ------
Scott K. Upfield              2,500        $1.44           $5,475
                              -----                        ------
                              -----                        ------
Richard W. Griner             2,500        $4.81           $  -0- (1)
                              -----
                              -----

(1)  The Company's stock price at August 31, 1996 was below the option price.

DIRECTORS' REMUNERATION

Those directors who are salaried employees of the Company receive no additional
compensation for their services as directors or as members of committees of the
Board.  Cash compensation currently payable to the other directors for services
in that capacity consists of a retainer of $2,500 per year and a fee of $750 (in
addition to travel expenses) for each day of each meeting of the Board of
Directors attended.  No additional retainers are paid for serving on a
committee; however, if one or more committee meetings are held on a day other
than one on which a Board meeting is held, committee members are paid a fee of
$750 (in addition to travel expenses) for each day of such meeting or meetings.

Directors who are not regular salaried officers or employees who render services
to the Company in a capacity or capacities other than that of a director (for
example, as consultants or attorneys) may be compensated for such other
services, and such compensation for other services shall not, except insofar as
may be specified by the Company in particular cases, affect the cash
compensation payable to such directors in their capacities as directors and
members of committees of the Board of Directors.


                                       20

<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

James E. Upfield was, during the fiscal year, an officer of the Company and a
member of the Compensation Committee of the Board of Directors.  Mr. Upfield has
engaged in certain transactions with the company described under the heading
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS".

BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors consists of Mr. Mariner
(Chairman), Mr. Parsons, Mr. James E. Upfield, Mr. Scott K. Upfield and Mr.
Richard W. Griner.  The Compensation Committee's primary function is to review
the compensation awarded to the executive officers of the Company.

In determining executive compensation, the Compensation Committee reviews the
performance of the specific executive, the operating performance of the Company,
the compensation of executives of companies which are comparable to the Company
and the performance of the Company's Common Stock.  Particular emphasis is given
to the operating results of the Company.  The Company's Compensation Committee
has access to, and review reports of, independent financial consultants who
assimilate and evaluate the compensation of executive officers employed by
companies which are generally comparable to the Company.  The cumulative weight
of all such factors is then generally considered to determine whether or not a
particular executive should receive an increase in compensation, an incentive
bonus under the Company's Executive Bonus Plan, a stock option or stock grant
under the Company's Stock Option Plan for Key Employees, or any other
compensation benefits.  Mr. E. R. Buford (the Chief Executive Officer of the
Company) and Mr. Roger Stivers entered into employment agreements with the
Company which fixed their annual salaries at certain minimum levels $201,300
per annum for Mr. Buford and $105,000 per annum for Mr. Stivers).

The Compensation Committee believes that in order for the Company to succeed, it
must attract and retain qualified executives who can not only perform
satisfactorily on an individual basis but who can also retain and manage a
quality staff or other executive officers and key employees.  Thus, in addition
to applying the criteria generally applicable to all executive officers, in
determining the compensation of the chief executive officer the Compensation
Committee may also be influenced to a significant extent by the overall
performance of the company's other executives and key employees.  After a review
of all such factors and a report of independent financial consultants dated
February 5, 1996, which opined that a base salary of $220,000 and total cash
compensation of $295,000 for the Chief Executive Officer would be "competitive",
the Compensation Committee recommended that the Chief Executive Officer's base
salary be increased to $216,320 per annum but did not recommend that any bonus
be paid for fiscal 1996.

                        Mr. Joseph V. Mariner, Jr.
                        Mr. James E. Upfield
                        Mr. Scott K. Upfield
                        Mr. Larry J. Parsons
                        Mr. Richard W. Griner


                                       21

<PAGE>

PERFORMANCE GRAPH

The following table compares the performance of the Company's Common Stock with
certain comparable indices:


                                  [GRAPH]

<TABLE>
                                         1991       1992       1993       1994       1995       1996
                                       ---------  ---------  ---------  ---------  ---------  ---------
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>
TEMTEX INDUSTRIES, INC. .............  $  100.00  $  125.00  $  888.00  $1,075.00  $  469.00  $  363.00
Dow Jones Industrial ................  $3,517.79  $3,877.63  $4,475.10  $4,928.00  $5,965.04  $7,434.82
Dow Jones Furnishings & Appliances...  $  280.08  $  301.58  $  490.28  $  449.74  $  457.28  $  528.50
</TABLE>






                                      22

<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      (a) The Company knows of no person owning beneficially more than 5% of 
the Company's Common Stock, except for the following person who owned, as of 
November 13, 1996, the number of shares of Common Stock of the Company set 
forth opposite his name in the table below:

<TABLE>
                                                        Amount and Nature
Title of              Name and Address                    of Beneficial      Percent
 Class               of Beneficial Owner                  Ownership (1)      of Class
-------------------------------------------------------------------------------------
<S>                   <C>                                  <C>               <C>   
Common Stock          James E. Upfield                     1,062,850 (2)      30.7%
                      5400 LBJ Freeway
                      Suite 1375
                      Dallas, Texas 75240


Common Stock          Dimensional Fund Advisors, Inc.        186,000           5.4%
                      1299 Ocean Avenue
                      11th Floor
                      Santa Monica, California 90401
</TABLE>
------------------
(1)  The nature of the beneficial ownership of the shares is sole voting and
     investment power unless indicated otherwise.

(2)  Includes 24,750 shares of Common Stock held of record by HUTCO, a
     partnership comprised of Mr. Upfield and a former director of the Company.
     Mr. James E. Upfield has shared voting and investment power with respect to
     such shares of Common Stock.














                                      23

<PAGE>

     (b) The following table sets forth the beneficial ownership (as defined 
by the rules of the Securities and Exchange Commission) of Common Stock of 
the Company by the incumbent directors, nominees for director and all 
directors and officers as a group, together with the percentage of the 
outstanding shares which such ownership represents.  Information is stated as 
of November 13, 1996.

                                                    Amount and
Title of            Name or Identity             Nature of Bene-      Percent of
 Class                  of Group               ficial Ownership (1)     Class
------------       -----------------           --------------------   ----------

Common Stock       James E. Upfield               1,062,850 (2)         30.7%

Common Stock       E. R. Buford                      94,062 (3)          2.7%

Common Stock       Joseph V. Mariner, Jr.             6,725 (4)            *

Common Stock       Larry J. Parsons                   7,000 (4)            *

Common Stock       Scott K. Upfield                  29,500 (5)          1.0%

Common Stock       Richard W. Griner                  4,500 (5)            *

Common Stock       R. N. Stivers                     25,043 (6)          1.0%
                                                  ---------             ----
                                                  1,229,680             35.5%
----------------
  * Denotes less than 1%.

