<PAGE>
                                                                               .
                                                                               .
                                                                               .

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                             ---------------------

                                   FORM 10-Q

<Table>
<C>          <S>
 (Mark One)
    [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
             SECURITIES EXCHANGE ACT OF 1934



             FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

                                   OR




    [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934

             FOR THE TRANSITION PERIOD FROM         TO
</Table>

                         COMMISSION FILE NUMBER 0-07477

                             ---------------------

                             THE ENSTAR GROUP, INC.
             (Exact name of registrant as specified in its charter)

<Table>
<S>                                            <C>
                   GEORGIA                                       63-0590560
       (State or other jurisdiction of                        (I.R.S. Employer
        incorporation or organization)                      Identification No.)
</Table>

                               401 MADISON AVENUE
                           MONTGOMERY, ALABAMA 36104
                    (Address of principal executive offices)
                                 (334) 834-5483
              (Registrant's telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]   No [ ]

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

     Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X]   No [ ]

     The number of shares of Registrant's Common Stock, $.01 par value per
share, outstanding at May 10, 2004 was 5,465,753.
<PAGE>

     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, 2003, AND ARE
HEREBY INCORPORATED BY REFERENCE. THE ENSTAR GROUP, INC. UNDERTAKES NO
OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED
ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE
OPERATING RESULTS OVER TIME.
                                        i
<PAGE>

                                     PART I

                             FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                              MARCH 31,   DECEMBER 31,
                                                                2004          2003
                                                              ---------   ------------
                                                               (DOLLARS IN THOUSANDS)
                                                                    (UNAUDITED)
<S>                                                           <C>         <C>
                                        ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 59,228      $ 55,767
  Certificates of deposit...................................     4,072         4,072
  Receivable from affiliate.................................        --           120
  Other current assets......................................       125           152
                                                              --------      --------
       Total current assets.................................    63,425        60,111
Partially owned equity affiliates...........................    88,840        91,839
Other assets................................................       497           499
                                                              --------      --------
       Total assets.........................................  $152,762      $152,449
                                                              ========      ========

                         LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued liabilities..................  $    430      $    437
  Accounts payable to affiliates............................       138            --
  Accrued taxes.............................................       625           625
  Income taxes payable......................................     2,807         2,562
                                                              --------      --------
       Total current liabilities............................     4,000         3,624
Deferred income taxes.......................................     2,248         1,766
Deferred compensation.......................................       745           695
Other liabilities...........................................       435           432
                                                              --------      --------
       Total liabilities....................................     7,428         6,517
                                                              --------      --------
Commitments and contingencies (Note 4)
Minority interest...........................................     9,620        11,449
                                                              --------      --------
Shareholders' equity:
  Common stock ($.01 par value; 55,000,000 shares                   59            59
     authorized, 5,908,104 shares issued at March 31, 2004
     and December 31, 2003).................................
  Additional paid-in capital................................   188,608       188,591
  Deferred compensation of partially owned equity                 (244)         (284)
     affiliate..............................................
  Accumulated other comprehensive income of partially owned        745           669
     equity affiliates, net.................................
  Accumulated deficit.......................................   (47,644)      (48,742)
  Treasury stock, at cost (442,351 shares)..................    (5,810)       (5,810)
                                                              --------      --------
       Total shareholders' equity...........................   135,714       134,483
                                                              --------      --------
       Total liabilities and shareholders' equity...........  $152,762      $152,449
                                                              ========      ========
</Table>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                        1
<PAGE>

