##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      FORM 10-Q/A
 (Amendment No. 1)
  (Mark One)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    June 30, 2006ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number 0-07477
      The Enstar Group,
    Inc.
 (Exact name of registrant as
    specified in its charter)
  Georgia

63-0590560(State or other jurisdiction
    of

(I.R.S. Employerincorporation or
    organization)

Identification
    No.)   401
    Madison Avenue
    Montgomery, Alabama 36104 (Address
    of principal executive offices) (334) 834-5483 (Registrants
    telephone number, including area code)
  þ o
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ




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##### Table of Contents



EXPLANATORY
    NOTE
  Form 10-Q/A Form 10-Q/A) Form 10-Q 10-Q
  Form 10-Q/A Form 10-Q/A 10-Q Form 10-Q/A 10-Q




---



TABLE OF CONTENTS  PART I FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskPART II OTHER INFORMATIONItem 6. ExhibitsEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO    Table of Contents    THIS
    FORM 10-Q/A
    AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY THE
    ENSTAR GROUP, INC. OR MEMBERS OF ITS MANAGEMENT TEAM CONTAIN
    STATEMENTS WHICH MAY CONSTITUTE FORWARD-LOOKING
    STATEMENTS WITHIN THE MEANING OF THE SECURITIES ACT OF
    1933, AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY THE
    PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995,
    15 U.S.C.A.
    SECTIONS 77Z-2
    AND 78U-5 (SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS
    REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE
    ENSTAR GROUP, INC. AND MEMBERS OF ITS MANAGEMENT TEAM, AS WELL
    AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED.
    PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH
    FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
    PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL
    RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
    FORWARD-LOOKING STATEMENTS. THERE ARE A NUMBER OF IMPORTANT
    FACTORS THAT COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY
    FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. THESE
    FACTORS INCLUDE, WITHOUT LIMITATION, THOSE SET FORTH IN
    ITEM 1A. RISK FACTORS TO THE ENSTAR GROUP, INC.
    ANNUAL REPORT ON
    FORM 10-K/A
    FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005. THE ENSTAR
    GROUP, INC. UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE
    FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS, THE
    OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE
    OPERATING RESULTS OVER TIME.
 i




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##### Table of Contents



PART I
  FINANCIAL
    INFORMATION
 
  Item 1.
    Financial
    Statements  THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  CONDENSED CONSOLIDATED BALANCE SHEETS
  June 30,


December 31,2006


2005(Dollars in thousands) (Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
75,570


$
54,032Certificates of deposit


20,129



19,686Other current assets


120



129Total current assets


95,819



73,847Partially owned equity affiliates


96,041



107,329Other investments


3,486



3,542Other assets


508



502Total assets

$
195,854


$
185,220LIABILITIES AND
    SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued
    liabilities

$
2,605


$
595Income taxes payable


4,165



5,467Total current liabilities


6,770



6,062Deferred income tax liabilities


8,213



10,401Accrued taxes


2,125



2,325Deferred compensation


959



853Other liabilities


463



456Total liabilities


18,530



20,097Commitments and contingencies
    (Note 6)Shareholders equity:Common stock ($.01 par value;
    55,000,000 shares authorized, 6,185,260 and
    5,960,260 shares issued at June 30, 2006 and
    December 31, 2005, respectively)


62



60Additional paid-in capital


198,198



189,968Accumulated other comprehensive
    income of partially owned equity affiliates, net


614



210Accumulated deficit


(15,470
)


(19,305
)Treasury stock, at cost (445,876
    and 442,351 shares at June 30, 2006 and
    December 31, 2005, respectively)


(6,080
)


(5,810
)Total shareholders equity


177,324



165,123Total liabilities and
    shareholders equity

$
195,854


$
185,220    1




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
  Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005(Dollars in thousands, except per share data)(Unaudited)Interest income

