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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 March 31,
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 0-07477

THE ENSTAR GROUP, INC.

(Exact name of registrant as specified in its
charter)


|                                                                          |  |                                                   
|------------------------------------------------------------------------- |  | --------------------------------------------------
|Georgia(State or other jurisdiction
    of incorporation or organization) |  | 63-0590560(I.R.S. Employer
    Identification No.)

401 Madison Avenue

Montgomery, Alabama 36104


(Address of principal executive offices)


(334) 834-5483

(Registrants telephone number, including
area code)


Indicate by check mark whether the registrant
(1) has filed all reports required 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 o

Indicate by check mark whether the registrant has
filed all documents and reports required to be filed by
Section 12, 13, or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan
confirmed by a
court.  YES x  NO o

The number of shares of Registrants Common
Stock, $.01 par value per share, outstanding at May 10,
2002 was 5,465,753.









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THIS FORM 10-Q 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. IMPORTANT FACTORS CURRENTLY KNOWN TO
MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE IN FORWARD-LOOKING STATEMENTS ARE SET FORTH IN THE
SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS
INCLUDED AS EXHIBIT 99.1 TO THE ENSTAR GROUP, INC. ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2001, AND ARE HEREBY INCORPORATED BY
REFERENCE. 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.



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TABLE OF CONTENTS



|                                           |                                                                                               |                                                 |  |  |  |  |  | 
|------------------------------------------ | --------------------------------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION              
|                                           | Item 1. Financial Statements                                                                 
|                                           |                                                                                               | CONSOLIDATED BALANCE SHEETS                    
|                                           |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME              
|                                           |                                                                                               | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|                                           |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                           | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                           | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|PART II OTHER INFORMATION                 
|                                           | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                



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PART I

FINANCIAL INFORMATION





Item 1.     Financial
Statements

THE ENSTAR GROUP, INC. AND
SUBSIDIARY






CONSOLIDATED BALANCE SHEETS


|                                         |                                                                                                                                      |                                          |                                            |              |      |         |        |         |      |        | 
|---------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------- | ------------------------------------------ | ------------ | ---- | ------- | ------ | ------- | ---- | ------ | 
|                                         |                                                                                                                                      | March 31,                                |                                            | December 31,
|                                         |                                                                                                                                      | 2002                                     |                                            | 2001        
|                                         |                                                                                                                                      |                                          |                                            |             
|                                         |                                                                                                                                      |                                         
|                                         |                                                                                                                                      | (Dollars in thousands)                  
|                                         |                                                                                                                                      | (Unaudited)                             
|ASSETS                                  
|Cash and cash equivalents                |                                                                                                                                      | $                                        | 73,105                                     |              |      | $       | 73,366 |        
|Certificates of deposit                  |                                                                                                                                      |                                          | 4,016                                      |              |      |         | 3,991  |        
|Other assets                             |                                                                                                                                      |                                          | 1,346                                      |              |      |         | 1,336  |        
|Partially owned equity affiliates        |                                                                                                                                      |                                          | 23,612                                     |              |      |         | 20,928 |        
|                                         |                                                                                                                                      |                                          |                                            |              |      |         |        |        
|                                         |                                                                                                                                      |                                          | Total assets                               |              | $    | 102,079 |        |         | $    | 99,621 | 
|                                         |                                                                                                                                      |                                          |                                            |              |      |         |        |        
|LIABILITIES AND SHAREHOLDERS
    EQUITY
|Accounts payable and accrued liabilities |                                                                                                                                      | $                                        | 830                                        |              |      | $       | 899    |        
|Income taxes payable                     |                                                                                                                                      |                                          | 73                                         |              |      |         | 43     |        
|Deferred income taxes                    |                                                                                                                                      |                                          | 151                                        |              |      |         | 151    |        
|Deferred liabilities                     |                                                                                                                                      |                                          | 490                                        |              |      |         | 464    |        
|Other liabilities                        |                                                                                                                                      |                                          | 410                                        |              |      |         | 407    |        
|                                         |                                                                                                                                      |                                          |                                            |              |      |         |        |        
|                                         |                                                                                                                                      |                                          | Total liabilities                          |              |      | 1,954   |        |         |      | 1,964  | 
|                                         |                                                                                                                                      |                                          |                                            |              |      |         |        |        
|Commitments and contingencies (Note 3)   |                                                                                                                                      |                                          |                                            |              |      |         |        |        
|Shareholders equity:                    |                                                                                                                                      |                                          |                                            |              |      |         |        |        
|                                         | Common stock ($.01 par value; 55,000,000 shares
    authorized, 5,908,104 shares issued at March 31, 2002 and
    December 31, 2001) |                                          |                                            | 59           |      |         |        | 59      |     
|                                         | Additional paid-in capital                                                                                                           |                                          |                                            | 188,147      |      |         |        | 188,001 |     
|                                         | Accumulated other comprehensive income (loss) of
    partially owned equity affiliates:                                              |                                          |                                            |              |      |         |        |         |     
|                                         |                                                                                                                                      | Unrealized holding losses on investments |                                            |              | (308 | )       |        |         | (150 | )     
|                                         |                                                                                                                                      | Currency translation adjustment          |                                            |              | (7   | )       |        |         | 18   |       
|                                         | Accumulated deficit                                                                                                                  |                                          |                                            | (81,956      | )    |         |        | (84,461 | )   
|                                         | Treasury stock, at cost (442,351 shares)                                                                                             |                                          |                                            | (5,810       | )    |         |        | (5,810  | )   
|                                         |                                                                                                                                      |                                          |                                            |              |      |         |        |        
|                                         |                                                                                                                                      |                                          | Total shareholders equity                 |              |      | 100,125 |        |         |      | 97,657 | 
|                                         |                                                                                                                                      |                                          |                                            |              |      |         |        |        
|                                         |                                                                                                                                      |                                          | Total liabilities and shareholders equity |              | $    | 102,079 |        |         | $    | 99,621 | 
|                                         |                                                                                                                                      |                                          |                                            |              |      |         |        |        

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

1



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THE ENSTAR GROUP, INC. AND
SUBSIDIARY






