UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                    FORM 10-Q
(Mark One)

[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities  Exchange
    Act of 1934

                For the quarterly period ended October 3, 1997 or

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934

                For the transition period from _______ to _______

                         Commission File Number: 0-21204


                           SOUTHERN ENERGY HOMES, INC.
                           ---------------------------
             (Exact name of registrant as specified in its charter)

           Delaware                                              63-1083246
           --------                                              ----------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)


Highway 41 North, P.O. Box 390, Addison, Alabama                       35540
------------------------------------------------                       -----
    (Address of principal executive offices)                         (Zip Code)

                                 (205) 747-8589
                                 --------------
              (Registrant's telephone number, including area code)


Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant  was required to file such  reports) and (2) has been subject to such
filing requirements for the past 90 days.

                                                                Yes [X] No [ ]

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.


  14,516,291 shares of Common Stock, $.0001 par value, as of November 13, 1997







                  SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES


                                      INDEX

<TABLE>
<CAPTION>
                                                                                                 Page
<S>               <C>                                                                            <C>
PART I            FINANCIAL INFORMATION:

                  Consolidated Condensed Balance Sheets,
                       October 3, 1997and January 3, 1997                                          2

                  Consolidated  Condensed  Statements  of  Operations - Thirteen
                                Weeks Ended  October 3, 1997 and  September  27,
                                1996 and Thirty-nine Weeks Ended October 3, 1997
                                and September 27, 1996                                             3

                  Consolidated Condensed Statements of Cash Flows - Thirty-nine
                                Weeks Ended October 3, 1997 and September 27, 1996                 4

                  Notes to Consolidated Condensed Financial Statements                             5

                  Management's Discussion and Analysis of Financial
                       Condition and Results of Operations                                         8

PART II           OTHER INFORMATION                                                               12


                  SIGNATURES                                                                      14

</TABLE>




I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

                  SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                            October 3,               January 3,
                                                                              1997                     1997
                                                                        ---------------         ----------------
                                                    ASSETS
<S>                                                                      <C>                      <C>          
CURRENT ASSETS:
   Cash and cash equivalents                                             $  14,754,000            $   5,299,000
   Accounts receivable (less allowance for doubtful accounts of
     $190,000 and $362,000, respectively)                                   29,730,000               17,558,000
   Installment contracts receivable - current                                  435,000                  421,000
   Inventories                                                              26,769,000               27,019,000
   Deferred tax benefits                                                     2,293,000                1,829,000
   Prepayments and other                                                     1,347,000                  890,000
                                                                        ---------------         ----------------
                                                                            75,328,000               53,016,000
                                                                        ---------------         ----------------

PROPERTY AND EQUIPMENT:
   Property and equipment, at cost                                          27,873,000               23,527,000
   Less - accumulated depreciation                                           6,643,000                5,169,000
                                                                        ---------------         ----------------
                                                                            21,230,000               18,358,000
                                                                        ---------------         ----------------


INTANGIBLES AND OTHER ASSETS
   Installment contracts receivable, less allowance for credit
     losses of $1,001,000 and $1,142,000, respectively                       9,417,000               26,064,000
   Goodwill                                                                 12,424,000               13,093,000
   Non-compete agreements                                                      449,000                  667,000
   Organization and pre-operating costs                                        544,000                  649,000
   Other assets                                                              4,322,000                  811,000
                                                                        ---------------         ----------------
                                                                            27,156,000               41,284,000
                                                                                                ----------------
                                                                        ===============
                                                                          $123,714,000             $112,658,000
                                                                        ===============         ================

                                     LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Notes payable                                                         $  12,105,000            $  12,025,000
   Current maturities of long-term debt                                      1,248,000                        -
   Accounts payable                                                          8,555,000                4,303,000
   Accrued liabilities                                                      19,012,000               18,953,000
                                                                        ---------------         ----------------
                                                                            40,920,000               35,281,000
                                                                                                ----------------
                                                                        ---------------
LONG-TERM DEBT                                                               4,140,000                        -
                                                                        ---------------         ----------------

STOCKHOLDERS' EQUITY:
   Preferred stock, $.0001 par value, 1,000,000 shares authorized,
      None outstanding                                                               -                        -
   Common stock, $.0001 par value, 40,000,000 shares authorized;
      15,460,674 issued and 14,574,591 shares outstanding at
      October 3, 1997 and 15,437,801 issued and outstanding at
      January 3, 1997                                                            2,000                    2,000
   Treasury Stock, at cost, 845,000 shares at October 3, 1997 and
      no Shares at January 3, 1997                                          (8,296,000)                       -

   Capital in excess of par                                                 36,346,000               35,999,000
   Retained earnings                                                        50,602,000               41,376,000
                                                                        ---------------         ----------------
                                                                            78,654,000               77,377,000
                                                                        ===============         ================
                                                                          $123,714,000             $112,658,000
                                                                        ===============         ================
</TABLE>

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


                                       2







                  SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                  Thirteen Weeks Ended                          Thirty-nine Weeks Ended

