(1)       All per share and weighted common and common equivalent shares outstanding have been restated to           reflect the adoption of SFAS No. 128 .

(2)       Includes assets related to discontinued operations.

(3)       Includes capitalized lease obligations to related parties and obligations of discontinued operations.

(4)       The Company has not declared or paid cash dividends during the relevant periods.

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The following discussion and analysis of the financial condition and results of operations of the Company should be read in conjunction with the audited consolidated financial statements and related notes of the Company included elsewhere in this report. This Management's Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties. Among the

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

On January 5, 1999 the Company completed the sale of Texas Clay Industries, an operating division of the Company that produced face brick products. The results of operations and gain on the sale have been classified as discontinued operations

Net Sales

Net sales decreased approximately $1.3 million or 5% in fiscal 1999 compared to fiscal 1998. The reduction in sales was the direct result of a decrease in the quantity of wood burning fireplaces delivered in fiscal 1999 as well as a small decrease in the average unit selling prices that the Company received for its products due to the intense competition within the industry.

Gross profit decreased approximately $2.7 million or 49% in fiscal 1999 compared to fiscal 1998. The decrease in gross profit was caused, in part, by the decrease in sales volume. Another factor contributing to the decrease in gross profit was the lack of capacity utilization resulting in the under absorption of fixed manufacturing overhead expenses. In addition, manufacturing difficulties early in the fiscal year in the production of the direct-vent fireplaces which, although resolve

In September 1999, the Company relocated the production line for its36 inch woodburning fireplaces from its California facility to the recently expanded Mexico plant. Management of the Company anticipates that this action will reduce labor and overhead expenses in future periods.

Selling expenses increased approximately 8% in fiscal 1999 compared to fiscal 1998. The increase was mainly due to increases in salaries and related benefits costs, together with and increased sales volume rebates to home center retailers.

General and administrative expenses increased approximately 16% in fiscal 1999 compared to fiscal 1998. The increase resulted principally from increases in professional expenses, salaries and benefits costs.

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Net interest expense decreased $193,000 or approximately 43% in fiscal 1999 compared to fiscal 1998. The decrease in the net interest expense was the result of the decrease in the average indebtedness of the Company throughout fiscal 1999. In addition, the Company has invested a portion of the proceeds from the sale of its brick manufacturing facility in cash funds and is earning interest on a daily basis.

Other income for both fiscal 1999 and 1998 includes immaterial amounts of miscellaneous income and expenses from various sources.

The benefit for income taxes, both current and deferred, increased from a benefit of $836,000 in fiscal 1998 to a benefit of $1,840,000 in fiscal 1999 due to diminished operating results. In fiscal 1999, the net income tax benefit consists of $1,987,000 in federal tax benefit and $147,000 in state tax expense.

Net Sales

Net sales of fireplace products decreased approximately $4.0 million or 13% in fiscal 1998 compared to fiscal 1997. The reduction in sales was the direct result of a decrease in the quantity of fireplaces and log sets delivered in fiscal 1998 due to the loss of a home center customer in fiscal 1997 coupled with unseasonably warm winter conditions in fiscal 1998. In addition, the Company has been unable to increase selling prices for its products due to competition within the industry .

Gross Profit

Gross profit decreased approximately $1.3 million or 20% in fiscal 1998 compared to fiscal 1997. The decrease in sales volume was the major factor contributing to the decrease in gross profit.

Selling expenses decreased approximately 23% in fiscal 1998 compared to fiscal 1997. The decrease was mainly due to decreases in payroll, selling commissions, advertising and promotional display expenses.

General and administrative expenses increased approximately 7% in fiscal 1998 compared to fiscal 1997. The increase was mainly due to increases in professional fees and the Company's contribution to the 40l(k) employee benefit plan.

Interest expense decreased approximately $49,000 or 10% in fiscal 1998 compared to fiscal 1997. The decrease in interest expense was the direct result of the decrease in the average indebtedness of the Company throughout fiscal 1998.

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Other income for both fiscal 1998 and 1997 includes small amounts of miscellaneous income and expenses from various sources.

The benefit for income taxes, both current and deferred, increased from a benefit of $685,000 in fiscal 1997 to a benefit of $831,000 in fiscal 1998 due to diminished operating results. In fiscal 1998, the net income tax benefit consisted of $832,000 in federal tax benefit, $34,000 in state tax benefit and $35,000 in foreign tax expense.

Net cash used in operating activities was $6,781,000 in fiscal 1999. Cash provided by operating activities was $1,207,000 and $3,088,000 in 1998 and 1997, respectively. Working capital increased $1,592,000 in fiscal 1999 due mainly to the cash received from the sale of Texas Clay Industries. Working capital increased $984,000 in fiscal 1998 due mainly to an increase in inventories.