(1) The nature of the beneficial ownership of the shares by the respective
    persons or group is sole voting and investment power unless otherwise
    indicated.

(2) Includes 24,750 shares of Common Stock over which Mr. James E. Upfield has
    shared voting and investment power owned by HUTCO, a partnership comprised
    of Mr. James E. Upfield and a former director of the Company.

(3) Includes 55,000 shares of Common Stock exercisable under the 1990 Plan.

(4) Includes 6,500 shares of Common Stock exercisable under the Outside
    Director Plan.

(5) Includes 4,000 shares of Common Stock exercisable under the Outside
    Director Plan.

(6) Includes 12,500 shares of Common Stock exercisable under the 1990 Plan.







                                      24

<PAGE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

At the Annual Meeting of Stockholders of the Company held December 21, 1976, 
the Company's stockholders approved a Share Purchase Agreement ("Agreement") 
among the Company, Mr. James E. Upfield and RepublicBank Dallas, (succeeded 
by NationsBank of Texas, N.A.) as trustee (the "Trustee"), pursuant to which 
the Company may purchase, or may be required, following the death of Mr. 
Upfield, to purchase from the estate of Mr. Upfield (the "Estate") up to that 
maximum number of shares of Common Stock whose aggregate purchase price does 
not exceed the lesser of (a) the sum of (i) the estate, inheritance, legacy 
and succession taxes (including any interest collected as a part of such 
taxes) imposed because of Mr. Upfield's death and (ii) the amount of funeral 
and administrative expenses allowable as deductions in computing the taxable 
estate of Mr. Upfield under Section 2053 of the Code, or (b) the amount paid 
to the Trustee pursuant to the Agreement upon and by reason of the death of 
Mr. Upfield pursuant to a life insurance policy in the amount of $500,000 
carried by the Company on the life of Mr. Upfield.

The purpose of the Agreement is to provide an orderly means for the Estate to 
raise funds to pay all estate and inheritance taxes and funeral and 
administrative expenses without necessitating the sale of a large number of 
shares of Common Stock in the over-the-counter market, an event which, in the 
opinion of the Company, would have, primarily because of the limited volume 
of trading in such shares, a potentially serious adverse effect on the price 
of the Common Stock.

The purchase price of a share of Common Stock under the Agreement is an 
amount equal to 90% of the mean between the highest and lowest quoted selling 
price for a share of Common Stock in any public securities exchange or 
market, if available, or otherwise the mean between the bona fide closing bid 
and asked prices therefore in said exchange or market, on the date of death 
of Mr. Upfield, or if no such sales or bid and asked prices are available on 
such date, then the weighted average of the mean between the highest and 
lowest selling prices, or bona fide bid and asked prices, as the case may be, 
for a share of Common Stock on the nearest trading date before and the 
nearest trading date after the date of death of Mr. Upfield (such average to 
be weighted inversely by the respective number of trading dates between the 
selling dates or the price quotation dates and such date of death in the same 
manner used in determining the valuation of stock for federal estate tax 
purposes as set forth in Treasury Regulation Section 20.2031-2(d) promulgated 
by the Commissioner of Internal Revenue under Section 2031 of the Code).  
Such purchase price would have been $3.13, if computed as of November 13, 
1996.

The Estate will not be obligated to sell any shares of Common Stock under the 
Agreement unless prior to the closing of such sale the Estate has obtained a 
ruling from the Internal Revenue Service, or an opinion of counsel 
satisfactory in form and content to the Estate, to the effect that the 
purchase by the Company will be treated as a distribution in full payment and 
exchange therefor under Section 302(b) of the Code.  The Company will not be 
required to purchase any shares of Common Stock under the Agreement if and to 
the extent that such a purchase would result in an impairment of its capital 
or would otherwise be in violation of applicable state law relative to the 
Company's purchase of its shares of Common Stock.

The Company, pursuant to the Agreement, has transferred to the Trustee, as 
beneficiary, an existing life insurance policy on the life of Mr. Upfield in 
the amount of $500,000.  The Company is the owner of such insurance policy; 
however, under certain conditions described below, Mr. Upfield will have the 
right to purchase all, or any part, of such policy.  The premium payable by 
the Company for such insurance policy is $21,049 per year.  The premiums paid 
by the Company are not deductible by it for federal income tax purposes, and 
the proceeds of the policy when paid to the Trustee and used to purchase the 
shares of Common Stock under the Agreement or transferred to the Company will 
not constitute income to the Company for federal income tax purposes.

The Trustee is to hold in its custody until the death of Mr. Upfield or 
termination of the Agreement (in which event it is to return to the Company) 
the insurance policy on the life of Mr. Upfield.  Upon and after the death of 
Mr. Upfield, the Trustee is to make claim for, collect, hold, deposit or 
invest, and pay over the proceeds of the insurance policy on the life of Mr. 
Upfield and any deposits or investments thereof and interest earned thereon 


                                      25

<PAGE>

for the account of the Company.  In the event the proceeds from such 
insurance policy are greater than the amount required to purchase the shares 
of Common Stock from the Estate, such excess will be paid to the Company.  
The Company will reimburse the Trustee for its expenses in carrying out the 
provisions of the Agreement and will pay reasonable and customary 
compensation.

The Agreement may be terminated (a) upon the determination of bankruptcy or 
the dissolution of the Company, (b) upon the cessation of regular business of 
the Company, (c) at the option of the Company, in the event the purchase 
price thereunder exceeds 200% of the book value of a share of Common Stock, 
determined as of the end of the fiscal quarter immediately preceding the date 
of Mr. Upfield's death, (d) at the option of the Estate, in the event the 
purchase price thereunder is less than 75% of the book value of a share of 
Common Stock, determined as of the end of the fiscal quarter immediately 
preceding the date of Mr. Upfield's death or (e) by the mutual written 
consent of Mr. Upfield or the Estate and the Company.  In addition, if Mr. 
Upfield disposes, during his lifetime, of all of the Common Stock he now 
owns, the Agreement will be terminated.

The Agreement provides that if it is terminated during Mr. Upfield's life, he 
will have the right to purchase from the Company any part or all of the 
insurance policy on his life subject to the Agreement.  The purchase price of 
such insurance policy will be equal to its cash surrender value, net of any 
policy indebtedness, plus any unearned premium thereon at the date of 
purchase.