                                  ------------------------------------    ------------------------------------
                                       October 3,        September 27,         October 3,        September 27,
                                            1997                 1996               1997                 1996
                                  ---------------    -----------------    ---------------     ----------------
<S>                                  <C>                  <C>               <C>                  <C>         
NET  REVENUES                        $76,327,000          $77,414,000       $233,322,000         $232,446,000

COST OF SALES                         64,763,000           66,490,000        198,134,000          199,571,000
                                  ---------------    -----------------    ---------------     ----------------

        Gross profit                  11,564,000           10,924,000         35,188,000           32,875,000
                                  ---------------    -----------------    ---------------     ----------------

OPERATING EXPENSES:
    Selling                            2,915,000            1,731,000          8,523,000            4,910,000
  General and administrative           2,428,000            2,526,000          8,204,000            7,942,000
  Non-recurring charge                         -                    -          2,146,000                    -
  Provision  for credit losses         (100,000)              168,000          (100,000)            1,066,000
  Amortization of intangibles            202,000              130,000            636,000              379,000
                                  ---------------    -----------------    ---------------     ----------------
                                       5,445,000            4,555,000         19,409,000           14,297,000
                                  ---------------    -----------------    ---------------     ----------------

        Operating income               6,119,000            6,369,000         15,779,000           18,578,000
                                  ---------------    -----------------    ---------------     ----------------

INTEREST EXPENSE                         416,000                7,000          1,010,000               10,000
INTEREST INCOME                          137,000              164,000            208,000              501,000
                                  ---------------    -----------------    ---------------     ----------------

        Income before income           5,840,000            6,526,000         14,977,000           19,069,000
      taxes

PROVISION FOR INCOME TAXES
                                       2,234,000            2,509,000          5,751,000            7,337,000
                                  ---------------    -----------------    ---------------     ----------------

        Net income                   $ 3,606,000         $  4,017,000       $  9,226,000         $ 11,732,000
                                  ===============    =================    ===============     ================

NET INCOME PER COMMON SHARE
                                          $ 0.25               $ 0.27             $ 0.61               $ 0.78
                                  ===============    =================    ===============     ================

WEIGHTED AVERAGE NUMBER OF
COMMON AND   COMMON  EQUIVALENT
     SHARES
                                      14,693,233           15,101,706         15,161,050           15,075,229
                                  ===============    =================    ===============     ================
</TABLE>

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


                                       3






                  SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
                CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                          Thirty-nine Weeks Ended
                                                                                    ------------------------------------
                                                                                        October 3,       September 27,
                                                                                              1997                1996
                                                                                    ----------------    ----------------
<S>                                                                                   <C>                 <C>
OPERATING ACTIVITIES:
   Net income                                                                         $  9,226,000        $ 11,732,000
   Adjustments to reconcile net income to net cash provided by (used in)
     operating activities:
 Gain on sale of installment contracts                                                    (775,000)                  -
       Non-recurring charge                                                              2,146,000                   -
       Depreciation of property and equipment                                            1,474,000           1,165,000
       Amortization of intangibles                                                         636,000             379,000
       Credit for deferred tax benefits                                                   (464,000)           (919,000)
       Provision (credit) for doubtful accounts                                            (39,000)             19,000
       Provision (credit) for credit losses                                               (100,000)          1,066,000
       Origination of installment contracts                                               (543,000)        (25,806,000)
       Principal collected on originated installment contracts                             482,000              85,000
       Change in assets and liabilities:
         (Increase) decrease in inventories                                                 98,000          (4,096,000)
         Increase in accounts receivable                                               (11,907,000)         (4,973,000)
         Increase in prepayments and other                                                (132,000)         (1,765,000)
         Increase in accounts payable                                                    4,252,000           5,894,000
         Increase (decrease) in accrued liabilities                                       (817,000)          6,373,000
                                                                                    ----------------    ----------------

           Net cash provided by (used in) operating activities                           3,537,000         (10,846,000)
                                                                                    ----------------    ----------------

INVESTING ACTIVITIES:
   Purchase of subsidiary, net of cash acquired                                                  -            (413,000)
   Capital expenditures                                                                 (4,664,000)         (2,994,000)
   Maturities of investments                                                                     -           2,076,000
   Purchase of investments                                                                       -            (650,000)
   Investment in joint ventures                                                         (3,511,000)                  -
                                                                                    ----------------    ----------------

           Net cash used in investing activities                                        (8,175,000)         (1,981,000)
                                                                                    ----------------    ----------------

FINANCING ACTIVITIES:
     Repurchase of common stock                                                         (8,296,000)                  -
     Net borrowings on notes payable                                                        80,000                   -
     Repayments on long-term debt                                                         (252,000)            (63,000)
     Borrowings on long-term debt                                                        5,633,000                   -
     Proceeds from exercise of stock options                                               182,000             335,000
     Proceeds from sale of installment contracts                                        16,736,000                   -
                                                                                    ----------------    ----------------

           Net cash provided by financing activities                                    14,083,000             272,000
                                                                                    ----------------    ----------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                                9,445,000         (12,555,000)
                                                                                    ----------------    ----------------

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD                                 5,299,000          16,750,000
                                                                                    ----------------    ----------------