CONSOLIDATED STATEMENTS OF INCOME


|                                                                                         |  |                        |           |      |  |   |           |  
|---------------------------------------------------------------------------------------- |  | ---------------------- | --------- | ---- |  | - | --------- | -
|                                                                                         |  |                       
|                                                                                         |  | Three Months Ended    
|                                                                                         |  | March 31,             
|                                                                                         |  |                       
|                                                                                         |  | 2002                   |           | 2001
|                                                                                         |  |                        |           |     
|                                                                                         |  |                       
|                                                                                         |  | (Dollars in thousands,
|                                                                                         |  | except per share data)
|                                                                                         |  | (Unaudited)           
|Interest income                                                                          |  | $                      | 418       |      |  | $ | 1,039     |  
|Earnings of partially owned equity affiliates                                            |  |                        | 1,886     |      |  |   | 615       |  
|General and administrative expenses                                                      |  |                        | (728      | )    |  |   | (583      | )
|                                                                                         |  |                        |           |      |  |   |           |  
|Income before income taxes and cumulative effect
    of a change in accounting principle |  |                        | 1,576     |      |  |   | 1,071     |  
|Income taxes                                                                             |  |                        | (38       | )    |  |   | (77       | )
|                                                                                         |  |                        |           |      |  |   |           |  
|Income before cumulative effect of a change in
    accounting principle                  |  |                        | 1,538     |      |  |   | 994       |  
|Cumulative effect of a change in accounting
    principle, net of income taxes           |  |                        | 967       |      |  |   |          |  
|                                                                                         |  |                        |           |      |  |   |           |  
|Net income                                                                               |  | $                      | 2,505     |      |  | $ | 994       |  
|                                                                                         |  |                        |           |      |  |   |           |  
|Weighted average shares outstanding 
    basic                                          |  |                        | 5,465,753 |      |  |   | 5,265,753 |  
|                                                                                         |  |                        |           |      |  |   |           |  
|Weighted average shares outstanding 
    assuming dilution                              |  |                        | 5,731,540 |      |  |   | 5,392,706 |  
|                                                                                         |  |                        |           |      |  |   |           |  
|Income per common share before change in
    accounting principle  basic                |  | $                      | 0.28      |      |  | $ | 0.19      |  
|Cumulative effect of a change in accounting
    principle, net of income taxes           |  |                        | 0.18      |      |  |   |          |  
|                                                                                         |  |                        |           |      |  |   |           |  
|Net income per common share  basic                                                      |  | $                      | 0.46      |      |  | $ | 0.19      |  
|                                                                                         |  |                        |           |      |  |   |           |  
|Income per common share before change in
    accounting principle  assuming dilution    |  | $                      | 0.27      |      |  | $ | 0.18      |  
|Cumulative effect of a change in accounting
    principle, net of income taxes           |  |                        | 0.17      |      |  |   |          |  
|                                                                                         |  |                        |           |      |  |   |           |  
|Net income per common share  assuming
    dilution                                      |  | $                      | 0.44      |      |  | $ | 0.18      |  
|                                                                                         |  |                        |           |      |  |   |           |  

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

2



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THE ENSTAR GROUP, INC. AND
SUBSIDIARY






CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME


|                                                                   |                                          |                        |       |      |   |   |     |   | 
|------------------------------------------------------------------ | ---------------------------------------- | ---------------------- | ----- | ---- | - | - | --- | - | 
|                                                                   |                                          |                       
|                                                                   |                                          | Three Months Ended    
|                                                                   |                                          | March 31,             
|                                                                   |                                          |                       
|                                                                   |                                          | 2002                   |       | 2001
|                                                                   |                                          |                        |       |     
|                                                                   |                                          |                       
|                                                                   |                                          | (Dollars in thousands)
|                                                                   |                                          | (Unaudited)           
|Net income                                                         |                                          | $                      | 2,505 |      |   | $ | 994 |  
|Other comprehensive loss of partially owned
    equity affiliates: |                                          |                        |       |      |   |   |     |  
|                                                                   | Unrealized holding losses on investments |                        |       | (158 | ) |   |     |  | 
|                                                                   | Currency translation adjustment          |                        |       | (25  | ) |   |     |  | 
|                                                                   |                                          |                        |       |      |   |   |     |  
|Other comprehensive loss                                           |                                          |                        | (183  | )    |   |   |    |  
|                                                                   |                                          |                        |       |      |   |   |     |  
|Comprehensive income                                               |                                          | $                      | 2,322 |      |   | $ | 994 |  
|                                                                   |                                          |                        |       |      |   |   |     |  

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

3



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THE ENSTAR GROUP, INC. AND
SUBSIDIARY






CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                             |                                                                                       |                                                                                                 |                                                         |        |        |      |        |        |       |       |  
|------------------------------------------------------------ | ------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------ | ------ | ---- | ------ | ------ | ----- | ----- | -
|                                                             |                                                                                       |                                                                                                
|                                                             |                                                                                       | Three Months Ended                                                                             
|                                                             |                                                                                       | March 31,                                                                                      
|                                                             |                                                                                       |                                                                                                
|                                                             |                                                                                       | 2002                                                                                            |                                                         | 2001  
|                                                             |                                                                                       |                                                                                                 |                                                         |       
|                                                             |                                                                                       |                                                                                                
|                                                             |                                                                                       | (Dollars in thousands)                                                                         
|                                                             |                                                                                       | (Unaudited)                                                                                    
|Cash flows from operating activities:                        |                                                                                       |                                                                                                 |                                                         |        |        |      |        |       
|                                                             | Net income                                                                            |                                                                                                 | $                                                       | 2,505  |        |      | $      | 994    |      
|                                                             | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                                                 |                                                         |        |        |      |        |        |      
|                                                             |                                                                                       | Depreciation and amortization                                                                   |                                                         |        | 6      |      |        |        | 25    |      
|                                                             |                                                                                       | Earnings of partially owned equity affiliates,
    net of dividends received                    |                                                         |        | (1,886 | )    |        |        | 5,696 |      
|                                                             |                                                                                       | Cumulative effect of a change in accounting
    principle from partially owned equity affiliate |                                                         |        | (980   | )    |        |        |      |      
|                                                             |                                                                                       | Noncash compensation expense                                                                    |                                                         |        | 146    |      |        |        |      |      
|                                                             | Changes in assets and liabilities:                                                    |                                                                                                 |                                                         |        |        |      |        |        |      
|                                                             |                                                                                       | Accounts payable and accrued expenses                                                           |                                                         |        | (40    | )    |        |        | 32    |      
|                                                             |                                                                                       | Other, net                                                                                      |                                                         |        | 28     |      |        |        | (48   | )    
|                                                             |                                                                                       |                                                                                                 |                                                         |        |        |      |        |       
|                                                             |                                                                                       |                                                                                                 | Net cash (used in) provided by operating
    activities |        |        | (221 | )      |        |       | 6,699 |  
|                                                             |                                                                                       |                                                                                                 |                                                         |        |        |      |        |       
|Cash flows from investing activities:                        |                                                                                       |                                                                                                 |                                                         |        |        |      |        |       
|                                                             | Purchases of certificates of deposit                                                  |                                                                                                 |                                                         | (1,382 | )      |      |        | (1,323 | )    
|                                                             | Maturities of certificates of deposit                                                 |                                                                                                 |                                                         | 1,357  |        |      |        | 1,282  |      
|                                                             | Other, net                                                                            |                                                                                                 |                                                         | (15    | )      |      |        |       |      
|                                                             |                                                                                       |                                                                                                 |                                                         |        |        |      |        |       
|                                                             |                                                                                       |                                                                                                 | Net cash used in investing activities                   |        |        | (40  | )      |        |       | (41   | )
|                                                             |                                                                                       |                                                                                                 |                                                         |        |        |      |        |       
|(Decrease) increase in cash and cash equivalents             |                                                                                       |                                                                                                 | (261                                                    | )      |        |      | 6,658  |       
|Cash and cash equivalents at the beginning of the
    period |                                                                                       |                                                                                                 | 73,366                                                  |        |        |      | 75,252 |       
|                                                             |                                                                                       |                                                                                                 |                                                         |        |        |      |        |       
|Cash and cash equivalents at the end of the period           |                                                                                       | $                                                                                               | 73,105                                                  |        |        | $    | 81,910 |       
|                                                             |                                                                                       |                                                                                                 |                                                         |        |        |      |        |       
|Supplemental disclosures of cash flow information:           |                                                                                       |                                                                                                 |                                                         |        |        |      |        |       
|                                                             | Income taxes paid                                                                     |                                                                                                 | $                                                       | 21     |        |      | $      | 65     |      
|                                                             |                                                                                       |                                                                                                 |                                                         |        |        |      |        |       