The manufacturing plant and related real property in Manchester, Tennessee is 
leased by TFPI from HUTCO, a California partnership of which Mr. James E. 
Upfield and a former director are the general partners.  The Manchester 
facility, which was originally subject to a five-year lease with an option to 
purchase between TFPI and the former owner, was acquired by HUTCO upon the 
assignment to it of TFPI's option to purchase following TFPI's inability to 
secure financing upon acceptable terms.  The lease between TFPI and HUTCO is 
for a twenty-five year term commencing November 15, 1989 and provides for 
monthly rental payments of $13,020 (subject to certain scheduled rent 
escalations based upon increases in the consumer price index).  During the 
1994 fiscal year, the Company entered into a new twenty-five year lease 
agreement with HUTCO.  The new lease agreement provides for a 30,000 square 
foot expansion to the facility with monthly rental payments of $21,500 
commencing January 1, 1995.  The new lease is subject to certain scheduled 
rent escalations based upon increases in the consumer price index.

In the opinion of management of the Company, the leases of the TFPI 
manufacturing facility from HUTCO have been consummated on terms and 
conditions as favorable to the Company as terms and conditions obtainable 
from non-affiliated parties.

In 1994, the Company entered into employment agreements with Messrs. E. R. 
Buford and R. N. Stivers.  The employment agreements are described under the 
caption "Executive Compensation-Employment Contract Agreements."



                                      26

<PAGE>

                                  PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
          (a)  (1) and (2) The response to this portion of Item 14 is submitted
               as a separate section of this report.

                       (3) Listing of Exhibits:  The response to this portion
                           is presented in Item (c).

          (b)  During the fourth quarter of the period covered by this report,
               there were no reports filed on Form 8-K.

          (c)  Exhibits:

                       (3) Articles of Incorporation and Bylaws.

                           3.1  Amended and Restated Certificate of 
                                Incorporation.*

                           3.2  Amended and Restated Bylaws.*

                       (10)  Material Contracts

                               10.10   1990 Stock Option Plan for Key
                                       Employees of Temtex Industries,
                                       Inc. and its subsidiaries.*

                               10.11   Outside Directors Stock Option Plan
                                       of Temtex Industries, Inc.*

                               10.12   Share Purchase Agreement between
                                       the Registrant and Mr. James E.
                                       Upfield effective December 21, 1976.*

                               10.13   Lease Agreement between the Registrant
                                       and Mr. John D. Howard, a former 
                                       Director of the Registrant, dated 
                                       October 1, 1973 (the "Howard Lease 
                                       Agreement").*

                               10.14   Second Amendment to the Howard Lease
                                       Agreement dated August 22, 1983.*

                               10.15   Lease Agreement between HUTCO and the
                                       Registrant, dated September 7, 1989.*

                               10.16   Lease Agreement between HUTCO and the
                                       the Registrant, dated April 25, 1994.**

                               10.17   Loan Agreement between NationsBank of 
                                       Texas, N.A. and the Registrant dated 
                                       May 3, 1994.**

                               10.18   Employment contract between E. R.
                                       Buford and the Registrant dated
                                       June 7, 1994.**



                                     27

<PAGE>

                               10.19   Employment contract between R. N.
                                       Stivers and the Registrant dated
                                       June 7, 1994.**

                               10.20   First amendment to the loan agreement
                                       between NationsBank of Texas, N.A. and
                                       the Registrant dated May 3, 1994.***

                               10.21   Second amendment to the loan agreement
                                       between NationsBank of Texas, N.A. and
                                       the Registrant dated May 3, 1994.***

                               10.22   Loan agreement between Bank of America
                                       and the Registrant dated May 1, 1996.****

               (21) Subsidiaries of the Registrant.

                               21.1    Subsidiaries of the Registrant.*

               (23) Consents of Experts and Counsel

                               23.1    Consent of Independent Auditors.****

               (27) Financial Data Schedule

                               27.1    Financial data schedule.****

     (d)  Financial Statement Schedules -- The response to this portion of
          Item 14 is submitted as a separate section of this report.

               *     Filed as an exhibit of the same number to the Registrant's
                     Annual Report on Form 10-K for the fiscal year ended 
                     August 31, 1993, and incorporated by reference herein.

               **    Filed as an exhibit of the same number to the Registrant's
                     Annual Report on Form 10-K for the fiscal year ended 
                     August 31, 1994, and incorporated by reference herein.

               ***   Filed as an exhibit of the same number to the 
                     registrant's Annual Report on Form 10-K for the fiscal 
                     year ended August 31, 1995 and incorporated by reference 
                     herein.

               ****  Filed herewith.



                                     28 
<PAGE>

                                 SIGNATURES


Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                       TEMTEX INDUSTRIES, INC.




                                       /s/ James E. Upfield
                                       ---------------------------------------
                                       James E. Upfield
                                       Chairman of the Board of
                                       Directors

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.


     SIGNATURES                             TITLE                     DATE
     ----------                             -----                     ----

/s/ James E. Upfield           Director, Chairman of the Board      11/25/96
------------------------
James E. Upfield


/s/ E. R. Buford               Director, President and Chief
------------------------       Executive Officer                    11/25/96
E. R. Buford 


/s/ R. N. Stivers              Vice President-Finance,
------------------------       Chief Financial Officer and
R. N. Stivers                  Chief Accounting Officer             11/25/96


/s/ Scott K. Upfield           Director                             11/25/96
------------------------
Scott K. Upfield




                                     29 
<PAGE>

FORM 10-K--ITEM 8 AND ITEM 14(a)(1) and (2)

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

     Report of Ernst & Young, Independent Auditors

     Consolidated balance sheets--August 31, 1996 and 1995

     Consolidated statements of operations--Years ended August 31, 1996, 1995
     and 1994

     Consolidated statements of stockholders' equity--Years ended August 31,
     1996, 1995 and 1994

     Consolidated statements of cash flows--Years ended August 1996, 1995, 1994

     Notes to consolidated financial statements--August 31, 1996

     Financial statement schedules:

          II--Valuation and qualifying accounts

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and, therefore have been omitted.

Individual financial statements of the registrant have been omitted as the
registrant is primarily an operating company, and the subsidiary included in the
consolidated financial statement, filed, in the aggregate, does not have
minority equity interest and/or indebtedness to any person other than the
registrant in amounts which together(excepting indebtedness incurred in the
ordinary course of business which is not overdue and matures within one year
from the date of its creation, whether or not evidenced by securities) exceed
five percent of the total assets as shown by the most recent year-end
consolidated balance sheet.

                                     F-1

<PAGE>

                         Report of Independent Auditors


Board of Directors
Temtex Industries, Inc.

