##### Table of Contents



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 June 28, 2002 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
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                              
|144 Corporate Way, P.O. Box 390, Addison, Alabama              |  | 35540                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip Code)                          



(256) 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.

12,133,865 shares of Common Stock,
$.0001 par value, as of August 9, 2002





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TABLE OF CONTENTS



|           |                                                                                               |  |  |  |  |  |  | 
|---------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|           | I. FINANCIAL INFORMATION                                                                     
|           | Item 1. Financial Statements                                                                 
|           | CONSOLIDATED CONDENSED BALANCE SHEETS                                                        
|           | CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS                                              
|           | CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS                                              
|           | NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS                                         
|           | Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|           | Item 3. Quantitative and Qualitative Disclosures of Market Risk.                             
|           | PART II  OTHER INFORMATION                                                                  
|           | Item 1. Legal Proceedings                                                                    
|           | Item 4. Submission of Matters to a Vote of Security Holders                                  
|           | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES



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##### Table of Contents



SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES

INDEX

|        |  |                                                                                                                                                                   |  |     
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                                                                                                   |  | Page
|PART I  |  | FINANCIAL INFORMATION:                                                                                                                                            |  |     
|       
|Item 1  |  | Financial Statements (Unaudited)                                                                                                                                  |  |     
|       
|        |  | Consolidated Condensed Balance Sheets,
June 28, 2002 and December 28, 2001                                                                                        |  | 3   
|       
|        |  | Consolidated Condensed Statements of Operations  Thirteen Weeks
Ended June 28, 2002 and June 29, 2001 and Twenty-six Weeks
Ended June 28, 2002 and June 29, 2001 |  | 4   
|       
|        |  | Consolidated Condensed Statements of Cash Flows  Twenty-six
Weeks Ended June 28, 2002 and June 29, 2001                                                          |  | 5   
|       
|        |  | Notes to Consolidated Condensed Financial Statements                                                                                                              |  | 6   
|       
|Item 2  |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations                                                                             |  | 10  
|       
|Item 3  |  | Quantitative and Qualitative Disclosure of Market Risk                                                                                                            |  | 14  
|       
|PART II |  | OTHER INFORMATION:                                                                                                                                                |  |     
|       
|Item 1  |  | Legal Proceedings                                                                                                                                                 |  | 15  
|       
|Item 4  |  | Submission of Matters to a Vote of Security Holders                                                                                                               |  | 15  
|       
|Item 6  |  | Exhibits and Reports on Form 8-K                                                                                                                                  |  | 16  
|       
|        |  | SIGNATURES                                                                                                                                                        |  | 17  

2



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##### Table of Contents






I. FINANCIAL INFORMATION




Item 1. Financial Statements




SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS

|                                     |                                                                                                                                           |   |             |             |              |   |            |             |  
|------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | ----------- | ------------ | - | ---------- | ----------- | -
|                                     |                                                                                                                                           |   | June 28,    |             | December 28,
|                                     |                                                                                                                                           |   | 2002        |             | 2001        
|                                     |                                                                                                                                           |   |             |             |             
|                                     |                                                                                                                                           |   | (Unaudited) |             | (Note 1)    
|ASSETS                              
|Current Assets:                      |                                                                                                                                           |   |             |             |              |   |            |            
|                                     | Cash and cash equivalents                                                                                                                 |   | $           | 172,000     |              |   | $          | 354,000     |  
|                                     | Accounts receivable (less allowance for doubtful accounts of
$188,000 and $160,000, respectively)                                         |   |             | 11,132,000  |              |   |            | 7,089,000   |  
|                                     | Inventories                                                                                                                               |   |             | 15,528,000  |              |   |            | 19,639,000  |  
|                                     | Refundable income taxes                                                                                                                   |   |             | 349,000     |              |   |            | 349,000     |  
|                                     | Prepayments and other                                                                                                                     |   |             | 916,000     |              |   |            | 903,000     |  
|                                     |                                                                                                                                           |   |             |             |              |   |            |            
|                                     |                                                                                                                                           |   | 28,097,000  |             |              |   | 28,334,000 |            
|Property and equipment:              |                                                                                                                                           |   |             |             |              |   |            |            
|                                     | Property and equipment, at cost                                                                                                           |   |             | 33,233,000  |              |   |            | 34,765,000  |  
|                                     | Less  accumulated depreciation                                                                                                           |   |             | (15,479,000 | )            |   |            | (15,496,000 | )
|                                     |                                                                                                                                           |   |             |             |              |   |            |            
|                                     |                                                                                                                                           |   | 17,754,000  |             |              |   | 19,269,000 |            
|Intangibles and other assets:        |                                                                                                                                           |   |             |             |              |   |            |            
|                                     | Installment contracts receivable (less allowance for credit
losses of $1,150,000 )                                                        |   |             | 12,325,000  |              |   |            | 13,543,000  |  
|                                     | Goodwill                                                                                                                                  |   |             | 3,305,000   |              |   |            | 3,305,000   |  
|                                     | Investment in joint ventures                                                                                                              |   |             | 4,082,000   |              |   |            | 4,908,000   |  
|                                     | Other assets                                                                                                                              |   |             | 3,032,000   |              |   |            | 3,192,000   |  
|                                     |                                                                                                                                           |   |             |             |              |   |            |            
|                                     |                                                                                                                                           |   | 22,744,000  |             |              |   | 24,948,000 |            
|                                     |                                                                                                                                           |   |             |             |              |   |            |            
|                                     |                                                                                                                                           | $ | 68,595,000  |             |              | $ | 72,551,000 |            
|                                     |                                                                                                                                           |   |             |             |              |   |            |            
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                                                                                           |   |             |             |              |   |            |            
|                                     | Notes payable                                                                                                                             |   | $           | 6,343,000   |              |   | $          | 10,964,000  |  
|                                     | Accounts payable                                                                                                                          |   |             | 2,360,000   |              |   |            | 1,369,000   |  
|                                     | Accrued liabilities                                                                                                                       |   |             | 13,834,000  |              |   |            | 13,617,000  |  
|                                     |                                                                                                                                           |   |             |             |              |   |            |            
|                                     |                                                                                                                                           |   | 22,537,000  |             |              |   | 25,950,000 |            
|                                     |                                                                                                                                           |   |             |             |              |   |            |            
|Stockholders equity:                |                                                                                                                                           |   |             |             |              |   |            |            
|                                     | Preferred stock, $.0001 par value, 1,000,000 shares authorized,
none outstanding                                                          |   |             |            |              |   |            |            |  
|                                     | Common stock, $.0001 par value, 40,000,000 shares authorized,
12,133,865 issued and outstanding at June 28, 2002 and at
December 28, 2001 |   |             | 1,000       |              |   |            | 1,000       |  
|                                     | Capital in excess of par                                                                                                                  |   |             | 8,330,000   |              |   |            | 8,330,000   |  
|                                     | Retained earnings                                                                                                                         |   |             | 37,727,000  |              |   |            | 38,270,000  |  
|                                     |                                                                                                                                           |   | 46,058,000  |             |              |   | 46,601,000 |            
|                                     |                                                                                                                                           | $ | 68,595,000  |             |              | $ | 72,551,000 |            
|                                     |                                                                                                                                           |   |             |             |              |   |            |            

