----

----

| x | ANNUAL REPORT PURSUANT TO      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934 |
|---|------------------------------------------------------------------------------------------------|

| ¨ | TRANSITION REPORT PURSUANT TO      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934 |
|--------|----------------------------------------------------------------------------------------------------|

| Delaware(State      or other jurisdiction ofincorporation      or organization) |   | 63-0949734(IRS      EmployerIdentification      No.) |
|---------------------------------------------------------------------------------|--------|------------------------------------------------------|

| Title      of each classCommon      Stock, $0.10 Par Value |   | Name      of each exchange on which registeredAmerican      Stock Exchange |
|------------------------------------------------------------|--------|----------------------------------------------------------------------------|

| Large      Accelerated Filer ¨ | Accelerated      Filer ¨ | Non-Accelerated      Filer ¨ | Smaller      Reporting Company x |
|-------------------------------------|-------------------------------|-----------------------------------|----------------------------------|

----

----

----

CAVALIER HOMES, INC.

|          |                                                                                                                    | Page |
|---------------|-------------------------------------------------------------------------------------------------------------------------|------|
| PART      I   |
| Item 1.       | Business                                                                                                                | 1    |
| Item 1A.      | Risk Factors                                                                                                            | 8    |
| Item 1B.      | Unresolved Staff Comments                                                                                               | 12   |
| Item 2.       | Properties                                                                                                              | 12   |
| Item 3.       | Legal Proceedings                                                                                                       | 12   |
| Item 4.       | Submission of Matters to a Vote of Security      Holders                                                                | 13   |
|          |
| PART      II  |
| Item 5.       | Market for Registrant’s Common Equity, Related Stockholder      Matters and Issuer Purchases of Equity Securities | 13   |
| Item 6.       | Selected Financial Data                                                                                                 | 14   |
| Item 7.       | Management’s Discussion and Analysis of Financial Condition      and Results of Operations                        | 16   |
| Item 7A.      | Quantitative and Qualitative Disclosures About Market      Risk                                                         | 30   |
| Item 8.       | Financial Statements and Supplementary    Data                                                                          | 32   |
| Item 9.       | Changes in and Disagreements With Accountants on Accounting      and Financial Disclosure                               | 54   |
| Item 9A.      | Controls and Procedures                                                                                                 | 54   |
| Item 9B.      | Other Information                                                                                                       | 54   |
|          |
| PART      III |
| Item 10.      | Directors, Executive Officers and Corporate      Governance                                                             | 54   |
| Item 11.      | Executive Compensation                                                                                                  | 54   |
| Item 12.      | Security Ownership of Certain Beneficial Owners and      Management and Related Stockholder Matters                     | 55   |
| Item 13.      | Certain Relationships and Related Transactions, and      Director Independence                                          | 55   |
| Item 14.      | Principal Accountant Fees and Services                                                                                  | 55   |
|          |
| PART      IV  |
| Item 15.      | Exhibits and Financial Statement    Schedules                                                                           | 55   |
|          |
|          | Signatures                                                                                                              | 59   |

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CAVALIER HOMES, INC.

|                       |   | For      the Years Ended December 31, |
|----------------------------|--------|---------------------------------------|
|                       |   | 2007                                  |   | 2006 |   | 2005 |
| Number      of homes sold: |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Floor      shipments:      |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| HUD-Code                   |   |                                  | 7,378 |   |   |   | 91 | % |   |   | 8,261 |   |   |   | 91 | % |   |   | 10,648 |   |   |   | 94 | % |
| Modular                    |   |                                  | 729 |   |   |   | 9 | % |   |   | 840 |   |   |   | 9 | % |   |   | 641 |   |   |   | 6 | % |
| Total      floor shipments |   |                                  | 8,107 |   |   |   | 100 | % |   |   | 9,101 |   |   |   | 100 | % |   |   | 11,289 |   |   |   | 100 | % |
|                       |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Home      shipments:       |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Single-section             |   |                                  | 1,460 |   |   |   | 31 | % |   |   | 1,669 |   |   |   | 31 | % |   |   | 3,221 |   |   |   | 45 | % |
| Multi-section              |   |                                  | 3,300 |   |   |   | 69 | % |   |   | 3,678 |   |   |   | 69 | % |   |   | 4,005 |   |   |   | 55 | % |
| Total      home shipments  |   |                                  | 4,760 |   |   |   | 100 | % |   |   | 5,347 |   |   |   | 100 | % |   |   | 7,226 |   |   |   | 100 | % |

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|                                                             |   | As      of December 31, |
|------------------------------------------------------------------|--------|-------------------------|
|                                                             |   | 2007                    |   | 2006 |   | 2005 |
| Number      of independent exclusive dealer locations            |   |                    | 62 |   |   |   | 71 |   |   |   | 113 |   |
| Number      of independent non-exclusive dealer locations        |   |                    | 283 |   |   |   | 262 |   |   |   | 228 |   |
| Percentage      of manufactured home sales (excluding MEMA/FEMA) |   |                    | 48 | % |   |   | 58 | % |   |   | 70 | % |

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Table of Contents

|                |   | Delinquency      Percentage |
|---------------------|--------|-----------------------------|
| December      31,   |   | 30      Days                |   | 60      Days |   | 90      Days |   | Total |
| 2007      (9 loans) |   |                        | 5.30 | % |   |   | 0.66 | % |   |   | -- | % |   |   | 5.96 | % |
| 2006      (8 loans) |   |                        | 1.72 | % |   |   | 1.29 | % |   |   | 0.43 | % |   |   | 3.44 | % |

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Table of Contents

|                |   | Delinquency      Percentage |
|---------------------|--------|-----------------------------|
| December      31,   |   | 30      Days                |   | 60      Days |   | 90      Days |   | Total |
| 2007      (9 loans) |   |                        | 3.69 | % |   |   | 0.31 | % |   |   | -- | % |   |   | 4.00 | % |
| 2006      (8 loans) |   |                        | 1.77 | % |   |   | 0.95 | % |   |   | 0.56 | % |   |   | 3.28 | % |

|                                                         |   | As      of December 31, |
|--------------------------------------------------------------|--------|-------------------------|
|                                                         |   | 2007                    |   | 2006 |   | 2005 |
| Total      loans receivable                                  |   | $                       | 9,844 |   |   | $ | 12,265 |   |   | $ | 15,067 |   |
| Allowance      for credit losses                             |   |                    | 725 |   |   |   | 841 |   |   |   | 968 |   |
| Number      of loans outstanding                             |   |                    | 167 |   |   |   | 249 |   |   |   | 320 |   |
| Net      loss ratio on average outstanding principal balance |   |                    | 8.34 | % |   |   | 2.16 | % |   |   | 6.87 | % |
| Weighted      average annual percentage rate                 |   |                    | 8.80 | % |   |   | 9.20 | % |   |   | 10.40 | % |

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Item 1A: Risk Factors

|   | · | changes      in general economic conditions; |
|--------|--------|----------------------------------------------|

|   | · | inflation; |
|--------|--------|------------|

|   | · | levels      of consumer confidence; |
|--------|--------|-------------------------------------|

|   | · | employment      and income levels; |
|--------|--------|------------------------------------|

|   | · | housing      supply and demand; |
|--------|--------|---------------------------------|

|   | · | availability      of alternative forms of housing; |
|--------|--------|----------------------------------------------------|

|   | · | availability      of wholesale (dealer) financing; |
|--------|--------|----------------------------------------------------|

|   | · | availability      of retail (consumer) financing; |
|--------|--------|---------------------------------------------------|

|   | · | the      level and stability of interest rates;and |
|--------|--------|----------------------------------------------------|

|   | · | the      availability of raw materials. |
|--------|--------|-----------------------------------------|

|   | · | control      costs in light of currently prevailing industry  conditions; |
|--------|--------|---------------------------------------------------------------------------|

|   | · | improve      manufacturing cost efficiencies; |
|--------|--------|-----------------------------------------------|

|   | · | attempt      to generate an increase in sales in an increasingly competitive      environment; |
|--------|--------|------------------------------------------------------------------------------------------------|

|   | · | improve      brand management and penetration; |
|--------|--------|------------------------------------------------|

|   | · | increase      market share; |
|--------|--------|-----------------------------|

|   | · | maintain      consistent profitability; |
|--------|--------|-----------------------------------------|

|   | · | develop      our exclusive and independent dealernetwork; |
|--------|--------|-----------------------------------------------------------|

|   | · | pursue      the financing, insurance and other activities of CIS and the financial      services segment; |
|--------|--------|-----------------------------------------------------------------------------------------------------------|

|   | · | attempt      to further develop modular home sales base in part by alternative      distribution channels; and |
|--------|--------|----------------------------------------------------------------------------------------------------------------|

|   | · | eliminate      redundant products to streamline production in an effort to reduce      costs. |
|--------|--------|-----------------------------------------------------------------------------------------------|

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|   | · | general      economic and industry conditions; |
|--------|--------|------------------------------------------------|

|   | · | our      ability to control costs if industry production capacity decreases beyond      current levels; |
|--------|--------|---------------------------------------------------------------------------------------------------------|

|   | · | competition      from other companies in ourindustry; |
|--------|--------|-------------------------------------------------------|

|   | · | our      ability to attract, retain or sell to additional independent dealers,      especially exclusive dealers; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------|

|   | · | the      availability of semi-skilled workers in the areas in which our      manufacturing facilities arelocated; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------|

|   | · | the      ability of CIS and our insurance and component parts operations to be      competitive; |
|--------|--------|--------------------------------------------------------------------------------------------------|

|   | · | the      availability of capital andfinancing; |
|--------|--------|------------------------------------------------|

|   | · | the      ability of our independent dealers to compete under current industry      conditions; |
|--------|--------|------------------------------------------------------------------------------------------------|

|   | · | the      ability to produce modular and HUD-Code products within the same      manufacturing plants; |
|--------|--------|------------------------------------------------------------------------------------------------------|

|   | · | the      availability and terms of wholesale and retail financing from lenders in      the manufactured housing industry;and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------|

|   | · | market      acceptance of product offerings. |
|--------|--------|----------------------------------------------|

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|   | · | price; |
|--------|--------|--------|

|   | · | product      features and quality; |
|--------|--------|------------------------------------|

|   | · | reputation      for service quality; |
|--------|--------|--------------------------------------|

|   | · | depth      of field inventory; |
|--------|--------|--------------------------------|

|   | · | delivery      capabilities; |
|--------|--------|-----------------------------|

|   | · | warranty      repair service; |
|--------|--------|-------------------------------|

|   | · | dealer      promotions; |
|--------|--------|-------------------------|

|   | · | merchandising;      and |
|--------|--------|-------------------------|

|   | · | terms      of wholesale (dealer) and retail (consumer)  financing. |
|--------|--------|--------------------------------------------------------------------|

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Item 1B: Unresolved Staff Comments

Item 2: Properties

| Locations                                 |   | Use      (Number of operational homemanufacturing      lines) |   | Approximate      Square Footage |   | Owned      (a) or Leased |
|-------------------------------------------|--------|---------------------------------------------------------------|--------|---------------------------------|--------|--------------------------|
| Home      Manufacturing – operating |   |                                                          |   |                            |   |                     |
| Addison,      Alabama                     |   | Manufacturing      facilities (2)                             |   | 458,000                         |   | Owned                    |
| Hamilton,      Alabama                    |   | Manufacturing      facility (1)                               |   | 200,000                         |   | Owned                    |
| Millen,      Georgia                      |   | Manufacturing      facility (1)                               |   | 179,000                         |   | Owned                    |
| Nashville,      North Carolina            |   | Manufacturing      facility (1)                               |   | 182,000                         |   | Owned                    |
| Home      Manufacturing – idled (b) |   |                                                          |   |                            |   |                     |
| Addison,      Alabama                     |   | Manufacturing      facility                                   |   | 86,000                          |   | Owned                    |
| Conway,      Arkansas                     |   | Manufacturing      facility                                   |   | 222,000                         |   | Owned                    |
| Cordele,      Georgia                     |   | Manufacturing      facility                                   |   | 179,000                         |   | Owned                    |
| Shippenville,      Pennsylvania           |   | Manufacturing      facility                                   |   | 120,000                         |   | Owned                    |
| Winfield,      Alabama                    |   | Manufacturing      facility                                   |   | 134,000                         |   | Owned                    |
| Component      & Supply Companies     |   |                                                          |   |                            |   |                     |
| Hamilton,      Alabama                    |   | Manufacturing      facility                                   |   | 60,000                          |   | Owned                    |
| Haleyville,      Alabama (2 facilities)   |   | Manufacturing      facilities                                 |   | 169,000                         |   | Owned                    |
| Financial      Services                   |   |                                                          |   |                            |   |                     |
| Hamilton,      Alabama                    |   | Administrative      office                                    |   | 9,000                           |   | Owned                    |
| General      Corporate                    |   |                                                          |   |                            |   |                     |
| Addison,      Alabama                     |   | Administrative      office                                    |   | 10,000                          |   | Owned                    |
| Wichita      Falls, Texas                 |   | Administrative      office                                    |   | 1,000                           |   | Leased                   |

| (b) | Certain      of the idled facilities are leased to third parties under leasing      arrangements, which, in one case, includes an option to      purchase. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------|

Item 3: Legal Proceedings

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Item 4: Submission Of Matters To A Vote Of SecurityHolders

Item 5: Market For Registrant's Common Equity, Related StockholderMatters And Issuer Purchases Of Equity Securities (all dollars in thousands, exceptper share amounts)

|                               |   | Closing      Sales Prices |
|------------------------------------|--------|---------------------------|
|                               |   | High                      |   | Low |
| Year      ended December 31, 2007: |   |                      |   |   |   |   |   |   |
| Fourth      Quarter                |   | $                         | 3.15 |   |   | $ | 1.80 |   |
| Third      Quarter                 |   |                      | 4.91 |   |   |   | 3.21 |   |
| Second      Quarter                |   |                      | 5.03 |   |   |   | 4.35 |   |
| First      Quarter                 |   |                      | 5.00 |   |   |   | 3.85 |   |
|                               |   |                      |   |   |   |   |   |   |
| Year      ended December 31, 2006: |   |                      |   |   |   |   |   |   |
| Fourth      Quarter                |   | $                         | 4.26 |   |   | $ | 3.06 |   |
| Third      Quarter                 |   |                      | 5.55 |   |   |   | 3.02 |   |
| Second      Quarter                |   |                      | 7.19 |   |   |   | 5.06 |   |
| First      Quarter                 |   |                      | 7.26 |   |   |   | 6.23 |   |