We have audited the accompanying consolidated balance sheets of Temtex
Industries, Inc. and subsidiaries as of August 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended August 31, 1996. Our
audits also included the financial statement schedule listed in the Index at 
Item 14(a).  These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we p!an and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Temtex
Industries, Inc. and subsidiaries at August 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of three
years in the period ended August 31, 1996, in conformity with generally accepted
accounting principles.  Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.


                                       /s/ ERNST & YOUNG LLP
                                       ----------------------------------------
                                           ERNST & YOUNG LLP

Dallas, Texas
October 25, 1996

                                       F-2

<PAGE>

CONSOLIDATED BALANCE SHEETS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES


                                                            August 31,
                                                      ---------------------
                                                       1996          1995
                                                      -------       -------
                                                          (in thousands)
ASSETS

CURRENT ASSETS
  Cash and cash equivalents                           $   445       $   736
  Accounts receivable, less allowance for
      doubtful accounts:  1996--$435,000
      and 1995--$541,000--Note D                        6,971         7,011
  Inventories--Notes C and D                           10,224         8,773
  Prepaid expenses and other assets                       285           401
  Income taxes recoverable--Note H                         --           443
  Deferred taxes--Note H                                  226           350
                                                      -------       -------
       TOTAL CURRENT ASSETS                            18,151        17,714

DEFERRED TAXES--Note H                                    672           530

OTHER ASSETS                                              381           366

ASSETS RELATED TO DISCONTINUED OPERATIONS--Note I         202            99

PROPERTY, PLANT AND EQUIPMENT--Notes D and G
  Land and clay deposits                                  325           325
  Buildings and improvements                            3,491         3,496
  Machinery, equipment, furniture and
    fixtures                                           23,289        21,448
  Leasehold improvements                                  866           742
                                                      -------       -------
                                                       27,971        26,011
  Less allowances for depreciation,
    depletion and amortization                         19,367        17,505
                                                      -------       -------
                                                        8,604         8,506








                                                      -------       -------
                                                      $28,010       $27,215
                                                      -------       -------
                                                      -------       -------

                                     F-3

<PAGE>

                                                           August 31,
                                                     ---------------------
                                                      1996          1995
                                                     -------       -------
                                                          (in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Notes payable--Note D                             $  3,099      $  2,000
  Accounts payable                                     4,714         4,144
  Accrued expenses--Note E                             1,708         1,786
  Income taxes payable--Note H                            57            --
  Current maturities of indebtedness
    to related parties--Notes D and G                      8             7
  Current maturities of long-term obliga-
    tions--Note D                                        236           763
                                                     -------       -------
       TOTAL CURRENT LIABILITIES                       9,822         8,700

INDEBTEDNESS TO RELATED PARTIES,
  less current maturities--Notes D and G               1,613         1,621

LONG-TERM OBLIGATIONS, less current
  maturities--Note D                                     605         1,478

COMMITMENTS AND CONTINGENCIES--Notes G and M

STOCKHOLDERS' EQUITY--Notes B, F and L
  Preferred stock--$1 par value; 1,000,000
    shares authorized, none issued                        --            --
  Common stock--$.20 par value; 10,000,000
    shares authorized, 5,268,625 shares
    issued at August 31, 1996 and 5,265,625 shares
    issued at August 31, 1995                            716           715
  Additional capital                                   9,236         9,225
  Retained earnings                                    6,345         5,803
                                                     -------       -------
                                                      16,297        15,743
  Less:
    Treasury stock:
      At cost--113,696 shares                            327           327
      At no cost--1,687,788 shares                        --            --
                                                     -------       -------
                                                      15,970        15,416
                                                     -------       -------
                                                     $28,010       $27,215
                                                     -------       -------
                                                     -------       -------



See notes to consolidated financial statements.

                                     F-4

<PAGE>


CONSOLIDATED STATEMENTS OF OPERATIONS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES


                                                  Year Ended August 31,
                                        ---------------------------------------
                                           1996           1995           1994
                                        ---------      ---------      ---------
                                             (in thousands except share data)

Net sales                               $  41,972      $  42,904      $  43,935
Cost of goods sold                         30,977         30,962         29,391
                                        ---------      ---------      ---------
                                           10,995         11,942         14,544
Costs and expenses:
  Selling, general and administrative       9,548         10,782         10,291
  Interest                                    583            424            526
Other income                                   (2)          (122)           (71)
                                        ---------      ---------      ---------
                                           10,129         11,084         10,746
                                        ---------      ---------      ---------
      INCOME FROM OPERATIONS
        BEFORE INCOME TAXES                   866            858          3,798

State and federal income 
  taxes--Note H:
    Provision (benefit)                       324            369           (280)
                                        ---------      ---------      ---------
        NET INCOME                      $     542      $     489      $   4,078
                                        ---------      ---------      ---------
                                        ---------      ---------      ---------



Income per common share                 $     .16      $     .14      $    1.25
                                        ---------      ---------      ---------
                                        ---------      ---------      ---------

Weighted average common and common
equivalent shares outstanding           3,491,131      3,502,887      3,272,568
                                        ---------      ---------      ---------
                                        ---------      ---------      ---------



See notes to consolidated financial statements.






                                     F-5

<PAGE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES

<TABLE>
                                        Common Stock
                                         Outstanding                    Retained   Cost of
                                    -------------------   Additional    Earnings   Treasury
                                      Shares     Amount     Capital     (Deficit)   Stock
                                    ---------    ------   ----------    ---------  --------
                                                         (Dollars in thousands)            
<S>                                    <C>         <C>       <C>          <C>       <C>    
BALANCE AT AUGUST 31, 1993          2,456,641     $514     $2,886       $1,236      $327 

    Stock offering                  1,000,000      200      6,329                        
    Net income                                                           4,078           
                                    ---------     ----     ------       ------      ---- 
BALANCE AT AUGUST 31, 1994          3,456,641      714      9,215        5,314       327 

    Exercise of stock options           7,500        1         10                        
    Net income                                                             489           
                                    ---------     ----     ------       ------      ---- 
BALANCE AT AUGUST 31, 1995          3,464,141      715      9,225        5,803       327 

    Stock award                         3,000        1         11                        
    Net income                                                             542           
                                    ---------     ----     ------       ------      ---- 
BALANCE AT AUGUST 31, 1996          3,467,141     $716     $9,236       $6,345      $327 
                                    ---------     ----     ------       ------      ---- 
                                    ---------     ----     ------       ------      ---- 
</TABLE>



See notes to consolidated financial statements.