                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME

<Table>
<Caption>
                                                                   THREE MONTHS ENDED
                                                                        MARCH 31,
                                                              -----------------------------
                                                                  2004            2003
                                                              -------------   -------------
                                                              (DOLLARS IN THOUSANDS, EXCEPT
                                                                     PER SHARE DATA)
                                                                       (UNAUDITED)
<S>                                                           <C>             <C>
Interest income.............................................   $      177      $      237
Earnings of partially owned equity affiliates...............        3,000           1,025
Other income................................................          100             100
General and administrative expenses.........................         (727)           (790)
                                                               ----------      ----------
Income before income taxes and minority interest............        2,550             572
Income taxes................................................         (829)           (503)
                                                               ----------      ----------
Income before minority interest.............................        1,721              69
Minority interest...........................................         (623)             --
                                                               ----------      ----------
Net income..................................................   $    1,098      $       69
                                                               ==========      ==========
Weighted average shares outstanding -- basic................    5,465,753       5,465,753
                                                               ==========      ==========
Weighted average shares outstanding -- assuming dilution....    5,934,877       5,842,116
                                                               ==========      ==========
Net income per common share -- basic........................   $     0.20      $     0.01
                                                               ==========      ==========
Net income per common share -- assuming dilution............   $     0.19      $     0.01
                                                               ==========      ==========
</Table>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                        2
<PAGE>

                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

           CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<Table>
<Caption>
                                                               THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ---------------
                                                               2004     2003
                                                              -------   -----
                                                                (DOLLARS IN
                                                                THOUSANDS)
                                                                (UNAUDITED)
<S>                                                           <C>       <C>
Net income..................................................  $1,098    $ 69
Other comprehensive income (loss) of partially owned equity
  affiliates:
  Unrealized holding gains on investments, net of income
     taxes of $47 and $7....................................      77       1
  Reclassification adjustment for gains included in net
     income, net of income taxes of $0......................      --     (12)
  Unrealized loss on cash flow hedge, net of income tax
     benefit of $32.........................................     (53)     --
  Currency translation adjustment, net of income tax expense
  (benefit) of $33 and $(9).................................      52     (14)
                                                              ------    ----
Other comprehensive income (loss)...........................      76     (25)
                                                              ------    ----
Comprehensive income........................................  $1,174    $ 44
                                                              ======    ====
</Table>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                        3
<PAGE>

                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                THREE MONTHS ENDED
                                                                    MARCH 31,
                                                              ----------------------
                                                                2004         2003
                                                              ---------   ----------
                                                              (DOLLARS IN THOUSANDS)
                                                                   (UNAUDITED)
<S>                                                           <C>         <C>
Cash flows from operating activities:
  Net income................................................   $ 1,098     $     69
  Adjustments to reconcile net income to net cash provided
     by operating activities:
     Earnings of partially owned equity affiliates..........    (3,000)      (1,025)
     Dividends and distributions received from partially
      owned equity affiliates...............................     6,185       20,826
     Minority interest in earnings of JCF CFN...............       623           --
     Noncash compensation expense...........................        17           66
     Deferred income taxes..................................       434          471
  Changes in assets and liabilities:
     Accounts payable and accrued expenses..................       495          107
     Other, net.............................................        83          (70)
                                                               -------     --------
       Net cash provided by operating activities............     5,935       20,444
                                                               -------     --------
Cash flows from investing activities:
  Capital contribution to Castlewood Holdings Limited.......        --       (7,169)
  Investment in JCF CFN LLC.................................        --       (2,996)
  Purchases of certificates of deposit......................        --       (1,410)
  Maturities of certificates of deposit.....................        --        1,397
                                                               -------     --------
       Net cash used in investing activities................        --      (10,178)
                                                               -------     --------
Cash flows from financing activities:
  Distributions to minority interest........................    (2,474)          --
                                                               -------     --------
       Net cash used in financing activities................    (2,474)          --
                                                               -------     --------
Increase in cash and cash equivalents.......................     3,461       10,266
Cash and cash equivalents at the beginning of the period....    55,767       55,375
                                                               -------     --------
Cash and cash equivalents at the end of the period..........   $59,228     $ 65,641
                                                               =======     ========
Supplemental disclosures of cash flow information:
  Income taxes paid.........................................   $   150     $     --
                                                               =======     ========
</Table>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                        4
<PAGE>

                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

NOTE 1:  GENERAL

     The Enstar Group, Inc. (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 Company, through the operations of its partially owned equity
affiliates, Castlewood Holdings Limited ("Castlewood Holdings") and B.H.
Acquisition Limited ("B.H. Acquisition"), and their subsidiaries, has acquired
and manages books of reinsurance business from the international markets. In
general, reinsurance is an arrangement in which the reinsurer agrees to
indemnify an insurance or reinsurance company against all or a portion of the
risks underwritten by such insurance or reinsurance company under one or more
insurance or reinsurance contracts.