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

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THE ENSTAR GROUP, INC. AND
SUBSIDIARY






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


(Unaudited)


Note 1:     General

The Enstar Group, Inc. and Subsidiary, (the
Company), is a publicly traded company engaged in
the operation of several equity affiliates in the financial
services industry. Enstar also continues its active search for
one or more additional operating businesses which meet its
acquisition criteria.

The consolidated financial statements of the
Company are unaudited and, in the opinion of management, include
all adjustments consisting solely of normal recurring
adjustments necessary to fairly state the Companys
financial condition and results of operations for the interim
period. The results of operations for the three months ended
March 31, 2002 are not necessarily indicative of the
results to be expected for the full year. These statements
should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended
December 31, 2001 included in the Companys
Form 10-K as filed with the Securities and Exchange
Commission on April 1, 2002 under the Securities Exchange
Act of 1934, as amended.

Note 2:     Significant
Accounting Policies



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) Use of Estimates  The
    preparation of financial statements in conformity with
    accounting principles generally accepted in the United States of
    America requires management to make estimates and assumptions
    that affect the reported amounts of assets and liabilities and
    disclosure of contingent assets and liabilities at the date of
    the financial statements and the reported amounts of revenues
    and expenses during the reporting period. Actual results could
    differ from those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (b) Cash Equivalents  Cash
    equivalents consist of short term, highly liquid investments
    with original purchased maturities of three months or less.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (c) Partially Owned Equity
    Affiliates  Partially owned equity affiliates are
    accounted for under the equity method of accounting. Equity
    method investments are recorded at cost and are adjusted
    periodically to recognize the Companys proportionate share
    of the investees income or loss, additional contributions
    made and dividends and capital distributions received. In the
    event any of the partially owned equity affiliates were to incur
    a loss and the Companys cumulative proportionate share of
    the loss exceeded the carrying amount of the equity method
    investment, application of the equity method would be suspended
    and the Companys proportionate share of further losses
    would not be recognized until the Company committed to provide
    further financial support to the investee. The Company would
    resume application of the equity method once the investee
    becomes profitable and the Companys proportionate share of
    the investees earnings equals it cumulative proportionate
    share of losses that were not recognized during the period the
    application of the equity method was suspended.
|
| | (d) Revenue Recognition 
    Revenue consists of interest income earned from cash, cash
    equivalents and certificates of deposit and the Companys
    proportionate share of earnings from partially owned equity
    affiliates. Interest income is recorded when earned. The
    Companys proportionate share of earnings from partially
    owned equity affiliates is recorded as such earnings are
    recognized by the partially owned equity affiliate with the
    exception of B-Line LLC (B-Line) which is recorded
    three months in arrears.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (e) Reclassifications 
    Certain prior period amounts have been reclassified in the
    financial statements to conform with the current period
    presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Note 3:     Partially
Owned Equity Affiliates

B-Line

In November 1998, the Company purchased
membership units of B-Line for $965,000 including expenses.
Based in Seattle, Washington, B-Line provides services to credit
card issuers and other holders of

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THE ENSTAR GROUP, INC. AND
SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

similar receivables. B-Line also purchases credit
card receivables and recovers payments on these accounts. At
March 31, 2002, the Companys ownership percentage was
approximately 8.34%.

The Companys B-Line membership units are
accounted for under the equity method. The operations of B-Line
are reported by the Company three months in arrears.
Approximately $803,000 of the original $950,000 paid was
recorded as goodwill and was being amortized over a period of
10 years. At March 31, 2002 the Company has
approximately $552,000 of unamortized goodwill. Since the
adoption by the Company of SFAS 142 in January 2002,
goodwill is no longer being amortized. (Note 6).

B.H. Acquisition

In July 2000, the Company, through B.H.
Acquisition Limited (B.H. Acquisition), a
newly-formed joint venture with Castlewood Limited
(Castlewood) and an entity controlled by
Trident II, L.P. (Trident), acquired as an
operating business, two reinsurance companies of Petrofina S.A.,
a subsidiary of TotalFina Elf S.A. The reinsurance companies,
Brittany Insurance Company Ltd. (Brittany) and
Compagnie Europeenne dAssurances Industrielles S.A.
(CEAI) were purchased by B.H. Acquisition for $28.5
million and were accounted for by B.H. Acquisition using the
purchase method of accounting. Brittany and CEAI are principally
engaged in the active management of books of reinsurance
business from international markets. In exchange for a capital
contribution of approximately $9.6 million, the Company
received 50% of the voting stock and a 33% economic interest in
B.H. Acquisition. As part of the transaction, Castlewood
received 33% of the voting stock and a 45% economic interest in
B.H. Acquisition. In October 2000, the Company received
$3.9 million representing the Companys proportionate
share of a capital distribution from B.H. Acquisition. In March
2001, the Company received approximately $6.3 million from
B.H. Acquisition representing the Companys proportionate
share of a dividend from B.H. Acquisition. The Companys
ownership in B.H. Acquisition is accounted for using the equity
method of accounting.

Castlewood Holdings Limited

In November 2001, the Company, together with
Trident and the shareholders and senior management of Castlewood
(the Castlewood Principals), completed the formation
of a new venture, Castlewood Holdings Limited (Castlewood
Holdings), to acquire and manage insurance and reinsurance
companies, including companies in run-off, and provide
management, consulting and other services to the insurance and
reinsurance industry (the Castlewood Holdings
Transaction). The Castlewood Principals contributed at
closing all the shares of Castlewood to Castlewood Holdings and
received in exchange a 33 1/3% economic interest in the
newly incorporated Castlewood Holdings, plus notes and cash
totaling $4.275 million. As part of the transaction, the
Company and Trident made capital commitments of
$39.5 million each, totaling $79 million, in exchange
for their 33 1/3% economic interests in Castlewood
Holdings. The Company received 50% of the voting stock of
Castlewood Holdings and the Castlewood Principals and Trident
each received 25% of Castlewood Holdings voting stock.
Castlewood is a private Bermuda-based firm, experienced in
managing and acquiring reinsurance operations.