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|                     |   | 2002 |   |   | 2003   |   |   | 2004   |   |   | 2005   |   |   | 2006 |   |   | 2007   |   |
|--------------------------|--------|------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|------|--------|--------|--------|--------|
| Cavalier      Homes Inc. |   | $    | 100.00 |   |   | $      | 153.61 |   |   | $      | 303.61 |   |   | $    | 332.47 |   |   | $      | 214.43 |   |   | $ | 100.52 |   |
| S&P      500         |   | $    | 100.00 |   |   | $      | 128.68 |   |   | $      | 142.69 |   |   | $    | 149.70 |   |   | $      | 173.34 |   |   | $ | 182.87 |   |
| New      Peer Group      |   | $    | 100.00 |   |   | $      | 132.29 |   |   | $      | 175.93 |   |   | $    | 182.77 |   |   | $      | 137.65 |   |   | $ | 115.82 |   |
| Old      Peer Group      |   | $    | 100.00 |   |   | $      | 132.30 |   |   | $      | 175.65 |   |   | $    | 182.72 |   |   | $      | 137.88 |   |   | $ | 115.73 |   |

Item 6: Selected Financial Data

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|                                                                                                                          |   | Years      Ended December 31,                 |
|-------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|
|                                                                                                                          |   | 2007                                          |   | 2006 |   | 2005 |   | 2004 |   | 2003 |
|                                                                                                                          |   | (in      thousands, except per share amounts) |
| Statement      of Operations Data:                                                                                            |   |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue:                                                                                                                      |   |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Home      manufacturing                                                                                                       |   | $                                             | 206,882 |   |   | $ | 224,602 |   |   | $ | 269,030 |   |   | $ | 209,296 |   |   | $ | 216,335 |   |
| Financial      services                                                                                                       |   |                                          | 3,699 |   |   |   | 3,335 |   |   |   | 3,002 |   |   |   | 2,444 |   |   |   | 2,673 |   |
| Total      revenue                                                                                                            |   |                                          | 210,581 |   |   |   | 227,937 |   |   |   | 272,032 |   |   |   | 211,740 |   |   |   | 219,008 |   |
| Cost      of sales                                                                                                            |   |                                          | 181,920 |   |   |   | 189,175 |   |   |   | 219,435 |   |   |   | 172,244 |   |   |   | 182,432 |   |
| Gross      profit                                                                                                             |   |                                          | 28,661 |   |   |   | 38,762 |   |   |   | 52,597 |   |   |   | 39,496 |   |   |   | 36,576 |   |
| Selling,      general, and administrative                                                                                     |   |                                          | 37,409 |   |   |   | 38,607 |   |   |   | 40,284 |   |   |   | 34,415 |   |   |   | 38,199 |   |
| Restructuring      and impairment charges                                                                                     |   |                                          | 267 |   |   |   | -- |   |   |   | 143 |   |   |   | -- |   |   |   | 750 |   |
| Operating      income (loss)                                                                                                  |   |                                          | (9,015 | ) |   |   | 155 |   |   |   | 12,170 |   |   |   | 5,081 |   |   |   | (2,373 | ) |
| Other      income (expense):                                                                                                  |   |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      expense                                                                                                         |   |                                          | (712 | ) |   |   | (1,110 | ) |   |   | (1,314 | ) |   |   | (1,075 | ) |   |   | (1,065 | ) |
| Other,      net                                                                                                               |   |                                          | 408 |   |   |   | 1,330 |   |   |   | 851 |   |   |   | 561 |   |   |   | 696 |   |
|                                                                                                                          |   |                                          | (304 | ) |   |   | 220 |   |   |   | (463 | ) |   |   | (514 | ) |   |   | (369 | ) |
|                                                                                                                          |   |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      (loss) from continuing operations before income taxes and equity in      earnings of equity-method investees      |   |                                          | (9,319 | ) |   |   | 375 |   |   |   | 11,707 |   |   |   | 4,567 |   |   |   | (2,742 | ) |
| Income      tax provision (benefit)                                                                                           |   |                                          | 171 |   |   |   | 1,049 |   |   |   | (32 | ) |   |   | 75 |   |   |   | (518 | ) |
| Equity      in earnings of equity-method investees                                                                            |   |                                          | 971 |   |   |   | 805 |   |   |   | 775 |   |   |   | 980 |   |   |   | 369 |   |
| Income      (loss) from continuing operations                                                                                 |   |                                          | (8,519 | ) |   |   | 131 |   |   |   | 12,514 |   |   |   | 5,472 |   |   |   | (1,855 | ) |
| Income      (loss) from discontinued operations, including tax benefit of $29 (2006)      and gain on disposal of $439 (2005) |   |                                          | -- |   |   |   | 41 |   |   |   | (1,599 | ) |   |   | (2,231 | ) |   |   | (2,715 | ) |
| Net      income (loss)                                                                                                        |   | $                                             | (8,519 | ) |   | $ | 172 |   |   | $ | 10,915 |   |   | $ | 3,241 |   |   | $ | (4,570 | ) |
|                                                                                                                          |   |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      (loss) per share:                                                                                                 |   |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic:                                                                                                                        |   |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| From      continuing operations                                                                                               |   | $                                             | (0.46 | ) |   | $ | 0.01 |   |   | $ | 0.69 |   |   | $ | 0.30 |   |   | $ | (0.11 | ) |
| From      discontinued operations                                                                                             |   |                                          | -- |   |   |   | -- |   |   |   | (0.09 | ) |   |   | (0.12 | ) |   |   | (0.15 | ) |
| Net      income (loss)                                                                                                        |   | $                                             | (0.46 | ) |   | $ | 0.01 |   |   | $ | 0.60 |   |   | $ | 0.18 |   |   | $ | (0.26 | ) |
| Weighted      average shares outstanding                                                                                      |   |                                          | 18,378 |   |   |   | 18,335 |   |   |   | 18,119 |   |   |   | 17,880 |   |   |   | 17,666 |   |
| Diluted:                                                                                                                      |   |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| From      continuing operations                                                                                               |   | $                                             | (0.46 | ) |   | $ | 0.01 |   |   | $ | 0.68 |   |   | $ | 0.30 |   |   | $ | (0.11 | ) |
| From      discontinued operations                                                                                             |   |                                          | -- |   |   |   | -- |   |   |   | (0.09 | ) |   |   | (0.12 | ) |   |   | (0.15 | ) |
| Net      income (loss)                                                                                                        |   | $                                             | (0.46 | ) |   | $ | 0.01 |   |   | $ | 0.59 |   |   | $ | 0.18 |   |   | $ | (0.26 | ) |
| Weighted      average shares outstanding                                                                                      |   |                                          | 18,378 |   |   |   | 18,470 |   |   |   | 18,357 |   |   |   | 18,178 |   |   |   | 17,666 |   |
|                                                                                                                          |   |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      Data:                                                                                                              |   |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital      expenditures                                                                                                     |   | $                                             | 2,177 |   |   | $ | 1,995 |   |   | $ | 1,410 |   |   | $ | 786 |   |   | $ | 327 |   |
| Working      capital                                                                                                          |   | $                                             | 20,762 |   |   | $ | 25,347 |   |   | $ | 24,216 |   |   | $ | 12,967 |   |   | $ | 7,813 |   |
| Total      assets                                                                                                             |   | $                                             | 91,377 |   |   | $ | 96,706 |   |   | $ | 132,821 |   |   | $ | 98,230 |   |   | $ | 98,533 |   |
| Long-term      debt                                                                                                           |   | $                                             | 3,678 |   |   | $ | 4,512 |   |   | $ | 7,631 |   |   | $ | 11,400 |   |   | $ | 13,089 |   |
| Stockholders’      equity                                                                                               |   | $                                             | 49,984 |   |   | $ | 58,400 |   |   | $ | 57,845 |   |   | $ | 45,167 |   |   | $ | 40,987 |   |

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Item 7: Management’s Discussion and Analysis of Financial Conditionand Results of Operations (dollars inthousands)

|   |   | Floor      Shipments |
|--------|--------|----------------------|
|   |   | Nationwide           |   | Cavalier’s      Core 11 States |
| Year   |   | Industry             |   |   | Increase      (decrease) from prior year |   | Cavalier |   |   | Increase      (decrease) from prior year |   | MarketShare |   | Industry |   |   | Increase      (decrease) from prior year |   | Cavalier |   |   | Increase      (decrease) from prior year |   | MarketShare |
| 1999   |   |                 | 582,498 |   |   |   |   |   |   | 34,294 |   |   |   |   |   |   | 5.9 | % |   |   | 284,705 |   |   |   |   |   |   | 30,070 |   |   |   |   |   |   | 10.6 | % |
| 2000   |   |                 | 431,787 |   |   |   | (25.9 | )% |   |   | 18,590 |   |   |   | (45.8 | )% |   |   | 4.3 | % |   |   | 199,276 |   |   |   | (30.0 | )% |   |   | 15,941 |   |   |   | (47.0 | )% |   |   | 8.0 | % |
| 2001   |   |                 | 342,321 |   |   |   | (20.7 | )% |   |   | 21,324 |   |   |   | 14.7 |  % |   |   | 6.2 | % |   |   | 149,162 |   |   |   | (25.1 | )% |   |   | 17,884 |   |   |   | 12.2 |  % |   |   | 12.0 | % |
| 2002   |   |                 | 304,370 |   |   |   | (11.1 | )% |   |   | 21,703 |   |   |   | 1.8 |  % |   |   | 7.1 | % |   |   | 124,127 |   |   |   | (16.8 | )% |   |   | 18,039 |   |   |   | 0.9 |  % |   |   | 14.5 | % |
| 2003   |   |                 | 240,180 |   |   |   | (21.1 | )% |   |   | 12,411 |   |   |   | (42.8 | )% |   |   | 5.2 | % |   |   | 87,265 |   |   |   | (29.7 | )% |   |   | 10,584 |   |   |   | (41.3 | )% |   |   | 12.1 | % |
| 2004   |   |                 | 232,824 |   |   |   | (3.1 | )% |   |   | 10,772 |   |   |   | (13.2 | )% |   |   | 4.6 | % |   |   | 88,958 |   |   |   | 1.9 |  % |   |   | 8,912 |   |   |   | (15.8 | )% |   |   | 10.0 | % |
| 2005   |   |                 | 246,750 |   |   |   | 6.0 |  % |   |   | 10,648 |   |   |   | (1.2 | )% |   |   | 4.3 | % |   |   | 105,508 |   |   |   | 18.6 |  % |   |   | 9,905 |   |   |   | 11.1 |  % |   |   | 9.4 | % |
| 2006   |   |                 | 206,822 |   |   |   | (16.2 | )% |   |   | 8,261 |   |   |   | (22.4 | )% |   |   | 4.0 | % |   |   | 86,748 |   |   |   | (17.8 | )% |   |   | 7,774 |   |   |   | (21.5 | )% |   |   | 9.0 | % |
| 2007   |   |                 | 163,761 |   |   |   | (20.8 | )% |   |   | 7,378 |   |   |   | (10.7 | )% |   |   | 4.5 | % |   |   | 69,115 |   |   |   | (20.3 | )% |   |   | 6,568 |   |   |   | (15.5 | )% |   |   | 9.5 | % |