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

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

|                                                             |                                     |                                   |            |                   |       |                      |            |                        |       |                 |            |            |       |            |            |                 |       |            |            |  
|------------------------------------------------------------ | ----------------------------------- | --------------------------------- | ---------- | ----------------- | ----- | -------------------- | ---------- | ---------------------- | ----- | --------------- | ---------- | ---------- | ----- | ---------- | ---------- | --------------- | ----- | ---------- | ---------- | -
|                                                             |                                     |                                   |            |                   |       | Thirteen Weeks Ended |            | Twenty-six Weeks Ended
|                                                             |                                     |                                   |            |                   |       |                      |            |                       
|                                                             |                                     |                                   |            |                   |       | June 28,             |            | June 29,               |       | June 28,        |            | June 29,  
|                                                             |                                     |                                   |            |                   |       | 2002                 |            | 2001                   |       | 2002            |            | 2001      
|                                                             |                                     |                                   |            |                   |       |                      |            |                        |       |                 |            |           
|                                                             |                                     |                                   |            |                   |       |                      |            |                        |       | (Restated  see |            |            |       |            |            | (Restated  see
|                                                             |                                     |                                   |            |                   |       |                      |            |                        |       | note 2)         |            |            |       |            |            | note 2)        
|Net revenues                                                 |                                     | $                                 | 43,701,000 |                   |       | $                    | 40,033,000 |                        |       | $               | 78,394,000 |            |       | $          | 74,567,000 |                
|Cost of sales                                                |                                     |                                   | 34,578,000 |                   |       |                      | 30,757,000 |                        |       |                 | 62,209,000 |            |       |            | 57,659,000 |                
|                                                             |                                     |                                   |            |                   |       |                      |            |                        |       |                 |            |            |       |            |            |                
|                                                             |                                     |                                   |            | Gross profit      |       |                      | 9,123,000  |                        |       |                 | 9,276,000  |            |       |            | 16,185,000 |                 |       |            | 16,908,000 |  
|Operating expenses:                                          |                                     |                                   |            |                   |       |                      |            |                        |       |                 |            |            |       |            |            |                
|                                                             | Selling, general and administrative |                                   |            | 7,996,000         |       |                      |            | 8,359,000              |       |                 |            | 15,326,000 |       |            |            | 16,820,000      |      
|                                                             | Amortization of intangibles         |                                   |            | 13,000            |       |                      |            | 76,000                 |       |                 |            | 26,000     |       |            |            | 153,000         |      
|                                                             |                                     |                                   |            |                   |       |                      |            |                        |       |                 |            |            |       |            |            |                
|                                                             |                                     |                                   | 8,009,000  |                   |       |                      | 8,435,000  |                        |       |                 | 15,352,000 |            |       |            | 16,973,000 |                
|Operating income (loss) from
continuing operations           |                                     |                                   | 1,114,000  |                   |       |                      | 841,000    |                        |       |                 | 833,000    |            |       |            | (65,000    | )              
|Interest expense                                             |                                     |                                   | (270,000   | )                 |       |                      | (501,000   | )                      |       |                 | (595,000   | )          |       |            | (1,170,000 | )              
|Interest income                                              |                                     |                                   | 41,000     |                   |       |                      | 56,000     |                        |       |                 | 125,000    |            |       |            | 215,000    |                
|                                                             |                                     |                                   |            |                   |       |                      |            |                        |       |                 |            |            |       |            |            |                
|Income (loss) from continuing
operations before income taxes |                                     |                                   | 885,000    |                   |       |                      | 396,000    |                        |       |                 | 363,000    |            |       |            | (1,020,000 | )              
|Income taxes                                                 |                                     |                                   |           |                   |       |                      |           |                        |       |                 |           |            |       |            |           |                
|Income (loss) from continuing
operations                     |                                     |                                   | 885,000    |                   |       |                      | 396,000    |                        |       |                 | 363,000    |            |       |            | (1,020,000 | )              
|Loss from discontinued operations
(Note 2)                   |                                     |                                   | (630,000   | )                 |       |                      | (271,000   | )                      |       |                 | (906,000   | )          |       |            | (317,000   | )              
|                                                             |                                     |                                   |            | Net income (loss) |       | $                    | 255,000    |                        |       | $               | 125,000    |            |       | $          | (543,000   | )               |       | $          | (1,337,000 | )
|                                                             |                                     |                                   |            |                   |       |                      |            |                        |       |                 |            |            |       |            |            |                
|Basic and diluted earnings per share:                        |                                     |                                   |            |                   |       |                      |            |                        |       |                 |            |            |       |            |            |                
|Income (loss) from continuing
operations                     |                                     | $                                 | 0.07       |                   |       | $                    | 0.03       |                        |       | $               | 0.03       |            |       | $          | (0.08      | )              
|                                                             |                                     | Loss from discontinued operations |            |                   | (0.05 | )                    |            |                        | (0.02 | )               |            |            | (0.07 | )          |            |                 | (0.03 | )         
|                                                             |                                     |                                   |            |                   |       |                      |            |                        |       |                 |            |            |       |            |            |                
|                                                             |                                     |                                   |            | Net income (loss) |       | $                    | 0.02       |                        |       | $               | 0.01       |            |       | $          | (0.04      | )               |       | $          | (0.11      | )
|                                                             |                                     |                                   |            |                   |       |                      |            |                        |       |                 |            |            |       |            |            |                
|Weighted average number of common
shares:                    |                                     |                                   |            |                   |       |                      |            |                        |       |                 |            |            |       |            |            |                
|                                                             |                                     |                                   | Basic      |                   |       | 12,133,865           |            |                        |       | 12,132,990      |            |            |       | 12,133,865 |            |                 |       | 12,132,990 |           
|                                                             |                                     |                                   | Diluted    |                   |       | 12,413,911           |            |                        |       | 12,343,542      |            |            |       | 12,437,129 |            |                 |       | 12,229,682 |           