     The Company consolidates JCF CFN LLC and related entities (collectively,
the "JCF CFN Entities"). The JCF CFN Entities were formed to serve as members of
Green Tree Investment Holdings LLC (formerly known as CFN Investment Holdings
LLC) and related entities (collectively, "Green Tree"), which, in turn, were
formed to effect the acquisition of a portfolio of home equity and manufactured
housing loan securities and the associated servicing businesses from Conseco
Finance Corp. ("Conseco Finance").

     The condensed 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, results of operations and cash flows for the interim
period. The results of operations for the three months ended March 31, 2004 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, 2003 included in
the Company's Form 10-K as filed with the Securities and Exchange Commission on
March 15, 2004 under the Securities Exchange Act of 1934, as amended.

NOTE 2:  SIGNIFICANT ACCOUNTING POLICIES

     (a) Principles of Consolidation -- The condensed consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiary,
Enstar Financial Services, Inc., an inactive company. Since adoption of
Financial Accounting Standards Board Interpretation No 46R, "Consolidation of
Variable Interest Entities" in 2003, the Company also consolidates the JCF CFN
Entities, recording a minority interest for Castlewood Holdings' 40% interest.
All significant intercompany balances and transactions have been eliminated in
consolidation.

     (b) 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. The estimates susceptible to significant change are
those related to the valuation allowance for deferred tax assets and loss and
loss adjustment expenses included in earnings of partially owned equity
affiliates.

     (c) Cash Equivalents -- Cash equivalents consist of short term, highly
liquid investments with original purchased maturities of three months or less.

     (d) 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

                                        5
<PAGE>
                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --  (CONTINUED)

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 its cumulative
proportionate share of losses that were not recognized during the period the
application of the equity method was suspended.

     (e) Comprehensive Income -- The Company reports comprehensive income in
accordance with Statement of Financial Accounting Standards ("SFAS") 130,
"Reporting Comprehensive Income" which defines comprehensive income as certain
changes in equity from non-owner sources. The Company recorded other
comprehensive income from its partially owned equity affiliates. This other
comprehensive income arose from unrealized holding gains and losses from debt
and equity securities that are classified as available-for-sale and are carried
at fair value, unrealized loss on cash flow hedge and currency translation
adjustments resulting from the translations of financial information of
subsidiaries into U.S. dollars.

     (f) Revenue Recognition -- Revenue includes 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"). Prior to the fourth quarter of 2003, the Company accounted for
its investment in B-Line three months in arrears.

     (g) Stock-Based Compensation -- For the three months ended March 31, 2004
and 2003, the Company utilized various stock-based compensation plans for the
benefit of non-employee directors and certain officers. In 1997, the Company
adopted the Deferred Compensation and Stock Plan for Non-Employee Directors and
a long-term incentive program made up of three stock option/incentive plans.
Additionally, in 2001, the Company adopted the 2001 Outside Directors' Stock
Option Plan and amended certain provisions of an existing plan. The Company
accounts for these plans under the intrinsic value recognition and measurement
principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations.
Compensation expense for the Deferred Compensation and Stock Plan for
Non-Employee Directors is recognized at the first of every quarter for retainer
fees and upon the occurrence of various Board of Director and committee
meetings. There is no compensation expense recognized in net earnings for stock
option/incentive plans that had an exercise price equal to the market value of
the Company's underlying common stock on the date of grant. In connection with
options granted in November 2001, the market value of the Company's common stock
on the date of grant exceeded the exercise price, resulting in a charge to
earnings for that year. In addition, compensation expense is being recognized

                                        6
<PAGE>
                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --  (CONTINUED)

over the vesting life of these options through June 2004. Had compensation costs
for grants under the Company's stock option/incentive plans been determined
based on the fair value recognition provision of SFAS 123, "Accounting for
Stock-Based Compensation," the Company's pro forma net income and net income per
share for the three months ended March 31, 2004 and 2003 would have been as
follows:

<Table>
<Caption>
                                                                 THREE MONTHS
                                                               ENDED MARCH 31,
                                                              ------------------
                                                                2004      2003
                                                              --------   -------
                                                                 (DOLLARS IN
                                                              THOUSANDS, EXCEPT
                                                               PER SHARE DATA)
                                                                 (UNAUDITED)
<S>                                                           <C>        <C>
Net income, as reported.....................................   $1,098     $  69
Add: Stock-based employee compensation expense included in
  reported net income, net of income taxes..................       10        41
Deduct: Total stock-based employee compensation expense
  determined under fair value based method for all awards,
  net of income taxes.......................................     (118)      (88)
                                                               ------     -----
Pro forma net income........................................   $  990     $  22
                                                               ======     =====
Income per common share:
     Basic -- as reported...................................   $ 0.20     $0.01
                                                               ======     =====
     Basic -- pro forma.....................................   $ 0.18     $0.00
                                                               ======     =====
     Assuming dilution -- as reported.......................   $ 0.19     $0.01
                                                               ======     =====
     Assuming dilution -- pro forma.........................   $ 0.17     $0.00
                                                               ======     =====
</Table>

     (h) Reclassifications -- Certain prior period amounts have been
reclassified in the financial statements to conform to the current period
presentation.

NOTE 3:  PARTIALLY OWNED EQUITY AFFILIATES

  B.H. ACQUISITION

     In July 2000, the Company, through B.H. Acquisition, a 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. 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, to acquire and manage insurance
and reinsurance companies, including companies in "run-off" (insurance and
reinsurance companies that have ceased the underwriting of new policies), and to
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

                                        7
<PAGE>
                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --  (CONTINUED)

notes and cash totaling $4.275 million. As part of the transaction, the Company
and Trident made capital commitments of $39.5 million each, totaling $79
million, in exchange for their 33 1/3% economic interests in Castlewood
Holdings. The Company received 50% of the voting stock of Castlewood Holdings
and the Castlewood Principals and Trident each received 25% of Castlewood
Holdings' voting stock. Castlewood is a private Bermuda-based firm, experienced
in managing and acquiring reinsurance operations.

     As a result of the contribution of Castlewood's outstanding stock to
Castlewood Holdings, the Company's 33% direct economic interest in B.H.
Acquisition increased by an additional 15% indirect economic interest through
Castlewood Holdings. The Company's combined voting interest in B.H. Acquisition
is limited to 50%. 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. In August 2002, the Company funded an additional $21 million to
Castlewood Holdings, which also was derived from cash on hand. The funds were
used, in part, to capitalize Fitzwilliam (SAC) Insurance Limited
("Fitzwilliam"), a wholly owned subsidiary of Castlewood Holdings. Fitzwilliam,
based in Bermuda, offers specialized reinsurance protections to related
companies, clients of Castlewood Holdings and other third-party companies. The
remaining commitment of approximately $7.2 million (which included $6.0 million
of the original commitment amount plus an amount increasing annually at 5% on
the unfunded portion of the original commitment amount) was funded in March 2003
from cash on hand. The funds were used for the purchase of The Toa-Re Insurance
Company (UK) Limited ("Toa-UK"), a London-based subsidiary of The Toa
Reinsurance Company, Limited (described below).

     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, from Rivers
Group Limited and Sedgwick Group Limited. The total purchase price of River
Thames and Overseas Reinsurance was approximately $15.2 million. The acquisition
of the two reinsurance companies has been accounted for by Revir using the
purchase method of accounting.

     In August 2002, Castlewood Holdings purchased Hudson Reinsurance Company
Limited, a Bermuda-based subsidiary of Amphion Holdings Inc. for approximately
$4.1 million.

     In March 2003, the Company received a cash dividend of approximately $20.8
million from Castlewood Holdings.