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD                                     $14,754,000      $    4,195,000
                                                                                    ================    ================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash paid during the period for interest                                        $     909,000      $        10,000
                                                                                    ================    ================
     Income taxes paid                                                                $  6,621,000       $   6,778,000
                                                                                    ================    ================
</TABLE>

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



                                       4


                  SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION:
The consolidated  condensed  balance sheet as of January 3, 1997, which has been
derived  from  audited   financial   statements,   and  the  unaudited   interim
consolidated  condensed  financial  statements as of October 3, 1997,  have been
prepared by the Company without audit, but in the opinion of management  reflect
all adjustments (which include only normal recurring  adjustments) necessary for
the fair presentation of the information setforth therein. Results of operations
for the interim 1997 periods are not necessarily  indicative of results expected
for the full year. While certain information and footnote  disclosures  normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted  pursuant to the rules and
regulations of the Securities and Exchange Commission, the Company believes that
the  disclosures  herein are  adequate  to make the  information  presented  not
misleading.  These financial  statements  should be read in conjunction with the
audited  financial  statements  and the notes thereto  included in the Company's
Annual Report to Stockholders for the fiscal year ended January 3, 1997.

2.  INVENTORIES:
Inventories  are valued at first-in,  first-out  ("FIFO") cost,  which is not in
excess of market. An analysis of inventories follows:

                                           October 3,             January 3,
                                                 1997                   1997
                                       ---------------    -------------------
                                                    (Unaudited)

                    Raw                   $11,335,000            $11,607,000
                    materials
                    Work in progress        1,102,000              1,108,000
                    Finished goods         14,332,000             14,304,000
                                       ---------------    -------------------
                                          $26,769,000            $27,019,000
                                       ===============    ===================

3.  NET INCOME PER SHARE:
In February  1997, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement  of Financial  Accounting  Standards  ("SFAS")  No. 128,  Earnings per
Share.  This  statement  establishes  standards  for  computing  and  presenting
earnings per share  ("EPS").  This  Statement  will  simplify the  standards for
computing  earnings per share  previously  found in APB Opinion No. 15, Earnings
per Share, and will make them comparable to international EPS standards. It will
replace the  presentation  of primary EPS with a  presentation  of basic EPS and
will  require  dual  presentation  of basic and  diluted  EPS on the face of the
income statement and requires a reconciliation  of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the diluted EPS
computation.

This Statement is effective for financial  statements  issued for periods ending
after December 15, 1997,  including interim periods, and requires restatement of
all  prior-period  EPS data  presented.  The Company will adopt the Statement at
fiscal year-end 1997. Had the Company implemented SFAS 128 on December 30, 1995,
the pro forma EPS results would have been as follows:

<TABLE>
<CAPTION>
                       Thirteen Weeks Ended October 3, 1997        Thirteen Weeks Ended September 27, 1996
                       ------------------------------------        ---------------------------------------
                                           Dilutive                                    Dilutive
                                          Effect of                                   Effect of
                                            Options                                     Options
                               Basic         Issued       Diluted          Basic         Issued       Diluted
                               -----         ------       -------          -----         ------       -------
<S>                       <C>               <C>        <C>            <C>               <C>        <C>       
Net income                $3,606,000              -    $3,606,000     $4,017,000              -    $4,017,000
Shares available to
 Common
shareholders              14,693,233        128,951    14,822,184     15,101,706        161,848    15,263,554
Earnings per share             $0.25              -         $0.24          $0.27              -         $0.26

</TABLE>



                                       5



<TABLE>
<CAPTION>
                       Thirty-nine Weeks Ended October 3, 1997     Thirty-nine Weeks Ended September 27, 1996
                       ---------------------------------------     ------------------------------------------
                                           Dilutive                                    Dilutive
                                          Effect of                                   Effect of
                                            Options                                     Options
                               Basic         Issued       Diluted           Basic        Issued        Diluted
                               -----         ------       -------           -----        ------        -------
<S>                       <C>               <C>        <C>            <C>               <C>        <C>
Net income                $9,226,000              -    $9,226,000     $11,732,000             -    $11,732,000
Shares available to
Common shareholders
                          15,161,050        156,757    15,317,807      15,075,229       146,199     15,221,428
Earnings per share             $0.61              -         $0.60           $0.78             -          $0.77

</TABLE>



4.  REPURCHASE AGREEMENTS:
It is customary  practice for  companies in the  manufactured  home  industry to
enter into  repurchase  agreements  with financial  institutions,  which provide
financing to independent  dealers.  Generally,  the  agreements  provide for the
repurchase of the manufactured homes from the financing institution in the event
of repossession upon an independent  dealer's default.  The Company's contingent
liability under such agreements is approximately  $93.5 million as of October 3,
1997.  Losses  experienced under these agreements have not been significant and,
in the opinion of management,  any future losses under these  agreements  should
not have a material effect on the accompanying financial statements.