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

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

|                                                     |                                                                                           |                                              |                                                         |                                                |            |                        |            |            |             |            |             |  
|---------------------------------------------------- | ----------------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------------------------- | ---------------------------------------------- | ---------- | ---------------------- | ---------- | ---------- | ----------- | ---------- | ----------- | -
|                                                     |                                                                                           |                                              |                                                         |                                                |            | Twenty-six Weeks Ended
|                                                     |                                                                                           |                                              |                                                         |                                                |            |                       
|                                                     |                                                                                           |                                              |                                                         |                                                |            | June 28,               |            | June 29,  
|                                                     |                                                                                           |                                              |                                                         |                                                |            | 2002                   |            | 2001      
|                                                     |                                                                                           |                                              |                                                         |                                                |            |                        |            |           
|Cash flows from operating activities:                |                                                                                           |                                              |                                                         |                                                |            |                        |            |           
|                                                     | Net loss                                                                                  |                                              | $                                                       | (543,000                                       | )          |                        | $          | (1,337,000 | )          
|                                                     | Adjustments to reconcile net loss to net cash provided by (used in)
operating activities: |                                              |                                                         |                                                |            |                        |            |            |            
|                                                     |                                                                                           |                                              | Equity (income) loss of joint ventures                  |                                                |            | (230,000               | )          |            |             | (70,000    | )          
|                                                     |                                                                                           |                                              | Distribution from joint ventures                        |                                                |            | 185,000                |            |            |             | 371,000    |            
|                                                     |                                                                                           |                                              | Depreciation of property and equipment                  |                                                |            | 1,245,000              |            |            |             | 1,214,000  |            
|                                                     |                                                                                           |                                              | Amortization of intangibles                             |                                                |            | 26,000                 |            |            |             | 152,000    |            
|                                                     |                                                                                           |                                              | Loss on sale of property and equipment                  |                                                |            | 94,000                 |            |            |             |           |            
|                                                     |                                                                                           |                                              | Amortization of debt issuance costs                     |                                                |            | 134,000                |            |            |             | 121,000    |            
|                                                     |                                                                                           |                                              | Provision for doubtful accounts receivable              |                                                |            | 28,000                 |            |            |             | 18,000     |            
|                                                     |                                                                                           |                                              | Origination of installment contracts                    |                                                |            | (2,170,000             | )          |            |             | (1,187,000 | )          
|                                                     |                                                                                           |                                              | Provision for credit losses on installment contracts    |                                                |            |                       |            |            |             | 150,000    |            
|                                                     |                                                                                           |                                              | Principal collected on originated installment contracts |                                                |            | 3,388,000              |            |            |             | 1,330,000  |            
|                                                     |                                                                                           |                                              | Change in assets and liabilities:                       |                                                |            |                        |            |            |             |            |            
|                                                     |                                                                                           |                                              |                                                         | Inventories                                    |            |                        | 4,111,000  |            |             |            | 2,355,000   |  
|                                                     |                                                                                           |                                              |                                                         | Accounts receivable                            |            |                        | (4,071,000 | )          |             |            | (6,679,000  | )
|                                                     |                                                                                           |                                              |                                                         | Refundable income taxes, prepayments and other |            |                        | (13,000    | )          |             |            | 4,697,000   |  
|                                                     |                                                                                           |                                              |                                                         | Other assets                                   |            |                        |           |            |             |            | 1,019,000   |  
|                                                     |                                                                                           |                                              |                                                         | Accounts payable                               |            |                        | 991,000    |            |             |            | 2,385,000   |  
|                                                     |                                                                                           |                                              |                                                         | Accrued liabilities                            |            |                        | 217,000    |            |             |            | 1,573,000   |  
|                                                     |                                                                                           |                                              |                                                         |                                                |            |                        |            |           
|                                                     |                                                                                           |                                              |                                                         | Net cash provided by operating activities      |            |                        | 3,392,000  |            |             |            | 6,112,000   |  
|                                                     |                                                                                           |                                              |                                                         |                                                |            |                        |            |           
|Cash flows from investing activities:                |                                                                                           |                                              |                                                         |                                                |            |                        |            |           
|                                                     | Capital expenditures                                                                      |                                              |                                                         | (176,000                                       | )          |                        |            | (264,000   | )          
|                                                     | Investments in joint ventures                                                             |                                              |                                                         | (379,000                                       | )          |                        |            | (15,000    | )          
|                                                     | Proceeds from sale of joint venture                                                       |                                              |                                                         | 1,250,000                                      |            |                        |            |            |            
|                                                     | Proceeds from sale of property and equipment                                              |                                              |                                                         | 352,000                                        |            |                        |            | 366,000    |            
|                                                     |                                                                                           |                                              |                                                         |                                                |            |                        |            |           
|                                                     |                                                                                           |                                              |                                                         | Net cash provided by investing activities      |            |                        | 1,047,000  |            |             |            | 87,000      |  
|                                                     |                                                                                           |                                              |                                                         |                                                |            |                        |            |           
|Cash flows from financing activities:                |                                                                                           |                                              |                                                         |                                                |            |                        |            |           
|                                                     |                                                                                           | Net borrowings (repayments) on notes payable |                                                         |                                                | (4,621,000 | )                      |            |            | (11,147,000 | )         
|                                                     |                                                                                           | Payment of debt issuance costs               |                                                         |                                                |           |                        |            |            | (1,106,000  | )         
|                                                     |                                                                                           |                                              |                                                         |                                                |            |                        |            |           
|                                                     |                                                                                           |                                              |                                                         | Net cash used in financing activities          |            |                        | (4,621,000 | )          |             |            | (12,253,000 | )
|                                                     |                                                                                           |                                              |                                                         |                                                |            |                        |            |           
|Net decrease in cash and cash equivalents            |                                                                                           |                                              | (182,000                                                | )                                              |            |                        | (6,054,000 | )         
|                                                     |                                                                                           |                                              |                                                         |                                                |            |                        |            |           
|Cash and cash equivalents at the beginning of period |                                                                                           |                                              | 354,000                                                 |                                                |            |                        | 6,054,000  |           
|                                                     |                                                                                           |                                              |                                                         |                                                |            |                        |            |           
|Cash and cash equivalents at the end of period       |                                                                                           | $                                            | 172,000                                                 |                                                |            | $                      |           |           
|                                                     |                                                                                           |                                              |                                                         |                                                |            |                        |            |           

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

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

1. BASIS OF PRESENTATION:

The consolidated condensed balance sheet as of December 28, 2001, which has
been derived from audited financial statements, and the unaudited interim
consolidated condensed financial statements as of March 29, 2002, have been
prepared by the Company without audit, but in the opinion of management reflect
the adjustments necessary (which include only normal recurring adjustments) for
the fair presentation of the information set forth therein. Results of
operations for the interim 2002 period 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 accounting principles generally accepted in the United States 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 December 28, 2001.

2. DISCONTINUED OPERATIONS:

In the second quarter of 2002, the Company decided to close three retail
centers, which were part of the Retail Segment. These retail centers had been
negatively affected by weak market conditions and restrictive retail financing
conditions, principally as a result of the withdrawal of several lenders from
the market. The decision to close the retail centers was based primarily on
managements evaluation of recent operating results.