As a result of the contribution of
Castlewoods outstanding stock to Castlewood Holdings, the
Companys 33% direct economic interest in B.H. Acquisition
increased by an additional 15% indirect economic interest
through Castlewood Holdings. The Company has retained its 50%
voting interest in B.H. Acquisition. The Companys
ownership in Castlewood Holdings is accounted for using the
equity method of accounting.

Immediately following the closing of the
Castlewood Holdings Transaction, the Company and Trident each
contributed $12.5 million to Castlewood Holdings. The
Companys capital contribution to Castlewood Holdings was
derived from cash on hand. The remaining commitment of the
Company is to be paid, in part or in whole, within 21 days
of receipt of a resolution of the board of directors of
Castlewood Holdings for the purpose of funding future
investments and/or providing working capital. The Company
expects to use internal funds to satisfy its remaining
commitment to Castlewood Holdings.

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THE ENSTAR GROUP, INC. AND
SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In conjunction with the closing of the Castlewood
Holdings Transaction, the Company also transferred its shares in
Revir Limited (Revir), a newly formed Bermuda
holding company, at cost to Castlewood Holdings. Revir then
completed the acquisition of two reinsurance companies, River
Thames Insurance Company Limited (River Thames),
based in London, England, and Overseas Reinsurance Corporation
Limited (Overseas Reinsurance), based in Bermuda,
(collectively, the River Thames Transaction) from
Rivers Group Limited and Sedgwick Group Limited. The acquisition
of the two reinsurance companies has been accounted for by Revir
using the purchase method of accounting.

Summarized Financial Information

Summarized financial information for B-Line, B.H.
Acquisition and Castlewood Holdings is as follows:

|                  |  |                        |         |              |  |   |         | 
|----------------- |  | ---------------------- | ------- | ------------ |  | - | ------- | 
|                  |  | March 31,              |         | December 31,
|                  |  | 2002                   |         | 2001        
|                  |  |                        |         |             
|                  |  |                       
|                  |  | (Dollars in thousands)
|                  |  | (Unaudited)           
|Total assets      |  | $                      | 693,621 |              |  | $ | 693,955 | 
|Total liabilities |  |                        | 582,058 |              |  |   | 593,216 | 
|Total equity      |  |                        | 111,563 |              |  |   | 100,739 | 

|                 |  |                        |        |      |  |   |       | 
|---------------- |  | ---------------------- | ------ | ---- |  | - | ----- | 
|                 |  |                       
|                 |  | Three Months Ended    
|                 |  | March 31,             
|                 |  |                       
|                 |  | 2002                   |        | 2001
|                 |  |                        |        |     
|                 |  |                       
|                 |  | (Dollars in thousands)
|                 |  | (Unaudited)           
|Revenue          |  | $                      | 13,912 |      |  | $ | 5,088 | 
|Operating income |  |                        | 9,907  |      |  |   | 2,180 | 
|Net income       |  |                        | 11,372 |      |  |   | 3,621 | 

This summarized financial information reflects
the results of B-Line and B.H. Acquisition for all periods
presented. The results of Castlewood Holdings are presented from
its respective date of ownership.

7



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##### Table of Contents



THE ENSTAR GROUP, INC. AND
SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 4:     Segment
Information

The Company evaluates the performance of B-Line,
B.H. Acquisition and Castlewood Holdings, the Companys
only operating segments, based on 100% of their financial
results. B-Lines, B.H. Acquisitions and Castlewood
Holdings consolidated financial information as of and for
the three months ended March 31, 2002 and 2001 is as
follows:

|                                                                                         |  |                                   |        |             |  |            |       |       |  |   |        |   |  |   |        |  
|---------------------------------------------------------------------------------------- |  | --------------------------------- | ------ | ----------- |  | ---------- | ----- | ----- |  | - | ------ | - |  | - | ------ | -
|                                                                                         |  |                                  
|                                                                                         |  | Three Months Ended March 31, 2002
|                                                                                         |  |                                  
|                                                                                         |  |                                   |        | B.H.        |  | Castlewood |       |      
|                                                                                         |  | B-Line                            |        | Acquisition |  | Holdings   |       | Total
|                                                                                         |  |                                   |        |             |  |            |       |      
|                                                                                         |  |                                  
|                                                                                         |  | (Dollars in thousands)           
|                                                                                         |  | (Unaudited)                      
|Net underwriting loss                                                                    |  |                                   |        |             |  | $          | (247  | )     |  |   |        |   |  | $ | (247   | )
|Revenue                                                                                  |  | $                                 | 7,578  |             |  |            |       |       |  | $ | 6,343  |   |  |   | 13,921 |  
|Net investment income                                                                    |  |                                   |        |             |  |            | 584   |       |  |   | 2,443  |   |  |   | 3,027  |  
|Share of net income of partly-owned company                                              |  |                                   |        |             |  |            |       |       |  |   | 157    |   |  |   | 157    |  
|General and administrative expenses                                                      |  |                                   | (3,989 | )           |  |            | (671  | )     |  |   | (3,391 | ) |  |   | (8,051 | )
|Amortization of run-off provision                                                        |  |                                   |        |             |  |            | 563   |       |  |   |        |   |  |   | 563    |  
|Interest expense                                                                         |  |                                   | 64     |             |  |            |       |       |  |   | (38    | ) |  |   | 26     |  
|Foreign exchange gain (loss)                                                             |  |                                   |        |             |  |            | 120   |       |  |   | (916   | ) |  |   | (796   | )
|                                                                                         |  |                                   |        |             |  |            |       |       |  |   |        |   |  |   |        |  
|Income before income taxes and cumulative effect
    of a change in accounting principle |  |                                   | 3,653  |             |  |            | 349   |       |  |   | 4,598  |   |  |   | 8,600  |  
|Income taxes                                                                             |  |                                   |        |             |  |            |       |       |  |   | (198   | ) |  |   | (198   | )
|                                                                                         |  |                                   |        |             |  |            |       |       |  |   |        |   |  |   |        |  
|Income before cumulative effect of a change in
    accounting principle                  |  |                                   | 3,653  |             |  |            | 349   |       |  |   | 4,400  |   |  |   | 8,402  |  
|Cumulative effect of a change in accounting
    principle, net of income taxes           |  |                                   |        |             |  |            | 2,969 |       |  |   |        |   |  |   | 2,969  |  
|                                                                                         |  |                                   |        |             |  |            |       |       |  |   |        |   |  |   |        |  
|Net income                                                                               |  | $                                 | 3,653  |             |  | $          | 3,318 |       |  | $ | 4,400  |   |  | $ | 11,371 |  
|Companys economic ownership %                                                           |  |                                   | 8.34   | %           |  |            | 33    | %     |  |   | 33 1/3 | % |  |   |        |  
|                                                                                         |  |                                   |        |             |  |            |       |       |  |   |        |   |  |   |        |  
|Companys earnings of equity affiliates                                                  |  | $                                 | 305    |             |  | $          | 1,095 |       |  | $ | 1,466  |   |  | $ | 2,866  |  
|                                                                                         |  |                                   |        |             |  |            |       |       |  |   |        |   |  |   |        |  
|Partially owned equity affiliates                                                        |  | $                                 | 2,106  |             |  | $          | 8,452 |       |  | $ | 13,054 |   |  | $ | 23,612 |  
|                                                                                         |  |                                   |        |             |  |            |       |       |  |   |        |   |  |   |        |  