5.  LEGAL PROCEEDINGS:
The Company is a defendant in a lawsuit filed on March 27, 1996 in Fulton County
Superior  Court,  Georgia by EurAm  International,  Inc.,  a sales agent for the
Company.  On April 29,  1996 the Company  removed the case to the United  States
District Court for the Northern District of Georgia in Atlanta. In this lawsuit,
the  plaintiff  alleges that the Company  breached an agreement  relating to the
sale  of  the   Company's   modular   homes  in   Germany,   including   alleged
misrepresentations  and faulty  performance,  resulting  in  damages  alleged to
amount to $25  million.  The  Company  believes  the claim is without  merit and
intends to  vigorously  defend the claim,  but the  litigation  is  currently in
discovery and there can be no assurances as to its likely outcome.

In addition,  the Company has been informed by Gesellschoft fur Bauen Und Wohnen
Hannover  MbH ("GBH"),  a German  housing  authority,  that GBH has replaced the
Company with a local  company to complete a contract  that GBH entered into with
the Company  for the  purchase  and  erection  of modular  housing in  Hannover,
Germany.  In connection with the contract,  the Company posted a $660,000 letter
of credit in favor of GBH. In March 1997,  GBH made a claim  against the Company
for damages of  approximately  $800,000  arising from the shift in suppliers and
has  attempted  to draw upon the  letter of credit  posted by the  Company.  The
Company has obtained a temporary  restraining  order-preventing GBH from drawing
upon the letter of credit and the  Company is actively  negotiating  with GBH to
resolve the dispute.  There can be no assurances as to the likely  resolution of
the GBH claim.

The Company is a party to various  other  legal  proceedings  incidental  to its
business.  The majority of these legal proceedings  relate to employment matters
or product  warranty  liability claims for which  management  believes  adequate
reserves are maintained.  In the opinion of management,  after consultation with
legal counsel, the ultimate liability, if any, with respect to these proceedings
will not  materially  affect the financial  position or results of operations of
the Company;  however,  the ultimate  resolution of these  matters,  which could
occur within one year, could result in losses in excess of the amounts reserved.

6.  BUSINESS COMBINATIONS:
Wenco has been  originating  and servicing  consumer  loans  primarily for homes
manufactured  by the  Company.  In February  1997,  the  Company  formed a joint
venture,  Wenco 21,  with 21st  Century.  The  Company  made an initial  capital
contribution of $500,000 to Wenco 21,  representing a 50% ownership  interest in
the joint  venture.  Wenco 21 will  continue  to offer,  through  21st  Century,
consumer  financing for homes  manufactured  by the Company as well as for other
homes sold through its retail centers and independent  dealers.  In light of the
shift in consumer  finance  activities to Wenco 21, Wenco has suspended its loan
origination activities and has engaged 21st Century to service its existing loan
portfolio.


7. NON-RECURRING CHARGE:
During  the  second  quarter  of  1997,  the  Company  recorded  a $2.1  million
non-recurring  charge in connection with its decision to close its  manufactured
housing facility  located in  Pennsylvania.  The decision was based primarily on
changes in local market conditions and operating results of the facility. During
the  thirty-nine  weeks  ended  October 3, 1997 and  September  27,  1996,  this
facility  generated  1.3% and 3.7%,  respectively,  of the total revenues of the
Company.  The impact of this facility on the operating income of the Company was
immaterial  during the thirty-nine weeks ended October 3, 1997 and September 27,
1996.  The  asset  impairment  losses  consist  of the  write-off  of  goodwill,
($505,000),  the write-off of  non-compete  agreements



                                       6



($134,000),  and certain other  operating  assets  ($632,000)  and plant closing
costs consisting  primarily of lease obligations  ($400,000),  warranty reserves
($260,000) and severance pay ($141,000).

8.    SALE OF INSTALLMENT CONTRACTS
In August 1997 the Company sold  installment  contracts  totaling $16.7 million,
along with the related servicing. The Company retained an interest in certain of
the cash flows  ascribed to such loans (the  "interest  only  strip").  The fair
value of the  interest  only  strip was  calculated  using the  expected  future
cashflows  discounted at the current market rate and considering  prepayment and
default  rates on the loans.  The  Company  also  retained  credit  risks on the
installment  contracts sold and has recorded a reserve for such estimated credit
losses.  The Company provides for losses on credit sales in amounts necessary to
maintain the reserves at amounts the Company  believes are sufficient to provide
for future losses based upon the Company  historical  loss  experience,  current
economic conditions and an assessment of current portfolio performance measures.



                                       7



Item 2.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS
Thirteen and  thirty-nine  weeks ended October 3, 1997 as compared with thirteen
and thirty-nine weeks ended September 27, 1996.

Net Revenues
Total net revenues (gross sales less volume  discounts,  returns and allowances)
for the  thirteen  weeks  ended  October  3,  1997  were  $76.3  million,  which
represented a decrease of 1.4% over the prior year period.  For the  thirty-nine
weeks ended  October 3, 1997,  total net revenues were $233.3  million,  up 0.4%
from $232.4 million for the comparable period a year ago.