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|                                                                                                                       |   | For      the Year Ended December 31, |
|----------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|
|                                                                                                                       |   | 2007                                 |   | 2006 |   | 2005 |
| Statement      of Operations Data:                                                                                         |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue:                                                                                                                   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Home      manufacturing                                                                                                    |   | $                                    | 206,882 |   |   |   |   |   |   | $ | 224,602 |   |   |   |   |   |   | $ | 269,030 |   |   |   |   |   |
| Financial      services                                                                                                    |   |                                 | 3,699 |   |   |   |   |   |   |   | 3,335 |   |   |   |   |   |   |   | 3,002 |   |   |   |   |   |
| Total      revenue                                                                                                         |   |                                 | 210,581 |   |   |   | 100.0 | % |   |   | 227,937 |   |   |   | 100.0 | % |   |   | 272,032 |   |   |   | 100.0 | % |
| Cost      of sales                                                                                                         |   |                                 | 181,920 |   |   |   | 86.4 |   |   |   | 189,175 |   |   |   | 83.0 |   |   |   | 219,435 |   |   |   | 80.7 |   |
| Gross      profit                                                                                                          |   |                                 | 28,661 |   |   |   | 13.6 |   |   |   | 38,762 |   |   |   | 17.0 |   |   |   | 52,597 |   |   |   | 19.3 |   |
| Selling,      general and administrative                                                                                   |   |                                 | 37,409 |   |   |   | 17.8 |   |   |   | 38,607 |   |   |   | 16.9 |   |   |   | 40,284 |   |   |   | 14.8 |   |
| Restructuring      and impairment charges                                                                                  |   |                                 | 267 |   |   |   | 0.1 |   |   |   | -- |   |   |   | -- |   |   |   | 143 |   |   |   | 0.1 |   |
| Operating      income (loss)                                                                                               |   |                                 | (9,015 | ) |   |   | (4.3 | ) |   |   | 155 |   |   |   | 0.1 |   |   |   | 12,170 |   |   |   | 4.5 |   |
| Other      income (expense):                                                                                               |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      expense                                                                                                      |   |                                 | (712 | ) |   |   | (0.3 | ) |   |   | (1,110 | ) |   |   | (0.5 | ) |   |   | (1,314 | ) |   |   | (0.5 | ) |
| Other,      net                                                                                                            |   |                                 | 408 |   |   |   | 0.2 |   |   |   | 1,330 |   |   |   | 0.6 |   |   |   | 851 |   |   |   | 0.3 |   |
|                                                                                                                       |   |                                 | (304 | ) |   |   | (0.1 | ) |   |   | 220 |   |   |   | 0.1 |   |   |   | (463 | ) |   |   | (0.2 | ) |
| Income      (loss) before income taxes and equity in earnings of equity-method      investees                              |   |                                 | (9,319 | ) |   |   | (4.4 | ) |   |   | 375 |   |   |   | 0.2 |   |   |   | 11,707 |   |   |   | 4.3 |   |
| Income      tax provision (benefit)                                                                                        |   |                                 | 171 |   |   |   | 0.1 |   |   |   | 1,049 |   |   |   | 0.5 |   |   |   | (32 | ) |   |   | 0.0 |   |
| Equity      in earnings of equity-method investees                                                                         |   |                                 | 971 |   |   |   | 0.5 |   |   |   | 805 |   |   |   | 0.4 |   |   |   | 775 |   |   |   | 0.3 |   |
| Income      (loss) from continuing operations                                                                              |   |                                 | (8,519 | ) |   |   | (4.0 | ) |   |   | 131 |   |   |   | 0.1 |   |   |   | 12,514 |   |   |   | 4.6 |   |
| Income      (loss) from discontinued operations, including tax benefit of $29 (2006)      and gain on disposal $439 (2005) |   |                                 | -- |   |   |   | -- |   |   |   | 41 |   |   |   | 0.0 |   |   |   | (1,599 | ) |   |   | (0.6 | ) |
| Net      income (loss)                                                                                                     |   | $                                    | (8,519 | ) |   |   | (4.0 | )% |   | $ | 172 |   |   |   | 0.1 | % |   | $ | 10,915 |   |   |   | 4.0 | % |
|                                                                                                                       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      Summary Data:                                                                                               |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Home      manufacturing:                                                                                                   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Floor      shipments:                                                                                                      |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| HUD-Code                                                                                                                   |   |                                 | 7,378 |   |   |   | 91.0 | % |   |   | 8,261 |   |   |   | 90.8 | % |   |   | 10,648 |   |   |   | 94.3 | % |
| Modular                                                                                                                    |   |                                 | 729 |   |   |   | 9.0 |   |   |   | 840 |   |   |   | 9.2 |   |   |   | 641 |   |   |   | 5.7 |   |
| Total      floor shipments                                                                                                 |   |                                 | 8,107 |   |   |   | 100.0 | % |   |   | 9,101 |   |   |   | 100.0 | % |   |   | 11,289 |   |   |   | 100.0 | % |
|                                                                                                                       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Home      shipments:                                                                                                       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing      operations:                                                                                                |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Single-section                                                                                                             |   |                                 | 1,460 |   |   |   | 30.7 | % |   |   | 1,669 |   |   |   | 31.2 | % |   |   | 3,201 |   |   |   | 44.3 | % |
| Multi-section                                                                                                              |   |                                 | 3,300 |   |   |   | 69.3 |   |   |   | 3,678 |   |   |   | 68.8 |   |   |   | 3,941 |   |   |   | 54.5 |   |
| Total      continuing                                                                                                      |   |                                 | 4,760 |   |   |   | 100.0 |   |   |   | 5,347 |   |   |   | 100.0 |   |   |   | 7,142 |   |   |   | 98.8 |   |
| Discontinued      operations                                                                                               |   |                                 | -- |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 84 |   |   |   | 1.2 |   |
| Wholesale      home shipments                                                                                              |   |                                 | 4,760 |   |   |   | 100.0 |   |   |   | 5,347 |   |   |   | 100.0 |   |   |   | 7,226 |   |   |   | 100.0 |   |
| Shipments      to company-owned retail locations                                                                           |   |                                 | (43 | ) |   |   | (0.9 | ) |   |   | (157 | ) |   |   | (2.9 | ) |   |   | (188 | ) |   |   | (2.6 | ) |
| MEMA/FEMA      shipments                                                                                                   |   |                                 | (358 | ) |   |   | (7.5 | ) |   |   | (419 | ) |   |   | (7.8 | ) |   |   | (2,219 | ) |   |   | (30.7 | ) |
| Shipments      to independent retailers                                                                                    |   |                                 | 4,359 |   |   |   | 91.6 | % |   |   | 4,771 |   |   |   | 89.3 | % |   |   | 4,819 |   |   |   | 66.7 | % |
| Retail      home shipments                                                                                                 |   |                                 | 45 |   |   |   | 0.9 |   |   |   | 169 |   |   |   | 3.1 |   |   |   | 196 |   |   |   | 2.7 |   |
| Shipments      other than MEMA/FEMA                                                                                        |   |                                 | 4,404 |   |   |   | 92.5 |   |   |   | 4,940 |   |   |   | 92.4 |   |   |   | 5,015 |   |   |   | 69.4 |   |
|                                                                                                                       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Installment      loan purchases                                                                                            |   | $                                    | 54,818 |   |   |   |   |   |   | $ | 42,916 |   |   |   |   |   |   | $ | 42,235 |   |   |   |   |   |
| Capital      expenditures                                                                                                  |   | $                                    | 2,177 |   |   |   |   |   |   | $ | 1,995 |   |   |   |   |   |   | $ | 1,410 |   |   |   |   |   |
| Home      manufacturing facilities (operating)                                                                             |   |                                 | 5 |   |   |   |   |   |   |   | 7 |   |   |   |   |   |   |   | 7 |   |   |   |   |   |
| Independent      exclusive dealer locations                                                                                |   |                                 | 62 |   |   |   |   |   |   |   | 71 |   |   |   |   |   |   |   | 113 |   |   |   |   |   |

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|                                                     |   | As      of December 31, |
|----------------------------------------------------------|--------|-------------------------|
|                                                     |   | 2007                    |   | 2006 |   | 2005 |
| Cash,      cash equivalents, and certificates of deposit |   | $                       | 22,043 |   |   | $ | 25,967 |   |   | $ | 14,379 |   |
| Working      capital                                     |   | $                       | 20,906 |   |   | $ | 25,347 |   |   | $ | 24,216 |   |
| Current      ratio                                       |   |                    | 1.6      to 1 |   |   |   | 1.8      to 1 |   |   |   | 1.4      to 1 |   |
| Long-term      debt                                      |   | $                       | 3,678 |   |   | $ | 4,512 |   |   | $ | 7,631 |   |
| Ratio      of long-term debt to equity                   |   |                    | 0.1      to 1 |   |   |   | 0.1      to 1 |   |   |   | 0.1      to 1 |   |
| Installment      loan portfolio                          |   | $                       | 9,844 |   |   | $ | 12,265 |   |   | $ | 15,067 |   |

| (a) | a      total of $6,278 due to the net loss excluding certain non-cash items,      including depreciation, provision for credit and accounts receivable      losses, stock-based compensation, loss on disposal of property, plant and      equipment, impairment charge and other, net (equity in earnings of      equity-method investees), |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) | an      increase in accounts receivable of $723 due primarily to outstanding MEMA      invoices at year-end, |
|-----|--------------------------------------------------------------------------------------------------------------|

| (c) | an      increase in inventory, net of the impact from the sale of two retail      locations in March 2007 totaling $522,and |
|-----|-----------------------------------------------------------------------------------------------------------------------------|

| (e) | offset      by increases in accounts payable ($972), amounts payable under dealer      incentive programs ($578), accrued compensation and related withholdings      ($155), and other assets and liabilities ($666), which generally represent      timing differences in payments. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| (a) | a      decrease in accounts receivable of $37,554 from collection of receivables      related to FEMA disaster reliefhomes, |
|-----|-----------------------------------------------------------------------------------------------------------------------------|

| (b) | an      inventory decrease of $5,048, which represents finished homes we delivered      in early 2006 to FEMA, and |
|-----|--------------------------------------------------------------------------------------------------------------------|

| (c) | the      net purchase of installment contracts of$1,925, |
|-----|----------------------------------------------------------|

| (d) | offset      by decreases in accounts payable ($4,073), amounts payable under dealer      incentive programs ($4,046), accrued compensation and related withholdings      ($3,456), and other assets and liabilities ($3,505), all of which      decreased primarily as a result of the FEMA activity at the end of 2005      that did not recur in 2006. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (a) | an      increase in accounts receivable of $35,173 due to shipments of FEMA      disaster relief homes, |
|-----|---------------------------------------------------------------------------------------------------------|

| (b) | an      inventory increase of $12,394, of which over $5,000 represents finished      homes we were unable to deliver to FEMA in the fourth quarter of 2005 with      most of the remaining inventory increase representing raw materials      purchased to support higher levels of  production, |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) | the      net purchase of installment contracts of$6,817, |
|-----|----------------------------------------------------------|

| (d) | a      slight offset of the above uses of cash by an increase of $3,526 in      accounts payable for increased inventory purchases,  and |
|-----|------------------------------------------------------------------------------------------------------------------------------------------|

| (e) | an      offset by 2005 net income of$10,915. |
|-----|----------------------------------------------|

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| Tangible      Net Worth (“TNW”) |   | Credit      Facility Available                    |
|---------------------------------------------|--------|---------------------------------------------------|
| Above      $50,000                          |   | 35%      of TNW                                   |
| $38,000      – $50,000                |   | $15,000                                           |
| $23,000      – $38,000                |   | $15,000      to zero (dollar for dollarreduction) |

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| Tangible      Net Worth           |   | Interest      Rate    |
|-----------------------------------|--------|-----------------------|
| above      $62,000                |   | Prime      less 1.00% |
| $56,500      –      $62,000 |   | Prime                 |
| $38,000      –      $56,500 |   | Prime      plus 0.50% |
| below      $38,000                |   | Prime      plus 1.00% |

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|                                            |   | Payments      Due by Period |
|-------------------------------------------------|--------|-----------------------------|
| Description      (a)                            |   | Total                       |   | Less      than 1 year |   | 1-3      years |   | 4-5      years |   | After      5 years |
| Industrial      development revenue bond issues |   | $                           | 1,775 |   |   | $ | 620 |   |   | $ | 890 |   |   | $ | 265 |   |   | $ | -- |   |
| Real      estate term loan                      |   |                        | 2,737 |   |   |   | 214 |   |   |   | 735 |   |   |   | 576 |   |   |   | 1,212 |   |
| Interest                                        |   |                        | 1,083 |   |   |   | 239 |   |   |   | 488 |   |   |   | 207 |   |   |   | 149 |   |
| Operating      lease obligations                |   |                        | 737 |   |   |   | 511 |   |   |   | 226 |   |   |   | -- |   |   |   | -- |   |
| Total      contractual cash obligations         |   | $                           | 6,332 |   |   | $ | 1,584 |   |   | $ | 2,339 |   |   | $ | 1,048 |   |   | $ | 1,361 |   |

| (a) | The      liability for uncertain tax positions, which totaled $247 at December 31,      2007, has been excluded from the above table because we are unable to      determine the periods in which these liabilities will be    paid. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                            |   | Payments      Due by Period |
|---------------------------------|--------|-----------------------------|
|                            |   | Total                       |   | Less      than 1 year |   | 1-3      years |   | 4-5      years |   | After      5 years |
| Repurchase      obligations (1) |   | $                           | 61,000 |   |   | $ | 18,500 |   |   | $ | 42,500 |   |   | $ | -- |   |   | $ | -- |   |
| Letters      of credit (2)      |   |                        | 4,895 |   |   |   | 4,895 |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |
| Total      commitments          |   | $                           | 65,895 |   |   | $ | 23,395 |   |   | $ | 42,500 |   |   | $ | -- |   |   | $ | -- |   |

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| (1) | For      a complete description of the contingent repurchase obligation, see      Critical Accounting Estimates – Reserve for Repurchase Commitments.      Although the commitments outstanding at December 31, 2007 have a finite      life, these commitments are continually replaced as we continue to sell      our manufactured homes to dealers under repurchase and other recourse      agreements with lending institutions which have provided wholesale floor      plan financing to dealers. The cost (net recoveries) of these contingent      repurchase obligations to us was $(181) (2007), $430 (2006) and $(696)      (2005). We have a reserve for repurchase commitments of $1,131 (2007) and      $1,513 (2006) based on prior experience and an evaluation of dealers’      financial conditions. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | We      have provided letters of credit to providers of certain of our surety      bonds and insurance policies. While the current letters of credit have a      finite life, they are subject to renewal at different amounts based on the      requirements of the insurance carriers. The outstanding letters of credit      reduce amounts available under our Credit Facility. We have recorded      insurance expense based on anticipated losses related to these      policies. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| (1) | We      estimate the fair value of the non-contingent portion of our      manufacturer’s inventory repurchase commitment under the provisions of FIN      45 when a home is shipped to dealers whose floor plan financing includes      our repurchase commitment. The fair value of the inventory repurchase      agreement has been estimated on a “pooled dealer” approach based on the      creditworthiness of the independent dealers, as determined by the floor      plan institution, and is derived using an income approach. Specifically,      the fair value of the inventory repurchase agreement is determined by      calculating the net present value of the difference in (a) the interest      cost to carry the inventory over the maximum repurchase liability period      at the prevailing floor plan note interest rate and (b) the interest cost      to carry the inventory over the maximum repurchase liability period at the      interest rate of a similar type loan without a manufacturer’s repurchase      agreement in force. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | We      estimate the contingent obligation to make future payments under our      manufacturer’s inventory repurchase commitment for the same pool of      commitments as used in the fair value calculation above and record the      greater of the two calculations. This SFAS No. 5 contingent obligation is      estimated using historical loss factors, including the frequency of      repurchases and the losses we experienced for repurchased      inventory. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Item 7A: Quantitative And Qualitative Disclosures About MarketRisk

|                                                                                                                                                                                             |   | Assumed      Annual Principal Cash Flows |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|
| (dollars      in thousands)                                                                                                                                                                      |   | 2008                                     |   | 2009 |   | 2010 |   | 2011 |   | 2012 |   | Thereafter |   | Total |   | Fair      Value |
| Installment      loan portfolio (a)                                                                                                                                                              |   | $                                        | 5,704 |   |   | $ | 70 |   |   | $ | 84 |   |   | $ | 79 |   |   | $ | 96 |   |   | $ | 3,811 |   |   | $ | 9,844 |   |   | $ | 9,915 |   |
| (weighted      average interest rate – 8.8%)                                                                                                                                               |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  (a)      We have recorded an allowance for credit losses of $725, primarily based      upon management's assessment of historical experience factors and current      economic conditions. |

|                                                |   | Expected      Principal Maturity Dates |
|-----------------------------------------------------|--------|----------------------------------------|
| (dollars      in thousands)                         |   | 2008                                   |   | 2009 |   | 2010 |   | 2011 |   | 2012 |   | Thereafter |   | Total |   | Fair      Value |
| Notes      payable and long-term debt               |   | $                                      | 834 |   |   | $ | 884 |   |   | $ | 360 |   |   | $ | 381 |   |   | $ | 409 |   |   | $ | 1,644 |   |   | $ | 4,512 |   |   | $ | 4,551 |   |
| (weighted      average interest rate – 5.72%) |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|   | · | the      cyclical and seasonal nature of the manufactured housing industry and the      economy generally; |
|--------|--------|------------------------------------------------------------------------------------------------------------|

|   | · | the      severe and continuing downturn in the manufactured housing      industry; |
|--------|--------|------------------------------------------------------------------------------------|

|   | · | limitations      in our ability to pursue our businessstrategy; |
|--------|--------|-----------------------------------------------------------------|

|   | · | changes      in demographic trends, consumer preferences and our business      strategy; |
|--------|--------|------------------------------------------------------------------------------------------|