$
1,067


$
561


$
1,849


$
1,043Other investment income






604



199



604Earnings of partially owned equity
    affiliates


4,125



1,046



6,755



1,311Other income (includes related
    party income of $100, $100, $200 and $200, respectively)


106



101



209



201General and administrative expenses


(2,933
)


(861
)


(3,500
)


(1,641
)Income before income taxes and
    extraordinary gain


2,365



1,451



5,512



1,518Income taxes


(1,233
)


(655
)


(2,552
)


(683
)Income before extraordinary gain


1,132



796



2,960



835Extraordinary gain, net of income
    taxes of $543










875



Net income

$
1,132


$
796


$
3,835


$
835Weighted average shares
    outstanding  basic


5,604,110



5,517,909



5,561,247



5,517,909Weighted average shares
    outstanding  assuming dilution


5,930,382



5,845,621



5,906,240



5,847,330Income per common share before
    extraordinary gain  basic

$
0.20


$
0.14


$
0.53


$
0.15Extraordinary gain, net of income
    taxes  basic










0.16



Net income per common
    share  basic

$
0.20


$
0.14


$
0.69


$
0.15Income per common share before
    extraordinary gain  assuming dilution

$
0.19


$
0.14


$
0.50


$
0.14Extraordinary gain, net of income
    taxes  assuming dilution










0.15



Net income per common
    share  assuming dilution

$
0.19


$
0.14


$
0.65


$
0.14    2




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
  Three Months


Six MonthsEnded June 30,


Ended June 30,2006


2005


2006


2005(Dollars in thousands)(Unaudited)Net income

$
1,132


$
796


$
3,835


$
835Other comprehensive income (loss):Unrealized holding gains on
    investments, net of income tax expense of $185, $487, $170 and
    $424


299



785



275



684Reclassification adjustment for
    losses (gains) included in net income, net of income tax
    (benefit) expense of $(10), $75, $(10) and $13


15



(122
)


15



(21
)Currency translation adjustment,
    net of income tax expense (benefit) of $60, $(60), $71 and $(75)


97



(97
)


114



(121
)Other comprehensive income


411



566



404



542Comprehensive income

$
1,543


$
1,362


$
4,239


$
1,377    3




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  Six Months EndedJune 30,2006


2005(Dollars in thousands)(Unaudited)Cash flows from operating
    activities:Net income

$
3,835


$
835Adjustments to reconcile net
    income to net cash used in operating activities:Earnings of partially owned equity
    affiliates


(6,755
)


(1,311
)Dividends and distributions
    received from partially owned equity affiliates


20,158



Extraordinary gain, net of income
    taxes


(875
)


Noncash compensation expense


112



Gain on sale of marketable
    securities






(604
)Deferred income taxes


(3,182
)


57Tax benefit from exercise of stock
    options


(5,694
)


Changes in assets and liabilities:Accounts payable and accrued
    expenses


2,010



(339
)Income taxes payable


4,392



(428
)Other, net


67



132Net cash provided by (used in)
    operating activities


14,068



(1,658
)Cash flows from investing
    activities:Purchase of marketable securities






(9,460
)Proceeds from sale of marketable
    securities






4,374Return of capital from NIB Partners


56



Purchases of certificates of
    deposit


(47,275
)


(4,084
)Maturities of certificates of
    deposit


46,879



4,048Net cash used in investing
    activities


(340
)


(5,122
)Cash flows from financing
    activities:Tax benefit from exercise of stock
    options


5,694



Proceeds from exercise of stock
    options


2,116



Net cash provided by financing
    activities


7,810



Increase (decrease) in cash and
    cash equivalents


21,538



(6,780
)Cash and cash equivalents at the
    beginning of the period


54,032



81,675Cash and cash equivalents at the
    end of the period

$
75,570


$
74,895Supplemental disclosures of cash
    flow information:Income taxes paid

$
842


$
1,072Supplemental disclosures of
    noncash investing activities:Accrued initial capital
    contribution to Affirmative Investment LLC