Accordingly, as required by FASB Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, the operating results of the
closed retail centers, which were previously reported in the Retail Segment
data, for 2002 and all prior periods presented herein have been classified in
discontinued operations. The Company recognized a $630,000 loss on discontinued
operations in the second quarter, which included provisions for exit costs
related to ongoing rental commitments and write-down of related leasehold
improvements of $286,000. As required by FASB 144, any further operating
losses, as well as adjustments to exit costs accruals (if any), will be
reported in discontinued operations as incurred, or when circumstances warrant
revisions of the related accounts. Historical operating results of the
discontinued operations were as follows:

|                  |  |                      |      |                        |  |               |       |               |  |   |       |   |  |   |       |  
|----------------- |  | -------------------- | ---- | ---------------------- |  | ------------- | ----- | ------------- |  | - | ----- | - |  | - | ----- | -
|                  |  | Thirteen Weeks Ended |      | Twenty-six Weeks Ended
|                  |  |                      |      |                       
|                  |  | June 28, 2002        |      | June 29, 2001          |  | June 28, 2002 |       | June 29, 2001
|                  |  |                      |      |                        |  |               |       |              
|(In Thousands)    |  |                      |      |                        |  |               |       |               |  |   |       |   |  |   |       |  
|Net sales         |  | $                    | 543  |                        |  | $             | 2,415 |               |  | $ | 1,473 |   |  | $ | 5,382 |  
|Net income (loss) |  |                      | (630 | )                      |  |               | (271  | )             |  |   | (906  | ) |  |   | (317  | )

Total exit costs accruals at June 28, 2002 amounted to $90,000, which are
expected to be paid by the end of 2002. There are no other significant assets
or liabilities remaining on the balance sheet at June 28, 2002 related to the
three retail centers, all of which ceased operations in the second quarter.

There are no material contingent liabilities, including environmental
liabilities or litigation, related to the closed retail centers.

3. INVENTORIES:

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

|                 |  |             |            |              |  |   |            | 
|---------------- |  | ----------- | ---------- | ------------ |  | - | ---------- | 
|                 |  | June 28,    |            | December 28,
|                 |  | 2002        |            | 2001        
|                 |  |             |            |             
|                 |  | (Unaudited) |            |              |  |  
|Raw materials    |  | $           | 3,905,000  |              |  | $ | 4,657,000  | 
|Work in progress |  |             | 642,000    |              |  |   | 592,000    | 
|Finished goods   |  |             | 10,981,000 |              |  |   | 14,390,000 | 
|                 |  |             |            |              |  |   |            | 
|                 |  | $           | 15,528,000 |              |  | $ | 19,639,000 | 
|                 |  |             |            |              |  |   |            | 

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4. EARNINGS PER SHARE:

Basic earnings per share (EPS) excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of
shares outstanding during the subject period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock are exercised or converted into common stock or result in the
issuance of common stock that will share in the earnings of the Company.

The following reconciliation details the numerators and denominators used to
calculate basic and diluted earnings per share for the respective periods:

|                                       |  |                      |            |                        |  |               |            |               |  |   |            |   |  |   |            |  
|-------------------------------------- |  | -------------------- | ---------- | ---------------------- |  | ------------- | ---------- | ------------- |  | - | ---------- | - |  | - | ---------- | -
|                                       |  | Thirteen Weeks Ended |            | Twenty-six Weeks Ended
|                                       |  |                      |            |                       
|                                       |  | June 28, 2002        |            | June 29, 2001          |  | June 28, 2002 |            | June 29, 2001
|                                       |  |                      |            |                        |  |               |            |              
|Net income (loss)                      |  | $                    | 255,000    |                        |  | $             | 125,000    |               |  | $ | (543,000   | ) |  | $ | (1,337,000 | )
|Average shares outstanding:            |  |                      |            |                        |  |               |            |               |  |   |            |   |  |   |            |  
|Basic                                  |  |                      | 12,133,865 |                        |  |               | 12,132,990 |               |  |   | 12,133,865 |   |  |   | 12,132,990 |  
|Add: dilutive effect of
options issued |  |                      | 280,046    |                        |  |               | 210,552    |               |  |   | 303,264    |   |  |   | 96,692     |  
|                                       |  |                      |            |                        |  |               |            |               |  |   |            |   |  |   |            |  
|Diluted                                |  |                      | 12,413,911 |                        |  |               | 12,343,542 |               |  |   | 12,437,129 |   |  |   | 12,229,682 |  
|Net income (loss) per
common share:    |  |                      |            |                        |  |               |            |               |  |   |            |   |  |   |            |  
|Basic                                  |  | $                    | 0.02       |                        |  | $             | 0.01       |               |  | $ | (0.04      | ) |  | $ | (0.11      | )
|Diluted                                |  | $                    | 0.02       |                        |  | $             | 0.01       |               |  | $ | (0.04      | ) |  | $ | (0.11      | )

Outstanding options to purchase 586,121 and 587,546 shares of common stock for
the twenty-six weeks and thirteen weeks ended June 28, 2002 and June 29, 2001,
respectively, were not included in the computation of diluted shares available
to common shareholders, as they were antidilutive.

5.     RECENT ACCOUNTING PRONOUNCEMENTS:

On December 29, 2001, the Company adopted SFAS No. 142, Goodwill and
Intangible Assets".SFAS No. 142 eliminates the amortization of goodwill and
requires that an impairment test be performed at least annually at the
reporting unit level, using a two step impairment test. The first step
determines if goodwill is impaired by comparing the fair value of the reporting
unit as a whole to the book value. If a deficiency exists, the second step
compares the amount of the impairment loss as the difference between the
implied fair value of goodwill and its carrying amount. Purchased intangibles
with indefinite economic lives will no longer be amortized but reviewed for
impairment annually. Other intangibles will continue to be amortized over their
useful lives and reviewed for impairment in accordance with SFAS No. 144,
"Accounting for the Impairment or disposal of Long-Lived Assets.

The impact of SFAS No. 142 on net loss and net loss per share had the standard
been in effect for the first quarter of 2001 would have been insignificant.

The Company has completed its transitional impairment test of goodwill under
the specific guidance of SFAS No. 142 and has concluded that goodwill is not
impaired

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS 143 requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the Company is required to
capitalize a cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement.
SFAS 143 will be effective for fiscal years beginning after June 15, 2002 and
will be adopted by the Company effective January 4, 2003. The Company is currently
assessing the impact of the adoption of SFAS 143.

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6. REPURCHASE AGREEMENTS:

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 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 independent dealer, to repurchase the homes at the Companys
original invoice price plus certain administrative and shipping expenses less
any principal payments made by the dealer. Repurchases were $344,000 and
$1,572,000 for the quarters ended June 28, 2002 and June 29, 2001,
respectively. Losses on repurchases were $194,000 and $224,000
for the quarters ended June 28, 2002 and June 29, 2001, respectively. At June
28, 2002, the Companys contingent repurchase liability under floor plan
financing arrangements was approximately $35 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.