                                     F-6

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES

<TABLE>

                                                               Year Ended August 31,      
                                                          ------------------------------- 
                                                           1996        1995        1994   
                                                          -------     -------    -------- 
                                                                   (in thousands)         
<S>                                                       <C>         <C>        <C>    
OPERATING ACTIVITIES
  Net income                                              $   542     $   489    $  4,078 
  Adjustments to reconcile net income to net
    cash provided by operating activities:
     Depreciation, depletion and amortization               1,964       1,509       1,074 
     Deferred taxes                                           (18)         84        (940)
     Gain on disposition of buildings and equipment            (9)        (94)        (24)
     Provision for doubtful accounts                          198         186         402 
     Provision for losses on assets related 
       to discontinued operations                              --          --          16 
     Changes in operating assets and liabilities:
       Accounts receivable                                   (158)        532      (2,754)
       Inventories                                         (1,451)         11      (2,497)
       Prepaid expenses and other assets                      101          45         180 
       Accounts payable and accrued expenses                  492        (958)      1,046 
       Income taxes payable                                   500        (446)       (240)
                                                          -------     -------    -------- 
      NET CASH PROVIDED BY OPERATING ACTIVITIES             2,161       1,358         341 

INVESTING ACTIVITIES
  Purchases of property, plant and equipment               (2,065)     (4,254)     (1,978)
  Expenditures on assets related to discontinued
    operations                                               (129)         --        (333)
  Proceeds from disposition of property, plant
    and equipment                                              12          99          34 
  Proceeds from disposition of assets and other 
    receipts related to discontinued operations                26           6         839 
                                                          -------     -------    -------- 
      NET CASH USED IN INVESTING ACTIVITIES                (2,156)     (4,149)     (1,438)

FINANCING ACTIVITIES
  Proceeds from revolving line of credit and
    long-term borrowings                                    1,099       3,893         485 
  Principal payments on revolving line of
    credit, long-term obligations and indebtedness
    to related parties                                     (1,407)     (1,004)     (5,700)
  Proceeds from issuance of common stock                       12          11       6,529 
                                                          -------     -------    -------- 
      NET CASH (USED IN) PROVIDED BY FINANCING
          ACTIVITIES                                         (296)      2,900       1,314 
                                                          -------     -------    -------- 

      (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS       (291)        109         217 
Cash and cash equivalents at beginning of year                736         627         410 
                                                          -------     -------    -------- 
      CASH AND CASH EQUIVALENTS AT END OF YEAR            $   445     $   736    $    627 
                                                          -------     -------    -------- 
                                                          -------     -------    -------- 

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
  Capital lease obligations                               $    --     $ 1,040    $     20 
  Charges to allowance for doubtful accounts              $   304     $   173    $    290 
</TABLE>

See notes to consolidated financial statements.




                                     F-7 
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES

AUGUST 31, 1996


NOTE A--SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION:  The Company is a major producer of metal fireplace products 
and face brick products. The Company manufactures its fireplace products in 
facilities located in Manchester, Tennessee, Perris, California and Mexicali, 
Mexico. Face brick products are manufactured in Malakoff, Texas.

All products are sold through the Company's own sales force and third party 
sales representatives to contractors, distributors and retailers engaged in 
providing building products used in both new residential and commercial 
construction as well as remodeling projects.

PRINCIPLES OF CONSOLIDATION:  The consolidated financial statements include 
the accounts of Temtex Industries, Inc. (the Company) and its wholly-owned 
subsidiaries.  All significant intercompany accounts and transactions have 
been eliminated.

USE OF ESTIMATES:  The preparation of consolidated financial statements in 
conformity with generally accepted accounting principles requires management 
to make certain estimates and assumptions.  These estimates and assumptions 
affect the reported amounts of assets, liabilities, revenues, and expenses 
and the disclosure of gain and loss contingencies at the date of the 
consolidated financial statements.  Actual results could differ from those 
estimates.

INVENTORIES:  Raw materials and supplies are stated at the lower of cost or 
replacement value.  Work in process and finished goods are stated at the 
lower of cost or net realizable value, which is less than replacement value.

PROPERTY, PLANT AND EQUIPMENT:  Property, plant and equipment are carried at 
cost.  Capitalized leases are carried at the present value of the net fixed 
minimum lease commitments, as explained in Note G.  Depreciation on buildings 
and equipment is provided using principally accelerated methods.  Depletion 
of clay deposits and amortization of leasehold improvements and capitalized 
leases are computed using the straight-line method.  The estimated useful 
lives used in computing depreciation, depletion, and amortization are:

                                                                 Years 
                                                             ------------- 
     Clay deposits                                               10-20 
     Buildings and improvements                                   5-30 
     Machinery, equipment, furniture and fixtures                 3-15 
     Leasehold improvements                                  Life of lease 

Expenditures for maintenance and repairs are charged to operations; 
betterments are capitalized.

INCOME TAXES:  Income taxes have been provided using the liability method in 
accordance with the Financial Accounting Standards Board Statement No. 109, 
Accounting for Income Taxes.


                                     F-8 
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES


NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED

INCOME PER COMMON SHARE:  Income per common share is based upon the weighted 
average number of shares of common stock and common stock equivalents 
outstanding during the year.  Common stock equivalents include options 
granted to key employees and outside directors (see Note F).  The number of 
common stock equivalents was based on the number of shares issuable on the 
exercise of options reduced by the number of common shares that are assumed 
to have been purchased at the average price of the common stock during the 
year with the proceeds from the exercise of the options.  Fully diluted 
income per common share is not presented because dilution is not significant. 

On December 17, 1993, the Company completed the sale of 1,000,000 shares of 
its common stock in a public offering.  If the common stock offering had 
occurred on September 1, 1993, the effect on earnings per share in fiscal 
1994 would not be significant.

CASH EQUIVALENTS:  The Company considers all highly liquid investments with a 
maturity of three months or less when purchased to be cash equivalents.

CONCENTRATION OF CREDIT RISK:  The Company manufactures and sells fireplace 
and brick products to companies in the construction industry.  The Company 
performs periodic credit evaluations of its customers' financial condition 
and generally does not require collateral.  Receivables generally are due 
within 30 days. Credit losses consistently have been within management's 
expectations.

NOTE B--PUBLIC OFFERING AND NONRECURRING ITEMS

In December 1993, the Company completed a secondary stock offering in which 
1,000,000 shares of common stock were issued.