$



$
2,688Supplemental disclosures of
    noncash financing activities:Receipt of treasury stock from
    exercise of stock options

$
270


$
    4




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Note 1:
    General        Form 10-K/A
  Note 2:
    Restatement
    of Financial Statements      Note 3:
    Significant
    Accounting Policies  Principles of Consolidation
 5




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Use of Estimates
  Cash Equivalents
  Partially Owned Equity Affiliates
  Comprehensive Income
    June 30,


December 31,2006


2005Currency translation adjustment,
    net of income tax expense of $202 and $130

$
324


$
210Unrealized holding gains, net of
    income tax expense of $180


290



Total accumulated other
    comprehensive income

$
614


$
210   Revenue Recognition
  Stock-Based Compensation
   6




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Three Months


Six MonthsEnded


EndedJune 30, 2005(Dollars in thousands, except per share data)(Unaudited)Net income, as reported

$
796


$
835Add: Stock-based employee
    compensation expense included in reported net income, net of
    income taxes


37



58Deduct: Total stock-based employee
    compensation expense determined under fair value based method
    for all awards, net of income taxes


(100
)


(178
)Pro forma net income

$
733


$
715Income per common share:Basic  as reported

$
0.14


$
0.15Basic  pro forma

$
0.13


$
0.13Assuming dilution  as
    reported

$
0.14


$
0.14Assuming dilution  pro
    forma

$
0.13


$
0.12    7




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   No. 00-23,
      Three Months


Six MonthsEnded


EndedJune 30, 2006Increase (Decrease)General and administrative expenses

$
50


$
112Income before income taxes and
    extraordinary gain


(50
)


(112
)Income taxes


(26
)


(52
)Net income


(24
)


(60
)Net income per common
    share  basic


(.00
)


(.01
)Net income per common
    share  assuming dilution


(.00
)


(.01
)       Weighted-AverageWeighted-


Remaining


AggregateAverage


Contractual


IntrinsicExercise


Term (in


Value (inOptions

Shares


Price


years)


thousands)Outstanding at December 31,
    2005


725,000


$
20.47Outstanding at March 31, 2006


725,000



20.47



4.20


$
50,220Exercisable at March 31, 2006


640,000



17.74



3.76



46,081Vested during the three month
    period ended June 30, 2006


5,000



57.81



8.77Exercised during the three months
    ended June 30, 2006


225,000



10.60







14,795Outstanding at June 30, 2006


500,000



24.91



5.50



33,639Exercisable at June 30, 2006


420,000



22.04



5.18



29,464Vested or expected to vest at
    June 30, 2006


500,000



24.91    8




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       Unrecognized compensation

$
189,000Weighted average period of
    expected recognition (in years)


.73   Note 4:
    Partially
    Owned Equity Affiliates  B.H.
    Acquisition
    Castlewood
    Holdings Limited
             9




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    1 3
           10




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Affirmative
    Investment LLC
     11




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Summarized
    Financial Information
    June 30, 2006B.H.


Castlewood


AffirmativeAcquisition


Holdings


Investment(Dollars in thousands)Total assets

$
103,613


$
1,483,539


$
61,188Total liabilities


64,184



1,164,567



Minority interest






61,212



Total equity


39,429



257,760



61,188   December 31, 2005B.H.


Castlewood


AffirmativeAcquisition


Holdings


Investment(Dollars in thousands)Total assets

$
105,578


$
1,199,963


$
60,199Total liabilities


66,733



898,513



Minority interest






40,544



Total equity


38,845



260,906



60,199   Three Months Ended June 30, 2006B.H.


Castlewood


AffirmativeAcquisition


Holdings


Investment(Restated)


(Restated)(Dollars in thousands)Revenue





$
5,251Operating income

$
336



16,119


$
1,502Net income


336



11,877



1,502   12




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Six Months Ended June 30, 2006B.H.


