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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-Q

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the quarterly period ended June 30,
    2002                                            
|          
|OR        
|          
|o          |  | 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



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The Enstar Group, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Georgia                                                            |  | 63-0590560                              
|(State or other jurisdiction of
    incorporation or organization) |  | (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 þ          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 þ          No o

The number of shares of Registrants Common
Stock, $.01 par value per share, outstanding at August 13,
2002 was 5,465,753.



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TABLE OF CONTENTS



|                             |                                                                                               |  |  |  |  |  |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                      
|                             | Item 1. Financial Statements                                                                 
|INDEPENDENT AUDITORS REPORT
|                             | 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 4. Submission of Matters to a Vote of Security Holders                                  
|                             | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                  
|SECTION 906 CERTIFICATION   



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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 HEREIN 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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PART I

FINANCIAL INFORMATION




Item 1.     Financial
Statements

THE ENSTAR GROUP, INC. AND
SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

|                                              |                                                                                                                                     |                                            |        |              |         |   |        |         |        | 
|--------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------------ | ------- | - | ------ | ------- | ------ | 
|                                              |                                                                                                                                     | June 30,                                   |        | December 31,
|                                              |                                                                                                                                     | 2002                                       |        | 2001        
|                                              |                                                                                                                                     |                                            |        |             
|                                              |                                                                                                                                     |                                           
|                                              |                                                                                                                                     | (Dollars in thousands)                    
|                                              |                                                                                                                                     | (Unaudited)                               
|ASSETS                                       
|Cash and cash equivalents                     |                                                                                                                                     | $                                          | 76,839 |              |         | $ | 73,366 |        
|Certificates of deposit                       |                                                                                                                                     |                                            | 3,999  |              |         |   | 3,991  |        
|Other assets                                  |                                                                                                                                     |                                            | 798    |              |         |   | 1,336  |        
|Partially owned equity affiliates             |                                                                                                                                     |                                            | 31,041 |              |         |   | 20,928 |        
|                                              |                                                                                                                                     |                                            |        |              |         |   |        |        
|                                              |                                                                                                                                     | Total assets                               |        | $            | 112,677 |   |        | $       | 99,621 | 
|                                              |                                                                                                                                     |                                            |        |              |         |   |        |        
|LIABILITIES AND SHAREHOLDERS
    EQUITY     
|Accounts payable and accrued liabilities      |                                                                                                                                     | $                                          | 808    |              |         | $ | 899    |        
|Income taxes payable                          |                                                                                                                                     |                                            | 392    |              |         |   | 43     |        
|Deferred income taxes                         |                                                                                                                                     |                                            | 151    |              |         |   | 151    |        
|Deferred liabilities                          |                                                                                                                                     |                                            | 516    |              |         |   | 464    |        
|Other liabilities                             |                                                                                                                                     |                                            | 413    |              |         |   | 407    |        
|                                              |                                                                                                                                     |                                            |        |              |         |   |        |        
|                                              |                                                                                                                                     | Total liabilities                          |        |              | 2,280   |   |        |         | 1,964  | 
|                                              |                                                                                                                                     |                                            |        |              |         |   |        |        
|Commitments and contingencies (Notes 3 and 7) |                                                                                                                                     |                                            |        |              |         |   |        |        
|Shareholders equity:                         |                                                                                                                                     |                                            |        |              |         |   |        |        
|                                              | Common stock ($.01 par value; 55,000,000 shares
    authorized, 5,908,104 shares issued at June 30, 2002 and
    December 31, 2001) |                                            |        | 59           |         |   |        | 59      |       
|                                              | Additional paid-in capital                                                                                                          |                                            |        | 188,292      |         |   |        | 188,001 |       
|                                              | Accumulated other comprehensive income
    (loss) of partially owned equity affiliates:                                             |                                            |        |              |         |   |        |         |       
|                                              | Unrealized holding losses on investments                                                                                            |                                            |        | (256         | )       |   |        | (150    | )     
|                                              | Currency translation adjustment                                                                                                     |                                            |        | 79           |         |   |        | 18      |       
|                                              | Accumulated deficit                                                                                                                 |                                            |        | (71,967      | )       |   |        | (84,461 | )     
|                                              | Treasury stock, at cost (442,351 shares)                                                                                            |                                            |        | (5,810       | )       |   |        | (5,810  | )     
|                                              |                                                                                                                                     |                                            |        |              |         |   |        |        
|                                              |                                                                                                                                     | Total shareholders equity                 |        |              | 110,397 |   |        |         | 97,657 | 
|                                              |                                                                                                                                     |                                            |        |              |         |   |        |        
|                                              |                                                                                                                                     | Total liabilities and shareholders equity |        | $            | 112,677 |   |        | $       | 99,621 | 
|                                              |                                                                                                                                     |                                            |        |              |         |   |        |        

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

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THE ENSTAR GROUP, INC. AND
SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