8



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##### Table of Contents



THE ENSTAR GROUP, INC. AND
SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                          |  |                        |        |             |  |       |       |   |  |   |        |  
|--------------------------------------------------------- |  | ---------------------- | ------ | ----------- |  | ----- | ----- | - |  | - | ------ | -
|                                                          |  |                       
|                                                          |  | Three Months Ended    
|                                                          |  | March 31, 2001        
|                                                          |  |                       
|                                                          |  |                        |        | B.H.        |  |      
|                                                          |  | B-Line                 |        | Acquisition |  | Total
|                                                          |  |                        |        |             |  |      
|                                                          |  |                       
|                                                          |  | (Dollars in thousands)
|                                                          |  | (Unaudited)           
|Net underwriting loss                                     |  |                        |        |             |  | $     | (66   | ) |  | $ | (66    | )
|Revenue                                                   |  | $                      | 5,080  |             |  |       |       |   |  |   | 5,080  |  
|Net investment income                                     |  |                        |        |             |  |       | 1,675 |   |  |   | 1,675  |  
|General and administrative expenses                       |  |                        | (2,031 | )           |  |       | (852  | ) |  |   | (2,883 | )
|Amortization of negative goodwill                         |  |                        |        |             |  |       | 212   |   |  |   | 212    |  
|Amortization of run-off provision                         |  |                        |        |             |  |       | 563   |   |  |   | 563    |  
|Interest expense                                          |  |                        | (803   | )           |  |       |       |   |  |   | (803   | )
|Foreign exchange loss                                     |  |                        |        |             |  |       | (232  | ) |  |   | (232   | )
|                                                          |  |                        |        |             |  |       |       |   |  |   |        |  
|Net income before extraordinary item                      |  |                        | 2,246  |             |  |       | 1,300 |   |  |   | 3,546  |  
|Extraordinary item  gain on early
    retirement of debt |  |                        | 75     |             |  |       |       |   |  |   | 75     |  
|                                                          |  |                        |        |             |  |       |       |   |  |   |        |  
|Net income                                                |  | $                      | 2,321  |             |  | $     | 1,300 |   |  | $ | 3,621  |  
|Companys economic ownership %                            |  |                        | 7.99   | %           |  |       | 33    | % |  |   |        |  
|                                                          |  |                        |        |             |  |       |       |   |  |   |        |  
|Companys earnings of equity affiliates                   |  | $                      | 186    |             |  | $     | 429   |   |  | $ | 615    |  
|                                                          |  |                        |        |             |  |       |       |   |  |   |        |  
|Partially owned equity affiliates                         |  | $                      | 1,390  |             |  | $     | 6,203 |   |  | $ | 7,593  |  
|                                                          |  |                        |        |             |  |       |       |   |  |   |        |  

The operations of B-Line are reported by the
Company three months in arrears.

Note 5:     Income
per Share

The table below illustrates the reconciliation
between net income per common share  basic and net
income per common share  assuming dilution for the
three months ended March 31, 2002 and 2001. Net income per
common share  basic is computed by dividing net
income by the weighted average shares outstanding. Net income
per common share  assuming dilution is computed by
dividing net income by the sum of the weighted average shares
outstanding and common share equivalents. Common share
equivalents

9



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##### Table of Contents



THE ENSTAR GROUP, INC. AND
SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

consist of stock units deferred under the
Deferred Compensation and Stock Plan for Non-Employee Directors
and stock options granted under the Companys stock
option/incentive plans.

|                                                                                                   |  |                        |           |      |  |   |           | 
|-------------------------------------------------------------------------------------------------- |  | ---------------------- | --------- | ---- |  | - | --------- | 
|                                                                                                   |  |                       
|                                                                                                   |  | Three Months Ended    
|                                                                                                   |  | March 31,             
|                                                                                                   |  |                       
|                                                                                                   |  | 2002                   |           | 2001
|                                                                                                   |  |                        |           |     
|                                                                                                   |  |                       
|                                                                                                   |  | (Dollars in thousands,
|                                                                                                   |  | except per share data)
|                                                                                                   |  | (Unaudited)           
|Income before cumulative effect of a change in
    accounting principle                            |  | $                      | 1,538     |      |  | $ | 994       | 
|Cumulative effect of a change in accounting
    principle, net of income taxes                     |  |                        | 967       |      |  |   |          | 
|                                                                                                   |  |                        |           |      |  |   |           | 
|Net income                                                                                         |  | $                      | 2,505     |      |  | $ | 994       | 
|                                                                                                   |  |                        |           |      |  |   |           | 
|Income per common share before change in
    accounting principle  basic                          |  | $                      | 0.28      |      |  | $ | 0.19      | 
|Cumulative effect of a change in accounting
    principle, net of income taxes  basic             |  |                        | 0.18      |      |  |   |          | 
|                                                                                                   |  |                        |           |      |  |   |           | 
|Net income per common share  basic                                                                |  | $                      | 0.46      |      |  | $ | 0.19      | 
|                                                                                                   |  |                        |           |      |  |   |           | 
|Income per common share before change in
    accounting principle  assuming dilution              |  | $                      | 0.27      |      |  | $ | 0.18      | 
|Cumulative effect of a change in accounting
    principle, net of income taxes  assuming dilution |  |                        | 0.17      |      |  |   |          | 
|                                                                                                   |  |                        |           |      |  |   |           | 
|Net income per common share  assuming
    dilution                                                |  | $                      | 0.44      |      |  | $ | 0.18      | 
|                                                                                                   |  |                        |           |      |  |   |           | 
|Weighted average shares outstanding 
    basic                                                    |  |                        | 5,465,753 |      |  |   | 5,265,753 | 
|Common share equivalents                                                                           |  |                        | 265,787   |      |  |   | 126,953   | 
|                                                                                                   |  |                        |           |      |  |   |           | 
|Weighted average shares outstanding 
    assuming dilution                                        |  |                        | 5,731,540 |      |  |   | 5,392,706 | 
|                                                                                                   |  |                        |           |      |  |   |           | 

Note 6:     Recent
Accounting Pronouncements

In July 2001, the Financial Accounting
Standards Board (FASB) issued SFAS 142,
Goodwill and Other Intangible Assets. This statement
is effective for fiscal years beginning after December 15,
2001 and prescribes that goodwill should no longer be amortized
upon adoption of the standard. Instead, goodwill will be tested
annually for impairment, and on an interim basis if certain
impairment indicators are present. It requires the Company to
perform a transitional assessment of whether there is an
indication that goodwill is impaired as of the date of adoption.
Any goodwill impairment loss will be recognized as the
cumulative effect of a change in accounting principle no later
than the end of the fiscal year of adoption. Additionally,
intangible assets with an indefinite, economic useful life may
not be amortized.