Castlewood


AffirmativeAcquisition


Holdings


Investment(Restated)


(Restated)(Dollars in thousands)Revenue





$
11,600Operating income

$
584



23,968


$
1,146Net income


584



24,187



1,146   Three Months Ended June 30, 2005B.H.


CastlewoodAcquisition


Holdings(Restated)


(Restated)(Dollars in thousands)Revenue





$
3,857Operating income

$
70



3,868Net income


70



3,137   Six Months EndedJune 30, 2005B.H.


CastlewoodAcquisition


Holdings(Restated)


(Restated)(Dollars in thousands)Revenue





$
8,345Operating income (loss)

$
(71
)


6,320Net income (loss)


(71
)


4,081     Note 5:
    Other
    Investments      Note 6:
    Commitments
    and Contingencies  month-to-month
 13




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Note 7:
    Stock
    Compensation    Note 8:
    Income
    Taxes          Note 9:
    Segment
    Information   14




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        June 30, 2006B.H.


Castlewood


AffirmativeCorporate


Acquisition


Holdings


Investment


Total(Dollars in thousands)Total reportable segment assets:Partially owned equity affiliates





$
13,099


$
74,288


$
8,654


$
96,041Corporate assets

$
99,813















99,813Total

$
99,813


$
13,099


$
74,288


$
8,654


$
195,854   December 31, 2005B.H.


Castlewood


AffirmativeCorporate


Acquisition


Holdings


Investment


Total(Dollars in thousands)Total reportable segment assets:Partially owned equity affiliates





$
12,906


$
85,908


$
8,515


$
107,329Corporate assets

$
77,891















77,891Total

$
77,891


$
12,906


$
85,908


$
8,515


$
185,220   15




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Three Months Ended June 30, 2006B.H.


Castlewood


AffirmativeCorporate


Acquisition


Holdings


Investment


Total(Restated)


(Restated)(Dollars in thousands)Revenue









$
5,251Net investment income





$
949



11,066Interest income

$
1,067Net (increase) reduction in loss
    and loss adjustment expense liabilities






(336
)


4,323General and administrative expenses


(2,933
)


(592
)


(11,486
)Amortization of run-off provision






250Interest expense










(532
)Other income


106Foreign exchange gain






65



7,497Share of net income of
    partly-owned companies










151


$
1,502Income (loss) before income taxes


(1,760
)


336



16,270



1,502Income tax (expense) benefit


(1,233
)






581Minority interest










(4,974
)Net income (loss)

$
(2,993
)

$
336


$
11,877


$
1,502Companys economic ownership %






33
%


32.03
%


14
%Earnings of partially owned equity
    affiliates





$
111


$
3,804


$
210


$
4,125   16




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Six Months Ended June 30, 2006B.H.


Castlewood


AffirmativeCorporate


Acquisition


Holdings


Investment


Total(Restated)


(Restated)(Dollars in thousands)Revenue









$
11,600Net investment income

$
1,849


$
1,829



20,726Interest income


199Net (increase) reduction in loss
    and loss adjustment expense liabilities






(673
)


6,780General and administrative expenses


(3,500
)


(1,153
)


(22,573
)Amortization of run-off provision






500Interest expense










(532
)Other income


209Foreign exchange gain






81



7,967Share of net income of
    partly-owned companies










263


$
1,146Income (loss) before income taxes


(1,243
)


584



24,231



1,146Income tax (expense) benefit


(3,095
)






795Minority interest










(5,186
)Income (loss) before extraordinary
    gain


(4,338
)


584



19,840



1,146Extraordinary gain, net of
    minority interest










4,347Net income (loss)

$
(4,338
)

$
584


$
24,187


$
1,146Companys economic ownership %






33
%


32.33
%


14
%7,820Companys portion of pre-tax
    extraordinary gain










(1,418
)Earnings of partially owned equity
    affiliates





$
193


$
6,402


$
160


$
6,755     17




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Three Months Ended June 30, 2005B.H.