7. LEGAL PROCEEDINGS:

The Company is a party to various legal proceedings incidental to its business.
The majority of these legal proceedings are claims related to warranty on
manufactured homes, or employment issues such as workers compensation claims.
Management believes that adequate reserves are maintained for such claims. 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.

8. SEGMENT AND RELATED INFORMATION:

The Company has four reportable segments: manufacturing, retail operations,
component supply and consumer financing. The manufacturing segment produces
manufactured homes for sale to independent and company-owned retail centers.
The retail operations segment sells homes to retail customers, which have been
produced by the Companys manufacturing segment and various other
manufacturers. The component supply segment sells various supply products to
the Companys manufacturing segment and to third party customers. The consumer
financing segment originated and serviced consumer loans primarily for homes
manufactured by the Company through February 1997. Wenco Finance has now
restricted its loan origination activities and engaged 21st Mortgage to service
its existing loan portfolio. Wenco 21, the Companys joint venture, continues
to offer consumer financing for homes manufactured by the Company, as well as
for other homes sold through its retail centers and independent dealers.

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on total (external and intersegment) revenues, gross profit, and segment
operating income. The Company accounts for intersegment sales and transfers as
if the sales or transfers were to third parties, at current market prices. The
Company does not allocate income taxes to its segments. The Companys
reportable segments are strategic business units that offer different products
and services. They are managed separately because each business requires
different operating and marketing strategies.

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The following table presents information about segment profit or loss
(dollars in thousands):

|                                         |                                            |                         |        |                      |        |                        |        |          |         |          |        |   |         |   |        |   |         |  
|---------------------------------------- | ------------------------------------------ | ----------------------- | ------ | -------------------- | ------ | ---------------------- | ------ | -------- | ------- | -------- | ------ | - | ------- | - | ------ | - | ------- | -
|                                         |                                            |                         |        | Thirteen Weeks Ended |        | Twenty-six Weeks Ended
|                                         |                                            |                         |        |                      |        |                       
|                                         |                                            |                         |        | June 29,             |        | June 30,               |        | June 29, |         | June 30,
|                                         |                                            |                         |        | 2001                 |        | 2000                   |        | 2001     |         | 2000    
|Revenues:                                |                                            |                         |        |                      |        |                        |        |          |         |          |        |   |         |   |        |  
|                                         |                                            | Manufacturing           |        | $                    | 39,118 |                        |        | $        | 36,547  |          |        | $ | 68,215  |   |        | $ | 65,471  |  
|                                         |                                            | Retail operations       |        |                      | 6,056  |                        |        |          | 10,254  |          |        |   | 12,862  |   |        |   | 23,625  |  
|                                         |                                            | Component supply        |        |                      | 6,758  |                        |        |          | 6,628   |          |        |   | 12,161  |   |        |   | 11,844  |  
|                                         |                                            | Consumer financing      |        |                      | 182    |                        |        |          | 281     |          |        |   | 519     |   |        |   | 585     |  
|                                         |                                            | Other                   |        |                      | 51     |                        |        |          | 1,321   |          |        |   | 138     |   |        |   | 2,760   |  
|                                         |                                            | Discontinued operations |        |                      | (543   | )                      |        |          | (2,415  | )        |        |   | (1,473  | ) |        |   | (5,382  | )
|                                         |                                            | Eliminations            |        |                      | (7,921 | )                      |        |          | (12,583 | )        |        |   | (14,028 | ) |        |   | (24,336 | )
|                                         |                                            |                         |        |                      |        |                        |        |          |         |          |        |   |         |   |        |  
|Total revenues                           |                                            | $                       | 43,701 |                      |        | $                      | 40,033 |          |         | $        | 78,394 |   |         | $ | 74,567 |  
|                                         |                                            |                         |        |                      |        |                        |        |          |         |          |        |   |         |   |        |  
|Gross profit:                            |                                            |                         |        |                      |        |                        |        |          |         |          |        |   |         |   |        |  
|                                         |                                            | Manufacturing           |        | $                    | 6,982  |                        |        | $        | 6,954   |          |        | $ | 11,705  |   |        | $ | 11,550  |  
|                                         |                                            | Retail operations       |        |                      | 1,456  |                        |        |          | 3,066   |          |        |   | 2,925   |   |        |   | 6,669   |  
|                                         |                                            | Component supply        |        |                      | 571    |                        |        |          | 622     |          |        |   | 1,081   |   |        |   | 1,096   |  
|                                         |                                            | Consumer financing      |        |                      | 81     |                        |        |          | 120     |          |        |   | 305     |   |        |   | 224     |  
|                                         |                                            | Other                   |        |                      | (166   | )                      |        |          | 764     |          |        |   | (363    | ) |        |   | 1,434   |  
|                                         |                                            | Discontinued operations |        |                      | 61     |                        |        |          | (277    | )        |        |   | 21      |   |        |   | (816    | )
|                                         |                                            | Eliminations            |        |                      | 138    |                        |        |          | (1,973  | )        |        |   | 511     |   |        |   | (3,249  | )
|                                         |                                            |                         |        |                      |        |                        |        |          |         |          |        |   |         |   |        |  
|Gross profit                             |                                            | $                       | 9,123  |                      |        | $                      | 9,276  |          |         | $        | 16,185 |   |         | $ | 16,908 |  
|                                         |                                            |                         |        |                      |        |                        |        |          |         |          |        |   |         |   |        |  
|Segment operating income (loss):         |                                            |                         |        |                      |        |                        |        |          |         |          |        |   |         |   |        |  
|                                         |                                            | Manufacturing           |        | $                    | 2,157  |                        |        | $        | 2,405   |          |        | $ | 2,840   |   |        | $ | 3,031   |  
|                                         |                                            | Retail operations       |        |                      | (679   | )                      |        |          | (877    | )        |        |   | (1,484  | ) |        |   | (1,579  | )
|                                         |                                            | Component supply        |        |                      | 427    |                        |        |          | 367     |          |        |   | 733     |   |        |   | 576     |  
|                                         |                                            | Consumer financing      |        |                      | (199   | )                      |        |          | 117     |          |        |   | (330    | ) |        |   | 63      |  
|                                         |                                            | Other                   |        |                      | 145    |                        |        |          | (250    | )        |        |   | 569     |   |        |   | (186    | )
|                                         |                                            |                         |        |                      |        |                        |        |          |         |          |        |   |         |   |        |  
|Segment operating income (loss)          |                                            |                         | 1,851  |                      |        |                        | 1,762  |          |         |          | 2,328  |   |         |   | 1,905  |  
|                                         | Income/expenses not allocated to segments: |                         |        |                      |        |                        |        |          |         |          |        |   |         |   |        |   |        
|                                         |                                            | Corporate               |        |                      | (966   | )                      |        |          | (1,366  | )        |        |   | (1,965  | ) |        |   | (2,925  | )
|                                         |                                            |                         |        |                      |        |                        |        |          |         |          |        |   |         |   |        |  
|Income (loss) from continuing operations |                                            | $                       | 885    |                      |        | $                      | 396    |          |         | $        | 363    |   |         | $ | (1,020 | )
|                                         |                                            |                         |        |                      |        |                        |        |          |         |          |        |   |         |   |        |  

Revenue from segments below the quantitative thresholds are attributable to two
other operating segments of the Company which include a trucking business
(closed in July 2001) and a small insurance business. These segments have
never met the quantitative thresholds for determining reportable segments.