During the fourth quarter of 1996, the Company entered into the retail sector of
the industry  through the acquisition of BR Holding Corp., and a group of retail
companies  doing business as Blue Ribbon HomesNet  revenues of the  manufactured
home segment, which includes the Company's retail operations, were $75.9 million
for the thirteen  weeks ended October 3, 1997 as compared with $76.7 million for
the prior year  period.  Retail home sales  accounted  for $13.8  million of the
manufactured  home  segment  revenues for the  thirteen  weeks ended  October 3,
1997,compared  with no retail home sales for the comparable prior period.  Sales
to dealers  accounted  for  approximately  $62.1  million of  manufactured  home
segment  revenues for the thirteen  weeks ended  October 3, 1997,  compared with
$76.7 million for the comparable  prior year period, a decrease of $14.6 million
or 14%.  For the  thirty-nine  weeks ended  October 3, 1997,  manufactured  home
segment  revenues were $231.5  million,  as compared with $231.2 million for the
prior  year  period.  Retail  home  sales  accounted  for $35.7  million  of the
manufactured  home segment  revenues for the thirty-nine  weeks ended October 3,
1997, compared with no retail home sales for the comparable prior period.  Sales
to dealers accounted for  approximately  $195.8 million of the manufactured home
segment  revenues for the  thirty-nine  weeks ended October 3, 1997, as compared
with  $231.2  million  for the  comparable  prior  period,  a decrease  of $35.4
million,  or 15%. The decline in sales to dealers was  attributable to a decline
in the number of homes shipped, which was partially offset by an increase in the
average  wholesale  price per home shipped.  Total homes shipped in the thirteen
weeks and  thirty-nine  weeks  ended  October 3, 1997 was 2,329 and 7,248,  down
15.4% and 13.7%,  respectively,  from the number of homes sold in the comparable
prior year  periods.  The decrease in homes sold was  attributable  primarily to
unfavorable weather conditions.

Revenues  from the  Company's  retail  financing  segment were  $463,000 for the
thirteen  weeks ended  October 3, 1997,  as compared with $710,000 for the prior
year period, a decrease of $247,000.  This decrease was attributable to the sale
of a $16.7 million  portfolio in October 1997. For the  thirty-nine  weeks ended
October 3, 1997,  revenues from the Company's retail financing segment were $1.9
million, as compared with $1.2 million for the comparable period a year ago. The
increase  for the  thirty-nine  weeks  was  attributable  to  increased  average
outstanding  balances  resulting from lending activity from the Company's wholly
owned subsidiary,  Wenco Finance, Inc. ("Wenco"). Wenco has been originating and
servicing  consumer loans primarily for homes  manufactured  by the Company.  In
February  1997,  the Company  formed a joint venture with 21st Century  Mortgage
Corporation  ("21st  Century").  The joint  venture,  Wenco 21, will continue to
offer,  through 21st Century,  consumer  financing for homes manufactured by the
Company  as  well as for  other  homes  sold  through  its  retail  centers  and
independent  dealers.  In light of the shift in consumer  finance  activities to
Wenco 21, Wenco has suspended its loan  origination  activities  and has engaged
21st Century to service its existing loan portfolio.

Gross Profit
Gross profit  consists of net revenues  less the cost of sales,  which  includes
labor, materials and overhead. Gross profit for the thirteen weeks ended October
3,  1997  increased  to $11.6  million,  or 15.2% of net  revenues,  from  $10.9
million,  or 14.1% of net revenues in the prior year period. For the thirty-nine
weeks ended  October 3, 1997,  gross profit was $35.2  million,  or 15.1% of net
revenues,  as compared with $32.9 million, or 14.1% of net revenues in the prior
year period. The increase in gross profit percentage in the current year periods
was attributable to increased sales from the company's retail segment, which was
partially  offset by decreased  efficiencies  associated  with lower  production
levels, which resulted from a decrease in backlog of orders.


                                       8


Selling Expenses
Selling  expenses include  primarily sales  commissions,  advertising  expenses,
salaries for support  personnel and freight  costs.  Selling  expenses were $2.9
million,  or 3.8% of net  revenues,  during the thirteen  weeks ended October 3,
1997, as compared with $1.7 million or 2.2% of net revenues, for the same period
of the prior year.  For the  thirty-nine  weeks ended  October 3, 1997,  selling
expenses  were $8.5  million,  or 3.7% of net  revenues,  as compared  with $4.9
million,  or 2.1% of net  revenues,  for the same period of the prior year.  The
increase in selling  expense as a percentage  of net  revenues was  attributable
primarily to increased  selling  expenses  associated with the Company's  retail
operation, which was partially offset by savings in shipping costs realized from
an  increase  in  shipments  through  MH  Transport,   the  company's   trucking
subsidiary,  which reduced the  Company's  reliance  upon  independent  trucking
companies.

General and Administrative
General and administrative expenses include administrative  salaries,  executive
and management bonuses,  insurance costs and professional fees. For the thirteen
weeks ended  October 3, 1997,  general  and  administrative  expenses  were $2.4
million, or 3.2% of net revenues,  as compared with $2.5 million, or 3.3% of net
revenues,  for the same period of 1996. For the thirty-nine  weeks ended October
3, 1997, general and administrative  expenses were $8.2 million,  or 3.5% of net
revenues,  as compared with $7.9  million,  or 3.4% of net revenues in the prior
year  period.  The  decrease in general and  administrative  expense in the most
recent quarter is attributable  to a gain of  approximately  $775,000  resulting
from  the  sale of  $16.7  of the  Company's  installment  contracts  receivable
portfolio.