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|   | · | changes      and volatility in interest rates and the availability of      capital; |
|--------|--------|-------------------------------------------------------------------------------------|

|   | · | changes      in the availability of retail (consumer)  financing; |
|--------|--------|-------------------------------------------------------------------|

|   | · | changes      in the availability of wholesale (dealer)  financing; |
|--------|--------|--------------------------------------------------------------------|

|   | · | changes      in level of industry retailinventories; |
|--------|--------|------------------------------------------------------|

|   | · | the      ability to attract and retain quality independent dealers in a competitive      environment, including any impact from the consolidation of independent      dealers; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the      ability to attract and retain executive officers and other key      personnel; |
|--------|--------|-----------------------------------------------------------------------------------------|

|   | · | the      ability to produce modular and HUD-code products within the same      manufacturing plants; |
|--------|--------|------------------------------------------------------------------------------------------------------|

|   | · | the      ability to substantially grow our modular  business; |
|--------|--------|---------------------------------------------------------------|

|   | · | competition; |
|--------|--------|--------------|

|   | · | contingent      repurchase and guarantyobligations; |
|--------|--------|-----------------------------------------------------|

|   | · | uncertainties      regarding our retail financingactivities; |
|--------|--------|--------------------------------------------------------------|

|   | · | the      potential unavailability of and price increases for raw      materials; |
|--------|--------|----------------------------------------------------------------------------------|

|   | · | the      potential unavailability of manufactured housing  sites; |
|--------|--------|-------------------------------------------------------------------|

|   | · | regulatory      constraints; |
|--------|--------|------------------------------|

|   | · | the      potential for additional warrantyclaims; |
|--------|--------|---------------------------------------------------|

|   | · | litigation;      and |
|--------|--------|----------------------|

|   | · | the      potential for deficiencies in internal controls over financial reporting      or in disclosure controls andprocedures. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|

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Item 8: Financial Statements And Supplementary Data

|                                     |   | FourthQuarter                                         |   | ThirdQuarter |   | SecondQuarter |   | FirstQuarter |   | Totals |
|------------------------------------------|--------|-------------------------------------------------------|--------|--------------|--------|---------------|--------|--------------|--------|--------|
|                                     |   | (dollars      in thousands, except per share amounts) |
| 2007                                     |   |                                                  |   |         |   |          |   |         |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue:                                 |   |                                                  |   |         |   |          |   |         |   |   |   |   |   |   |   |   |   |   |   |   |
| Home      manufacturing                  |   | $                                                     | 52,239 |         |   | $             | 50,833 |         |   | $      | 61,765 |   |   | $ | 42,045 |   |   | $ | 206,882 |   |
| Financial      services                  |   |                                                  | 928    |         |   |          | 870    |         |   |   | 1,044 |   |   |   | 857 |   |   |   | 3,699 |   |
| Total      revenue                       |   |                                                  | 53,167 |         |   |          | 51,703 |         |   |   | 62,809 |   |   |   | 42,902 |   |   |   | 210,581 |   |
| Gross      profit                        |   |                                                  | 7,995  |         |   |          | 6,049  |         |   |   | 8,637 |   |   |   | 5,980 |   |   |   | 28,661 |   |
| Net      loss                            |   |                                                  | (1,017 | )            |   |          | (2,742 | )            |   |   | (869 | ) |   |   | (3,891 | ) |   |   | (8,519 | ) |
| Basic      net loss per share            |   |                                                  | (0.06  | )            |   |          | (0.15  | )            |   |   | (0.05 | ) |   |   | (0.21 | ) |   |   | (0.46 | ) |
| Diluted      net loss per share          |   | $                                                     | (0.06  | )            |   | $             | (0.15  | )            |   | $      | (0.05 | ) |   | $ | (0.21 | ) |   | $ | (0.46 | ) |
|                                     |   |                                                  |   |         |   |          |   |         |   |   |   |   |   |   |   |   |   |   |   |   |
| 2006                                     |   |                                                  |   |         |   |          |   |         |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue:                                 |   |                                                  |   |         |   |          |   |         |   |   |   |   |   |   |   |   |   |   |   |   |
| Home      manufacturing                  |   | $                                                     | 42,474 |         |   | $             | 50,123 |         |   | $      | 57,964 |   |   | $ | 74,041 |   |   | $ | 224,602 |   |
| Financial      services                  |   |                                                  | 838    |         |   |          | 777    |         |   |   | 811 |   |   |   | 909 |   |   |   | 3,335 |   |
| Total      revenue                       |   |                                                  | 43,312 |         |   |          | 50,900 |         |   |   | 58,775 |   |   |   | 74,950 |   |   |   | 227,937 |   |
| Gross      profit                        |   |                                                  | 6,150  |         |   |          | 8,541  |         |   |   | 10,402 |   |   |   | 13,669 |   |   |   | 38,762 |   |
| Net      income (loss)                   |   |                                                  | (867   | )            |   |          | (788   | )            |   |   | 161 |   |   |   | 1,666 |   |   |   | 172 |   |
| Basic      net income (loss) per share   |   |                                                  | (0.05  | )            |   |          | (0.04  | )            |   |   | 0.01 |   |   |   | 0.09 |   |   |   | 0.01 |   |
| Diluted      net income (loss) per share |   | $                                                     | (0.05  | )            |   | $             | (0.04  | )            |   | $      | 0.01 |   |   | $ | 0.09 |   |   | $ | 0.01 |   |

| Management’s      Report on Internal Control Over Financial Reporting         |   |   | 33     |   |
|-------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Report      of Independent Registered Public Accounting Firm                        |   |   | 34     |   |
| Consolidated      Balance Sheets                                                    |   |   | 35     |   |
| Consolidated      Statements of Operations                                          |   |   | 36     |   |
| Consolidated      Statements of Stockholders’ Equity                          |   |   | 37     |   |
| Consolidated      Statements of Cash Flows                                          |   |   | 38     |   |
| Notes      to Consolidated Financial Statements                                     |   |   | 39     |   |
| Schedule-                                                                           |   |   |   |   |
| II      -  Valuation and Qualifying Accounts                              |   |   | 54     |   |
| Schedule      I, III, IV and V have been omitted because they are not      required |   |   |   |   |

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|                                                                                                                                            |   | 2007   |   | 2006   |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| ASSETS                                                                                                                                          |   |   |   |   |   |   |   |   |
| Current      assets:                                                                                                                            |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents                                                                                                                  |   | $      | 22,043 |   |   | $ | 25,967 |   |
| Accounts      receivable, less allowance for losses of $106 (2007) and $78      (2006)                                                          |   |   | 6,208  |   |   |   | 1,930 |   |
| Current      portion of notes and installment contracts receivable, including held for      resale of $5,688 (2007) and $6,288 (2006) |   |   | 5,761  |   |   |   | 6,430 |   |
| Inventories                                                                                                                                     |   |   | 20,537 |   |   |   | 22,255 |   |
| Other      current assets                                                                                                                       |   |   | 3,681  |   |   |   | 2,520 |   |
| Total      current assets                                                                                                                       |   |   | 58,230 |   |   |   | 59,102 |   |
| Property,      plant and equipment:                                                                                                             |   |   |   |   |   |   |   |   |
| Land                                                                                                                                            |   |   | 3,777  |   |   |   | 3,781 |   |
| Buildings      and improvements                                                                                                                 |   |   | 33,476 |   |   |   | 33,451 |   |
| Machinery      and equipment                                                                                                                    |   |   | 29,360 |   |   |   | 28,612 |   |
|                                                                                                                                            |   |   | 66,613 |   |   |   | 65,844 |   |
| Less      accumulated depreciation and amortization                                                                                             |   |   | 38,789 |   |   |   | 37,834 |   |
| Property,      plant and equipment, net                                                                                                         |   |   | 27,824 |   |   |   | 28,010 |   |
| Installment      contracts receivable, less allowance for credit losses of $725 (2007)      and $841 (2006)                           |   |   | 3,264  |   |   |   | 4,785 |   |
| Other      assets                                                                                                                               |   |   | 2,059  |   |   |   | 4,809 |   |
| Total      assets                                                                                                                               |   | $      | 91,377 |   |   | $ | 96,706 |   |
|                                                                                                                                            |   |   |   |   |   |   |   |   |
| LIABILITIES      AND STOCKHOLDERS’ EQUITY                                                                                                 |   |   |   |   |   |   |   |   |
| Current      liabilities:                                                                                                                       |   |   |   |   |   |   |   |   |
| Current      portion of long-term debt                                                                                                          |   | $      | 834    |   |   | $ | 1,226 |   |
| Note      payable under retail floor plan agreement                                                                                             |   |   | 510    |   |   |   | 1,103 |   |
| Accounts      payable                                                                                                                           |   |   | 4,720  |   |   |   | 3,748 |   |
| Amounts      payable under dealer incentives                                                                                                    |   |   | 3,619  |   |   |   | 3,041 |   |
| Estimated      warranties                                                                                                                       |   |   | 11,720 |   |   |   | 11,900 |   |
| Accrued      insurance                                                                                                                          |   |   | 5,158  |   |   |   | 5,394 |   |
| Accrued      compensation and related withholdings                                                                                              |   |   | 2,846  |   |   |   | 2,691 |   |
| Reserve      for repurchase commitments                                                                                                         |   |   | 1,131  |   |   |   | 1,513 |   |
| Progress      billings                                                                                                                          |   |   | 3,546  |   |   |   | -- |   |
| Other      accrued expenses                                                                                                                     |   |   | 3,384  |   |   |   | 3,139 |   |
| Total      current liabilities                                                                                                                  |   |   | 37,468 |   |   |   | 33,755 |   |
| Long-term      debt, less current portion                                                                                                       |   |   | 3,678  |   |   |   | 4,512 |   |
| Other      long-term liabilities                                                                                                                |   |   | 247    |   |   |   | 39 |   |
| Total      liabilities                                                                                                                          |   |   | 41,393 |   |   |   | 38,306 |   |
|                                                                                                                                            |   |   |   |   |   |   |   |   |
| Commitments      and contingencies (Note 12)                                                                                                    |   |   |   |   |   |   |   |   |
|                                                                                                                                            |   |   |   |   |   |   |   |   |
| Stockholders’      equity:                                                                                                                |   |   |   |   |   |   |   |   |
| Series      A Junior Participating Preferred stock, $0.01 par value; 200,000      shares authorized, none issued                      |   |   | --     |   |   |   | -- |   |
| Preferred      stock, $0.01 par value; 300,000 shares authorized, none    issued                                                                |   |   | --     |   |   |   | -- |   |
| Common      stock, $0.10 par value; 50,000,000 shares authorized; 19,412,880 (2007)      and 19,327,880 (2006) shares issued               |   |   | 1,941  |   |   |   | 1,933 |   |
| Additional      paid-in capital                                                                                                                 |   |   | 59,126 |   |   |   | 58,654 |   |
| Deferred      compensation                                                                                                                      |   |   | (185   | )      |   |   | -- |   |
| Retained      earnings (deficit)                                                                                                                |   |   | (7,116 | )      |   |   | 1,595 |   |
| Treasury      stock, at cost; 983,300 shares                                                                                                    |   |   | (3,782 | )      |   |   | (3,782 | ) |
| Total      stockholders’ equity                                                                                                           |   |   | 49,984 |   |   |   | 58,400 |   |
|                                                                                                                                            |   | $      | 91,377 |   |   | $ | 96,706 |   |

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|                                                                                                                               |   | 2007   |    | 2006   |   | 2005   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Revenue                                                                                                                            |   | $      | 210,581 |   |   | $      | 227,937 |   |   | $ | 272,032 |   |
| Cost      of sales                                                                                                                 |   |   | 181,920 |   |   |   | 189,175 |   |   |   | 219,435 |   |
| Gross      profit                                                                                                                  |   |   | 28,661  |   |   |   | 38,762 |   |   |   | 52,597 |   |
| Selling,      general and administrative expenses                                                                                  |   |   | 37,409  |   |   |   | 38,607 |   |   |   | 40,284 |   |
| Restructuring      and impairment charges                                                                                          |   |   | 267     |   |   |   | -- |   |   |   | 143 |   |
| Operating      income (loss)                                                                                                       |   |   | (9,015  | )      |   |   | 155 |   |   |   | 12,170 |   |
| Other      income (expense):                                                                                                       |   |   |    |   |   |   |   |   |   |   |   |   |
| Interest      expense                                                                                                              |   |   | (712    | )      |   |   | (1,110 | ) |   |   | (1,314 | ) |
| Other,      net                                                                                                                    |   |   | 408     |   |   |   | 1,330 |   |   |   | 851 |   |
|                                                                                                                               |   |   | (304    | )      |   |   | 220 |   |   |   | (463 | ) |
| Income      (loss) from continuing operations before income taxes and      equity in earnings of equity-method investees |   |   | (9,319  | )      |   |   | 375 |   |   |   | 11,707 |   |
| Income      tax provision (benefit)                                                                                                |   |   | 171     |   |   |   | 1,049 |   |   |   | (32 | ) |
| Equity      in earnings of equity-method investees                                                                                 |   |   | 971     |   |   |   | 805 |   |   |   | 775 |   |
| Income      (loss) from continuing operations                                                                                      |   |   | (8,519  | )      |   |   | 131 |   |   |   | 12,514 |   |
| Income      (loss) from discontinued operations, including tax benefit of      $29 (2006) and gain on disposal of $439 (2005) |   |   | --      |   |   |   | 41 |   |   |   | (1,599 | ) |
| Net      income (loss)                                                                                                             |   | $      | (8,519  | )      |   | $      | 172 |   |   | $ | 10,915 |   |
|                                                                                                                               |   |   |    |   |   |   |   |   |   |   |   |   |
| Income      (loss) per share:                                                                                                      |   |   |    |   |   |   |   |   |   |   |   |   |
| Basic:                                                                                                                             |   |   |    |   |   |   |   |   |   |   |   |   |
| From      continuing operations                                                                                                    |   | $      | (0.46   | )      |   | $      | 0.01 |   |   | $ | 0.69 |   |
| From      discontinued operations                                                                                                  |   |   | --      |   |   |   | -- |   |   |   | (0.09 | ) |
| Net      income (loss)                                                                                                             |   | $      | (0.46   | )      |   | $      | 0.01 |   |   | $ | 0.60 |   |
| Weighted      average shares outstanding                                                                                           |   |   | 18,378  |   |   |   | 18,335 |   |   |   | 18,119 |   |
| Diluted:                                                                                                                           |   |   |    |   |   |   |   |   |   |   |   |   |
| From      continuing operations                                                                                                    |   | $      | (0.46   | )      |   | $      | 0.01 |   |   | $ | 0.68 |   |
| From      discontinued operations                                                                                                  |   |   | --      |   |   |   | -- |   |   |   | (0.09 | ) |
| Net      income (loss)                                                                                                             |   | $      | (0.46   | )      |   | $      | 0.01 |   |   | $ | 0.59 |   |
| Weighted      average shares outstanding                                                                                           |   |   | 18,378  |   |   |   | 18,470 |   |   |   | 18,357 |   |