NOTE C--INVENTORIES

Inventories by costing method are summarized below:

                                     First-in     Average           
                                     First-out     Cost      Total  
                                     ---------    -------   ------- 
                                             (in thousands)

     August 31, 1996:
       Finished goods                 $3,591      $  593    $ 4,184 
       Work in process                 1,064         107      1,171 
       Raw materials and supplies      4,353         516      4,869 
                                      ------      ------    ------- 
                                      $9,008      $1,216    $10,224 
                                      ------      ------    ------- 
                                      ------      ------    ------- 

     August 31, 1995:
       Finished goods                 $2,527      $  643    $ 3,170 
       Work in process                   706          93        799 
       Raw materials and supplies      4,281         523      4,804 
                                      ------      ------    ------- 
                                      $7,514      $1,259    $ 8,773 
                                      ------      ------    ------- 
                                      ------      ------    ------- 


                                     F-9 
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL--Continued

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES


NOTE D--NOTES PAYABLE AND LONG-TERM DEBT

In May 1996, the Company entered into a two year credit agreement with a bank 
whereby the Company may borrow a maximum of $4,000,000 under a revolving 
credit facility.  At the option of the Company, borrowings under the demand 
note may bear interest at the lending bank's prime commercial interest rate 
or at the London Interbank Offered Rate ("LIBOR") plus 1.25 percentage 
points.  Interest is payable on a monthly basis.  The Company's obligation to 
the bank is secured by accounts receivable and inventory.  The loan agreement 
contains covenants that require the maintenance of a specified ratio of quick 
assets to current liabilities, as defined, and a specified ratio of total 
liabilities to tangible net worth, as defined, both ratios to be measured on 
a quarterly basis beginning August 31, 1996.  Advances under the new credit 
agreement were used to repay both the balance outstanding and accrued 
interest on a two year revolving credit facility that expired in May 1996, as 
scheduled.  Also, a promissory term note that had been added to the expiring 
revolving credit note was repaid at the same time, even though final payment 
was not scheduled to be made until March 1998. At August 31, 1996, $3,099,000 
was outstanding under the new revolving credit note.

The weighted average interest rates on borrowings under the revolving credit
notes as of August 31, 1996 and August 31, 1995 were 6.8% and 7.9%,
respectively.

Long-term obligations are summarized as follows:
                                                               August 31,     
                                                           -----------------  
                                                            1996       1995   
                                                           ------     ------  
                                                             (in thousands)   
  Long-term obligations:
    Term loan, due in quarterly
      installments of $98,545 through March 1998;
      repaid in May 1996                                    $  --     $1,084 

     Capitalized lease obligations, with interest
     at 8.8% to 16.7%--Note G                               2,150      2,209 

     Equipment notes with interest at 8.0%
     to 9.8%, due in monthly installments
     ending in 1999                                           312        576 
                                                           ------     ------ 
                                                            2,462      3,869 
     Less current maturities                                  244        770 
                                                           ------     ------ 
                                                           $2,218     $3,099 
                                                           ------     ------ 
                                                           ------     ------ 


Annual maturities of long-term obligations for each of the five succeeding
fiscal years and thereafter are $244,000, $134,000, $58,000, $42,000, $47,000,
and $1,937,000.

The Company made interest payments in 1996, 1995 and 1994, respectively, of
$621,000, $363,000 and $580,000.


                                      F-10

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL--Continued

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES


NOTE E--ACCRUED EXPENSES

Accrued expenses include the following:
                                                               August 31,
                                                            ----------------
                                                             1996      1995 
                                                            ------    ------
                                                              (in thousands)

     Employee compensation                                  $  491    $  483
     Taxes, other than taxes on income                         126       130
     Interest                                                  119       157
     Other                                                     972     1,016
                                                            ------    ------
                                                            $1,708    $1,786
                                                            ------    ------
                                                            ------    ------
NOTE F--STOCK OPTIONS

In 1990, the Company adopted a stock option plan for key employees to replace 
a prior plan that expired on August 31, 1989.  Options may include "incentive 
stock options" within the meaning of Section 422A of the internal Revenue 
Code of 1986 or "non-qualified stock options."  Options and SARs may be 
granted to key employees at prices not less than the market value at the date 
of grant for terms not to exceed ten years in the case of incentive stock 
options and ten years and one month in the case of non-qualified stock 
options.  Under the original plan, 95,000 shares of common stock were 
reserved for future issuance. The plan was amended in 1995 in which the 
number of shares eligible for issuance was increased to 195,000 and the 
aggregate number of options which may be awarded to any one employee in any 
fiscal year will not exceed 25,000.

In 1990, the Company adopted a stock option plan for directors of the Company
who are not employees of the Company.  Options may be granted at prices not less
than the market value of the stock at the time of the grant for terms not to
exceed ten years from the date of the grant.  The maximum number of shares for
which options may be granted to any outside director during a calendar year is
2,500.  Under this plan, 30,000 shares of common stock were reserved for future
issuance.

The following table indicates the number of options granted and exercised for
each plan:
                                                   KEY      OUTSIDE
                                                 EMPLOYEE  DIRECTOR 
                                                   PLAN      PLAN   
                                                 --------- --------
Options outstanding at August 31, 1994            90,000    12,500
  Granted                                         70,000     2,500
  Exercised                                        7,500        --
                                                  -------   ------
Options outstanding at August 31, 1995            152,500   15,000
  Granted                                             --        --
  Exercised                                           --        --
Options outstanding at August 31, 1996            152,500   15,000
                                                  -------   ------
                                                  -------   ------
Options exercisable at August 31, 1996            100,000   15,000
                                                  -------   ------
                                                  -------   ------

Option prices range from $1.19 to $4.94 per share and expire between 1999 and
2005.


                                      F-11

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL--Continued

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES


NOTE G--LEASE COMMITMENTS

Two plant facilities leased from a former director are accounted for as a 
capitalized lease.  The leased properties were capitalized at the initial 
value of $635,000.  In 1995, the Company exercised its option to renew the 
lease which increased the term of the lease by ten years and added to the 
value of the lease.  The leased properties have a combined net book value of 
$391,000 and $423,000 at August 31, 1996 and 1995, respectively.

A third manufacturing facility, accounted for as a capitalized lease, is 
leased from a partnership consisting of the Company's Chairman and a former 
director. This facility was capitalized at the initial value of $976,000. 
During 1995, the facility was expanded, at the expense of the partnership, 
and the original lease canceled.  The new twenty-five year lease negotiated 
by the Company has basically the same provisions as the original, with an 
increase in the lease payments in consideration of the expense incurred in 
the expansion. The facility has a net book value of $1,362,000 and $1,428,000 
at August 31, 1996 and 1995, respectively.  This lease obligation is 
classified as "Indebtedness to Related Parties".