Capital expenditures and capitalized lease obligations for fireplace products and discontinued face brick products totaled $1,060,000 ($1,036,000 for fireplace products and $24,000 for face brick products), $1,235,000 ($922,000 for fireplace products and $313,000 for face brick products) and $1,158,000 ($682,000 for fireplace products and $476,000 for face brick products) in fiscal 1999, 1998 and 1997, respectively. The majority of expenditures in each of the years were for tooling, repla repairs to manufacturing equipment. In fiscal 1999, purchases of tooling and manufacturing equipment were primarily made using cash proceeds from the sale of its brick manufacturing division.

Approximately 58 acres of land were purchased in fiscal 1998 and approximately 117 acres were purchased in fiscal 1997. These parcels of land were included in the sale of the brick manufacturing facility in fiscal 1999.

In May 1996, the Company entered into a two year credit agreement with a bank whereby the Company could borrow a maximum of $4,000,000 under a revolving credit facility. In April 1998, the credit agreement was amended whereby the maximum amount available under the revolving credit facility was reduced to $3,000,000 and the expiration date was extended for an additional two-year period. The outstanding balance on the credit facility was repaid by the Company with proceeds from the sale of

The Company anticipates that cash flow from operations, together with cash on hand 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. The Company is reviewing various options that are available in order to establish a new credit facility should one be required at some time in the future. However, to the extent the Company is unable to obtain a credit facility on suita

Earnings Per Share

The Company's Board of Director's approved the purchase of up to $1.0 million of the Company's common stock on the open market in fiscal 1999. The stock purchase program was initiated to indicate management's commitment to increasing shareholder value and their continued confidence in the strength of the Company. The Company was successful in purchasing 40,000 shares for $112,000 during the time allotted for the purchase. The reduction in the number of shares outstanding had no signif

Discontinued Operations

In the second quarter of fiscal 1999, the Company sold Texas Clay Industries, a division that produced face brick products. Proceeds from the sale were approximately $12.5 million and the pre-tax gain recorded as a result of the sale was approximately $7.4 million. A portion of the proceeds was used to pay down indebtedness, purchase equipment and finance operations. The remainder was invested in cash funds which is available for whatever uses the Company may deem appropriate.

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 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 weakening in economic conditions that could adversely affect the new housing market.

Many existing computer systems and applications and other control devices use only two digits to identify a year in the date field, without considering the impact of the upcoming change in the century. As a result, as year 2000 approaches, computer systems and applications used by many companies may need to be upgraded to comply with "Year 2000" requirements. The Company relies on its systems in operating and monitoring many significant aspects of its business, including financial sys

Based on various assessments during the past two years, the Company determined that only minor modifications of its information and production software systems would be necessary in order to properly utilize dates beyond the year 1999. As of the date of this report, all of the identified required changes have been made. Although the Company anticipates that no further changes are necessary, if such modifications not made, management believes the most reasonably likely worst case scenario act on the operations of the Company.

The cost for system modifications relating to the year 2000 issue has been approximately $11,000.

At this date, the Company is not aware of any customer, vendor or supplier (external agents) with a year 2000 issue that would materially affect the Company's results of operations, liquidity or capital resources. However, the Company has no means of ensuring that external agents will be Year 2000 ready. The inability of external agents to complete their Year 2000 resolution process in a timely fashion could materially impact the Company. The effect of non-compliance by external agents i s

Management is of the opinion that all significant year 2000 issues have been identified and addressed. Accordingly, the Company has no developed year 2000 contingency plans for continuing operations.

The Company does not engage in market risk sensitive instruments and does not purchase hedging instruments or "other than trading" instruments that are likely to expose the Company to market risk, whether interest rate, foreign currency exchange, commodity price or equity price risk. The Company has not purchased options or entered into swaps or forward or futures contracts. The Company's primary market risk exposure is that of interest rate risk on borrowings that the Compan

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.

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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:

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 4, 1999. There are no family relationships among any of the directors or among any of the directors and any officer of the Company except Messrs. James E. Upfield and Scott K. Upfield who are father and son.

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(b) EXECUTIVE OFFICERS OF THE COMPANY

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.

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.

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

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,

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the Company may increase the base salary of the Executives. The Executives will also be eligible to participate in the regular employee benefits 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

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, 1999, ten (10) employees were pa

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 wh

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 requi

1990 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 sto

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 nu

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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 19 9

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.