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|                                                                                                |   | Common      Stock |       | Additional      paid-in capital |   | Deferred      compensation |   | Retained      earnings (deficit) |   | Treasury      stock |   | Total  |
|-----------------------------------------------------------------------------------------------------|--------|-------------------|------------|---------------------------------|--------|----------------------------|--------|----------------------------------|--------|---------------------|--------|--------|
|                                                                                                |   | Shares            |       | Amount                          |   |                       |   |                             |   |
| Balance,      January 1, 2005                                                                       |   |              | 18,992,574 |                            |   | $                          | 1,899  |                             |   | $                   | 56,861 |   |   | $ | -- |   |   | $ | (9,492 | ) |   | $ | (4,101 | ) |   | $ | 45,167 |   |
| Stock      options exercised                                                                        |   |              | 293,131    |                            |   |                       | 30     |                             |   |                | 760    |   |   |   | -- |   |   |   | -- |   |   |   | 319 |   |   |   | 1,109 |   |
| Income      tax benefit attributable to exercise of stock options                                   |   |              | --         |                            |   |                       | --     |                             |   |                | 654    |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 654 |   |
| Net      income                                                                                     |   |              | --         |                            |   |                       | --     |                             |   |                | --     |   |   |   | -- |   |   |   | 10,915 |   |   |   | -- |   |   |   | 10,915 |   |
| Balance,      December 31, 2005                                                                     |   |              | 19,285,705 |                            |   |                       | 1,929  |                             |   |                | 58,275 |   |   |   | -- |   |   |   | 1,423 |   |   |   | (3,782 | ) |   |   | 57,845 |   |
| Stock      options exercised                                                                        |   |              | 42,175     |                            |   |                       | 4      |                             |   |                | 144    |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 148 |   |
| Stock-based      compensation                                                                       |   |              | --         |                            |   |                       | --     |                             |   |                | 235    |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 235 |   |
| Net      income                                                                                     |   |              | --         |                            |   |                       | --     |                             |   |                | --     |   |   |   | -- |   |   |   | 172 |   |   |   | -- |   |   |   | 172 |   |
| Balance,      December 31, 2006                                                                     |   |              | 19,327,880 |                            |   |                       | 1,933  |                             |   |                | 58,654 |   |   |   | -- |   |   |   | 1,595 |   |   |   | (3,782 | ) |   |   | 58,400 |   |
| Cumulative      effect of adoption of accounting policy related to uncertainty in income      taxes |   |              | --         |                            |   |                       | --     |                             |   |                | --     |   |   |   | -- |   |   |   | (192 | ) |   |   | -- |   |   |   | (192 | ) |
| Adjusted      balance, January 1, 2007                                                              |   |              | 19,327,880 |                            |   |                       | 1,933  |                             |   |                | 58,654 |   |   |   | -- |   |   |   | 1,403 |   |   |   | (3,782 | ) |   |   | 58,208 |   |
| Stock      options exercised                                                                        |   |              | 15,000     |                            |   |                       | 1      |                             |   |                | 49     |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 50 |   |
| Restricted      stock awards                                                                        |   |              | 70,000     |                            |   |                       | 7      |                             |   |                | 294    |   |   |   | (301 | ) |   |   | -- |   |   |   | -- |   |   |   | -- |   |
| Stock-based      compensation                                                                       |   |              | --         |                            |   |                       | --     |                             |   |                | 129    |   |   |   | 116 |   |   |   | -- |   |   |   | -- |   |   |   | 245 |   |
| Net      loss                                                                                       |   |              | --         |                            |   |                       | --     |                             |   |                | --     |   |   |   | -- |   |   |   | (8,519 | ) |   |   | -- |   |   |   | (8,519 | ) |
| Balance,      December 31, 2007                                                                     |   |              | 19,412,880 |                            |   | $                          | 1,941  |                             |   | $                   | 59,126 |   |   | $ | (185 | ) |   | $ | (7,116 | ) |   | $ | (3,782 | ) |   | $ | 49,984 |   |

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|                                                                                                         |   | 2007   |    | 2006   |   | 2005   |
|--------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Operating      activities:                                                                                   |   |   |    |   |   |   |   |   |   |   |   |   |
| Net      income (loss)                                                                                       |   | $      | (8,519  | )      |   | $      | 172 |   |   | $ | 10,915 |   |
| Adjustments      to reconcile net income (loss) to net cash provided by (used in) operating      activities: |   |   |    |   |   |   |   |   |   |   |   |   |
| Depreciation                                                                                                 |   |   | 2,156   |   |   |   | 2,299 |   |   |   | 2,477 |   |
| Deferred      income taxes                                                                                   |   |   | --      |   |   |   | 1,314 |   |   |   | (1,314 | ) |
| Stock-based      compensation                                                                                |   |   | 245     |   |   |   | 235 |   |   |   | -- |   |
| Provision      for credit and accounts receivable losses                                                     |   |   | 218     |   |   |   | 114 |   |   |   | 856 |   |
| Loss      (gain) on sale of property, plant and equipment                                                    |   |   | 45      |   |   |   | (293 | ) |   |   | (578 | ) |
| Impairment      charge                                                                                       |   |   | 91      |   |   |   | -- |   |   |   | 143 |   |
| Other,      net                                                                                              |   |   | (971    | )      |   |   | (1,195 | ) |   |   | (196 | ) |
| Installment      contracts purchased for resale                                                              |   |   | (53,853 | )      |   |   | (42,664 | ) |   |   | (41,442 | ) |
| Sale      of installment contracts purchased for resale                                                      |   |   | 53,347  |   |   |   | 44,589 |   |   |   | 34,625 |   |
| Principal      collected on installment contracts purchased for resale                                       |   |   | 80      |   |   |   | 221 |   |   |   | 205 |   |
| Changes      in assets and liabilities:                                                                      |   |   |    |   |   |   |   |   |   |   |   |   |
| Accounts      receivable, net                                                                                |   |   | (723    | )      |   |   | 37,554 |   |   |   | (35,173 | ) |
| Inventories                                                                                                  |   |   | (522    | )      |   |   | 5,048 |   |   |   | (12,394 | ) |
| Accounts      payable                                                                                        |   |   | 972     |   |   |   | (4,073 | ) |   |   | 3,526 |   |
| Amounts      payable under dealer incentives                                                                 |   |   | 578     |   |   |   | (4,046 | ) |   |   | 2,836 |   |
| Accrued      compensation and related withholdings                                                           |   |   | 155     |   |   |   | (3,456 | ) |   |   | 2,394 |   |
| Other      assets and liabilities                                                                            |   |   | 666     |   |   |   | (3,505 | ) |   |   | (1,958 | ) |
| Net      cash provided by (used in) operating activities                                                     |   |   | (6,035  | )      |   |   | 32,314 |   |   |   | (35,078 | ) |
| Investing      activities:                                                                                   |   |   |    |   |   |   |   |   |   |   |   |   |
| Proceeds      from dispositions of property, plant and equipment                                             |   |   | 71      |   |   |   | 1,555 |   |   |   | 3,537 |   |
| Capital      expenditures                                                                                    |   |   | (2,177  | )      |   |   | (1,995 | ) |   |   | (1,410 | ) |
| Notes      and installment contracts purchased for investment                                                |   |   | (1,145  | )      |   |   | (326 | ) |   |   | (831 | ) |
| Principal      collected on notes and installment contracts purchased for      investment                    |   |   | 1,582   |   |   |   | 845 |   |   |   | 336 |   |
| Other      investing activities                                                                              |   |   | 3,756   |   |   |   | 1,075 |   |   |   | 349 |   |
| Net      cash provided by investing activities                                                               |   |   | 2,087   |   |   |   | 1,154 |   |   |   | 1,981 |   |
| Financing      activities:                                                                                   |   |   |    |   |   |   |   |   |   |   |   |   |
| Net      borrowings (repayment) on note payable under revolving line of      credit                          |   |   | --      |   |   |   | (17,750 | ) |   |   | 17,750 |   |
| Net      borrowings (repayment) on note payable under retail floor plan      agreement                       |   |   | 1,200   |   |   |   | (887 | ) |   |   | 919 |   |
| Payments      on long-term debt                                                                              |   |   | (1,226  | )      |   |   | (3,391 | ) |   |   | (3,976 | ) |
| Proceeds      from exercise of stock options                                                                 |   |   | 50      |   |   |   | 148 |   |   |   | 1,109 |   |
| Net      cash provided by (used in) financing activities                                                     |   |   | 24      |   |   |   | (21,880 | ) |   |   | 15,802 |   |
| Net      increase (decrease) in cash and cash equivalents                                                    |   |   | (3,924  | )      |   |   | 11,588 |   |   |   | (17,295 | ) |
| Cash      and cash equivalents at beginning of period                                                        |   |   | 25,967  |   |   |   | 14,379 |   |   |   | 31,674 |   |
| Cash      and cash equivalents at end of period                                                              |   | $      | 22,043  |   |   | $      | 25,967 |   |   | $ | 14,379 |   |
|                                                                                                         |   |   |    |   |   |   |   |   |   |   |   |   |
| Supplemental      disclosures:                                                                               |   |   |    |   |   |   |   |   |   |   |   |   |
| Cash      paid for (received from):                                                                          |   |   |    |   |   |   |   |   |   |   |   |   |
| Interest                                                                                                     |   | $      | 713     |   |   | $      | 1,126 |   |   | $ | 1,234 |   |
| Income      taxes                                                                                            |   | $      | (857    | )      |   | $      | 1,454 |   |   | $ | 18 |   |
| Non-cash      investing and financing activities:                                                            |   |   |    |   |   |   |   |   |   |   |   |   |
| Retail      assets sold for assumption of note payable, net of note receivable of      $447                  |   | $      | 1,793   |   |   | $      | -- |   |   | $ | -- |   |

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| 1. | BASIS      OF PRESENTATION AND SIGNIFICANT ACCOUNTING  POLICIES |
|----|-----------------------------------------------------------------|

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|                                                       |   | 2007   |    | 2006   |   | 2005   |
|------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Balance,      beginning of period                          |   | $      | 11,900  |   |   | $      | 13,190 |   |   | $ | 13,255 |   |
| Provision      for warranties issued in the current period |   |   | 12,632  |   |   |   | 12,407 |   |   |   | 15,850 |   |
| Adjustments      for warranties issued in prior periods    |   |   | 1,210   |   |   |   | 234 |   |   |   | (580 | ) |
| Payments                                                   |   |   | (14,022 | )      |   |   | (13,931 | ) |   |   | (15,335 | ) |
| Balance,      end of period                                |   | $      | 11,720  |   |   | $      | 11,900 |   |   | $ | 13,190 |   |

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Table of Contents

|                                                                                                                               |   | 2007   |   | 2006   |   | 2005   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Income      (loss) from continuing operations                                                                                      |   | $      | (8,519 | )      |   | $      | 131 |   |   | $ | 12,514 |   |
| Income      (loss) from discontinued operations                                                                                    |   |   | --     |   |   |   | 41 |   |   |   | (1,599 | ) |
| Net      income (loss)                                                                                                             |   | $      | (8,519 | )      |   | $      | 172 |   |   | $ | 10,915 |   |
|                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average shares outstanding:                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                              |   |   | 18,378 |   |   |   | 18,335 |   |   |   | 18,119 |   |
| Effect      of potential common stock from the exercise of stock    options                                                        |   |   | --     |   |   |   | 135 |   |   |   | 238 |   |
| Diluted                                                                                                                            |   |   | 18,378 |   |   |   | 18,470 |   |   |   | 18,357 |   |
|                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      (loss) per share:                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic:                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| From      continuing operations                                                                                                    |   | $      | (0.46  | )      |   | $      | 0.01 |   |   | $ | 0.69 |   |
| From      discontinued operations                                                                                                  |   |   | --     |   |   |   | -- |   |   |   | (0.09 | ) |
| Net      income (loss)                                                                                                             |   | $      | (0.46  | )      |   | $      | 0.01 |   |   | $ | 0.60 |   |
| Diluted:                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| From      continuing operations                                                                                                    |   | $      | (0.46  | )      |   | $      | 0.01 |   |   | $ | .68 |   |
| From      discontinued operations                                                                                                  |   |   | --     |   |   |   | -- |   |   |   | (0.09 | ) |
| Net      income (loss)                                                                                                             |   | $      | (0.46  | )      |   | $      | 0.01 |   |   | $ | 0.59 |   |
| Weighted      average option shares excluded from computation of diluted loss per share      because their effect is anti-dilutive |   |   | 889    |   |   |   | 1,160 |   |   |   | 1,340 |   |

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Table of Contents

| 2. | RESTRUCTURING      CHARGES |
|----|----------------------------|

| 3. | DISCONTINUED      OPERATIONS |
|----|------------------------------|

|                                            |   | 2007   |   | 2006   |   | 2005   |
|-------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Revenue                                         |   | $      | --     |   |   | $      | -- |   |   | $ | 3,124 |   |
| Income      (loss) from discontinued operations |   |   | --     |   |   |   | 41 |   |   |   | (1,599 | ) |

| 4. | INSTALLMENT      CONTRACTS RECEIVABLE |
|----|---------------------------------------|

| Years      ending December 31, |   |   |
|--------------------------------|--------|--------|
| 2008                           |   | $      | 5,704 |   |
| 2009                           |   |   | 70 |   |
| 2010                           |   |   | 84 |   |
| 2011                           |   |   | 79 |   |
| 2012                           |   |   | 96 |   |
| Thereafter                     |   |   | 3,811 |   |
|                           |   | $      | 9,844 |   |