The Company had approximately $552,000 of
unamortized goodwill related to B-Line classified as a component
of partially owned equity affiliates at December 31, 2001.
The Company monitors its investment for impairment and
determined that its recorded goodwill is not impaired. In
addition, B.H. Acquisition had negative goodwill of
approximately $3.0 million recorded on its financial
statements as of December 31, 2001. In accordance with
SFAS 142, B.H. Acquisition reversed this negative goodwill
into earnings and presented it as a cumulative effect of a
change in accounting principle. The Companys proportionate
share of this reversal was $967,000, net of income taxes, and
has been presented as a cumulative effect of a change in
accounting principle in the consolidated statement of income for
the three months ended March 31, 2002.

SFAS 142 requires disclosure of what
reported income before extraordinary items and net income would
have been in all periods presented exclusive of amortization
expense (including any related tax effects) recognized in those
periods related to goodwill, any deferred credit related to an
excess over cost (negative

10



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##### Table of Contents



THE ENSTAR GROUP, INC. AND
SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

goodwill) and equity method goodwill.
Additionally, adjusted per-share amounts are required to be
disclosed for all periods presented. The table below reconciles
reported net income and earnings per share amounts to adjusted
net income and per share amounts exclusive of amortization
expense for the three months ended March 31, 2002 and 2001.

|                                                                                        |                                                                                         |                        |           |      |  |   |           |       |  
|--------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ---------------------- | --------- | ---- |  | - | --------- | ----- | -
|                                                                                        |                                                                                         |                       
|                                                                                        |                                                                                         | Three Months Ended    
|                                                                                        |                                                                                         | March 31,             
|                                                                                        |                                                                                         |                       
|                                                                                        |                                                                                         | 2002                   |           | 2001
|                                                                                        |                                                                                         |                        |           |     
|                                                                                        |                                                                                         |                       
|                                                                                        |                                                                                         | (Dollars in thousands,
|                                                                                        |                                                                                         | except per share data)
|                                                                                        |                                                                                         | (Unaudited)           
|Reported income before cumulative effect of a
    change in accounting principle        |                                                                                         | $                      | 1,538     |      |  | $ | 994       |      
|Reported cumulative effect of a change in
    accounting principle, net of income taxes |                                                                                         |                        | 967       |      |  |   |          |      
|                                                                                        |                                                                                         |                        |           |      |  |   |           |      
|Reported net income                                                                     |                                                                                         |                        | 2,505     |      |  |   | 994       |      
|Goodwill amortization                                                                   |                                                                                         |                        |          |      |  |   | 18        |      
|Negative goodwill amortization (through B.H.
    Acquisition)                           |                                                                                         |                        |          |      |  |   | (65       | )    
|                                                                                        |                                                                                         |                        |           |      |  |   |           |      
|Adjusted net income                                                                     |                                                                                         | $                      | 2,505     |      |  | $ | 947       |      
|                                                                                        |                                                                                         |                        |           |      |  |   |           |      
|Earnings per common share  basic:                                                      |                                                                                         |                        |           |      |  |   |           |      
|                                                                                        | Reported income before change in accounting
    principle                               |                        | $         | 0.28 |  |   | $         | 0.19  |  
|                                                                                        | Reported cumulative effect of a change in
    accounting principle, net of income taxes |                        |           | 0.18 |  |   |           |      |  
|                                                                                        |                                                                                         |                        |           |      |  |   |           |      
|                                                                                        | Reported net income                                                                     |                        |           | 0.46 |  |   |           | 0.19  |  
|                                                                                        | Goodwill amortization                                                                   |                        |           |     |  |   |           | 0.00  |  
|                                                                                        | Negative goodwill amortization                                                          |                        |           |     |  |   |           | (0.01 | )
|                                                                                        |                                                                                         |                        |           |      |  |   |           |      
|                                                                                        | Adjusted net income                                                                     |                        | $         | 0.46 |  |   | $         | 0.18  |  
|                                                                                        |                                                                                         |                        |           |      |  |   |           |      
|Earnings per common share  assuming
    dilution:                                      |                                                                                         |                        |           |      |  |   |           |      
|                                                                                        | Reported income before change in accounting
    principle                               |                        | $         | 0.27 |  |   | $         | 0.18  |  
|                                                                                        | Reported cumulative effect of a change in
    accounting principle, net of income taxes |                        |           | 0.17 |  |   |           |      |  
|                                                                                        |                                                                                         |                        |           |      |  |   |           |      
|                                                                                        | Reported net income                                                                     |                        |           | 0.44 |  |   |           | 0.18  |  
|                                                                                        | Goodwill amortization                                                                   |                        |           |     |  |   |           | 0.00  |  
|                                                                                        | Negative goodwill amortization                                                          |                        |           |     |  |   |           | (0.01 | )
|                                                                                        |                                                                                         |                        |           |      |  |   |           |      
|                                                                                        | Adjusted net income                                                                     |                        | $         | 0.44 |  |   | $         | 0.17  |  
|                                                                                        |                                                                                         |                        |           |      |  |   |           |      
|Weighted average shares outstanding 
    basic                                         |                                                                                         |                        | 5,465,753 |      |  |   | 5,265,753 |      
|                                                                                        |                                                                                         |                        |           |      |  |   |           |      
|Weighted average shares outstanding 
    assuming dilution                             |                                                                                         |                        | 5,731,540 |      |  |   | 5,392,706 |      
|                                                                                        |                                                                                         |                        |           |      |  |   |           |      

11



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##### Table of Contents



INDEPENDENT ACCOUNTANTS REPORT

Board of Directors and Shareholders of

The Enstar Group, Inc.


Montgomery, Alabama


We have reviewed the accompanying consolidated
balance sheet of The Enstar Group, Inc. and Subsidiary
(Enstar) as of March 31, 2002, and the related
consolidated statements of income, comprehensive income and cash
flows for the three-month periods ended March 31, 2002 and
2001. These financial statements are the responsibility of
Enstars management.

We conducted our review in accordance with
standards established by the American Institute of Certified
Public Accountants. A review of interim financial information
consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible
for financial and accounting matters. It is substantially less
in scope than an audit conducted in accordance with auditing
standards generally accepted in the United States of America,
the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do
not express such an opinion.

Based on our review, we are not aware of any
material modifications that should be made to such consolidated
financial statements for them to be in conformity with
accounting principles generally accepted in the United States of
America.

As discussed in Note 6 to the consolidated
financial statements, effective January 1, 2002 Enstar
changed its method of accounting for goodwill pursuant to
Statement of Financial Accounting Standards No. 142.