CastlewoodCorporate


Acquisition


Holdings


Total(Restated)


(Restated)(Dollars in thousands)Revenue









$
3,857Net investment income

$
604


$
555



8,255Interest income


561Net (increase) reduction in loss
    and loss adjustment expense liabilities






(290
)


3,873General and administrative expenses


(861
)


(480
)


(10,979
)Amortization of run-off provision






333Other income


101Foreign exchange loss






(48
)


(1,138
)Share of net income of
    partly-owned companies










32Income before income taxes


405



70



3,900Income taxes


(655
)






(151
)Minority interest










(612
)Net income (loss)

$
(250
)

$
70


$
3,137Companys economic ownership %






33
%


32.63
%Earnings of partially owned equity
    affiliates





$
23


$
1,023


$
1,046   Six Months Ended June 30, 2005B.H.


CastlewoodCorporate


Acquisition


Holdings


Total(Restated)


(Restated)(Dollars in thousands)Revenue









$
8,345Net investment income

$
604


$
898



13,283Interest income


1,043Net (increase) reduction in loss
    and loss adjustment expense liabilities






(580
)


5,423General and administrative expenses


(1,641
)


(999
)


(18,536
)Amortization of run-off provision






666Other income


201Foreign exchange loss






(56
)


(2,195
)Share of net income of
    partly-owned companies










79Income (loss) before income taxes


207



(71
)


6,399Income taxes


(683
)






(1,327
)Minority interest










(991
)Net income (loss)

$
(476
)

$
(71
)

$
4,081Companys economic ownership %






33
%


32.69
%Earnings (loss) of partially owned
    equity affiliates





$
(23
)

$
1,334


$
1,311  18




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Note 10:
    Income
    per Share    Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005(Dollars in thousands, except per share data)(Unaudited)Income before extraordinary gain

$
1,132


$
796


$
2,960


$
835Extraordinary gain, net of income
    taxes










875Net income

$
1,132


$
796


$
3,835


$
835Income per common share before
    extraordinary gain  basic

$
0.20


$
0.14


$
0.53


$
0.15Extraordinary gain, net of income
    taxes  basic










0.16Net income per common
    share  basic

$
0.20


$
0.14


$
0.69


$
0.15Income per common share before
    extraordinary gain  assuming dilution

$
0.19


$
0.14


$
0.50


$
0.14Extraordinary gain, net of income
    taxes  assuming dilution










0.15Net income per common
    share  assuming dilution

$
0.19


$
0.14


$
0.65


$
0.14Weighted average shares
    outstanding  basic


5,604,110



5,517,909



5,561,247



5,517,909Common share equivalents


326,272



327,712



344,993



329,421Weighted average shares
    outstanding  assuming dilution


5,930,382



5,845,621



5,906,240



5,847,330     Note 11:
    Plan of
    Merger   19




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
               30-day
 20




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##### Table of Contents



THE
    ENSTAR GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Note 12:  Subsequent
    Event
   21




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                Deloitte &
    Touche LLP
     22




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
  Form 10-K/A
  Restatement
    of Financial Statements
  Form 10-Q/A
  Recent
    Accounting Pronouncements
    Critical
    Accounting Policies
  Enstar
    Income Tax Valuation Reserve
 23




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##### Table of Contents



Castlewood
    Holdings and B.H. Acquisition
    Loss and Loss Adjustment Expenses
  Reinsurance Balances Receivable
  Goodwill
     24




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##### Table of Contents



Plan of
    Merger
               25




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##### Table of Contents



30-day
    Liquidity
    and Capital Resources
            Contractual
    Obligations and Commitments
  month-to-month
 26




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##### Table of Contents



Recent
    Development
    Results
    of Operations
           27




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##### Table of Contents



Results
    of Operations  Partially Owned Equity
    Affiliates
    Castlewood
    Holdings
           28




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##### Table of Contents



non-U.S. currencies,
             29




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##### Table of Contents



B.H.
    Acquisition
          (non-U.S.)
   
  Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk        held-to-maturity
 30




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##### Table of Contents



(non-U.S.)
  Item 4.
    Controls
    and Procedures    Form 10-Q/A Form 10-Q
  Form 10-Q/A,
   31




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##### Table of Contents



PART II
  OTHER
    INFORMATION
 
  Item 6.
    Exhibits  ReferenceNumber



Description of Exhibits2
.1



Agreement and Plan of Merger,
    dated as of May 23, 2006, among the Company, Castlewood
    Holdings Limited and CWMS Subsidiary Corp. (incorporated by
    reference to Exhibit 2.1 to the Current Report on
    Form 8-K
    dated May 23, 2006).3
.1



Articles of Incorporation of the
    Company, as amended on June 10, 1998 (incorporated by
    reference to Exhibit 3.1 to the Quarterly Report on
    Form 10-Q,
    dated August 4, 1998).3
.2



Bylaws of the Company, as amended
    on May 20, 1999 (incorporated by reference to
    Exhibit 3.2 to the Quarterly Report on
    Form 10-Q,
    dated August 6, 1999).4
.1



Rights Agreement between the
    Company and American Stock Transfer & Trust Company, as
    Rights Agent, dated as of January 20, 1997 (incorporated by
    reference to Exhibit 4.1 to Amendment No. 2 to the
    Registration Statement on Form 10, dated March 27,
    1997).4
.2



Amendment Agreement, dated as of
    October 20, 1998, to the Rights Agreement, dated as of
    January 20, 1997, between the Company and American Stock
    Transfer & Trust Company (incorporated by reference to
    Exhibit 10.2 to the Current Report on
    Form 8-K
    dated October 20, 1998).10
.1



Agreement for the Sale and
    Purchase of Aioi Insurance Company of Europe Limited, dated
    December 30, 2005, by and among Aioi Insurance Company
    Limited, Hillcot Holdings Ltd., Castlewood (EU) Ltd., Kenmare
    Holdings Ltd., and Shinsei Bank, Limited (incorporated by
    reference to Exhibit 10.2 to the Current Report on
    Form 8-K
    dated December 29, 2005).10
.2



Recapitalization Agreement, dated
    as of May 23, 2006, is made and entered into by and among
    the Company, Castlewood Holdings Limited and other parties
    thereto. (incorporated by reference to Exhibit 2.2 to the
    Current Report on
    Form 8-K
    dated May 23, 2006).10
.3



Support Agreement, dated as of
    May 23, 2006, among Castlewood Holdings Limited, J.
    Christopher Flowers, Nimrod T. Frazer and John J. Oros.
    (incorporated by reference to Exhibit 2.3 to the Current
    Report on
    Form 8-K
    dated May 23, 2006).31
.1



Certification of Chief Executive
    Officer pursuant to Rule 13a  14(a) or
    Rule 15d  14(a) of the Securities Exchange Act
    of 1934, as amended, as adopted under Section 302 of the
    Sarbanes-Oxley Act of 2002.31
.2



Certification of Chief Financial
    Officer pursuant to Rule 13a  14(a) or
    Rule 15d  14(a) of the Securities Exchange Act
    of 1934, as amended, as adopted under Section 302 of the
    Sarbanes-Oxley Act of 2002.32
.1



Certification of Chief Executive
    Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32
.2



Certification of Chief Financial
    Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  32




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##### Table of Contents



SIGNATURES
    The Enstar Group, Inc.
  By:
    /s/  Cheryl
    D. Davis   Chief Financial Officer, Vice President
  of Corporate Taxes, Secretary
  (Authorized Officer)
  (Principal Financial Officer)
   33