|                                                                                                   |  |                                               |           |                  |  |      |           |      |  |   |           |   |  |   |           |  
|-------------------------------------------------------------------------------------------------- |  | --------------------------------------------- | --------- | ---------------- |  | ---- | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                                                                   |  |                                               |           |                 
|                                                                                                   |  | Three Months Ended                            |           | Six Months Ended
|                                                                                                   |  | June 30,                                      |           | June 30,        
|                                                                                                   |  |                                               |           |                 
|                                                                                                   |  | 2002                                          |           | 2001             |  | 2002 |           | 2001
|                                                                                                   |  |                                               |           |                  |  |      |           |     
|                                                                                                   |  |                                              
|                                                                                                   |  | (Dollars in thousands, except per share data)
|                                                                                                   |  | (Unaudited)                                  
|Interest income                                                                                    |  | $                                             | 414       |                  |  | $    | 899       |      |  | $ | 832       |   |  | $ | 1,938     |  
|Earnings of partially owned equity affiliates                                                      |  |                                               | 10,592    |                  |  |      | 439       |      |  |   | 12,478    |   |  |   | 1,054     |  
|General and administrative expenses                                                                |  |                                               | (698      | )                |  |      | (679      | )    |  |   | (1,426    | ) |  |   | (1,262    | )
|                                                                                                   |  |                                               |           |                  |  |      |           |      |  |   |           |   |  |   |           |  
|Income before income taxes and cumulative effect
    of a change in accounting principle           |  |                                               | 10,308    |                  |  |      | 659       |      |  |   | 11,884    |   |  |   | 1,730     |  
|Income taxes                                                                                       |  |                                               | (319      | )                |  |      | (50       | )    |  |   | (357      | ) |  |   | (127      | )
|                                                                                                   |  |                                               |           |                  |  |      |           |      |  |   |           |   |  |   |           |  
|Income before cumulative effect of a change in
    accounting principle                            |  |                                               | 9,989     |                  |  |      | 609       |      |  |   | 11,527    |   |  |   | 1,603     |  
|Cumulative effect of a change in accounting
    principle, net of income taxes                     |  |                                               |          |                  |  |      |          |      |  |   | 967       |   |  |   |          |  
|                                                                                                   |  |                                               |           |                  |  |      |           |      |  |   |           |   |  |   |           |  
|Net income                                                                                         |  | $                                             | 9,989     |                  |  | $    | 609       |      |  | $ | 12,494    |   |  | $ | 1,603     |  
|                                                                                                   |  |                                               |           |                  |  |      |           |      |  |   |           |   |  |   |           |  
|Weighted average shares outstanding 
    basic                                                    |  |                                               | 5,465,753 |                  |  |      | 5,265,753 |      |  |   | 5,465,753 |   |  |   | 5,265,753 |  
|                                                                                                   |  |                                               |           |                  |  |      |           |      |  |   |           |   |  |   |           |  
|Weighted average shares outstanding 
    assuming dilution                                        |  |                                               | 5,717,920 |                  |  |      | 5,413,306 |      |  |   | 5,724,732 |   |  |   | 5,403,512 |  
|                                                                                                   |  |                                               |           |                  |  |      |           |      |  |   |           |   |  |   |           |  
|Income per common share before change in
    accounting principle  basic                          |  | $                                             | 1.83      |                  |  | $    | 0.12      |      |  | $ | 2.11      |   |  | $ | 0.30      |  
|Cumulative effect of a change in accounting
    principle, net of income taxes  basic             |  |                                               |          |                  |  |      |          |      |  |   | 0.18      |   |  |   |          |  
|                                                                                                   |  |                                               |           |                  |  |      |           |      |  |   |           |   |  |   |           |  
|Net income per common share  basic                                                                |  | $                                             | 1.83      |                  |  | $    | 0.12      |      |  | $ | 2.29      |   |  | $ | 0.30      |  
|                                                                                                   |  |                                               |           |                  |  |      |           |      |  |   |           |   |  |   |           |  
|Income per common share before change in
    accounting principle  assuming dilution              |  | $                                             | 1.75      |                  |  | $    | 0.11      |      |  | $ | 2.01      |   |  | $ | 0.30      |  
|Cumulative effect of a change in accounting
    principle, net of income taxes  assuming dilution |  |                                               |          |                  |  |      |          |      |  |   | 0.17      |   |  |   |          |  
|                                                                                                   |  |                                               |           |                  |  |      |           |      |  |   |           |   |  |   |           |  
|Net income per common share  assuming
    dilution                                                |  | $                                             | 1.75      |                  |  | $    | 0.11      |      |  | $ | 2.18      |   |  | $ | 0.30      |  
|                                                                                                   |  |                                               |           |                  |  |      |           |      |  |   |           |   |  |   |           |  

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

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THE ENSTAR GROUP, INC. AND
SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME

|                                                                            |                                                      |                                               |        |                  |  |      |     |      |  |   |        |      |   |   |       |   | 
|--------------------------------------------------------------------------- | ---------------------------------------------------- | --------------------------------------------- | ------ | ---------------- |  | ---- | --- | ---- |  | - | ------ | ---- | - | - | ----- | - | 
|                                                                            |                                                      |                                               |        |                  |  |     
|                                                                            |                                                      | Three Months                                  |        |                 
|                                                                            |                                                      | Ended                                         |        | Six Months Ended
|                                                                            |                                                      | June 30,                                      |        | June 30,        
|                                                                            |                                                      |                                               |        |                 
|                                                                            |                                                      | 2002                                          |        | 2001             |  | 2002 |     | 2001
|                                                                            |                                                      |                                               |        |                  |  |      |     |     
|                                                                            |                                                      |                                              
|                                                                            |                                                      | (Dollars in thousands, except per share data)
|                                                                            |                                                      | (Unaudited)                                  
|Net income                                                                  |                                                      | $                                             | 9,989  |                  |  | $    | 609 |      |  | $ | 12,494 |      |   | $ | 1,603 |  
|Other comprehensive income (loss) of
    partially owned equity affiliates: |                                                      |                                               |        |                  |  |      |     |      |  |   |        |      |   |   |       |  
|                                                                            | Unrealized holding gains (losses) on
    investments |                                               |        | 52               |  |      |     |     |  |   |        | (106 | ) |   |       |  | 
|                                                                            | Currency translation adjustment                      |                                               |        | 86               |  |      |     |     |  |   |        | 61   |   |   |       |  | 
|                                                                            |                                                      |                                               |        |                  |  |      |     |      |  |   |        |      |   |   |       |  
|Other comprehensive income (loss)                                           |                                                      |                                               | 138    |                  |  |      |    |      |  |   | (45    | )    |   |   |      |  
|                                                                            |                                                      |                                               |        |                  |  |      |     |      |  |   |        |      |   |   |       |  
|Comprehensive income                                                        |                                                      | $                                             | 10,127 |                  |  | $    | 609 |      |  | $ | 12,449 |      |   | $ | 1,603 |  
|                                                                            |                                                      |                                               |        |                  |  |      |     |      |  |   |        |      |   |   |       |  