Non-Recurring Charge
During  the  second  quarter  of  1997,  the  Company  recorded  a $2.1  million
non-recurring  charge in connection with its decision to close its  manufactured
housing facility  located in  Pennsylvania.  The decision was based primarily on
changes in local market conditions and operating results of the facility. During
the  thirty-nine  weeks  ended  October 3, 1997 and  September  27,  1996,  this
facility  generated  1.3% and 3.7%,  respectively,  of the total revenues of the
Company.  The impact of this facility on the operating income of the Company was
immaterial  during the thirty-nine weeks ended October 3, 1997 and September 27,
1996.  The  asset  impairment  losses  consist  of the  write-off  of  goodwill,
($505,000),  the write-off of  non-compete  agreements  ($134,000),  and certain
other operating assets  ($632,000) and plant closing costs consisting  primarily
of lease obligations ($400,000),  warranty reserves ($260,000) and severance pay
($141,000).

Provision for Credit Losses
The Company  provides for  estimated  credit losses upon  origination,  based on
industry experience, historical loss experience, current repossession trends and
costs,  and  management's  assessment of the current  credit quality of the loan
portfolio.  For the thirteen and  thirty-nine  weeks ended October 3, 1997,  the
provision for credit losses was a credit of $100,000 and $100,000, respectively,
as compared with charges of $168,000 and $1.1 million in 1996 for the respective
periods.  The decline in the current year  provision  reflects the suspension of
loan originations.

Interest Expense
Interest  expense for the thirteen weeks ended October 3, 1997 was $416,000,  as
compared with $7,000 in the prior year period.  For the thirty-nine  weeks ended
October 3, 1997,  interest expense was $1.0 million, as compared with $10,000 in
the prior year  period.  The  increase in interest  expense in the current  year
periods was a result of increased  notes payable  associated with the floor plan
financing of the Company's  retail inventory and the addition of $4.1 million of
long-term debt.

Interest Income
Interest  income for the thirteen  weeks ended October 3, 1997 was $137,000,  as
compared with $164,000 in the comparable prior year period.  For the thirty-nine
weeks ended  October 3, 1997,  interest  income was  $208,000  as compared  with
$501,000  in the prior year  period.  The  decrease  in  interest  income in the
current year period reflects lower average cash and investment balances.

Provision for Income Taxes
Income  taxes are  provided  for based on the tax effect of revenue  and expense
transactions  included in the  determination of pre-tax book income.  Income tax
expense for the thirteen  weeks ended  October 3, 1997 was $2.2  million,  or an
effective tax rate of 38.3% as compared  with $2.5 million,  or an effective tax
rate of 38.4% in the prior year period.  For the thirty-nine weeks ended October
3, 1997, income tax expense was $5.8 million, or an effective tax rate of 38.4%,
as compared  with $7.3  million,  or an effective tax rate of 38.5% in the prior
year period.



                                       9




LIQUIDITY AND CAPITAL RESOURCES
Since its organization,  the Company has financed its operations  primarily with
cash  generated  from  a  combination  of  operations,   stock  offerings,   and
borrowings.

Cash Flows
During the thirty-nine  weeks ended October 3, 1997, the Company's cash provided
by  operations  was  approximately  $3.5  million.  Cash  provided by operations
included net income, after a $2.1 million  non-recurring charge, of $9.2 million
and increased  accounts  payable of $4.3 million.  These amounts were  partially
offset by increased  accounts  receivable of $11.9  million,  decreased  accrued
liabilities of $817,000 and origination of installment contracts of $543,000.

Cash used by investing  activities included capital expenditures of $4.7 million
and  investment in joint ventures  totaling $3.5 million.  In February 1997, the
Company formed a joint venture,  Wenco 21, with 21st Century, which through 21st
Century will originate and service retail installment contracts. The Company has
made an initial capital contribution of $500,000 to Wenco 21, representing a 50%
ownership interest of the joint venture.  Under its joint venture agreement with
21st  Century,  the  Company  may be  called  upon  to make  additional  capital
contributions  or loans in order to meet Wenco 21's  capital  requirements.  The
Company believes that cash on hand, cash generated by its operations,  and funds
available  under its  existing  line of credit will be adequate to fund any such
commitments.  In July 1997,  the  Company  acquired  a  one-third  interest  in,
Woodperfect, LTD. ("Woodperfect"), for producing and using wood truss rafters in
its home  manufacturing  operations.  The  purchase  price for the  interest  in
Woodperfect was $2.0 million,  representing a 33.3% ownership interest. In March
1996,  the  Company  formed  a joint  venture,  Ridgepointe  Manufacturing,  LLP
("Ridgepointe"),  with Cavalier Homes, Inc. and Belmont Homes  Corporation.  The
Company has made an initial  capital  contribution  of $850,000 to  Ridgepointe,
representing a 33% ownership  interest of the joint  venture.  In July 1997, the
Company    formed   a   joint   venture,    Woodperfect   of   Texas,    L.   P.
("Woodperfect-Texas"),  with Cavalier Homes,  Inc.,  Patriot Homes, Inc., Schult
Homes,  Inc.  and Jordan  Family  Partnership.  The  Company has made an initial
capital  contribution  of  $100,000  to  Woodperfect-Texas,  representing  a 20%
ownership of the joint venture.