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Table of Contents

|                             |   | 2007   |   | 2006   |   | 2005   |
|----------------------------------|--------|--------|--------|--------|--------|--------|
| Balance,      beginning of year  |   | $      | 841    |   |   | $      | 968 |   |   | $ | 953 |   |
| Provision      for credit losses |   |   | 227    |   |   |   | 145 |   |   |   | 857 |   |
| Charge      offs, net            |   |   | (343   | )      |   |   | (272 | ) |   |   | (842 | ) |
| Balance,      end of year        |   | $      | 725    |   |   | $      | 841 |   |   | $ | 968 |   |

| 5. | INVENTORIES |
|----|-------------|

|                   |   | 2007   |   | 2006   |
|------------------------|--------|--------|--------|--------|
| Raw      materials     |   | $      | 11,967 |   |   | $ | 14,552 |   |
| Work-in-process        |   |   | 1,263  |   |   |   | 1,424 |   |
| Finished      goods    |   |   | 7,307  |   |   |   | 6,279 |   |
| Total      inventories |   | $      | 20,537 |   |   | $ | 22,255 |   |

| 6. | IMPAIRMENT      CHARGES |
|----|-------------------------|

| 7. | CREDIT      ARRANGEMENTS |
|----|--------------------------|

| Tangible      Net Worth (“TNW”) |   | Credit      Facility Available                    |
|---------------------------------------------|--------|---------------------------------------------------|
| Above      $50,000                          |   | 35%      of TNW                                   |
| $38,000      – $50,000                |   | $15,000                                           |
| $23,000      – $38,000                |   | $15,000      to zero (dollar for dollarreduction) |

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Table of Contents

| Tangible      Net Worth           |   | Interest      Rate    |
|-----------------------------------|--------|-----------------------|
| above      $62,000                |   | Prime      less 1.00% |
| $56,500      –      $62,000 |   | Prime                 |
| $38,000      –      $56,500 |   | Prime      plus 0.50% |
| below      $38,000                |   | Prime      plus 1.00% |

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Table of Contents

| Years      ending December 31,            |   |   |
|-------------------------------------------|--------|--------|
| 2008                                      |   | $      | 834 |   |
| 2009                                      |   |   | 884 |   |
| 2010                                      |   |   | 360 |   |
| 2011                                      |   |   | 381 |   |
| 2012                                      |   |   | 409 |   |
| Thereafter                                |   |   | 1,644 |   |
| Total                                     |   |   | 4,512 |   |
| Less      current portion                 |   |   | 834 |   |
| Long-term      debt, less current portion |   | $      | 3,678 |   |

| 8. | STOCKHOLDERS’      EQUITY |
|----|---------------------------------|

| 9. | STOCK-BASED      COMPENSATION |
|----|-------------------------------|

| a. | The      2005 Incentive Compensation Plan (the “2005 Plan”) provides for both      incentive stock options and non-qualified stock options to key employees.      The 2005 Plan also provides for stock appreciation rights and awards of      both restricted stock and performance shares. Awards are granted at prices      and terms determined by the compensation committee of the Board of      Directors. The term for awards granted under the 2005 Plan cannot exceed      ten years from the date of grant. Upon adoption of the 2005 Plan, our 1996      Key Employee Stock Incentive Plan (the “1996 Plan”) was terminated.      However, the termination of the 1996 Plan did not affect any options which      were outstanding and unexercised under that Plan. A total of 1,500,000      shares of common stock are authorized for issuance under the 2005 Plan. As      of December 31, 2007, shares authorized for grant and available to be      granted under the 2005 Plan totaled 1,430,000  shares. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b. | The      2005 Non-Employee Directors Stock Option Plan (the “2005 Directors Plan”)      provides for the issuance of up to 500,000 shares of our common stock,      which is reserved for grant to non-employee directors. Options are granted      upon the director’s initial election and automatically on an annual basis      thereafter at fair market value on the date of such grant. Stock option      grants become exercisable at a rate of 1/12th of the shares subject to the      stock option on each monthly anniversary of the date of grant. Except in      the case of death, disability, or retirement, options granted under the      2005 Directors Plan expire ten years from the date of grant. We had a 1993      Non-employee Director Plan, (the “1993 Plan”), but upon adoption of the      2005 Directors Plan, we did not make additional grants under the 1993 Plan      and the 1993 Plan was terminated. However, the termination of the 1993      Plan did not affect any options which were outstanding and unexercised      under that Plan. As of December 31, 2007, shares available to be granted      under the 2005 Directors Plan totaled 440,000  shares. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents

|                                             |   |                            |      | Options      Outstanding |
|--------------------------------------------------|--------|---------------------------------|-----------|--------------------------|
|                                             |   | Shares      Available for Grant |      | Number      of Shares    |   | Weighted      Average Exercise Price |
| Balance      at December 31, 2004                |   |                            | 1,071,974 |                     |   |   | 2,084,386 |   |   | $ | 8.39 |   |
| Approved      (2005 Directors Plan)              |   |                            | 500,000   |                     |   |   | -- |   |   |   | -- |   |
| Plan      shares expired                         |   |                            | (71,723   | )                        |   |   | -- |   |   |   | -- |   |
| Granted      at fair value                       |   |                            | (25,000   | )                        |   |   | 25,000 |   |   |   | 5.51 |   |
| Exercised      – increase in common shares |   |                            | --        |                     |   |   | (293,131 | ) |   |   | 3.39 |   |
| Exercised      – treasury shares reissued  |   |                            | --        |                     |   |   | (34,000 | ) |   |   | 3.40 |   |
| Canceled                                         |   |                            | 43,583    |                     |   |   | (43,583 | ) |   |   | 9.72 |   |
| Balance      at December 31, 2005                |   |                            | 1,518,834 |                     |   |   | 1,738,672 |   |   |   | 9.26 |   |
| Plan      shares expired                         |   |                            | (46,341   | )                        |   |   | -- |   |   |   | -- |   |
| Granted      at fair value                       |   |                            | (35,000   | )                        |   |   | 35,000 |   |   |   | 6.45 |   |
| Stock      awards                                |   |                            | (70,000   | )                        |   |   | -- |   |   |   | -- |   |
| Exercised                                        |   |                            | --        |                     |   |   | (42,175 | ) |   |   | 3.53 |   |
| Canceled                                         |   |                            | 357,684   |                     |   |   | (357,684 | ) |   |   | 13.30 |   |
| Balance      at December 31, 2006                |   |                            | 1,725,177 |                     |   |   | 1,373,813 |   |   |   | 8.32 |   |
| Plan      shares expired                         |   |                            | (383,392  | )                        |   |   | -- |   |   |   | -- |   |
| Granted      at fair value                       |   |                            | (30,000   | )                        |   |   | 30,000 |   |   |   | 4.16 |   |
| Exercised                                        |   |                            | --        |                     |   |   | (15,000 | ) |   |   | 3.36 |   |
| Canceled                                         |   |                            | 558,215   |                     |   |   | (558,215 | ) |   |   | 10.46 |   |
| Balance      at December 31, 2007                |   |                            | 1,870,000 |                     |   |   | 830,598 |   |   | $ | 6.81 |   |
| Options      exercisable at December 31, 2007    |   |                            |      |                     |   |   | 828,096 |   |   | $ | 6.82 |   |
| Options      exercisable at December 31, 2006    |   |                            |      |                     |   |   | 1,371,311 |   |   | $ | 8.32 |   |
| Options      exercisable at December 31, 2005    |   |                            |      |                     |   |   | 1,738,672 |   |   | $ | 9.26 |   |

|                          |   | Options      Outstanding |    | Options      Exercisable                         |
|-------------------------------|--------|--------------------------|---------|--------------------------------------------------|
| Range      of Exercise Prices |   | Number      Outstanding  |    | Weighted      Average Remaining Contractual Life |   | Weighted      Average Exercise Price |   | Number      Exercisable |   | Weighted      Average Exercise Price |
| $1.69      – $3.03      |   |                     | 51,175  |                                             |   |   | 4.52 |   |   | $ | 2.50 |   |   |   | 51,175 |   |   | $ | 2.50 |   |
| $3.04      – $4.16      |   |                     | 330,673 |                                             |   |   | 4.18 |   |   |   | 3.57 |   |   |   | 328,171 |   |   |   | 3.56 |   |
| $4.17      – $9.75      |   |                     | 145,400 |                                             |   |   | 2.97 |   |   |   | 8.56 |   |   |   | 145,400 |   |   |   | 8.56 |   |
| $9.76      – $11.00     |   |                     | 303,350 |                                             |   |   | 0.11 |   |   |   | 10.24 |   |   |   | 303,350 |   |   |   | 10.24 |   |
| $1.69      – $11.00     |   |                     | 830,598 |                                             |   |   | 2.50 |   |   | $ | 6.81 |   |   |   | 828,096 |   |   | $ | 6.82 |   |

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|                         |   | 2007           |   |   | 2006           |   |   | 2005           |   |
|------------------------------|--------|----------------|--------|--------|----------------|--------|--------|----------------|--------|
| Dividend      yield          |   |           | --     | %      |           |   | --     | %              |   |   | -- | % |
| Expected      volatility     |   |           | 59.23  | %      |           |   | 60.80  | %              |   |   | 61.77 | % |
| Risk      free interest rate |   |           | 4.68   | %      |           |   | 5.04   | %              |   |   | 3.71 | % |
| Expected      lives          |   | 5.0      years |   |   | 4.6      years |   |   | 5.0      years |   |

|                                                                                                                                                   |   | 2005   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Net      income, as reported                                                                                                                           |   | $      | 10,915 |   |
| Less:      Total stock-based employee compensation expense determined under fair      value based method for all awards, net of related tax    effects |   |   | 76     |   |
| Pro      forma                                                                                                                                         |   | $      | 10,839 |   |
|                                                                                                                                                   |   |   |   |   |
| Income      per share:                                                                                                                                 |   |   |   |   |
| Basic:                                                                                                                                                 |   |   |   |   |
| As      reported                                                                                                                                       |   | $      | 0.60   |   |
| Pro      forma                                                                                                                                         |   | $      | 0.60   |   |
| Diluted:                                                                                                                                               |   |   |   |   |
| As      reported                                                                                                                                       |   | $      | 0.59   |   |
| Pro      forma                                                                                                                                         |   | $      | 0.59   |   |

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Table of Contents

| 10. | INCOME      TAXES |
|-----|-------------------|

|                                                                 |   | 2007   |   | 2006   |   | 2005   |
|----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Continuing      operations:                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Current:                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal                                                              |   | $      | 105    |   |   | $      | (362 | ) |   | $ | 3,350 |   |
| State                                                                |   |   | 66     |   |   |   | 97 |   |   |   | 589 |   |
| Reduction      of current expense by net operating loss carryforward |   |   | --     |   |   |   | -- |   |   |   | (2,657 | ) |
|                                                                 |   |   | 171    |   |   |   | (265 | ) |   |   | 1,282 |   |
| Deferred:                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal                                                              |   |   | (2,796 | )      |   |   | 562 |   |   |   | 4,299 |   |
| State                                                                |   |   | (278   | )      |   |   | (175 | ) |   |   | 212 |   |
| Change      in valuation allowance                                   |   |   | 3,074  |   |   |   | 927 |   |   |   | (5,825 | ) |
|                                                                 |   |   | --     |   |   |   | 1,314 |   |   |   | (1,314 | ) |
| Provision      (benefit) for income taxes, continuing operations     |   |   | 171    |   |   |   | 1,049 |   |   |   | (32 | ) |
| Discontinued      operations, federal current                        |   |   | --     |   |   |   | (29 | ) |   |   | -- |   |
| Provision      (benefit) for income taxes                            |   | $      | 171    |   |   | $      | 1,020 |   |   | $ | (32 | ) |

| Balance,      January 1, 2007, after adoption                   |   | $      | 231 |   |
|-----------------------------------------------------------------|--------|--------|-----|--------|
| Increase      as a result of tax positions taken in prior years |   |   | 16  |   |
| Balance,      December 31, 2007                                 |   | $      | 247 |   |

|                                                                   |   | 2007   |   | 2006   |   | 2005   |
|------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Income      tax provision (benefit) at expected federal income taxrate |   | $      | (2,922 | )      |   | $      | 417 |   |   | $ | 3,813 |   |
| State      income tax provision (benefit), net of federal tax effect   |   |   | (235   | )      |   |   | 17 |   |   |   | 1,213 |   |
| Change      in valuation allowance                                     |   |   | 3,074  |   |   |   | 927 |   |   |   | (5,825 | ) |
| Non-deductible      operating expenses                                 |   |   | 140    |   |   |   | 117 |   |   |   | 107 |   |
| Expiration      of carryforward items                                  |   |   | 85     |   |   |   | -- |   |   |   | 489 |   |
| Return      to provision adjustments                                   |   |   | (83    | )      |   |   | (291 | ) |   |   | 357 |   |
| Change      in liability for tax contingencies                         |   |   | --     |   |   |   | (174 | ) |   |   | -- |   |
| Other                                                                  |   |   | 112    |   |   |   | 7 |   |   |   | (186 | ) |
| Total                                                                  |   | $      | 171    |   |   | $      | 1,020 |   |   | $ | (32 | ) |

----

Table of Contents

|                                                        |   | 2007   |   | 2006   |
|-------------------------------------------------------------|--------|--------|--------|--------|
| Current      differences:                                   |   |   |   |   |   |   |   |   |
| Warranty      expense                                       |   | $      | 4,010  |   |   | $ | 4,336 |   |
| Inventory      capitalization                               |   |   | 1,340  |   |   |   | 1,142 |   |
| Allowance      for losses on receivables                    |   |   | 465    |   |   |   | 590 |   |
| Accrued      expenses                                       |   |   | 2,454  |   |   |   | 2,600 |   |
| Repurchase      commitments                                 |   |   | 294    |   |   |   | 342 |   |
|                                                        |   |   | 8,563  |   |   |   | 9,010 |   |
| Less      valuation allowance                               |   |   | 8,563  |   |   |   | 9,010 |   |
| Totals                                                      |   | $      | --     |   |   | $ | -- |   |
|                                                        |   |   |   |   |   |   |   |   |
| Non-current      differences:                               |   |   |   |   |   |   |   |   |
| Depreciation      and basis differential of acquired assets |   | $      | 1,025  |   |   | $ | 1,137 |   |
| Net      operating loss and other carryforwards             |   |   | 8,037  |   |   |   | 4,169 |   |
| Goodwill                                                    |   |   | 6      |   |   |   | 216 |   |
| Other                                                       |   |   | 152    |   |   |   | 177 |   |
|                                                        |   |   | 9,220  |   |   |   | 5,699 |   |
| Less      valuation allowance                               |   |   | 9,220  |   |   |   | 5,699 |   |
| Totals                                                      |   | $      | --     |   |   | $ | -- |   |

| Years      ending December 31, |   | Federal |   | State  |
|--------------------------------|--------|---------|--------|--------|
| 2008                           |   | $       | 103    |   |   | $ | 557 |   |
| 2009                           |   |    | 103    |   |   |   | 105 |   |
| 2010                           |   |    | 334    |   |   |   | -- |   |
| 2011                           |   |    | --     |   |   |   | 276 |   |
| 2012                           |   |    | --     |   |   |   | 546 |   |
| 2019                           |   |    | --     |   |   |   | 98 |   |
| 2020                           |   |    | --     |   |   |   | 20,815 |   |
| 2021                           |   |    | --     |   |   |   | 7,686 |   |
| 2022                           |   |    | --     |   |   |   | 12,269 |   |
| 2023                           |   |    | --     |   |   |   | 9,656 |   |
| 2024                           |   |    | --     |   |   |   | 3,070 |   |
| 2025                           |   |    | --     |   |   |   | 103 |   |
| 2026                           |   |    | --     |   |   |   | 2,607 |   |
| 2027                           |   |    | 10,179 |   |   |   | 10,484 |   |