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

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THE ENSTAR GROUP, INC. AND
SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                             |                                                                                       |                                                                                                                          |                                           |        |        |       |        |        |       |       |  
|------------------------------------------------------------ | ------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------- | ------ | ------ | ----- | ------ | ------ | ----- | ----- | -
|                                                             |                                                                                       |                                                                                                                         
|                                                             |                                                                                       | Six Months Ended                                                                                                        
|                                                             |                                                                                       | June 30,                                                                                                                
|                                                             |                                                                                       |                                                                                                                         
|                                                             |                                                                                       | 2002                                                                                                                     |                                           | 2001  
|                                                             |                                                                                       |                                                                                                                          |                                           |       
|                                                             |                                                                                       |                                                                                                                         
|                                                             |                                                                                       | (Dollars in thousands)                                                                                                  
|                                                             |                                                                                       | (Unaudited)                                                                                                             
|Cash flows from operating activities:                        |                                                                                       |                                                                                                                          |                                           |        |        |       |        |       
|                                                             | Net income                                                                            |                                                                                                                          | $                                         | 12,494 |        |       | $      | 1,603  |      
|                                                             | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                                                                          |                                           |        |        |       |        |        |      
|                                                             |                                                                                       | Depreciation and amortization                                                                                            |                                           |        | 14     |       |        |        | 51    |      
|                                                             |                                                                                       | Earnings of partially owned equity affiliates,
    net of dividends received                                             |                                           |        | (9,178 | )     |        |        | 5,257 |      
|                                                             |                                                                                       | Cumulative effect of a change in accounting
    principle from partially owned equity affiliate, net of income
    taxes |                                           |        | (967   | )     |        |        |      |      
|                                                             |                                                                                       | Noncash compensation expense                                                                                             |                                           |        | 291    |       |        |        |      |      
|                                                             | Changes in assets and liabilities:                                                    |                                                                                                                          |                                           |        |        |       |        |        |      
|                                                             |                                                                                       | Accounts payable and accrued expenses                                                                                    |                                           |        | 245    |       |        |        | 200   |      
|                                                             |                                                                                       | Other, net                                                                                                               |                                           |        | 608    |       |        |        | (94   | )    
|                                                             |                                                                                       |                                                                                                                          |                                           |        |        |       |        |       
|                                                             |                                                                                       |                                                                                                                          | Net cash provided by operating activities |        |        | 3,507 |        |        |       | 7,017 |  
|                                                             |                                                                                       |                                                                                                                          |                                           |        |        |       |        |       
|Cash flows from investing activities:                        |                                                                                       |                                                                                                                          |                                           |        |        |       |        |       
|                                                             | Purchases of certificates of deposit                                                  |                                                                                                                          |                                           | (3,999 | )      |       |        | (3,923 | )    
|                                                             | Maturities of certificates of deposit                                                 |                                                                                                                          |                                           | 3,991  |        |       |        | 3,798  |      
|                                                             | Other, net                                                                            |                                                                                                                          |                                           | (26    | )      |       |        | (7     | )    
|                                                             |                                                                                       |                                                                                                                          |                                           |        |        |       |        |       
|                                                             |                                                                                       |                                                                                                                          | Net cash used in investing activities     |        |        | (34   | )      |        |       | (132  | )
|                                                             |                                                                                       |                                                                                                                          |                                           |        |        |       |        |       
|Increase in cash and cash equivalents                        |                                                                                       |                                                                                                                          | 3,473                                     |        |        |       | 6,885  |       
|Cash and cash equivalents at the beginning of the
    period |                                                                                       |                                                                                                                          | 73,366                                    |        |        |       | 75,252 |       
|                                                             |                                                                                       |                                                                                                                          |                                           |        |        |       |        |       
|Cash and cash equivalents at the end of the period           |                                                                                       | $                                                                                                                        | 76,839                                    |        |        | $     | 82,137 |       
|                                                             |                                                                                       |                                                                                                                          |                                           |        |        |       |        |       
|Supplemental disclosures of cash flow information:           |                                                                                       |                                                                                                                          |                                           |        |        |       |        |       
|                                                             | Income taxes paid                                                                     |                                                                                                                          | $                                         | 21     |        |       | $      | 288    |      
|                                                             |                                                                                       |                                                                                                                          |                                           |        |        |       |        |       

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 and six months
ended June 30, 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 the Companys
cumulative proportionate share of losses that were not
recognized during the period the application of the equity
method was suspended.

(d) Comprehensive Income 
The Company records other comprehensive income from Castlewood
Holdings, one of its partially owned equity affiliates. Other
comprehensive income arises from unrealized holding gains and
losses from debt and equity securities that are classified as
available-for-sale and are carried at fair value and currency
translation adjustments resulting from the translations of
financial information of subsidiaries into U.S. dollars.

(e) 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.

(f) Reclassifications 
Certain prior period amounts have been reclassified in the
financial statements to conform with the current period
presentation.

5



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THE ENSTAR GROUP, INC. AND
SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|        |                                  
|------- | ---------------------------------
|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 similar receivables. B-Line
also purchases credit card receivables and recovers payments on
these accounts. At June 30, 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 June 30, 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. In May 2002, the Company received
$3.3 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

6



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##### Table of Contents



THE ENSTAR GROUP, INC. AND
SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

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:

|                  |  |                        |         |              |  |   |         | 
|----------------- |  | ---------------------- | ------- | ------------ |  | - | ------- | 
|                  |  | June 30,               |         | December 31,
|                  |  | 2002                   |         | 2001        
|                  |  |                        |         |             
|                  |  |                       
|                  |  | (Dollars in thousands)
|                  |  | (Unaudited)           
|Total assets      |  | $                      | 706,021 |              |  | $ | 693,955 | 
|Total liabilities |  |                        | 569,905 |              |  |   | 593,216 | 
|Total equity      |  |                        | 136,116 |              |  |   | 100,739 | 

|                 |  |                        |        |                  |  |      |       |      |  |   |        |  |  |   |       | 
|---------------- |  | ---------------------- | ------ | ---------------- |  | ---- | ----- | ---- |  | - | ------ |  |  | - | ----- | 
|                 |  |                        |        |                 
|                 |  | Three Months Ended     |        | Six Months Ended
|                 |  | June 30,               |        | June 30,        
|                 |  |                        |        |                 
|                 |  | 2002                   |        | 2001             |  | 2002 |       | 2001
|                 |  |                        |        |                  |  |      |       |     
|                 |  |                       
|                 |  | (Dollars in thousands)
|                 |  | (Unaudited)           
|Revenue          |  | $                      | 8,990  |                  |  | $    | 4,211 |      |  | $ | 22,902 |  |  | $ | 9,299 | 
|Operating income |  |                        | 28,161 |                  |  |      | 958   |      |  |   | 33,969 |  |  |   | 2,286 | 
|Net income       |  |                        | 34,139 |                  |  |      | 2,693 |      |  |   | 45,511 |  |  |   | 6,313 | 