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Item 2.

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

GENERAL

While the Company is still experiencing the negative economic factors
influencing financial performance of the entire manufactured housing industry
since approximately 1998, it has taken a number of steps that have been
effective in implementing its plans to decrease costs and improve efficiency
and quality. In 2000 and 2001, these steps included closing less efficient
manufacturing facilities, consolidating divisions, and selling unprofitable
retail centers, as well as improving efficiency in the remaining manufacturing
plants, lowering labor costs and turnover, decreasing plant injuries, and
lowering warranty expenses by improved quality.

During the second quarter of fiscal 2002, weak market conditions continued,
with more restrictive retail financing conditions for consumers, and slow
retail sales.

DISCONTINUED OPERATIONS

During the second quarter of 2002, the Company decided to close three retail
centers. The decision was based primarily on losses incurred at these centers
over the previous several months. In connection with the decision to close
these retail centers, the Company recognized a loss on discontinued operations
of $630,000 during the second quarter ($0.05 per share) consisting of operating
losses during the quarter, exit costs associated with rental commitments, and
write-down of leasehold improvements. The Company has classified the historical
operating results of the three retail centers as discontinued operations in the
accompanying statements of operations for all periods presented. Accordingly,
the comparative interim statements of operations for the thirteen and
twenty-six week periods ended June 29, 2001 differ from the amounts previously
reported in Forms 10-Q filed in 2001.

RESULTS OF OPERATIONS

Twenty-six weeks and thirteen weeks ended June 28, 2002 as compared with
twenty-six weeks and thirteen weeks ended June 29, 2001.

Net Revenues

Total net revenues (consisting of gross sales less volume discounts, returns
and allowances) for the twenty-six weeks ended June 28, 2002 were $78.4
million, as compared with $74.6 million in the prior year period. For the
thirteen weeks ended June 28, 2002, total net revenues were $43.7 million, as
compared with $40.0 million for the comparable period a year ago.

Net revenues from wholesale sales of manufactured homes were $68.2 million
(including intersegment revenues of $3.4 million) for the twenty-six weeks
ended June 28, 2002, as compared with $65.5 million (including intersegment
revenues of $11.9 million) for the prior year period, an increase of 4.1%. The
increase in sales to dealers was primarily attributable to increased sales
prices due to increased material prices. Total homes shipped for the twenty-six
weeks ended June 28, 2002 was 2,190, down slightly from the 2,193 homes shipped
in the prior year period. The average wholesale price per home for the
twenty-six weeks ended June 28, 2002 was $29,376, as compared with $28,068 in
the prior year period, an increase of 4.7%. For the thirteen weeks ended June
28, 2002, net revenues from the wholesale sale of manufactured homes were $39.1
million (including intersegment revenues of $1.9 million), as compared with
$36.5 million (including intersegment revenues of $5.7 million) for the prior
year period, an increase of 7.1%. The increase in sales to dealers during the
thirteen-week period was also primarily attributable to increased sales prices
due to increased material prices and fewer repurchases in the second quarter of
2002 compared to the second quarter of 2001. Total homes shipped for the
thirteen weeks ended June 28, 2002 was 1,233, up 6.2% from the number of homes
shipped in the prior year period. The average wholesale price per home for the
thirteen weeks ended June 28, 2002 was $29,931, as compared with $29,452 in the
prior year period, an increase of 1.6%.

Net revenues from retail sales of manufactured homes were $12.9 million for the
twenty-six weeks ended June 28, 2002, as compared with $23.6 million for the
prior year period, a decrease of 45.3%. Total retail

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homes sold for the twenty-six weeks ended June 28, 2002 was 344, down 44.5% from the number of
homes sold in the prior year period. The decline in retail sales was primarily
attributable to increased competition and the fact that the Company operated
seven fewer retail centers during the twenty-six weeks ended June 28, 2002
compared to the retail centers that were open during all or part of the same
period in the prior year. The decline in retail revenues was offset slightly by
an increase in the average retail price per home sold. The average retail price
per home sold during the twenty-six weeks ended June 28, 2002 was $48,301, as
compared with $45,619 in the prior year period, an increase of 5.8%. For the
thirteen weeks ended June 28, 2002, net revenues from the retail sale of
manufactured homes were $6.1 million, as compared with $10.3 million for the
prior year period, a decrease of 40.8%. Total retail homes sold for the
thirteen weeks ended June 28, 2002 was 145, down 47.8% from the number of homes
sold in the prior year period. The decline in retail sales was primarily
attributable to increased competition and the Companys operation of seven
fewer retail centers during the quarter ended June 28, 2002 compared to the
prior year period. The decline in retail revenues was offset slightly by an
increase in the average retail price per home sold. The average retail price
per home sold during the thirteen weeks ended June 28, 2002 was $50,413, as
compared with $44,423 in the prior year period, an increase of 13.5%.

Net revenues from the component supply segment were $12.2 million (including
intersegment revenues of $10.8 million) for the twenty-six weeks ended June 28,
2002, as compared with $11.8 million (including intersegment revenues of $10.2
million) for the prior year period, an increase of 3.4%. The increase in
supply sales was primarily attributable to the increase in intersegment sales
to the manufacturing segment. For the thirteen weeks ended June 28, 2002, net
revenues from the component supply segment were $6.8 million (including
intersegment revenues of $6.1 million), as compared with $6.6 million
(including intersegment revenues of $5.7 million) for the prior year period, an
increase of 3.0%. The increase in supply sales was primarily attributable to
the increase in intersegment sales to the manufacturing segment.

Revenues from the retail finance subsidiary were $519,000 and $182,000,
respectively, for the twenty-six weeks and thirteen weeks ended June 28, 2002,
as compared with revenues of $585,000 and $281,000 for the comparable prior
year periods.