Cash  provided  from  financing  activities  included  proceeds from the sale of
installment  contracts of $16.7 million,  long-term  borrowings of $5.6 million,
short-term  borrowings  of $80,000 and proceeds  from stock option  exercises of
$182,000,  which was partially offset by the repurchase of 903,800 shares of the
Company's common stock, for cash of $8.3 million.

During the  thirty-nine  weeks ended  September 27, 1996, cash used in operating
activities was approximately  $10.8 million.  Cash used in operating  activities
reflects  origination  of  installment  contracts of $25.7 million and increased
inventory,  accounts  receivable and prepayments of approximately $10.8 million.
These  amounts  were  partially  offset by net  income of $11.7  million  and an
increase in accounts  payable and accrued  liabilities  of  approximately  $12.3
million.  Each of these  increases was primarily  related to sales growth during
the prior year. Other  significant  cash flows included capital  expenditures of
$3.0 million and maturities of investments of $2.1 million.

At October  3, 1997,  the  Company's  net  working  capital  was $34.4  million,
including $14.8 in cash and cash equivalents,  as compared with $17.7 million at
January 3,  1997,  including  $5.3  million  in cash and cash  equivalents.  The
increase  in net  working  capital  was a result of an increase in cash and cash
equivalents  of $9.5  million and an increase  in accounts  receivable  of $12.2
million,  which was partially offset by increased short-term  borrowings of $1.3
million and increased accounts payable of $4.3 million.

The  Company  maintains  a $15.0  million  unsecured  line of  credit,  which is
renewable  annually  and bears  interest at the London  Interbank  Offered  Rate
("LIBOR") plus 1.5%.  The Company's  ability to draw upon this line of credit is
dependent upon meeting certain  financial ratios and covenants.  The Company has
no borrowings outstanding under this line at October 3, 1997.

Substantially all of the Company's  independent  dealers finance their purchases
through "floor-plan"  arrangements under which a financial  institution provides
the  dealer  with a loan for the  purchase  price of the  home and  maintains  a
security  interest in the home as  collateral.  In connection  with a floor-plan
agreement,  the financial  institution  which  provides the  independent  dealer
financing  customarily  requires the Company to enter into a separate repurchase
agreement with the financial institution,  under which the Company is obligated,
upon default by the dealer,  to repurchase  the homes at the Company's  original
invoice  price  plus




                                       10


certain administrative and shipping expenses less any principal payments made by
the independent dealer. At October 3, 1997, the Company's contingent  repurchase
liability  under  floor-plan  financing  arrangements  was  approximately  $93.5
million.  While homes that have been repurchased by the Company under floor-plan
financing  arrangements are usually sold to other dealers and losses experienced
to date under these  arrangements have been  insignificant,  no assurance can be
given that the Company will be able to sell to other  dealers homes which it may
be  obligated  to  repurchase  in the  future  under such  floor-plan  financing
arrangements  or that the Company will not suffer losses with respect to, and as
a consequence of, those arrangements.


Expansion
The Company  has  continued  to  demonstrate  its  ability to expand  production
capacity and  vertically  integrate its  operations  through the  acquisition of
additional manufacturing facilities and businesses.

In  November  1996,  the  Company  acquired a group of retail  sales  centers in
Alabama and  Mississippi.  The initial purchase price consisted of approximately
$1.1  million in cash and $4.5 million of common  stock  issued.  The Company is
obligated to make  additional  payments to the seller if the  acquired  business
meets certain earnings targets. Any additional payments will be made 20% in cash
and 80% in shares of the  Company's  common stock and will be  accounted  for as
goodwill and amortized over the remaining  recovery  period of the goodwill.  In
May 1997 an additional payment totaling approximately $207,000,  $41,000 in cash
and 14,256 shares of the  Company's  common stock  (approximate  market value of
$148,000) was made for earnings targets achieved through December 31, 1996.

The Company  plans to acquire or open more  retail  sales  centers.  The Company
believes that cash on hand,  cash generated by operations,  and funds  available
under its existing line of credit will be adequate to fund its expansion plans.

Inflation
The Company  believes that the  relatively  moderate rate of inflation  over the
past few years has not had a significant  impact on its sales or  profitability.
The  Company has in the past been able to pass on most of the  increases  in its
costs by increasing selling prices,  although there can be no assurance that the
Company will be able to do so in the future.