The Board of Directors of the Company adopted the 1999 Omnibus Securities Plan (the "1999 Plan") on October 28, 1999. The 1999 Plan, which is scheduled to be presented to the shareholders of the Company at the next annual meeting of shareholders, permits the discretionary granting of stock options, restricted and unrestricted stock grants; performance stock awards, dividend equivalent rights and stock appreciation rights to plan participants. The 1999 Plan permits the Company to

Option Grants During 1999 Fiscal Year

There were no stock options granted to the Company's executive officers named in the summary compensation table during fiscal year 1999.

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

 (1)   The Company's stock price at August 31, 1999 was below the option price.

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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

The following table shows stock options granted and presently exercisable to outside directors from May 23, 1990 to August 31, 1999:

The 1999 Plan permits the granting of awards, including stock options to outside directors in the future.

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 on

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

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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.

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".

The Compensation Committee of the Board of Directors consists of Mr. Richard W. Griner (Chairman), Mr. Larry J Parsons, Mr. James E. Upfield, Mr. Scott K. Upfield and Mr. Joseph V. Mariner, Jr. The Compensation Committee's primary function is to review the compensation awarded to the Company's Chief Executive and Chief Financial Officers and to approve the determinations of compensation to be paid to certain other senior executives of the Company. Salaries are reviewed at regular int e

In determining executive compensation, the Compensation Committee reviews the performance of the specific executive, the operating performance of the Company, the compensation for executives of companies, which are comparable to the Company and the performance of the Company's Common Stock. Although the Compensation Committee does not utilize any formal mathematical formulae or objective thresholds, particular emphasis is given to the operating results of the Company. The Compensation Com

The Compensation Committee also 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 of 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 influen

In addition to the Compensation Committee's subjective determination of the factors noted above, the committee has access to, and from time to time has reviewed reports of, independent financial consultants who assimilate and evaluate the compensation of executive officers employed by companies which are generally comparable to the Company. During this year's review, the Compensation Committee elected not to consider such a report. The Compensation Committee seeks to establish base salar i

After a review of the factors discussed above, the Compensation Committee determines whether 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. Since the preparation of last year's Compensation Committee Report, the committee noted that, although the Company effected certain significant strat

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The Compensation Committee has reviewed the applicability of Section 162(m) of the Code, which disallows a tax deduction for compensation to an executive officer in excess of $1.0 million per year. The Compensation Committee does not anticipate that compensation subject to this threshold will be paid to any executive officer of the Company in the foreseeable future. The committee intends to periodically review the potential consequences of Section 162(m) and may in the future structure th

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

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(a) The Company knows of no person owning beneficially more than 5% of the Company's Common Stock, except for the following persons who owned, as of November 16, 1999, the number of shares of Common Stock of the Company set forth opposite his name in the table below:

___________________

(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 of         which Mr. Upfield is general partner. Mr. James E. Upfield has shared voting and investment         power with respect to such shares of Common Stock.

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(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 16, 1999.

_____________

* 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 of which Mr. James E. Upfield is a general partner.
3. Includes 70,000 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 10,000 shares of Common Stock exercisable under the 1990 Plan.
7. Includes 101,000 shares of Common Stock issuable upon exercise of options granted under the 1990 Plan and the Outside Director Plan.

1. Material Contracts

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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.

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.

ANNUAL REPORT ON FORM 10-K

ITEM 8, ITEM 14(a)(1) and (2) and ITEM 14(d)

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FINANCIAL STATEMENT SCHEDULES AND EXHIBITS

YEAR ENDED AUGUST 31, 1999

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES

DALLAS, TEXAS

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, 1999 and 1998

     Consolidated statements of operations Years ended August 31,       1999, 1998 and 1997

     Consolidated statements of stockholders equityYears ended       August 31, 1999, 1998 and 1997

     Consolidated statements of cash flowsYears ended August             1999, 1998, 1997

     Notes to consolidated financial statements August 31, 1999

     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 evidenc

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1

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See notes to consolidated financial statements.

2

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See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES

 See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES

See notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES

August 31, 1999

Organization: Temtex Industries, Inc. (The Company) is a major producer of metal fireplace products. The Company manufactures its fireplace products in facilities located in Manchester, Tennessee; Perris, California; and Mexicali, Mexico. On January 5, 1999, the Company sold its face brick products manufacturing facility located 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, determined on the first-in, first-out method, or replacement value. Work in process and finished goods are stated at the lower of cost, determined on the first-in, first-out method, 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 F. Depreciation on buildings and equipment is provided using principally accelerated methods. Amortization of leasehold improvements and assets under capitalized leases are computed using the straight-line method. The estimated useful lives used in computing depreciation, depletion, and

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

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