Other plant and office facilities are leased under operating lease agreements 
which expire at various dates through fiscal 1999.  The capitalized leases 
expire in fiscal 2009 and fiscal 2019.

Future minimum payments, by year and in the aggregate, under capital leases and
noncancelable operating leases, consisted of the following at August 31, 1996:

                                              CAPITAL   OPERATING
                                              LEASES     LEASES  
                                              -------   ---------
                                                 (IN THOUSANDS)
     Fiscal Year:
       1997                                    $  352      $294
       1998                                       345       259
       1999                                       334       175
       2000                                       334       158
       2001                                       334       109
       Thereafter                               5,181        --
                                               ------      ----
     Total minimum lease payments               6,880      $995
                                                           ----
                                                           ----
     Amount representing interest               4,730
                                               ------
     Present value of net minimum 
       lease payments                          $2,150
                                               ------
                                               ------


Rental expense for operating leases was $351,000, $265,000 and $255,000 in 
1996, 1995 and 1994, respectively.


                                      F-12

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL--Continued

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES


NOTE H--INCOME TAXES

Significant components of the provision (benefit) for income taxes 
attributable to continuing operations are as follows:

                                                  Year Ended August 31,
                                            ------------------------------
                                            1996        1995          1994 
                                            ----        ----          ----
                                                   (in thousands)
Current:
  Federal                                   $207        $173        $   570
  State                                      111         112             90
  Foreign                                     24          --             --
                                            ----        ----        -------
  Total current                              342         285            660
Deferred:
  Federal                                    (53)        123            677
  State                                       35         (39)            57
                                            ----        ----        -------
  Total deferred                             (18)         84            734
Change in valuation allowance                 --          --         (1,674)
                                            ----        ----        -------
Total income tax                            $324        $369        $  (280)
                                            ----        ----        -------
                                            ----        ----        -------

The Company utilized net operating loss and investment tax credit 
carryforwards of $997,000 and $459,000, respectively, in 1994.

The Company has state net operating loss carryforwards of approximately 
$1,500,000 expiring in the years 2004 through 2007.  In addition, the Company 
has federal tax credit carryforwards of approximately $190,000 expiring in 
years 2001 and 2002.

The differences between the provision for income taxes and income taxes 
computed using statutory income tax rates are as follows:

                                                  Year Ended August 31,
                                            ------------------------------
                                            1996        1995          1994 
                                            ----        ----          ----
                                                   (in thousands)

Income tax expense at statutory rate        $294        $292        $ 1,291
Additional statutory percentage
  depletion                                  (55)        (55)           (52)
State income taxes, net of federal
  tax benefit                                 73          49            129
Other                                         12          83             26
Change in valuation allowance                 --          --         (1,674)
                                            ----        ----        -------
     Total income taxes                     $324        $369        $  (280)
                                            ----        ----        -------
                                            ----        ----        -------

                                       F-13

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES

NOTE H--INCOME TAXES--continued

Deferred income taxes are recognized using the liability method and reflect 
the tax impact of temporary differences between the amount of assets and 
liabilities for financial purposes and such amounts as measured by tax laws 
and regulations. Significant components of the Company's deferred tax assets 
and liabilities are as follows:

                                                    August 31,
                                                -----------------
                                                1996         1995
                                                ----         ----
                                                  (in thousands)
     Deferred tax assets:
       Accounts receivable allowance            $174         $233
       Capital lease obligation                   72           85
       Book over tax depreciation                302          232
       Other                                     416          393
                                                ----         ----
         Total deferred tax assets               964          943
     Deferred tax liabilities                    (66)         (63)
                                                ----         ----
         Net deferred tax assets                $898         $880
                                                ----         ----
                                                ----         ----

The Company made federal and state income tax payments in 1996, 1995 and 
1994, respectively, of $263,000, $803,000 and $857,000.

NOTE I--DISCONTINUED OPERATIONS

In 1993, management of the Company decided to discontinue the Company's 
contract products segment.

In fiscal 1996, the Company leased the building and the majority of the land. 
The initial lease term is for a period of five years with an option to extend 
the lease for an additional five year period.  The lease also contains an 
option to purchase the property during the first two years of the initial 
lease period.  Rental income received is recorded as a reduction in the 
carrying value of the property.

The remaining parcel of land and equipment are on the market to be sold.

NOTE J--EMPLOYEE BENEFIT PLAN

During 1992, the Company adopted a defined contribution pension plan covering 
substantially all of its employees.  The Company contribution is $.25 for 
each $1.00 contributed by an employee (up to 4% of eligible wages).

The total expense for Company contributions was $40,000, $35,000 and $45,000 
in 1996, 1995 and 1994, respectively.




                                     F-14

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES


NOTE K--BUSINESS SEGMENTS

The following financial information is presented for the Company's business 
segments:

                                      Face Brick    Fireplace
                                       Products     Products         Total
                                      ----------    ---------       -------
                                             (in thousands)
1996:
Net sales                               $8,862       $33,110        $41,972
                                        ------      --------        -------
                                        ------      --------        -------
Operating profit                        $1,401       $   892        $ 2,293
                                        ------      --------
                                        ------      --------
Unallocated corporate
  expense, net                                                        (846)
Interest expense                                                      (583)
Other income                                                             2
                                                                    ------
Income from continuing
  operations before income taxes                                    $  866
                                                                    ------
                                                                    ------
Identifiable assets                     $4,183       $21,927        $26,110
                                        ------      --------
                                        ------      --------
Corporate assets                                                      1,698
Assets related to
  discontinued operations                                               202
                                                                    ------
Total assets                                                        $28,010
                                                                    ------
                                                                    ------
Depreciation, depletion
  and amortization                      $  385      $  1,579
                                        ------      --------
                                        ------      --------
Capital expenditures                    $  335      $  1,722
                                        ------      --------
                                        ------      --------