We have previously audited, in accordance with
auditing standards generally accepted in the United States of
America, the consolidated balance sheet of Enstar as of
December 31, 2001 and the related consolidated statements
of income, comprehensive income, shareholders equity and
cash flows for the year then ended (not presented herein), and
in our report dated March 25, 2002, we expressed an
unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 2001 is
fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

Atlanta, Georgia

May 10, 2002


12



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Recent Acquisitions

In November 2001, the Company, together with
Trident and the Castlewood Principals, completed the formation
of a new venture, Castlewood Holdings, to acquire and manage
insurance and reinsurance companies, including companies in
run-off, and provide management, consulting and other services
to the insurance and reinsurance industry. The Castlewood
Principals contributed at closing all the shares of Castlewood
to Castlewood Holdings and received in exchange a 33 1/3%
economic interest in the newly-formed Castlewood Holdings, plus
notes and cash totaling $4.275 million. As part of the
transaction, the Company and Trident made capital commitments of
$39.5 million each, totaling $79 million, in exchange
for their 33 1/3% economic interests in Castlewood
Holdings. The Company received 50% of the voting stock of
Castlewood Holdings and the Castlewood Principals and Trident
each received 25% of Castlewood Holdings voting stock.
Castlewood is a private Bermuda-based firm, experienced in
managing and acquiring reinsurance operations. The
Companys ownership in Castlewood Holdings is accounted for
using the equity method of accounting.

Immediately following the closing of the
Castlewood Holdings transaction, the Company and Trident each
contributed $12.5 million to Castlewood Holdings. The
Companys capital contribution to Castlewood Holdings was
derived from cash on hand; the Company expects to use internal
funds to satisfy its remaining commitment to Castlewood Holdings.

In conjunction with the closing of the Castlewood
Holdings Transaction, the Company also transferred its shares in
Revir, a newly-formed Bermuda holding company, at cost to
Castlewood Holdings. Revir then completed the River Thames
Transaction.

In July 2000, the Company, through B.H.
Acquisition, a newly-formed joint venture with Castlewood and an
entity controlled by Trident, acquired as an operating business,
two reinsurance companies of Petrofina S.A., a subsidiary of
TotalFina Elf S.A. In exchange for a capital contribution of
approximately $9.6 million, the Company received 50% of the
voting stock and a 33% economic interest in B.H. Acquisition. As
part of the transaction, Castlewood received 33% of the voting
stock and a 45% economic interest in B.H. Acquisition. As a
result of the contribution of Castlewoods outstanding
stock to Castlewood Holdings, the Companys 33% direct
economic interest in B.H. Acquisition increased by an additional
15% indirect economic interest through Castlewood Holdings. The
Company has retained its 50% voting interest in B.H. Acquisition.

Liquidity and Capital Resources

The Companys assets, aggregating
approximately $102.1 million at March 31, 2002, consist
primarily of approximately $73.1 million in cash and cash
equivalents, approximately $4.0 million in certificates of
deposit and approximately $23.6 million in partially owned
equity affiliates.

The Company is currently engaged in the active
search for one or more additional operating businesses. The
Company primarily focuses on the financial services industry in
a global market which would complement its current operating
businesses, investigating acquisition opportunities both within
and outside the United States when management believes that such
opportunities might be attractive. The Company may pay
consideration in the form of cash, securities of the Company or
some combination of both. The Company may also borrow money in
connection with an acquisition.

With the exception of various expenses incurred
in connection with the Companys search for one or more
suitable acquisitions, its only needs are to fund normal
operating expenses and its remaining commitment to Castlewood
Holdings. The remaining commitment of approximately
$27 million is to be paid, in part or in whole, within
21 days of receipt of a resolution of the board of
directors of Castlewood Holdings for the purpose of funding
future investments and/or providing working capital. The Company
expects to use internal funds to satisfy its remaining
commitment to Castlewood Holdings.

13



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##### Table of Contents



Financial Condition

The Company had total assets of
$102.1 million at March 31, 2002 compared to
$99.6 million at December 31, 2001. The increase in
total assets was due primarily to earnings of partially owned
equity affiliates.

Results of Operations

The Company reported net income of approximately
$2.5 million for the three months ended March 31,
2002, compared to net income of $994,000 for the same period in
the prior year.

Interest income was approximately $418,000 for
the three months ended March 31, 2002 compared to
approximately $1.0 million for the three months ended
March 31, 2001. Interest income was earned from cash, cash
equivalents and certificates of deposit. Interest income
decreased due to a reduction of interest rates earned on the
Companys cash, cash equivalents and certificates of
deposit.

Earnings of partially owned equity affiliates
were approximately $1.9 million for the three months ended
March 31, 2002 compared to $615,000 for the same period in
the prior year. The Company recorded equity in earnings of
$115,000 and $429,000 from B.H. Acquisition for the three months
ended March 31, 2002 and 2001, respectively. The
Companys equity in earnings from B-Line LLC
(B-Line) was $305,000 for the three months ended
March 31, 2002 compared to $186,000 for the same period in
2001. The Company recorded equity in earnings of approximately
$1.5 million from Castlewood Holdings for the three months ended
March 31, 2002. In addition, the Company reported income of
$967,000, net of income taxes, as its proportionate share of a
cumulative effect of a change in accounting principle incurred
by B.H. Acquisition associated with the implementation of
SFAS 142.

General and administrative expenses were $728,000
for the three months ended March 31, 2002 compared to
$583,000 for the same period in 2001. The Company recorded
$146,000 in non-cash compensation expense in the three months
ended March 31, 2002 relating to stock option agreements.
In addition, the Company incurred $92,000 in professional fees
relating to reporting requirements of the Castlewood Holdings
Transaction and the River Thames Transaction during the first
quarter of 2002. These increases were partially offset by a
substantial decrease in expense for Alabama shares tax in 2002
due to a change in Alabama tax law. General and administrative
expenses also include legal and professional fees as well as
travel expenses incurred in connection with the Companys
search for one or more additional operating companies. Most
variances in legal and professional fees and travel expenses can
be attributed to the number of potential acquisition candidates
the Company locates as well as the degree of interest the
Company may have in such candidates. The stronger the interest
in a candidate, the more rigorous financial and legal due
diligence the Company will incur with respect to that candidate.

Income tax expense, including $13,000 recorded as
a result of the cumulative effect of a change in accounting
principle, was $51,000 for the three months ended March 31,
2002 compared to $77,000 for the same period in 2001. The
Companys effective tax rate remains substantially less
than statutory rates primarily due to the availability of net
operating loss carryforwards (NOLs) for federal tax
purposes.

Recent Accounting Pronouncements

In July 2001, the FASB issued SFAS 142,
Goodwill and Other Intangible Assets. This statement
is effective for fiscal years beginning after December 15,
2001 and prescribes that goodwill should no longer be amortized
upon adoption of the standard. Instead, goodwill will be tested
annually for impairment, and on an interim basis if certain
impairment indicators are present. It requires the Company to
perform a transitional assessment of whether there is an
indication that goodwill is impaired as of the date of adoption.
Any goodwill impairment loss will be recognized as the
cumulative effect of a change in accounting principle no later
than the end of the fiscal year of adoption. Additionally,
intangible assets with an indefinite, economic useful life may
not be amortized.