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 and six months ended June 30, 2002 and 2001 is as
follows:

|                                            |  |                                  |        |             |  |            |        |       |  |   |        |   |  |   |        |  
|------------------------------------------- |  | -------------------------------- | ------ | ----------- |  | ---------- | ------ | ----- |  | - | ------ | - |  | - | ------ | -
|                                            |  |                                 
|                                            |  | Three Months Ended June 30, 2002
|                                            |  |                                 
|                                            |  |                                  |        | B.H.        |  | Castlewood |        |      
|                                            |  | B-Line                           |        | Acquisition |  | Holdings   |        | Total
|                                            |  |                                  |        |             |  |            |        |      
|                                            |  |                                 
|                                            |  | (Dollars in thousands)          
|                                            |  | (Unaudited)                     
|Net underwriting gain                       |  |                                  |        |             |  | $          | 19,840 |       |  |   |        |   |  | $ | 19,840 |  
|Revenue                                     |  | $                                | 6,484  |             |  |            | (1     | )     |  | $ | 2,507  |   |  |   | 8,990  |  
|Net investment income                       |  |                                  |        |             |  |            | 532    |       |  |   | 2,174  |   |  |   | 2,706  |  
|Share of net income of partly-owned company |  |                                  |        |             |  |            |        |       |  |   | 8,936  |   |  |   | 8,936  |  
|General and administrative expenses         |  |                                  | (3,263 | )           |  |            | (648   | )     |  |   | (5,333 | ) |  |   | (9,244 | )
|Amortization of run-off provision           |  |                                  |        |             |  |            | 563    |       |  |   |        |   |  |   | 563    |  
|Interest expense                            |  |                                  | (333   | )           |  |            |        |       |  |   | (28    | ) |  |   | (361   | )
|Foreign exchange gain (loss)                |  |                                  |        |             |  |            | (429   | )     |  |   | 3,105  |   |  |   | 2,676  |  
|                                            |  |                                  |        |             |  |            |        |       |  |   |        |   |  |   |        |  
|Income before income taxes                  |  |                                  | 2,888  |             |  |            | 19,857 |       |  |   | 11,361 |   |  |   | 34,106 |  
|Income tax benefit                          |  |                                  |        |             |  |            |        |       |  |   | 33     |   |  |   | 33     |  
|                                            |  |                                  |        |             |  |            |        |       |  |   |        |   |  |   |        |  
|Net income                                  |  | $                                | 2,888  |             |  | $          | 19,857 |       |  | $ | 11,394 |   |  | $ | 34,139 |  
|Companys economic ownership %              |  |                                  | 8.34   | %           |  |            | 33     | %     |  |   | 33 1/3 | % |  |   |        |  
|                                            |  |                                  |        |             |  |            |        |       |  |   |        |   |  |   |        |  
|Companys earnings of equity affiliates     |  | $                                | 241    |             |  | $          | 6,553  |       |  | $ | 3,798  |   |  | $ | 10,592 |  
|                                            |  |                                  |        |             |  |            |        |       |  |   |        |   |  |   |        |  

|                                                                                         |  |                                |        |             |  |            |        |       |  |   |        |   |  |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | ----------- |  | ---------- | ------ | ----- |  | - | ------ | - |  | - | ------- | -
|                                                                                         |  |                               
|                                                                                         |  | Six Months Ended June 30, 2002
|                                                                                         |  |                               
|                                                                                         |  |                                |        | B.H.        |  | Castlewood |        |      
|                                                                                         |  | B-Line                         |        | Acquisition |  | Holdings   |        | Total
|                                                                                         |  |                                |        |             |  |            |        |      
|                                                                                         |  |                               
|                                                                                         |  | (Dollars in thousands)        
|                                                                                         |  | (Unaudited)                   
|Net underwriting gain                                                                    |  |                                |        |             |  | $          | 19,602 |       |  |   |        |   |  | $ | 19,602  |  
|Revenue                                                                                  |  | $                              | 14,062 |             |  |            | (10    | )     |  | $ | 8,850  |   |  |   | 22,902  |  
|Net investment income                                                                    |  |                                |        |             |  |            | 1,116  |       |  |   | 4,617  |   |  |   | 5,733   |  
|Share of net income of partly-owned company                                              |  |                                |        |             |  |            |        |       |  |   | 9,093  |   |  |   | 9,093   |  
|General and administrative expenses                                                      |  |                                | (7,251 | )           |  |            | (1,319 | )     |  |   | (8,724 | ) |  |   | (17,294 | )
|Amortization of run-off provision                                                        |  |                                |        |             |  |            | 1,126  |       |  |   |        |   |  |   | 1,126   |  
|Interest expense                                                                         |  |                                | (269   | )           |  |            |        |       |  |   | (66    | ) |  |   | (335    | )
|Foreign exchange gain (loss)                                                             |  |                                |        |             |  |            | (309   | )     |  |   | 2,189  |   |  |   | 1,880   |  
|                                                                                         |  |                                |        |             |  |            |        |       |  |   |        |   |  |   |         |  
|Income before income taxes and cumulative effect
    of a change in accounting principle |  |                                | 6,542  |             |  |            | 20,206 |       |  |   | 15,959 |   |  |   | 42,707  |  
|Income taxes                                                                             |  |                                |        |             |  |            |        |       |  |   | (165   | ) |  |   | (165    | )
|                                                                                         |  |                                |        |             |  |            |        |       |  |   |        |   |  |   |         |  
|Income before cumulative effect of a change in
    accounting principle                  |  |                                | 6,542  |             |  |            | 20,206 |       |  |   | 15,794 |   |  |   | 42,542  |  
|Cumulative effect of a change in accounting
    principle, net of income taxes           |  |                                |        |             |  |            | 2,969  |       |  |   |        |   |  |   | 2,969   |  
|                                                                                         |  |                                |        |             |  |            |        |       |  |   |        |   |  |   |         |  
|Net income                                                                               |  | $                              | 6,542  |             |  | $          | 23,175 |       |  | $ | 15,794 |   |  | $ | 45,511  |  
|Companys economic ownership %                                                           |  |                                | 8.34   | %           |  |            | 33     | %     |  |   | 33 1/3 | % |  |   |         |  
|                                                                                         |  |                                |        |             |  |            |        |       |  |   |        |   |  |   |         |  
|Companys earnings of equity affiliates                                                  |  | $                              | 546    |             |  | $          | 7,648  |       |  | $ | 5,265  |   |  | $ | 13,459  |  
|                                                                                         |  |                                |        |             |  |            |        |       |  |   |        |   |  |   |         |  
|Partially owned equity affiliates                                                        |  | $                              | 2,347  |             |  | $          | 11,705 |       |  | $ | 16,989 |   |  | $ | 31,041  |  
|                                                                                         |  |                                |        |             |  |            |        |       |  |   |        |   |  |   |         |  