                                     F-15

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES


NOTE K--BUSINESS SEGMENTS--CONTINUED


                                      Face Brick    Fireplace
                                       Products      Products        Total
                                      ----------    ---------       -------
                                             (in thousands)
1995:
Net sales                               $8,400       $34,504        $42,904
                                        ------       -------        -------
                                        ------       -------        -------
Operating profit                        $1,241       $ 1,089        $ 2,330
                                        ------       -------        -------
                                        ------       -------        -------
Unallocated corporate
  expense, net                                                       (1,170)
Interest expense                                                       (424)
Other income                                                            122
                                                                    -------
Income from continuing
  operations before income taxes                                    $   858
                                                                    -------
                                                                    -------
Identifiable assets                     $4,053       $20,611        $24,664
                                        ------       -------
                                        ------       -------
Corporate assets                                                      2,452
Assets related to
  discontinued operations                                                99
                                                                    -------
Total assets                                                        $27,215
                                                                    -------
                                                                    -------
Depreciation, depletion
  and amortization                      $  345      $  1,163
                                        ------       -------
                                        ------       -------
Capital expenditures                    $1,264      $  4,030
                                        ------       -------
                                        ------       -------


                                     F-16


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES


NOTE K--BUSINESS SEGMENTS--CONTINUED


                                       Face Brick  Fireplace
                                       Products     Products         Total
                                       ----------  ---------        -------
                                             (in thousands)
1994:
Net sales                               $8,611       $35,324        $43,935
                                        ------      --------        -------
                                        ------      --------        -------
Operating profit                        $1,544       $ 4,315        $ 5,859
                                        ------       -------
                                        ------       -------
Unallocated corporate
  expense, net                                                       (1,606)
Interest expense                                                       (526)
Other income                                                             71
                                                                    -------
Income from continuing operations
  before income taxes                                               $ 3,798
                                                                    -------
                                                                    -------
Identifiable assets                     $3,321       $18,387        $21,708
                                        ------       -------
                                        ------       -------
Corporate assets                                                      1,935
Assets related to
  discontinued operations                                               105
                                                                    -------
Total assets                                                        $23,748
                                                                    -------
                                                                    -------
Depreciation, depletion
  and amortization                      $  301       $   781
                                        ------       -------
                                        ------       -------
Capital expenditures                    $  436       $ 1,561
                                        ------       -------
                                        ------       -------


Operating profit is net sales less operating expenses.  In computing segment 
operating profit, the following items are excluded:  general corporate 
revenues and expenses, interest expense, other income, and income taxes.  
There are no sales between segments.

Identifiable assets are those assets used in either segment.  Corporate 
assets are principally cash and deferred taxes.

Sales to one customer in the Fireplace Products Segment were $3,243,000, 
$3,978,000, and $4,550,000 in 1996, 1995 and 1994, respectively.




                                     F-17

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES

NOTE L--SHARE REPURCHASE AGREEMENT

On December 21, 1976, the stockholders approved a Share Repurchase Agreement
(the "Agreement") among the Company, the Chairman of the Board of Directors (the
"Chairman"), and a trustee under which the Company may be required to purchase a
number of shares of common stock from the Chairman's estate upon his death.  The
purchase price of a share of common stock under this Agreement is to be 90% of
the quoted market value at the date of the Chairman's death.  The aggregate
purchase price may not exceed the lesser of certain taxes and expenses
associated with his death or the benefits under a certain life insurance policy
on the life of the Chairman.  This policy, purchased by the Company at an annual
premium of $21,000, has been transferred to the Trustee under this Agreement.

The Company is not required to purchase any shares of common stock under the
Agreement if such purchase would result in an impairment of its capital or would
violate state laws in effect at that date.


NOTE M--CONTINGENCIES

Due to the complexity of the Company's operations, disagreements occasionally
occur.

In the opinion of management, the Company's ultimate loss from such
disagreements and potential resulting legal action, if any, will not be
significant.



                                   F-18

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES


NOTE N--QUARTERLY RESULTS (UNAUDITED)

Summary data relating to the results of operations for each quarter of the years
ended August 31, 1996 and 1995 follows (in thousands except per share amounts):

<TABLE>
                                           THREE MONTHS ENDED
                            -----------------------------------------------
                            NOVEMBER 30   FEBRUARY 29    MAY 31   AUGUST 31    TOTAL
                            -----------   -----------    ------   ---------    -----
<S>                          <C>           <C>            <C>      <C>         <C>
Fiscal year 1996:
  Net sales                   $12,993       $ 9,060    $  9,660    $10,259    $41,972
  Gross profit                  4,076         2,337       2,122      2,460     10,995
  Income (loss) from
    continuing operations         581           (34)        (27)        22        542
  Net income (loss)               581           (34)        (27)        22        542

  Per share:
    Continuing operations     $   .16       $  (.01)   $   (.01)   $   .01    $   .16
    Net income (loss)             .16          (.01)       (.01)       .01        .16


 Fiscal year 1995:
  Net sales                   $14,167       $10,213    $  8,581    $ 9,943    $42,904
  Gross profit                  4,851         2,665       1,809      2,617     11,942
  Income (loss) from
    continuing operations       1,029           146        (619)       (67)       489
  Net income (loss)             1,029           146        (619)       (67)       489

  Per share:
    Continuing operations     $   .29       $   .04    $   (.18)   $  (.02)   $   .14
    Net income (loss)             .29           .04        (.18)      (.02)       .14
</TABLE>



                                   F-19

<PAGE>

                 SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS

                   TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES

              For the Years Ended August 31, 1994, 1995 and 1996
                                 (in thousands)


<TABLE>
----------------------------------------------------------------------------------------------------------------
            COL. A                          COL. B             COL. C                     COL. D         COL. E
----------------------------------------------------------------------------------------------------------------
                                                               ADDITIONS
                                                        ---------------------------
                                           Balance at   Charged to     Charged to                       Balance
                                           Beginning    Costs and    Other Accounts-     Deductions-     at End
            Description                    of Period    Expenses        Describe          Describe     of Period
----------------------------------------------------------------------------------------------------------------
<S>                                        <C>          <C>            <C>                <C>            <C>
Year ended August 31, 1994
  Reserve, deducted from related asset:
    Allowance for doubtful accounts           $409        $402           $  1 (1)          $290 (2)      $522
                                              ----        ----           ----              ----          ----
                                              ----        ----           ----              ----          ----

Year ended August 31, 1995
  Reserve, deducted from related asset:
    Allowance for doubtful accounts           $522        $186           $  6 (1)          $173 (2)      $541
                                              ----        ----           ----              ----          ----
                                              ----        ----           ----              ----          ----

Year ended August 31, 1996
  Reserve, deducted from related asset:
    Allowance for doubtful accounts           $541        $198           $ --              $304 (2)      $435
                                              ----        ----           ----              ----          ----
                                              ----        ----           ----              ----          ----
</TABLE>


(1)  Other additions represent collections on receivables previously written
     off.

(2)  Amount charged against reserve.



                                   F-20