"SAFE HARBOR"  STATEMENT UNDER THE PRIVATE  SECURITIES  LITIGATION REFORM ACT OF
1995  Forward-looking  statements in this report,  including without limitation,
statements  relating  to the  adequacy  of the  Company's  resources,  are  made
pursuant to the safe harbor  provisions  of the  Private  Securities  Litigation
Reform Act of 1995. Investors are cautioned that such forward-looking statements
involve risks and uncertainties,  including without limitation: the cyclical and
seasonal  nature  of  housing   markets;   the  availability  of  financing  for
prospective  purchasers of the Company's  homes;  the amount of capital that the
Company  may  commit to its Wenco 21 joint  venture to make  available  consumer
loans;  the performance of the loans held by the Company's  finance  subsidiary;
the  availability  and  pricing  of  raw  materials;  the  concentration  of the
Company's business in certain regional markets; the Company's ability to execute
and manage its expansion  plans;  the  availability  of labor to implement those
plans;  the highly  competitive  nature of the  manufactured  housing  industry;
Federal,  state and local  regulation of the Company's  business;  the Company's
contingent  repurchase  liabilities  with  respect  to  dealer  financing;   the
Company's reliance on independent  dealers;  and other risks indicated from time
to time in the Company's filings with the Securities and Exchange Commission.


                                       11


                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings
The  Company is the  defendant  in a lawsuit  filed on March 27,  1996 in Fulton
County  Superior  Court,  Georgia by EurAm  International,  Inc., a former sales
agent for the  Company.  On April 29, 1996 the  Company  removed the case to the
United States District Court for the Northern District of Georgia in Atlanta. In
this lawsuit,  the  plaintiff  alleges that the Company has caused a breach to a
written  agreement  relating  to the  sale of the  Company's  modular  homes  in
Germany, including alleged misrepresentations and faulty performance,  resulting
in damages alleged to amount to $25 million.  The Company  believes the claim is
without merit and intends to vigorously  defend the claim, but the litigation is
currently in discovery and there can be no assurances to its likely outcome.

In addition, the Company has been informed by Geselleschoft fur Bauen Und Wohnen
Hannover  MbH ("GBH"),  a German  housing  authority,  that GBH has replaced the
Company  with a local  company to complete a contract  that GBH had entered into
with the Company for the purchase  and erection of modular  housing in Hannover,
Germany.  In connection with the contract,  the Company posted a $660,000 letter
of credit in favor of GBH. In March 1997,  GBH made a claim  against the Company
for damages of  approximately  $800,000  arising from the shift in suppliers and
has  attempted  to draw upon the  letter of credit  posted by the  Company.  The
Company has obtained a temporary  restraining  order-preventing GBH from drawing
upon the letter of credit and the  Company is actively  negotiating  with GBH to
resolve the dispute.  There can be no assurances as to the likely  resolution of
the GBH claim.

The Company is a party to various  other  legal  proceedings  incidental  to its
business.  The majority of these legal proceedings  relate to employment matters
or product  warranty  liability claims for which  management  believes  adequate
reserves are maintained.  In the opinion of management,  after consultation with
legal counsel, the ultimate liability, if any, with respect to these proceedings
will not  materially  affect the financial  position or results of operations of
the Company;  however,  the ultimate  resolution of these  matters,  which could
occur within one year, could result in losses in excess of the amounts reserved.

Item 2.  Changes in Securities
Not applicable

Item 3.  Defaults Upon Senior Securities
Not applicable.

Item 4.  Submission of Matters to a Vote of Security Holders
Not applicable

Item 5.  Other Information
Not applicable

Item 6.  Exhibits and Reports on Form 8-K
         (a)  Exhibits
         The following Exhibits are incorporated herein by reference.

             4.1   Certificate  of  incorporation  of the  Company,  as  amended
                   (filed as Exhibit 4.1 to the  registration  on Form S-3 filed
                   with the Securities and Exchange Commission (August 6, 1997)

             4.2   By-Laws  of  the  Company.  (Filed  as  Exhibit  3.2  to  the
                   Registration   Statement  on  Form  S-1,   Registration   No.
                   33-57420)

             4.3   Specimen of Stock  Certificate.  (Filed as Exhibit 4.1 to the
                   Registration   Statement  on  Form  S-1,   Registration   No.
                   33-57420)

             4.4   Southern Development Council, Inc. Promissory Note. (Filed as
                   Exhibit  4.10 to the  Registration  Statement  on  Form  S-1,
                   Registration No. 33-57420)

             4.5   Stockholders'  Agreement,  dated as of June 8, 1989 (Filed as
                   Exhibit  4.12 to the  Registration  Statement  on  Form  S-1,
                   Registration No. 33-57420)

             4.6   Form of First Amendment to Stockholders' Agreement,  dated as
                   of  January  13,   1993.   (Filed  as  Exhibit  4.13  to  the
                   Registration   Statement  on  Form  S-1,   Registration   No.
                   33-57420)

         (b)  Reports on Form 8-K           None


                                       12


                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.







                                      SOUTHERN ENERGY HOMES, INC.


Date: November 14, 1997               By:   /s/         Wendell L. Batchelor
      -----------------                     --------------------------------
                                      Wendell L. Batchelor, Chairman, President
                                      and Chief Executive Officer




Date: November 14, 1997               By:   /s/ Keith W. Brown
      -----------------                     ------------------
                                      Keith W. Brown, Executive Vice President,
                                      Chief Financial Officer, Treasurer and
                                      Secretary


                                       13