8



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##### Table of Contents



THE ENSTAR GROUP, INC. AND
SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                        |  |                        |        |             |  |       |       |   |  |   |        |  
|--------------------------------------- |  | ---------------------- | ------ | ----------- |  | ----- | ----- | - |  | - | ------ | -
|                                        |  |                       
|                                        |  | Three Months Ended    
|                                        |  | June 30, 2001         
|                                        |  |                       
|                                        |  |                        |        | B.H.        |  |      
|                                        |  | B-Line                 |        | Acquisition |  | Total
|                                        |  |                        |        |             |  |      
|                                        |  |                       
|                                        |  | (Dollars in thousands)
|                                        |  | (Unaudited)           
|Net underwriting loss                   |  |                        |        |             |  | $     | (68   | ) |  | $ | (68    | )
|Revenue                                 |  | $                      | 4,200  |             |  |       | 11    |   |  |   | 4,211  |  
|Net investment income                   |  |                        |        |             |  |       | 1,124 |   |  |   | 1,124  |  
|General and administrative expenses     |  |                        | (1,433 | )           |  |       | (807  | ) |  |   | (2,240 | )
|Amortization of negative goodwill       |  |                        |        |             |  |       | 212   |   |  |   | 212    |  
|Amortization of run-off provision       |  |                        |        |             |  |       | 563   |   |  |   | 563    |  
|Interest expense                        |  |                        | (946   | )           |  |       |       |   |  |   | (946   | )
|Foreign exchange loss                   |  |                        |        |             |  |       | (163  | ) |  |   | (163   | )
|                                        |  |                        |        |             |  |       |       |   |  |   |        |  
|Net income                              |  | $                      | 1,821  |             |  | $     | 872   |   |  | $ | 2,693  |  
|Companys economic ownership %          |  |                        | 8.34   | %           |  |       | 33    | % |  |   |        |  
|                                        |  |                        |        |             |  |       |       |   |  |   |        |  
|Companys earnings of equity affiliates |  | $                      | 151    |             |  | $     | 288   |   |  | $ | 439    |  
|                                        |  |                        |        |             |  |       |       |   |  |   |        |  

|                                                          |  |                        |        |             |  |       |        |   |  |   |        |  
|--------------------------------------------------------- |  | ---------------------- | ------ | ----------- |  | ----- | ------ | - |  | - | ------ | -
|                                                          |  |                       
|                                                          |  | Six Months Ended      
|                                                          |  | June 30, 2001         
|                                                          |  |                       
|                                                          |  |                        |        | B.H.        |  |      
|                                                          |  | B-Line                 |        | Acquisition |  | Total
|                                                          |  |                        |        |             |  |      
|                                                          |  |                       
|                                                          |  | (Dollars in thousands)
|                                                          |  | (Unaudited)           
|Net underwriting loss                                     |  |                        |        |             |  | $     | (140   | ) |  | $ | (140   | )
|Revenue                                                   |  | $                      | 9,281  |             |  |       | 18     |   |  |   | 9,299  |  
|Net investment income                                     |  |                        |        |             |  |       | 2,799  |   |  |   | 2,799  |  
|General and administrative expenses                       |  |                        | (3,465 | )           |  |       | (1,659 | ) |  |   | (5,124 | )
|Amortization of negative goodwill                         |  |                        |        |             |  |       | 424    |   |  |   | 424    |  
|Amortization of run-off provision                         |  |                        |        |             |  |       | 1,125  |   |  |   | 1,125  |  
|Interest expense                                          |  |                        | (1,749 | )           |  |       |        |   |  |   | (1,749 | )
|Foreign exchange loss                                     |  |                        |        |             |  |       | (396   | ) |  |   | (396   | )
|                                                          |  |                        |        |             |  |       |        |   |  |   |        |  
|Net income before extraordinary item                      |  |                        | 4,067  |             |  |       | 2,171  |   |  |   | 6,238  |  
|Extraordinary item  gain on early
    retirement of debt |  |                        | 75     |             |  |       |        |   |  |   | 75     |  
|                                                          |  |                        |        |             |  |       |        |   |  |   |        |  
|Net income                                                |  | $                      | 4,142  |             |  | $     | 2,171  |   |  | $ | 6,313  |  
|Companys economic ownership %                            |  |                        | 8.14   | %           |  |       | 33     | % |  |   |        |  
|                                                          |  |                        |        |             |  |       |        |   |  |   |        |  
|Companys earnings of equity affiliates                   |  | $                      | 338    |             |  | $     | 716    |   |  | $ | 1,054  |  
|                                                          |  |                        |        |             |  |       |        |   |  |   |        |  
|Partially owned equity affiliates                         |  | $                      | 1,521  |             |  | $     | 6,491  |   |  | $ | 8,012  |  
|                                                          |  |                        |        |             |  |       |        |   |  |   |        |  

9



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##### Table of Contents



THE ENSTAR GROUP, INC. AND
SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The operations of B-Line are reported by the
Company three months in arrears. The Companys ownership
percentage for B-Line used in the table for the six months ended
June 30, 2001 represents a weighted average. The
Companys ownership percentages in B-Line were 7.99% at
December 31, 2000 and 8.34% thereafter.