     In March 2003, Castlewood Holdings and Shinsei Bank, Limited ("Shinsei")
completed the acquisition of all of the outstanding capital stock of Toa-UK, a
London-based subsidiary of The Toa Reinsurance Company, Limited, for
approximately $46 million. Toa-UK underwrote reinsurance business throughout the
world between 1980 and 1994, when it stopped writing new business and is
currently operating in run-off. The acquisition was effected through Hillcot
Holdings Ltd. ("Hillcot"), a newly formed Bermuda company, in which Castlewood
Holdings has a 50.1% economic interest and a 50% voting interest. Upon
completion of the transaction, Toa-UK's name was changed to Hillcot Re Limited.
Castlewood Holdings' share of the transaction was funded from cash on hand.
Hillcot is included in Castlewood Holdings' consolidated financial statements,
with the remaining 49.9% interest reflected as minority interest. J. Christopher
Flowers ("Mr. Flowers"), a member of the Company's board of directors and the
Company's largest shareholder, is a director of Shinsei.

                                        8
<PAGE>
                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --  (CONTINUED)

  B-LINE

     In November 1998, the Company purchased membership units of B-Line for
$965,000 including $15,000 in 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. In December 2003, the Company sold its entire interest in
B-Line to B-Line Holdings LLC, an affiliate of Golden Gate Capital, for cash of
approximately $7.8 million, net of expenses. The Company recorded a gain of
approximately $3.3 million on the sale.

  PARTIALLY OWNED EQUITY AFFILIATES OF JCF CFN

     During 2003, the Company funded approximately $15.3 million to the JCF CFN
Entities in exchange for a 60% interest in such entities. In addition,
Castlewood Holdings funded approximately $10.2 million to the JCF CFN Entities
in exchange for a 40% interest.

     The JCF CFN Entities invested in Green Tree together with affiliates of
J.C. Flowers I LP, affiliates of Fortress Investment Group LLC and affiliates of
Cerberus Capital Management, L.P. In June 2003, the JCF CFN Entities invested
approximately $25.1 million in exchange for a 3.995% interest in Green Tree.
Green Tree completed the purchase of certain assets of Conseco Finance for
approximately $630 million in cash plus certain assumed liabilities. The assets
consist primarily of a portfolio of home equity and manufactured housing loan
securities as well as the associated servicing businesses. J.C. Flowers I LP is
a private investment fund, the general partner of which is JCF Associates I LLC.
The managing member of JCF Associates I LLC is Mr. Flowers, a member of the
Company's board of directors and the Company's largest shareholder. The JCF CFN
Entities account for these investments under the equity method of accounting.
Because the JCF CFN Entities are consolidated, Green Tree is treated as a
partially owned equity affiliate of the Company.

     In March 2004, the JCF CFN Entities, along with certain affiliates of J.C.
Flowers I LP, signed a definitive agreement for the sale of their entire
interests in Green Tree for cash to FIT CFN Holdings LLC, an affiliate of
Fortress Investment Group LLC, or its assigns. In exchange for their entire
interest, the JCF CFN Entities will receive approximately $40 million in cash.
Of this amount, Castlewood Holdings will receive approximately $16 million. A
partial distribution of approximately $6.2 million has been received by the JCF
CFN Entities. This and any additional distributions which may be made by Green
Tree prior to closing of the sale will reduce the amount to be received at
closing. The sale is expected to close in the third quarter of 2004. The Company
anticipates a realized gain on the sale. Castlewood Holdings received
approximately $2.5 million as its proportionate share of the $6.2 million
partial distribution.

  SUMMARIZED FINANCIAL INFORMATION

     In accordance with APB No. 18, "The Equity Method of Accounting for
Investments in Common Stock", the Company prepared summarized financial
information for B.H. Acquisition and Castlewood Holdings as of March 31, 2004
and December 31, 2003 and for the three months ended March 31, 2004 and 2003,
respectively. Summarized financial information for Green Tree is presented as of
March 31, 2004 and December 31, 2003 and for the three months ended March 31,
2004 (Green Tree was acquired in June 2003). Summarized information for B-Line
is presented for the three months ended March 31, 2003 (the Company sold its
entire interest in B-Line in December 2003). The summarized financial
information presented below for B.H. Acquisition, Castlewood Holdings and Green
Tree is derived from their respective audited financial

                                        9
<PAGE>
                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --  (CONTINUED)

statements for December 31, 2003 and their unaudited quarterly financial
statements. The summarized financial information presented below for B-Line is
derived from its unaudited quarterly financial statements.