Gross Profit

Gross profit consists of net revenues less the cost of sales, which includes
labor, materials, and overhead. Gross profit for the twenty-six weeks ended
June 28, 2002 was $16.2 million, or 20.6% of net revenues, as compared with
$16.9 million, or 22.7% of net revenues, in the prior year period. This decline
in the gross profit percentage was attributable primarily to higher material
prices, and labor costs, offset slightly by lower warranty expenses. For the
thirteen weeks ended June 28, 2002, gross profit was $9.1 million, or 20.9% of
net revenues, as compared with $9.3 million, or 23.2% of net revenues, in the
prior year period. This decline in the gross profit percentage was attributable
primarily to higher material and labor costs, offset slightly by lower warranty
expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include primarily sales
commissions, advertising expenses, freight costs, salaries for support
personnel, administrative compensation, executive and management bonuses,
insurance costs, and professional fees. Selling, general and administrative
expenses were $15.3 million, or 19.6% of net revenues, during the twenty-six
weeks ended June 28, 2002, as compared with $16.8 million, or 22.6% of net
revenues, for the same period of the prior year. For the thirteen weeks ended
June 28, 2002, selling, general and administrative expenses were $8.0 million,
or 18.3% of net revenues, as compared with $8.4 million, or 20.9% of net
revenues, for the same period of the prior year. The decline in selling,
general and administrative expenses as a percentage of sales was attributable
primarily to lower dealer interest payments, lower freight expenses due to
lower fuel prices, lower legal expenses and lower administrative salaries,
offset slightly by higher insurance costs.

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Interest Expense

Interest expense for the twenty-six weeks ended June 28, 2002 was $595,000, as
compared with $1.2 million in the prior year period. For the thirteen weeks
ended June 28, 2002, interest expense was $270,000, as compared with $501,000
in the prior year period. The decrease in interest expense in the current
quarter was a result of lower interest rates and lower borrowings on the credit
line.

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. Because the
Company has operated at a loss in recent fiscal years, management believes that
under the provisions of SFAS No. 109, it is no longer appropriate to record
deferred income tax benefits on current losses in excess of anticipated refunds
of taxes previously paid. The Company has established valuation allowances
against the tax benefits of substantially all its net operating loss carry
forwards and deductible temporary differences between financial and taxable
income. Because of the valuation allowance, the Company does not expect to
record a tax provision in 2002. Therefore, no income tax benefits were
recorded for the quarters ended June 28, 2002 and June 29, 2001.

In March 2002, Congress passed an economic stimulus bill containing certain
temporary business tax incentives. The tax provisions in the stimulus bill
will extend the net operating loss (NOL) carryback period to five years for
NOLs arising in tax years ending in 2001 and 2002, and allow use of NOL
carrybacks and carryforwards to offset 100 percent of alternative minimum
taxable income (AMTI). These NOL carryback provisions will allow the Company
to carry its 2001 loss back to 1996 and the years following. With this change,
there is sufficient taxable income to offset all of the NOL generated in 2001.

In addition, net operating losses, if any, up to $19.7 million in 2002 could be
carried back to prior years, which could produce a maximum federal income tax
refund of approximately $6.8 million. Management cannot predict at this time
whether any such refund will ultimately be claimed. Realization of such refund
would depend, among other things, on whether the Company has a net operating
loss in 2002. Although we do not currently expect to recognize an operating
loss in 2002, other factors, including the pattern of temporary differences, or
operating results for the full year, and the implementation of tax strategies,
could impact whether we ultimately realize a tax benefit from a carry back
refund.

The bill also allows an additional first-year depreciation deduction equal to
30 percent of the adjusted basis of qualified property acquired after September
10, 2001, and before September 11, 2004, and placed in service before 2005
(2006 for certain property with recovery period of 10 years or longer and
certain transportation property). Qualified property includes MACRS property
with a recovery period of 20 years or less, computer software, water utility
property and leasehold improvement property.

LIQUIDITY AND CAPITAL RESOURCES

During the twenty-six weeks ended June 28, 2002, cash provided by operations
was approximately $3.4 million, a decrease of $2.7 million, as compared to the
prior year period.

In the comparable 2001 period, the Company received $4.7 million in tax
refunds. Excluding the impact of tax refunds, cash flow from operations were up
$2 million versus the prior year, principally related to the decrease in net
loss and accelerated collections on installment loans. In addition, during the
twenty-six weeks ended June 28, 2002, the normal seasonal build-up in accounts
receivable was less than in the same period of 2001 as a result of the retail
revenue recognition policy change in the fourth quarter of 2001. The overall
improvement in operating cash flows in 2002 also reflected favorable inventory
reduction which declined $4.1 million versus $2.4 million in 2001 as a result
of managements focus on increasing inventory turns and fewer retail locations.

Cash flows provided by investing activities were $1 million in the twenty-six
weeks ended June 28, 2002 versus $87,000 in the comparable 2001 period. During
the second quarter of 2002, the Company sold its equity interest in Ridge
Pointe Manufacturing, L.L.C.

The Company used cash flows from operations and proceeds from the sale of the
equity interest in Ridge Pointe Manufacturing, L.L.C. to reduce outstanding
credit. In the comparable period in 2001, the Company

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reduced its overall
borrowings by $11.1 million and incurred $1.1 million in debt issuance costs
related to the establishment of the bank line.

At June 28, 2002, outstanding borrowings under the $40 million secured bank
line were $6.3 million and availability on the line, which is dependent upon
meeting certain financial ratios and covenants, was $17.5 million. The line of
credit matures on March 8, 2004. Management believes that operating cash flows,
together with borrowing capacity under the line, will provide the Company with
adequate liquidity and capital resources through the remaining term of the bank
line.

At June 28, 2002, the Company had cash of $172,000, compared to $354,000 at
December 28, 2001. At June 28, 2002, the Companys net working capital was
$5.6 million, an increase of $3.2 million compared to $2.4 million at December
28, 2001. The increase in net working capital was primarily due to operating
cash flows and the sale of the Companys equity interest in Ridge Pointe
Manufacturing, L.L.C., the proceeds from which were used to repay short-term
borrowings.

There are no material commitments for capital expenditures for the remainder of
fiscal 2002 and the Company does not currently plan to make any material
capital expenditures during the next twelve months.

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 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 independent dealer, to repurchase the homes at the Companys
original invoice price plus certain administrative and shipping expenses less
any principal payments made by the dealer. Repurchases were $344,000 and
$1,573,000 for the quarters ended June 28, 2002 and June 29, 2001,
respectively. Losses on repurchases were $194,000 and $224,000 for the
quarters ended June 28, 2002 and June 29, 2001, respectively. At June 28,
2002, the Companys contingent repurchase liability under floor plan financing
arrangements was approximately $35 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.

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.




Item 3.

The following discussion about the Companys interest rate risk includes
forward looking statements that involve risks and uncertainties. Actual
results could differ materially from those projected in the forward looking
statements.

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Quantitative and Qualitative Disclosures of Market Risk.