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 and six months ended June 30, 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 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                            |           | Six Months Ended
|                                                                                                   |  | June 30,                                      |           | June 30,        
|                                                                                                   |  |                                               |           |                 
|                                                                                                   |  | 2002                                          |           | 2001             |  | 2002 |           | 2001
|                                                                                                   |  |                                               |           |                  |  |      |           |     
|                                                                                                   |  |                                              
|                                                                                                   |  | (Dollars in thousands, except per share data)
|                                                                                                   |  | (Unaudited)                                  
|Income before cumulative effect of a change in
    accounting principle                            |  | $                                             | 9,989     |                  |  | $    | 609       |      |  | $ | 11,527    |  |  | $ | 1,603     | 
|Cumulative effect of a change in accounting
    principle, net of income taxes                     |  |                                               |          |                  |  |      |          |      |  |   | 967       |  |  |   |          | 
|                                                                                                   |  |                                               |           |                  |  |      |           |      |  |   |           |  |  |   |           | 
|Net income                                                                                         |  | $                                             | 9,989     |                  |  | $    | 609       |      |  | $ | 12,494    |  |  | $ | 1,603     | 
|                                                                                                   |  |                                               |           |                  |  |      |           |      |  |   |           |  |  |   |           | 
|Income per common share before change in
    accounting principle  basic                          |  | $                                             | 1.83      |                  |  | $    | 0.12      |      |  | $ | 2.11      |  |  | $ | 0.30      | 
|Cumulative effect of a change in accounting
    principle, net of income taxes  basic             |  |                                               |          |                  |  |      |          |      |  |   | 0.18      |  |  |   |          | 
|                                                                                                   |  |                                               |           |                  |  |      |           |      |  |   |           |  |  |   |           | 
|Net income per common share  basic                                                                |  | $                                             | 1.83      |                  |  | $    | 0.12      |      |  | $ | 2.29      |  |  | $ | 0.30      | 
|                                                                                                   |  |                                               |           |                  |  |      |           |      |  |   |           |  |  |   |           | 
|Income per common share before change in
    accounting principle  assuming dilution              |  | $                                             | 1.75      |                  |  | $    | 0.11      |      |  | $ | 2.01      |  |  | $ | 0.30      | 
|Cumulative effect of a change in accounting
    principle, net of income taxes  assuming dilution |  |                                               |          |                  |  |      |          |      |  |   | 0.17      |  |  |   |          | 
|                                                                                                   |  |                                               |           |                  |  |      |           |      |  |   |           |  |  |   |           | 
|Net income per common
    share  assuming dilution                                                |  | $                                             | 1.75      |                  |  | $    | 0.11      |      |  | $ | 2.18      |  |  | $ | 0.30      | 
|                                                                                                   |  |                                               |           |                  |  |      |           |      |  |   |           |  |  |   |           | 
|Weighted average shares
    outstanding  basic                                                    |  |                                               | 5,465,753 |                  |  |      | 5,265,753 |      |  |   | 5,465,753 |  |  |   | 5,265,753 | 
|Common share equivalents                                                                           |  |                                               | 252,167   |                  |  |      | 147,553   |      |  |   | 258,979   |  |  |   | 137,759   | 
|                                                                                                   |  |                                               |           |                  |  |      |           |      |  |   |           |  |  |   |           | 
|Weighted average shares
    outstanding  assuming dilution                                        |  |                                               | 5,717,920 |                  |  |      | 5,413,306 |      |  |   | 5,724,732 |  |  |   | 5,403,512 | 
|                                                                                                   |  |                                               |           |                  |  |      |           |      |  |   |           |  |  |   |           | 

10



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##### Table of Contents



THE ENSTAR GROUP, INC. AND
SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 6:     Recent
Accounting Pronouncements

In June 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 within six months of the
date of adoption.

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.
Upon adoption of SFAS 142 on January 1, 2002, the Company
performed its transitional impairment analysis and concluded
that its recorded goodwill was 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 upon adoption of SFAS 142 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 six months ended
June 30, 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 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 and six months ended June 30, 2002
and 2001.

11



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##### Table of Contents



THE ENSTAR GROUP, INC. AND
SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                                        |                                                                                         |                                               |           |                           |  |      |           |       |   |   |           |      |  |   |           |       |  
|--------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | --------------------------------------------- | --------- | ------------------------- |  | ---- | --------- | ----- | - | - | --------- | ---- |  | - | --------- | ----- | -
|                                                                                        |                                                                                         |                                               |           |                           |  |     
|                                                                                        |                                                                                         | Three Months Ended                            |           |                          
|                                                                                        |                                                                                         | June 30,                                      |           | Six Months Ended June 30,
|                                                                                        |                                                                                         |                                               |           |                          
|                                                                                        |                                                                                         | 2002                                          |           | 2001                      |  | 2002 |           | 2001 
|                                                                                        |                                                                                         |                                               |           |                           |  |      |           |      
|                                                                                        |                                                                                         |                                              
|                                                                                        |                                                                                         | (Dollars in thousands, except per share data)
|                                                                                        |                                                                                         | (Unaudited)                                  
|Reported income before cumulative effect of a
    change in accounting principle        |                                                                                         | $                                             | 9,989     |                           |  | $    | 609       |       |   | $ | 11,527    |      |  | $ | 1,603     |      
|Reported cumulative effect of a change in
    accounting principle, net of income taxes |                                                                                         |                                               |          |                           |  |      |          |       |   |   | 967       |      |  |   |          |      
|                                                                                        |                                                                                         |                                               |           |                           |  |      |           |       |   |   |           |      |  |   |           |      
|Reported net income                                                                     |                                                                                         |                                               | 9,989     |                           |  |      | 609       |       |   |   | 12,494    |      |  |   | 1,603     |      
|                                                                                        | Goodwill amortization                                                                   |                                               |           |                          |  |      |           | 19    |   |   |           |     |  |   |           | 38    |  
|                                                                                        | Negative goodwill amortization (through
    B.H. Acquisition)                           |                                               |           |                          |  |      |           | (66   | ) |   |           |     |  |   |           | (132  | )
|                                                                                        |                                                                                         |                                               |           |                           |  |      |           |       |   |   |           |      |  |   |           |      
|Adjusted net income                                                                     |                                                                                         | $                                             | 9,989     |                           |  | $    | 562       |       |   | $ | 12,494    |      |  | $ | 1,509     |      
|                                                                                        |                                                                                         |                                               |           |                           |  |      |           |       |   |   |           |      |  |   |           |      
|Earnings per common share  basic:                                                      |                                                                                         |                                               |           |                           |  |      |           |       |   |   |           |      |  |   |           |      
|                                                                                        | Reported income before a change in accounting
    principle                             |                                               | $         | 1.83                      |  |      | $         | 0.12  |   |   | $         | 2.11 |  |   | $         | 0.30  |  
|                                                                                        | Reported cumulative effect of a change in
    accounting principle, net of income taxes |                                               |           |                          |  |      |           |      |   |   |           | 0.18 |  |   |           |      |  
|                                                                                        |                                                                                         |                                               |           |                           |  |      |           |       |   |   |           |      |  |   |           |      
|                                                                                        | Reported net income                                                                     |                                               |           | 1.83                      |  |      |           | 0.12  |   |   |           | 2.29 |  |   |           | 0.30  |  
|                                                                                        | Goodwill amortization                                                                   |                                               |           |                          |  |      |           | 0.00  |   |   |           |     |  |   |           | 0.01  |  
|                                                                                        | Negative goodwill amortization                                                          |                                               |           |                          |  |      |           | (0.01 | ) |   |           |     |  |   |           | (0.03 | )
|                                                                                        |                                                                                         |                                               |           |                           |  |      |           |       |   |   |           |      |  |   |           |      
|                                                                                        | Adjusted net income                                                                     |                                               | $         | 1.83                      |  |      | $         | 0.11  |   |   | $         | 2.29 |  |   | $         | 0.28  |  
|                                                                                        |                                                                                         |                                               |           |                           |  |      |           |       |   |   |           |      |  |   |           |      
|Earnings per common share  assuming
    dilution:                                      |                                                                                         |                                               |           |                           |  |      |           |       |   |   |           |      |  |   |           |      
|                                                                                        | Reported income before a change in accounting
    principle                             |                                               | $         | 1.75                      |  |      | $         | 0.11  |   |   | $         | 2.01 |  |   | $         | 0.30  |  
|                                                                                        | Reported cumulative effect of a change in
    accounting principle, net of income taxes |                                               |           |                          |  |      |           |      |   |   |           | 0.17 |  |   |           |      |  
|                                                                                        |                                                                                         |                                               |           |                           |  |      |           |       |   |   |           |      |  |   |           |      
|                                                                                        | Reported net income                                                                     |                                               |           | 1.75                      |  |      |           | 0.11  |   |   |           | 2.18 |  |   |           | 0.30  |  
|                                                                                        | Goodwill amortization                                                                   |                                               |           |                          |  |      |           | 0.00  |   |   |           |     |  |   |           | 0.01  |  
|                                                                                        | Negative goodwill amortization                                                          |                                               |           |                          |  |      |           | (0.01 | ) |   |           |     |  |   |           | (0.02 | )
|                                                                                        |                                                                                         |                                               |           |                           |  |      |           |       |   |   |           |      |  |   |           |      
|                                                                                        | Adjusted net income                                                                     |                                               | $         | 1.75                      |  |      | $         | 0.10  |   |   | $         | 2.18 |  |   | $         | 0.29  |  
|                                                                                        |                                                                                         |                                               |           |                           |  |      |           |       |   |   |           |      |  |   |           |      
|Weighted average shares outstanding 
    basic                                         |                                                                                         |                                               | 5,465,753 |                           |  |      | 5,265,753 |       |   |   | 5,465,753 |      |  |   | 5,265,753 |      
|                                                                                        |                                                                                         |                                               |           |                           |  |      |           |       |   |   |           |      |  |   |           |      
|Weighted average shares outstanding 
    assuming dilution                             |                                                                                         |                                               | 5,717,920 |                           |  |      | 5,413,306 |       |   |   | 5,724,732 |      |  |   | 5,403,512 |      
|                                                                                        |                                                                                         |                                               |           |                           |  |      |           |       |   |   |           |      |  |   |           |      