The Company had approximately $552,000 of
unamortized goodwill related to B-Line classified as a component
of partially owned equity affiliates at December 31, 2001.
The Company monitors its investment

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for impairment and determined that its recorded
goodwill is not impaired. In addition, B.H. Acquisition had
negative goodwill of approximately $3.0 million recorded on
its financial statements as of December 31, 2001. In
accordance with SFAS 142, B.H. Acquisition reversed this
negative goodwill into earnings and presented it as a cumulative
effect of a change in accounting principle. The Companys
proportionate share of this reversal was $967,000, net of income
taxes, and has been presented as a cumulative effect of a change
in accounting principle in the consolidated statement of income
for the three months ended March 31, 2002.





Item 3.     Quantitative
and Qualitative Disclosures About Market Risk

The Company is exposed to market risk from
changes in interest rates. The Company had cash and cash
equivalents of approximately $73.1 million in interest
bearing accounts (interest at floating rates) and approximately
$4.0 million of short-term certificates of deposit
(interest at fixed rates) at March 31, 2002. Accordingly,
each one percent change in market interest rates would change
interest income by approximately $771,000 per annum. However,
any future transactions affecting the Companys cash and
cash equivalents and certificates of deposit will change this
estimate. Additionally, although interest rate changes would
affect the fair value of the Companys certificates of
deposits, the weighted average original term of certificates
held by the Company at March 31, 2002 was approximately six
months. The short-term nature of these certificates limits the
Companys risk of changes in the fair value of these
certificates.




PART II

OTHER INFORMATION




Item 6.     Exhibits
and Reports on Form 8-K

(a) Exhibits

|          |     |  |  |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|--------- | --- |  |  | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Reference |     |  |  |                        
|Number    |     |  |  | Description of Exhibits
|          |     |  |  |                        
|          | 2.1 |  |  |                        |  | Shareholders Agreement, dated as of July 3,
    2000, among B.H. Acquisition Limited, the Company and the other
    parties thereto (incorporated by reference to Exhibit 2.1
    to the Current Report on Form 8-K, dated July 18,
    2000).                                                                                                                                                       
|          | 2.2 |  |  |                        |  | Investment Agreement, dated as of July 3,
    2000, among B.H. Acquisition Limited, the Company and the other
    parties thereto (incorporated by reference to Exhibit 2.2
    to the Current Report on Form 8-K, dated July 18,
    2000).                                                                                                                                                         
|          | 2.3 |  |  |                        |  | Share Sale and Purchase Agreement, dated as of
    March 31, 2000, between PetroFina S.A. and B.H. Acquisition
    Limited (incorporated by reference to Exhibit 2.3 to the
    Current Report on Form 8-K, dated July 18, 2000).                                                                                                                                                                    
|          | 2.4 |  |  |                        |  | Share Sale and Purchase Agreement, dated as of
    March 31, 2000, between PetroFina S.A., Brittany Holdings
    Limited and B.H. Acquisition Limited (incorporated by reference
    to Exhibit 2.4 to the Current Report on Form 8-K,
    dated July 18, 2000).                                                                                                                                     
|          | 2.5 |  |  |                        |  | Share Purchase and Capital Commitment Agreement,
    dated as of October 1, 2001, between the Company,
    Castlewood Holdings, Trident, Marsh & McLennan Capital
    Professionals Fund, L.P., Marsh & McLennan
    Employees Securities Company, L.P. and the other parties
    thereto (incorporated by reference to Exhibit 2.1 to the
    Current Report on Form 8-K, dated December 13, 2001).
|          | 2.6 |  |  |                        |  | Amendment No. 1 and Waiver of Certain
    Closing Conditions to the Share Purchase and Capital Commitment
    Agreement, dated as of November 29, 2001 (incorporated by
    reference to Exhibit 2.2 to the Current Report on
    Form 8-K, dated December 13, 2001).                                                                                                                                
|          | 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).                                                                                                                                                                                                             

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|          |      |  |  |                         |  |                                                                                                                                                                                                                                                                                                
|--------- | ---- |  |  | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Reference |      |  |  |                        
|Number    |      |  |  | Description of Exhibits
|          |      |  |  |                        
|          | 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).
|          | 99.1 |  |  |                        |  | The Enstar Group, Inc. Private Securities
    Litigation Reform Act of 1995 Safe Harbor Compliance Statement
    For Forward-Looking Statements (incorporated by reference to
    Exhibit 99.1 to the Annual Report on Form 10-K, dated
    April 1, 2002).                                    

(b) Reports on Form 8-K

On December 13, 2001, the Company filed a
Current Report on Form 8-K pursuant to
Item 2  Acquisition or Disposition of Assets,
which was subsequently amended by a Current Report on
Form 8-K/A, filed February 12, 2002. The following
financial statements were included as part of the Current Report
on Form 8-K/A:



| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. Audited Financial Statements of
    Castlewood Limited (Castlewood) as of and for the
    years ended March 31, 2001 and 2000.                                                                                                                                                            
|
| | 2. Unaudited Financial Statements of
    Castlewood as of and for the six month periods ended
    September 30, 2001 and 2000.                                                                                                                                                                 
|
| | 3. Audited Financial Statements of River
    Thames Insurance Company Limited as of and for the years ended
    December 31, 2000 and 1999.                                                                                                                                                    
|
| | 4. Unaudited Financial Statements of River
    Thames Insurance Company Limited as of and for the nine month
    periods ended September 30, 2001 and 2000.                                                                                                                                    
|
| | 5. Audited Financial Statements of Overseas
    Reinsurance Corporation Limited as of and for the years ended
    December 31, 2000 and 1999.                                                                                                                                                  
|
| | 6. Unaudited Financial Statements of
    Overseas Reinsurance Corporation Limited as of and for the nine
    month periods ended September 30, 2001 and 2000.                                                                                                                                  
|
| | 7. Audited Financial Statements of Regis
    Agencies Limited as of and for the years ended December 31,
    2000 and 1999.                                                                                                                                                                    
|
| | 8. Unaudited Financial Statements of Regis
    Agencies Limited as of and for the nine month periods ended
    September 30, 2001 and 2000.                                                                                                                                                    
|
| | 9. Unaudited Pro Forma Combined Condensed
    Balance Sheet of the Company and Subsidiary as of
    September 30, 2001 and Unaudited Pro Forma Combined
    Condensed Statements of Income for the year ended
    December 31, 2000 and for the nine month period ended
    September 30, 2001.

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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.



| |                                            
| | -------------------------------------------
| | THE ENSTAR GROUP, INC.                     
|
| | By: /s/ CHERYL D. DAVIS                    
| |                                            
| | Cheryl D. Davis                            
| | Chief Financial Officer, Vice
    President
| | of Corporate Taxes, Secretary              
| | (Authorized Officer)                       
| | (Principal Financial Officer               

Date: May 15, 2002

17