Historically the Company has not entered into derivatives contracts to either
hedge existing risk or for speculative purposes. The Company also does not and
has not entered into contracts involving derivative financial instruments or
derivative commodity instruments. Pertinent provisions of Regulation S-K call
for disclosures to clarify exposures to market risk associated with activities
in derivative financial instruments, other financial instruments and derivative
commodity instruments. The Regulation defines other financial instruments to
include trade accounts receivable, loans and structured notes. The Company
does not utilize derivative instruments to manage such risks. The Companys
principal credit agreement bears a floating interest rate of 1.0% over prime.
Accordingly, the Company is subject to market risk associated with changes in
interest rates. At June 28, 2002, $6.2 million was outstanding under the
credit agreement. As of June 29, 2001, the principal amount outstanding under
the credit agreement was $15.8 million. Assuming that amount outstanding, a 1%
increase in the applicable interest rate during 2002 would result in additional
interest expense of approximately $62,000 per annum, which would reduce cash
flow and pre-tax earnings dollar for dollar. With respect to accounts
receivable, most of the Companys sales of manufactured homes are pre-sold,
such that orders exist before construction begins. When manufactured homes are
sold to dealers as inventory, such homes are paid for by dealers floor plan
financing, such that funds ordinarily transfer to the Company from the dealers
floor plan lender within 21 days. Management thus does not perceive that the
Company is subject to a material market risk with respect to its accounts
receivable.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 Forward-looking statements in this Annual Report on Form 10-K,
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, which could
cause actual results to differ materially from those in any forward looking
statements, including without limitation: general economic conditions; the
cyclical and seasonal nature of housing markets; competitive pricing pressures
at both the wholesale and retail levels; changes in market demand; recent
management changes; the impact of cost reduction programs and other management
initiatives; availability of financing for prospective purchasers of the
Companys homes and availability of floor plan financing for dealers;
performance of the loans held by the Companys finance subsidiary;
availability and pricing of raw materials; concentration of the Companys
business in certain regional markets; adverse weather conditions that reduce
retail sales; the possibility of plant shutdowns from weather or other causes;
availability of labor for the Company to meet operating requirements; 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.

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PART II  OTHER INFORMATION




Item 1. Legal Proceedings

The Company is a party to various legal proceedings incidental to its business.
The majority of these legal proceedings are claims related to warranty on
manufactured homes, or employment issues such as workers compensation claims.
Management believes that adequate reserves are maintained for such claims. 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 4. Submission of Matters to a Vote of Security Holders



| | (a) |  | The Registrants regular Annual Meeting of Stockholders was
held on May 21, 2002. Proxies for the Annual Meeting were solicited
pursuant to Regulation 14 under the Act.                                                                                                                                                                                                                                            
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | There was no solicitation in opposition to managements
nominees for directors as listed in the proxy statement, and all of
such nominees were elected.                                                                                                                                                                                                                                                             
|
| | (c) |  | At the Annual Meeting three proposals were considered and
voted upon: the election of directors, a proposal to amend the
certificate of incorporation so that the Corporation would be
subject to the Delaware anti-takeover statue concerning business
combinations with interested stockholders, and a proposal to approve
the 2002 incentive award plan. The numbers of votes cast on each
matter are as follows:

Election of Directors:

|                        |  |     |            |         |  |          |   |           |  |  |         |  |  |  |   | 
|----------------------- |  | --- | ---------- | ------- |  | -------- | - | --------- |  |  | ------- |  |  |  | - | 
|                        |  |     |            |         |  |          |   | Broker   
|                        |  | For |            | Against |  | Withheld |   | Non-Votes
|                        |  |     |            |         |  |          |   |          
|Wendell L. Batchelor    |  |     | 10,627,714 |         |  |          | 0 |           |  |  | 838,870 |  |  |  | 0 | 
|Keith W. Brown          |  |     | 10,637,914 |         |  |          | 0 |           |  |  | 828,670 |  |  |  | 0 | 
|Louis C. Henderson, Jr. |  |     | 10,631,964 |         |  |          | 0 |           |  |  | 834,620 |  |  |  | 0 | 
|Keith O. Holdbrooks     |  |     | 10,625,014 |         |  |          | 0 |           |  |  | 841,570 |  |  |  | 0 | 
|Clinton O. Holdbrooks   |  |     | 10,636,464 |         |  |          | 0 |           |  |  | 830,120 |  |  |  | 0 | 
|Johnny R. Long          |  |     | 10,640,464 |         |  |          | 0 |           |  |  | 826,120 |  |  |  | 0 | 
|A.C. (Del) Marsh        |  |     | 10,636,464 |         |  |          | 0 |           |  |  | 830,120 |  |  |  | 0 | 
|James A. Taylor         |  |     | 10,636,364 |         |  |          | 0 |           |  |  | 830,220 |  |  |  | 0 | 

|                                                                                                                                                                                             |  |     |           |         |  |         |           |                 |  |  |        |  |  |  |           | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --- | --------- | ------- |  | ------- | --------- | --------------- |  |  | ------ |  |  |  | --------- | 
|Proposal to amend the certificate of incorporation so that the Corporation will be subject to the
Delaware anti-takeover statue concerning businesscombinations with interested stockholders |  | For |           | Against |  | Abstain |           | BrokerNon-Votes | 
|                                                                                                                                                                                             |  |     |           |         |  |         |           |                 | 
|                                                                                                                                                                                             |  |     | 5,300,702 |         |  |         | 3,080,775 |                 |  |  | 16,731 |  |  |  | 3,068,376 | 

|                                                  |  |     |           |         |  |         |           |                 |  |  |        |  |  |  |           | 
|------------------------------------------------- |  | --- | --------- | ------- |  | ------- | --------- | --------------- |  |  | ------ |  |  |  | --------- | 
|Proposal to approve the 2002 incentive award plan |  | For |           | Against |  | Abstain |           | BrokerNon-Votes
|                                                  |  |     |           |         |  |         |           |                
|                                                  |  |     | 6,739,269 |         |  |         | 1,607,858 |                 |  |  | 51,081 |  |  |  | 3,068,376 | 

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Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

The following exhibits including items incorporated by reference are filed
as a part of this report.

|    |  |                                                                                                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|3.1 |  | Certificate of Incorporation of the Company, as amended (filed as
Exhibit 3.1 to the Registration Statement on Form S-3, Registration
No. 333-32933)
|   
|3.2 |  | By-Laws of the Company. (Filed as Exhibit 3.2 to the Registration
Statement on Form S-1, Registration No. 33-57420.)                                

(b)  Reports on Form 8-K

During the quarter covered by this report, the Company filed a report on
Form 8-K, dated April 16, 2002, stating that the Company had determined not to
renew the engagement of Arthur Andersen LLP as the Companys independent public
accountants, and had engaged Ernst & Young LLP to serve as the Companys
independent public accountants for the fiscal year ending January 3, 2003.

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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: August 12, 2002 |  | By: /s/ Keith O. Holdbrooks
Keith O. Holdbrooks, Chief Executive Officer
|                     
|Date: August 12, 2002 |  | By: /s/ James A. Hasty
James A. Hasty, Chief Accounting Officer         

17