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Table of Contents

| 11. | EMPLOYEE      BENEFIT PLANS |
|-----|-----------------------------|

| 12. | COMMITMENTS      AND CONTINGENCIES |
|-----|------------------------------------|

| a. | Under      the repurchase agreements described in Note 1, we were contingently liable      at December 31, 2007, to financial institutions providing inventory      financing for retailers of our products up to a maximum of approximately      $61,000 in the event we must perform under the repurchase commitments. We      recorded an estimated liability of $1,131 and $1,513 at December 31, 2007      and December 31, 2006, respectively, related to these commitments.      Activity in the reserve for repurchase commitments was as      follows: |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                            |   | 2007   |   | 2006   |   | 2005   |
|-----------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Balance,      beginning of period                                                                               |   | $      | 1,513  |   |   | $      | 1,270 |   |   | $ | 2,052 |   |
| Reduction      for payments made on inventory purchases                                                         |   |   | (252   | )      |   |   | (197 | ) |   |   | (86 | ) |
| Recoveries      for inventory repurchase                                                                        |   |   | 51     |   |   |   | 10 |   |   |   | -- |   |
| Accrual      for guarantees issued during the period                                                            |   |   | 1,334  |   |   |   | 2,173 |   |   |   | 2,059 |   |
| Reduction      to pre-existing guarantees due to declining obligations or expired      guarantees               |   |   | (1,607 | )      |   |   | (2,045 | ) |   |   | (2,415 | ) |
| Changes      to the accrual for pre-existing guarantees for those dealers deemed to be      probable of default |   |   | 92     |   |   |   | 302 |   |   |   | (340 | ) |
| Balance,      end of period                                                                                     |   | $      | 1,131  |   |   | $      | 1,513 |   |   | $ | 1,270 |   |

| b. | Under      the insurance plans described in Note 1, we were contingently liable at      December 31, 2007 for future retrospective premium adjustments. We      recorded an estimated liability of $4,274 at December 31, 2007 and $4,816      at December 31, 2006 related to these contingent  claims. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c. | Litigation      is subject to uncertainties and we cannot predict the probable outcome or      the amount of liability of individual litigation matters with any level of      assurance. We are engaged in various legal proceedings that are incidental      to and arise in the course of our business. Certain of the cases filed      against us and other companies engaged in businesses similar to ours      allege, among other things, breach of contract and warranty, product      liability, personal injury and fraudulent, deceptive or collusive      practices in connection with their businesses. These kinds of suits are      typical of suits that have been |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents

| d. | We      have provided letters of credit totaling $4,895 as of December 31, 2007 to      providers of certain of our surety bonds and insurance policies. While the      current letters of credit have a finite life, they are subject to renewal      at different amounts based on the requirements of the insurance carriers.      We have recorded insurance expense based on anticipated losses related to      these policies. |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 13. | SEGMENT      INFORMATION |
|-----|--------------------------|

|                                       |   | 2007   |    | 2006   |   | 2005   |
|--------------------------------------------|--------|--------|---------|--------|--------|--------|
| Revenue      from external customers:      |   |   |    |   |   |   |   |   |   |   |   |   |
| Home      manufacturing                    |   | $      | 206,882 |   |   | $      | 224,602 |   |   | $ | 269,030 |   |
| Financial      services                    |   |   | 3,699   |   |   |   | 3,335 |   |   |   | 3,002 |   |
| Total      revenue from external customers |   | $      | 210,581 |   |   | $      | 227,937 |   |   | $ | 272,032 |   |
|                                       |   |   |    |   |   |   |   |   |   |   |   |   |
| Operating      income (loss):              |   |   |    |   |   |   |   |   |   |   |   |   |
| Home      manufacturing                    |   | $      | (6,194  | )      |   | $      | 3,765 |   |   | $ | 17,862 |   |
| Financial      services                    |   |   | 972     |   |   |   | 929 |   |   |   | 34 |   |
| Segment      operating income (loss)       |   |   | (5,222  | )      |   |   | 4,694 |   |   |   | 17,896 |   |
| General      corporate                     |   |   | (3,793  | )      |   |   | (4,539 | ) |   |   | (5,726 | ) |
| Total      operating income (loss)         |   | $      | (9,015  | )      |   | $      | 155 |   |   | $ | 12,170 |   |
|                                       |   |   |    |   |   |   |   |   |   |   |   |   |
| Depreciation:                              |   |   |    |   |   |   |   |   |   |   |   |   |
| Home      manufacturing                    |   | $      | 1,929   |   |   | $      | 2,078 |   |   | $ | 2,275 |   |
| Financial      services                    |   |   | 31      |   |   |   | 28 |   |   |   | 25 |   |
| Segment      depreciation                  |   |   | 1,960   |   |   |   | 2,106 |   |   |   | 2,300 |   |
| General      corporate                     |   |   | 196     |   |   |   | 193 |   |   |   | 177 |   |
| Total      depreciation                    |   | $      | 2,156   |   |   | $      | 2,299 |   |   | $ | 2,477 |   |
|                                       |   |   |    |   |   |   |   |   |   |   |   |   |
| Capital      expenditures:                 |   |   |    |   |   |   |   |   |   |   |   |   |
| Home      manufacturing                    |   | $      | 1,951   |   |   | $      | 1,715 |   |   | $ | 1,305 |   |
| Financial      services                    |   |   | 87      |   |   |   | 14 |   |   |   | 17 |   |
| Segment      capital expenditures          |   |   | 2,038   |   |   |   | 1,729 |   |   |   | 1,322 |   |
| General      corporate                     |   |   | 139     |   |   |   | 266 |   |   |   | 88 |   |
| Total      capital expenditures            |   | $      | 2,177   |   |   | $      | 1,995 |   |   | $ | 1,410 |   |
|                                       |   |   |    |   |   |   |   |   |   |   |   |   |
| Identifiable      assets:                  |   |   |    |   |   |   |   |   |   |   |   |   |
| Home      manufacturing                    |   | $      | 62,809  |   |   | $      | 62,160 |   |   | $ | 100,614 |   |
| Financial      services                    |   |   | 14,587  |   |   |   | 13,608 |   |   |   | 15,423 |   |
| Segment      assets                        |   |   | 77,396  |   |   |   | 75,768 |   |   |   | 116,037 |   |
| General      corporate                     |   |   | 13,981  |   |   |   | 20,938 |   |   |   | 16,784 |   |
| Total      assets                          |   | $      | 91,377  |   |   | $      | 96,706 |   |   | $ | 132,821 |   |

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| 14. | EQUITY      METHOD INVESTEES |
|-----|------------------------------|

|                                   |   | 2007   |   | 2006   |   | 2005   |
|----------------------------------------|--------|--------|--------|--------|--------|--------|
| Combined      group:                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      sheet:                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Current      assets                    |   | $      | 3,742  |   |   | $      | 12,418 |   |   | $ | 13,171 |   |
| Non-current      assets                |   |   | 2,227  |   |   |   | 6,479 |   |   |   | 9,217 |   |
| Current      liabilities               |   |   | 611    |   |   |   | 2,030 |   |   |   | 3,769 |   |
| Non-current      liabilities           |   |   | 831    |   |   |   | 2,974 |   |   |   | 3,236 |   |
| Income      Statement:                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      sales                         |   |   | 51,251 |   |   |   | 75,537 |   |   |   | 94,625 |   |
| Gross      profit                      |   |   | 10,497 |   |   |   | 11,285 |   |   |   | 12,417 |   |
| Income      from continuing operations |   |   | 3,161  |   |   |   | 1,259 |   |   |   | 3,505 |   |
| Net      income                        |   |   | 3,161  |   |   |   | 1,259 |   |   |   | 3,505 |   |
|                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| WoodPerfect,      Ltd:                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      sheet:                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Current      assets                    |   |   | --     |   |   |   | 7,033 |   |   |   | 8,037 |   |
| Non-current      assets                |   |   | --     |   |   |   | 3,232 |   |   |   | 3,388 |   |
| Current      liabilities               |   |   | --     |   |   |   | 1,480 |   |   |   | 3,096 |   |
| Non-current      liabilities           |   |   | --     |   |   |   | 156 |   |   |   | 110 |   |
| Income      Statement:                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      sales                         |   |   | 29,905 |   |   |   | 47,553 |   |   |   | 61,084 |   |
| Gross      profit                      |   |   | 4,938  |   |   |   | 5,954 |   |   |   | 6,854 |   |
| Income      from continuing operations |   |   | 1,576  |   |   |   | 1,463 |   |   |   | 1,953 |   |
| Net      income                        |   |   | 1,576  |   |   |   | 1,463 |   |   |   | 1,953 |   |

| 15. | CONCENTRATION      OF CREDIT RISK |
|-----|-----------------------------------|

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| 16. | SUBSEQUENT      EVENT |
|-----|-----------------------|

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|                                              |   | Balance      at Beginning of Year |   | Additions      Charged to Cost and Expenses |   | Deductions |   | Balance      at End of Year |
|---------------------------------------------------|--------|-----------------------------------|--------|---------------------------------------------|--------|------------|--------|-----------------------------|
|                                              |   |                              |   |                                        |   |       |   |                        |   |   |   |   |
| Allowance      for losses on accounts receivable: |   |                              |   |                                        |   |       |   |                        |   |   |   |   |
| Year      Ended December 31, 2007                 |   | $                                 | 78     |                                        |   | $          | 28     |                        |   | $ | -- |   |   | $ | 106 |   |
| Year      Ended December 31, 2006                 |   | $                                 | 56     |                                        |   | $          | 22     |                        |   | $ | -- |   |   | $ | 78 |   |
| Year      Ended December 31, 2005                 |   | $                                 | 85     |                                        |   | $          | (1     | )                           |   | $ | (28 | ) |   | $ | 56 |   |
|                                              |   |                              |   |                                        |   |       |   |                        |   |   |   |   |   |   |   |   |
| Deferred      tax asset valuation allowance:      |   |                              |   |                                        |   |       |   |                        |   |   |   |   |   |   |   |   |
| Year      Ended December 31, 2007                 |   | $                                 | 14,709 |                                        |   | $          | 3,074  |                        |   | $ | -- |   |   | $ | 17,783 |   |
| Year      Ended December 31, 2006                 |   | $                                 | 13,782 |                                        |   | $          | 927    |                        |   | $ | -- |   |   | $ | 14,709 |   |
| Year      Ended December 31, 2005                 |   | $                                 | 19,607 |                                        |   | $          | --     |                        |   | $ | (5,825 | ) |   | $ | 13,782 |   |

Item 9: Changes In And Disagreements With Accountants On AccountingAnd Financial Disclosure

Item 9A: Controls And Procedures

Item 9B: Other Information

Item 10: Directors, Executive Officers And CorporateGovernance

Item 11: Executive Compensation

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Item 12: Security Ownership Of Certain Beneficial Owners AndManagement And Related Stockholder Matters

|                                                        |   | (a)                                                                                                   |    | (b)                                                                              |   | (c)                                                                                                                                                        |
|-------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------|---------|----------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Plan      Category                                          |   | Number      of securities to be issued upon exercise of outstanding options, warrants      and rights |    | Weighted-average      exercise price of outstanding options, warrants and rights |   | Number      of securities remaining available for future issuance under equity      compensation plans (excluding securities reflected in column      (a)) |
| Equity      compensation plans approved by stockholders     |   |                                                                                                  | 813,598 |                                                                             |   | $                                                                                                                                                          | 6.88 |   |   |   | 1,870,000 |   |
| Equity      compensation plans not approved by stockholders |   |                                                                                                  | 17,000  |                                                                             |   | $                                                                                                                                                          | 3.40 |   |   |   | -- |   |
| Total                                                       |   |                                                                                                  | 830,598 |                                                                             |   | $                                                                                                                                                          | 6.81 |   |   |   | 1,870,000 |   |

Item 13: Certain Relationships And Related Transactions, AndDirector Independence

Item 14: Principal Accountants Fees And Services

Item 15: Exhibits And Financial Statement Schedules

| (a)    |   | 1.The      financial statements contained in this report and the page on which they      may be found are as follows:                   |   |   |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   |                                                                                                                                    |   |   |
|   |   | Financial      Statement Description                                                                                                    |   | Page   |
|   |   | Report      of Independent Registered Public Accounting Firm                                                                            |   | 34     |
|   |   | Consolidated      Balance Sheets as of December 31, 2007 and 2006                                                                       |   | 35     |
|   |   | Consolidated      Statements of  Operations for years ended December 31, 2007,      2006, and 2005                            |   | 36     |
|   |   | Consolidated      Statements of Stockholders’ Equity for years ended December 31, 2007,      2006, and 2005                       |   | 37     |
|   |   | Consolidated      Statements of Cash Flows for years ended December 31, 2007, 2006, and      2005                                       |   | 38     |
|   |   | Notes      to Consolidated Financial Statements                                                                                         |   | 39     |
|   |   |                                                                                                                                    |   |   |
|   |   | 2.The      financial statement schedule required to be filed with this report and the      page on which it may be found is as follows: |   |   |
|   |   |                                                                                                                                    |   |   |
|   |   | No. - Schedule      Description                                                                                                         |   | Page   |
|   |   | II      - Valuation and Qualifying Accounts                                                                                             |   | 54     |