12



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##### Table of Contents



THE ENSTAR GROUP, INC. AND
SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Also on January 1, 2002, the Company adopted
SFAS 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, which addresses financial accounting
and reporting for the impairment and disposition of long-lived
assets. The adoption of SFAS 144 did not have an impact on the
Companys financial position or results of operations.

In April 2002, the FASB issued
SFAS 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections which provides for the rescission of
several previously issued accounting standards, new accounting
guidance for the accounting of certain lease modifications and
various technical corrections that are not substantive in nature
to existing pronouncements. The Company will adopt SFAS 145
on January 1, 2003, except for the provisions relating to
the amendment of SFAS 13, which was adopted for
transactions occurring subsequent to May 15, 2002. The
Company is currently assessing the impact of SFAS 145 on
its financial position and results of operations.

In July 2002, the FASB issued SFAS 146,
Accounting for Costs Associated with Exit or Disposal
Activities, which requires companies to recognize costs
associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or
disposal plan. SFAS 146 is to be applied prospectively to
exit or disposal activities initiated after December 31,
2002. The Company is currently assessing the impact of
SFAS 146 on its financial position and results of
operations.

Note 7:     Subsequent
Events

In July 2002, the Company announced that its
partially owned equity affiliate, Castlewood Holdings, signed a
definitive agreement for the purchase of Hudson Reinsurance
Company Limited, a Bermuda-based subsidiary of Amphion Holdings
Inc. The acquisition, which is subject to regulatory approval in
Bermuda, will be effected through a wholly owned subsidiary of
Castlewood Holdings. The transaction is not significant to the
Companys financial statements and is expected to be funded
from internal sources.

13



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##### Table of Contents






INDEPENDENT AUDITORS 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 June 30, 2002, and the related
consolidated statements of income, comprehensive income, and
cash flows for the three-month and six-month periods ended
June 30, 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

August 12, 2002

14



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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 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.

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 $112.7 million at June 30, 2002, consist
primarily of approximately $76.8 million in cash and cash
equivalents, approximately $4.0 million in certificates of
deposit and approximately $31.0 million in partially owned
equity affiliates.

The Companys net increase in cash and cash
equivalents for the six months ended June 30, 2002 was
approximately $3.5 million. This increase can primarily be
attributed to the receipt of a dividend of $3.3 million
from B.H. Acquisition in May 2002.

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,

15



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##### Table of Contents



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.


Financial Condition

The Company had total assets of
$112.7 million at June 30, 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
$10.0 million and approximately $12.5 million for the
three and six month periods ended June 30, 2002,
respectively, compared to net income of $609,000 and
approximately $1.6 million for the same periods in the prior
year. The changes in net income from the three and six month
periods ended June 30, 2002 compared to the same periods in
the prior year are primarily a result of an increase in earnings
from partially owned equity affiliates, offset by a decrease in
interest income.

Interest income was $414,000 and $832,000 for the
three and six months periods ended June 30, 2002,
respectively, compared to $899,000 and approximately
$1.9 million for the same periods in the prior year.
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 $10.6 million and approximately
$12.5 million for the three and six month periods ended
June 30, 2002, respectively, compared to $439,000 and
approximately $1.1 million for the same periods in the prior
year. The Company recorded equity in earnings of approximately
$6.6 million and approximately $6.7 million from B.H.
Acquisition for the three and six month periods ended
June 30, 2002, respectively, compared to $288,000 and
$716,000 for the same periods in 2001. The Companys
increased earnings attributable to B.H. Acquisition for the
three and six month periods ended June 30, 2002 arose
primarily from a re-evaluation of the required insurance
reserves for losses and loss adjustment expenses of
B.H. Acquisitions subsidiaries. The reserves for
losses and loss adjustment expenses continue to be within the
range projected by B.H. Acquisitions external
actuaries. The Companys equity in earnings from B-Line LLC
(B-Line) was $241,000 and $546,000 for the three and
six month periods ended June 30, 2002, respectively,
compared to $151,000 and $338,000 for the same periods in 2001.
The Company recorded equity in earnings of approximately
$3.8 million and approximately $5.3 million from
Castlewood Holdings for the three and six months ended June 30,
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 in
the first quarter of 2002.

General and administrative expenses were $698,000
and approximately $1.4 million for the three and six month
periods ended June 30, 2002, respectively, compared to
$679,000 and approximately $1.3 million for the same
periods in 2001. The Company recorded $291,000 in non-cash
compensation expense in the six months ended June 30, 2002
relating to stock option agreements (the Company will incur
additional non-cash compensation expense of $332,000 through
June 2004 relating to these stock option agreements). This
increase was 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 in the first quarter of 2002, was $319,000 and
$370,000 for the three and six month periods ended June 30, 2002
compared to $50,000 and $127,000 for the same periods in 2001.
The Companys

16



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##### Table of Contents



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 June 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 within six months of the
date of adoption.

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.
Upon adoption of SFAS 142 on January 1, 2002, the Company
performed its transitional impairment analysis and concluded
that its recorded goodwill was 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 upon
adoption of SFAS 142 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 six months ended June 30, 2002.

Also on January 1, 2002, the Company adopted
SFAS 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which addresses financial accounting
and reporting for the impairment and disposition of long-lived
assets. The adoption of SFAS 144 did not have an impact on the
Companys financial position or results of operations.

In April 2002, the FASB issued SFAS 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. which provides for the rescission of several
previously issued accounting standards, new accounting guidance
for the accounting of certain lease modifications and various
technical corrections that are not substantive in nature to
existing pronouncements. The Company will adopt SFAS 145 on
January 1, 2003, except for the provisions relating to the
amendment of SFAS 13, which was adopted for transactions
occurring subsequent to May 15, 2002. The Company is
currently assessing the impact of SFAS 145 on its financial
position and results of operations.

In July 2002, the FASB issued SFAS 146,
Accounting for Costs Associated with Exit or Disposal
Activities, which requires companies to recognize costs
associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or
disposal plan. SFAS 146 is to be applied prospectively to exit
or disposal activities initiated after December 31, 2002. The
Company is currently assessing the impact of SFAS 146 on its
financial position and results of operations.

Recent Development

In July 2002, the Company announced that its
partially owned equity affiliate, Castlewood Holdings, signed a
definitive agreement for the purchase of Hudson Reinsurance
Company Limited, a Bermuda-based subsidiary of Amphion Holdings
Inc. The acquisition, which is subject to regulatory approval in
Bermuda, will be effected through a wholly owned subsidiary of
Castlewood Holdings. The transaction is not significant to the
Companys financial statements and is expected to be funded
from internal sources.






|        |                                                               
|------- | --------------------------------------------------------------
|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 $76.8 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 June 30, 2002. Accordingly, each one percent
change in market interest rates would change interest income by
approximately $808,000 per annum. However, any future
transactions affecting the Companys cash and cash
equivalents and

17



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##### Table of Contents



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 June 30, 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 4. | Submission of Matters to a Vote of Security
    Holders

The Company held its Annual Meeting of
Shareholders on June 3, 2002. Matters voted upon at the
meeting and the number of votes cast for, against or withheld,
are as follows:



| |                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) To consider and act upon a proposal to
    elect the following nominees to be Directors for three year
    terms until the 2005 annual meeting of shareholders:

|                 |  |           |           |                |  |  |        | 
|---------------- |  | --------- | --------- | -------------- |  |  | ------ | 
|Nominee          |  | Votes For |           | Votes Withheld
|                 |  |           |           |               
|Nimrod T. Frazer |  |           | 5,208,356 |                |  |  | 11,744 | 
|John J. Oros     |  |           | 5,208,356 |                |  |  | 11,744 | 



| |                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In addition to Messrs. Frazer and Oros, the
    continuing directors are T. Whit Armstrong, T. Wayne
    Davis, J. Christopher Flowers and Jeffrey S. Halis.
    Messrs. Armstrong and Davis terms expire in the year
    2003 while Messrs. Flowers and Halis terms expire in
    the year 2004.
|
| | (2) To ratify the appointment of Deloitte
    & Touche LLP as independent auditors for the year ended
    December 31, 2002. Votes cast were: 5,209,824 for, 1,805
    against and 8,471 abstentions.                                                                                              






|        |                                     
|------- | ------------------------------------
|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).                                                                                                                                

18



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##### Table of Contents



|          |      |  |  |                         |  |                                                                                                                                                                                                                                                                                                
|--------- | ---- |  |  | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Reference |      |  |  |                        
|Number    |      |  |  | Description of Exhibits
|          |      |  |  |                        
|          | 3.1  |  |  |                        |  | Articles of Incorporation of the Company, as
    amended on June 10, 1998 (incorporated by reference to
    Exhibit 3.1 to the Quarterly Report on Form 10-Q,
    dated August 4, 1998).                                                                                                       
|          | 3.2  |  |  |                        |  | Bylaws of the Company, as amended on May 20,
    1999 (incorporated by reference to Exhibit 3.2 to the
    Quarterly Report on Form 10-Q, dated August 6, 1999).                                                                                                                               
|          | 4.1  |  |  |                        |  | Rights Agreement between the Company and American
    Stock Transfer & Trust Company, as Rights Agent, dated as of
    January 20, 1997 (incorporated by reference to
    Exhibit 4.1 to Amendment No. 2 to the Registration
    Statement on Form 10, dated March 27, 1997).                  
|          | 4.2  |  |  |                        |  | Amendment Agreement, dated as of October 20,
    1998, to the Rights Agreement, dated as of January 20,
    1997, between the Company and American Stock Transfer &
    Trust Company (incorporated by reference to Exhibit 10.2 to
    the Current Report on Form 8-K dated October 20, 1998).
|          | 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).                                    
|          | 99.2 |  |  |                        |  | Certifications Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                                                               

(b) Reports on Form 8-K

There were no reports filed on Form 8-K for
the quarter ended June 30, 2002.

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##### Table of Contents






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: August 14, 2002

20