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|   |   | 3.The      exhibits required to be filed with this report are listed below. We will      furnish upon request any of the exhibits listed upon the receipt of $15.00      per exhibit, plus $0.50 per page, to cover the cost to us of providing the      exhibit. |   |   |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|

| Exhibit |   | Description                                                                                                                                                                                                                                                                                                                                                       |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1     |   | Our      Composite Amended and Restated Certificate of Incorporation (incorporated      by reference to Exhibit 3(a) to our Annual Report on Form 10-K for the      year ended December 31, 1998)                                                                                                                                                            |
| 3.2     |   | The      Certificate of Designation of Series A Junior Participating Preferred      Stock of Cavalier Homes, Inc. as filed with the Office of the Delaware      Secretary of State on October 24, 1996 (incorporated by reference to      Exhibit A to Exhibit 4 to our Registration Statement on Form 8-A filed on      October 30, 1996)                   |
| 3.3     |   | Our      Amended and Restated By-laws (incorporated by reference to Exhibit 3(b) to      our registration of securities on Form 8K/A filed on March 3,      2004)                                                                                                                                                                                            |
| 4.1     |   | Articles      four, six, seven, eight and nine of our Amended and Restated Certificate      of Incorporation, as amended, included in Exhibit 3(a) above                                                                                                                                                                                                     |
| 4.2     |   | Article      II, Sections 2.1 through 2.18; Article III, Sections 3.1 and 3.2; Article      IV, Sections 4.1 and 4.3; Article VI, Sections 6.1 through 6.5; Article      VIII, Sections 8.1 and 8.2; and Article IX of our Amended and Restated      By-laws, included in Exhibit 3(c) above                                                                 |
| 10.1    |   | Lease      Agreement dated April 1, 1999, between Crisp County-Cordele Industrial      Development Authority and Cavalier Industries, Inc. regarding the lease of      the manufacturing facility located in Cordele, Georgia (incorporated by      reference to Exhibit 10(j) to our Annual Report on Form 10-K for the year      ended December 31, 1999)  |
| 10.2    |   | Amended      and Restated Revolving and Term Loan Agreement, dated as of March 31,      2000, by and among the Company, First Commercial Bank and certain      subsidiaries of the Company (incorporated by reference to Exhibit 10(b) to      our Quarterly Report on Form 10-Q for the quarter ended March 31,      2000)                                  |
| 10.2(a) |   | First      Amendment to Amended and Restated Revolving and Term Loan Agreement, dated      as of September 29, 2000, between us and First Commercial Bank      (incorporated by reference to Exhibit 10(a) to our Quarterly Report on      Form 10-Q for the quarter ended September 30, 2000)                                                               |
| 10.2(b) |   | Second      Amendment to Amended and Restated Revolving and Term Loan Agreement, dated      as of May 4, 2001, between us and First Commercial Bank (incorporated by      reference to Exhibit 10(c) to our Quarterly Report on Form 10-Q for the      quarter ended March 31, 2001)                                                                         |
| 10.2(c) |   | Second      Modification to Amended and Restated Revolving Note, dated as of June 21,      2002, between us and First Commercial Bank (incorporated by reference to      Exhibit 10(a) to our Quarterly Report on Form 10-Q for the quarter ended      June 29, 2002)                                                                                        |
| 10.2(d) |   | Third      Amendment to Amended and Restated Revolving and Term Loan Agreement, dated      as of June 21, 2002, between us and First Commercial Bank (incorporated by      reference to Exhibit 10(b) to our Quarterly Report on Form 10-Q for the      quarter ended June 29, 2002)                                                                         |
| 10.2(e) |   | Third      Modification to Amended and Restated Revolving Note, dated as of October      25, 2002, between us and First Commercial Bank (incorporated by reference      to Exhibit 10(c) to our Quarterly Report on Form 10-Q for the quarter      ended September 28, 2002)                                                                                 |
| 10.2(f) |   | Fourth      Amendment to Amended and Restated Revolving and Term Loan Agreement, dated      as of October 25, 2002, between us and First Commercial Bank (incorporated      by reference to Exhibit 10(d) to our Quarterly Report on Form 10-Q for the      quarter ended September 28, 2002)                                                                |
| 10.2(g) |   | Fourth      Modification to Amended and Restated Revolving Note, dated as of August 6,      2003, between us and First Commercial Bank (incorporated by reference to      Exhibit 10(a) to our Quarterly Report on Form 10-Q for the quarter ended      June 28, 2003)                                                                                            |

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| Exhibit        |   | Description                                                                                                                                                                                                                                                                                                                           |
|----------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.2(h)        |   | Fifth      Amendment to Amended and Restated Revolving and Term Loan Agreement, dated      as of August 6, 2003, between us and First Commercial Bank (incorporated      by reference to Exhibit 10(b) to our Quarterly Report on Form 10-Q for the      quarter ended June 28, 2003)                                            |
| 10.2(i)        |   | Sixth      Amendment to Amended and Restated Revolving and Term Loan Agreement, dated      as of  October 26, 2004, between us and First Commercial Bank      (incorporated by reference to Exhibit 10(c) to our Quarterly Report on      Form 10-Q for the quarter ended September 25, 2004)                          |
| 10.2(j)        |   | Seventh      Amendment to Amended and Restated Revolving and Term Loan Agreement, dated      as of October 25, 2005, between us and First Commercial Bank (incorporated      by reference to Exhibit 99.1 to our Report on Form 8-K filed on October      31, 2005)                                                              |
| 10.2(k)        |   | Eighth      Amendment to Amended and Restated Revolving and Term Loan Agreement, dated      as of December 6, 2005, between us and First Commercial Bank (incorporated      by reference to Exhibit 99.1 to our Report on Form 8-K filed on December      7, 2005)                                                               |
| 10.2(l)        |   | Ninth      Amendment to Amended and Restated Revolving and Term Loan Agreement, dated      as of May 23, 2006, between us and First Commercial Bank (incorporated by      reference to Exhibit 99.1 to our Report on Form 8-K filed on May 25,      2006)                                                                        |
| 10.2(m)        |   | Tenth      Amendment to Amended and Restated Revolving and Term Loan Agreement, dated      as of February 21, 2007, between us and First Commercial Bank      (incorporated by reference to Exhibit 99.1 to our Report on Form 8-K filed      on February 21, 2007)                                                              |
| 10.2(n)        |   | Eleventh      Amendment to Amended and Restated Revolving and Term Loan Agreement, dated      as of June 26, 2007, between us and First Commercial Bank (incorporated by      reference to Exhibit 10.1 to our Report on Form 8-K filed on June 27,      2007)                                                                   |
| 10.2(o)† |   | Twelfth      Amendment to Amended and Restated Revolving and Term Loan Agreement, dated      as of February 22, 2008, between us and First Commercial Bank                                                                                                                                                                       |
| 10.2(p)        |   | Continuing      Guaranty Agreement between First Commercial Bank and Cavalier Homes, Inc.,      dated March 31, 2000, relating to guaranty of payments of Cavalier      Acceptance Corporation (incorporated by reference to Exhibit 10(c) to our      Quarterly Report on Form 10-Q for the quarter ended March 31,      2000)  |
| 10.2(q)        |   | Guaranty      Agreement, dated as of August 6, 2003, between us and First Commercial      Bank (incorporated by reference to Exhibit 10(d) to our Quarterly Report      on Form 10-Q for the quarter ended June 28, 2003)                                                                                                        |
| 10.2(r)        |   | Real      Estate Note, dated as of August 6, 2003, between us and First Commercial      Bank (incorporated by reference to Exhibit 10(c) to our Quarterly Report      on Form 10-Q for the quarter ended June 28, 2003)                                                                                                          |
| 10.2(s)        |   | Amended      and Restated Real Estate Note, dated as of September 26, 2003, between us      and First Commercial Bank (incorporated by reference to Exhibit 10(a) to      our Quarterly Report on Form 10-Q for the quarter ended September 27,      2003)                                                                       |
| 10.2(t)        |   | Revolving      Note, under the Amended and Restated Revolving and Term Loan Agreement,      dated as of December 6, 2005, between us and First Commercial Bank      (incorporated by reference to Exhibit 10(y) to our Annual Report on Form      10-K for the year ended December 31, 2005)                                     |
| 10.3*          |   | Cavalier      Homes, Inc. 1996 Key Employee Stock Incentive Plan (incorporated by      reference to an Appendix to our definitive Proxy Statement for the Annual      Meeting of Stockholders held May 15, 1996)                                                                                                                 |
| 10.3(a)*       |   | Amendment      to Cavalier Homes, Inc. 1996 Key Employee Stock Incentive Plan      (incorporated by reference to Exhibit 10(i) to our Quarterly Report on      Form 10-Q for the quarter ended March 28, 1997)                                                                                                                   |
| 10.3(b)*       |   | Amendment      to Cavalier Homes, Inc. 1996 Key Employee Stock Incentive Plan, effective      December 30, 1997 (incorporated by reference to Exhibit 10(j) to our      Annual Report on Form 10-K for the year ended December 31,      1997)                                                                                         |

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| Exhibit     |   | Description                                                                                                                                                                                                                                                              |
|-------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.3(c)*    |   | Amendment      to Cavalier Homes, Inc. 1996 Key Employee Stock Incentive Plan, effective      January 23, 1998 (incorporated by reference to Exhibit 10(k) to our Annual      Report on Form 10-K for the year ended December 31, 1997)                             |
| 10.3(d)*    |   | Amendment      to Cavalier Homes, Inc. Key 1996 Employee Stock Incentive Plan, effective      October 20, 1998 (incorporated by reference to Exhibit 10(l) to our Annual      Report on Form 10-K for the year ended December 31, 1998)                             |
| 10.4*       |   | Cavalier      Homes, Inc. 1993 Amended and Restated Nonemployee Directors Stock Option      Plan, (incorporated by reference to an Appendix to our definitive Proxy      Statement for the Annual Meeting of Stockholders held May 15,      1996)                   |
| 10.4(a)*    |   | Amendment      to Cavalier Homes, Inc. 1993 Amended and Restated Nonemployee Directors      Plan (incorporated by reference to Exhibit 10(i) to our Annual Report on      Form 10-K for the year ended December 31, 1996)                                           |
| 10.4(b)*    |   | Amendment      to Cavalier Homes, Inc. 1993 Amended and Restated Nonemployee Directors      Plan (incorporated by reference to Exhibit 10(n) to our Annual Report on      Form 10-K for the year ended December 31, 1997)                                           |
| 10.5*       |   | Cavalier      Homes, Inc. 2005 Incentive Compensation Plan (incorporated by reference to      an Appendix to our definitive Proxy Statement for the Annual Meeting of      Stockholders held May 24, 2005)                                                          |
| 10.6*       |   | Cavalier      Homes, Inc. 2005 Non-Employee Directors Stock Option Plan (incorporated by      reference to an Appendix to our definitive Proxy Statement for the Annual      Meeting of Stockholders held May 24, 2005)                                             |
| 10.7*       |   | Form      of Stock Option Agreement between us and Thomas A. Broughton, III, dated      January 29, 2002 (incorporated by reference to Exhibit 4(e) to our      Registration Statement on Form S-8, Registration No.      333-90652)                                |
| 10.8        |   | Form      of Indemnification Agreement by and between Cavalier Homes, Inc. and each      member of our Board of Directors (incorporated by reference to Exhibit      10(a) to our Quarterly Report on Form 10-Q for the quarter ended September      25, 1998)      |
| 10.9        |   | Inventory      Security Agreement and Power of Attorney, dated as of July 13, 2004,      between us and 21st Mortgage Company (incorporated by reference to Exhibit      10(a) to our Quarterly Report on Form 10-Q for the quarter ended September      25, 2004)  |
| 21†   |   | Subsidiaries      of the Registrant                                                                                                                                                                                                                                 |
| 23†   |   | Consent      of Independent Registered Public Accounting Firm – Carr, Riggs &      Ingram, LLC                                                                                                                                                            |
| 31.1† |   | Certification      of principal executive officer pursuant to Exchange Act Rule 13a-15(e) or      15d-15(e)                                                                                                                                                         |
| 31.2† |   | Certification      of principal financial officer pursuant to Exchange Act Rule 13a-15(e) or      15d-15(e)                                                                                                                                                         |
| 32†   |   | Certification      of Chief Executive Officer  and Chief Financial Officer pursuant      to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the      Sarbanes-Oxley Act of 2002                                                                  |

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SIGNATURES

|                         | CAVALIER      HOMES, INC.                  |
|------------------------------|--------------------------------------------|
|                         | (Registrant)                               |
|                         |                                       |
| Date:      February 22, 2008 | /s/      DAVID A. ROBERSON                 |
|                         | David      A. Roberson                     |
|                         | President      and Chief Executive Officer |
|                         |                                       |

| Signature                         |   | Title                                                         |   | Date                   |
|-----------------------------------|--------|---------------------------------------------------------------|--------|------------------------|
|                              |   |                                                          |   |                   |
| /s/      DAVID A. ROBERSON        |   | Director,      President and Chief Executive Officer          |   | February      22, 2008 |
| David      A. Roberson            |   |                                                          |   |                   |
|                              |   |                                                          |   |                   |
| /s/      MICHAEL R. MURPHY        |   | Chief      Financial Officer and Principal Accounting Officer |   | February      22, 2008 |
| Michael      R. Murphy            |   |                                                          |   |                   |
|                              |   |                                                          |   |                   |
| /s/      BARRY DONNELL            |   | Chairman      of the Board and Director                       |   | February      22, 2008 |
| Barry      Donnell                |   |                                                          |   |                   |
|                              |   |                                                          |   |                   |
| /s/      THOMAS A. BROUGHTON, III |   | Director                                                      |   | February      22, 2008 |
| Thomas      A. Broughton, III     |   |                                                          |   |                   |
|                              |   |                                                          |   |                   |
| /s/      LEE ROY JORDAN           |   | Director                                                      |   | February      22, 2008 |
| Lee      Roy Jordan               |   |                                                          |   |                   |
|                              |   |                                                          |   |                   |
| /s/      JOHN W LOWE              |   | Director                                                      |   | February      22, 2008 |
| John      W Lowe                  |   |                                                          |   |                   |
|                              |   |                                                          |   |                   |
| /s/      BOBBY TESNEY             |   | Director                                                      |   | February      22, 2008 |
| Bobby      Tesney                 |   |                                                          |   |                   |
|                              |   |                                                          |   |                   |
| /s/      J. DON WILLIAMS          |   | Director                                                      |   | February      22, 2008 |
| J.      Don Williams              |   |                                                          |   |                   |

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| ExhibitNumber |   | Description                                                                                                                                                      |
|---------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.2(o)       |   | Twelfth      Amendment to Amended and Restated Revolving and Term Loan Agreement, dated      as of February 22, 2008, between us and First Commercial Bank  |
| 21            |   | Subsidiaries      of the Registrant                                                                                                                         |
| 23            |   | Consent      of Independent Registered Public Accounting Firm – Carr, Riggs &      Ingram, LLC                                                    |
| 31.1          |   | Certification      of principal executive officer pursuant to Exchange Act Rule 13a-15(e) or      15d-15(e).                                                |
| 31.2          |   | Certification      of principal financial officer pursuant to Exchange Act Rule 13a-15(e) or      15d-15(e).                                                |
| 32            |   | Certification      of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to      Section 906 of the Sarbanes-Oxley Act of2002.                  |

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