<Table>
<Caption>
                                                           MARCH 31, 2004
                                         --------------------------------------------------
                                            B.H.       CASTLEWOOD                 COMBINED
                                         ACQUISITION    HOLDINGS    GREEN TREE     TOTAL
                                         -----------   ----------   ----------   ----------
                                                       (DOLLARS IN THOUSANDS)
<S>                                      <C>           <C>          <C>          <C>
Total assets...........................   $117,366      $633,329    $1,144,980   $1,895,675
Total liabilities......................     79,317       461,194       596,015    1,136,526
Minority interest......................                   28,751                     28,751
Total equity...........................     38,049       143,384       548,965      730,398
</Table>

<Table>
<Caption>
                                                         DECEMBER 31, 2003
                                         --------------------------------------------------
                                            B.H.       CASTLEWOOD                 COMBINED
                                         ACQUISITION    HOLDINGS    GREEN TREE     TOTAL
                                         -----------   ----------   ----------   ----------
                                                       (DOLLARS IN THOUSANDS)
<S>                                      <C>           <C>          <C>          <C>
Total assets...........................   $120,474      $632,347    $1,020,514   $1,773,335
Total liabilities......................     82,167       456,436       399,457      938,060
Minority interest......................                   28,295                     28,295
Total equity...........................     38,307       147,616       621,057      806,980
</Table>

<Table>
<Caption>
                                                 THREE MONTHS ENDED MARCH 31, 2004
                                         --------------------------------------------------
                                            B.H.       CASTLEWOOD                 COMBINED
                                         ACQUISITION    HOLDINGS    GREEN TREE     TOTAL
                                         -----------   ----------   ----------   ----------
                                                       (DOLLARS IN THOUSANDS)
<S>                                      <C>           <C>          <C>          <C>
Revenue/underwriting income (loss).....      $(290)       $6,219      $135,187     $141,116
Operating income (loss)................       (414)        2,147        65,038       66,771
Net income (loss)......................       (257)        3,186        55,021       57,950
</Table>

<Table>
<Caption>
                                                  THREE MONTHS ENDED MARCH 31, 2003
                                         ---------------------------------------------------
                                                          B.H.       CASTLEWOOD    COMBINED
                                           B-LINE      ACQUISITION    HOLDINGS      TOTAL
                                         -----------   -----------   ----------   ----------
                                                       (DOLLARS IN THOUSANDS)
<S>                                      <C>           <C>           <C>          <C>
Revenue/underwriting income............    $11,602           $ 2         $6,299      $17,903
Operating income.......................      3,798            96          2,178        6,072
Net income.............................      3,798            70          2,054        5,922
</Table>

     The Company's consolidated accumulated deficit includes undistributed
earnings of its partially owned equity affiliates of approximately $17.6 million
and approximately $18.9 million at March 31, 2004 and December 31, 2003,
respectively.

NOTE 4:  COMMITMENTS AND CONTINGENCIES

     In June 2002, the Company signed a two year lease renewal option on an
office building which serves as the corporate headquarters. The Company expects
to renew this lease for an additional two year period in June 2004.
Additionally, pursuant to an oral agreement, the Company leases space in a
warehouse at 703 Howe Street, Montgomery, Alabama on a month-to-month basis. The
Company leases the office building and warehouse space from unaffiliated third
parties for $2,750 and $350 per month, respectively. The Company believes the
rental amounts are competitive with market rates and that the cancellation or
termination of either of these leases would not have a material adverse effect
on the Company's results of operations. In February 2002, the Company entered
into an agreement with J.C. Flowers & Company, LLC running through November 2005
for the use of certain office space and administrative services from J.C.
Flowers & Company,

                                        10
<PAGE>
                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --  (CONTINUED)

LLC for an annual payment of $66,000. J.C. Flowers & Company, LLC is managed by
Mr. Flowers, a member of the Company's board of directors and the Company's
largest shareholder.

NOTE 5:  INCOME TAXES

     Income tax expense was $829,000 for the three months ended March 31, 2004
compared to $503,000 for the same period in 2003. The Company's effective tax
rates for 2004 and 2003 differ from the statutory rate primarily due to changes
in the valuation allowance related to deferred tax assets and state income
taxes.

     The Company provides U.S. taxes for the anticipated repatriation of certain
earnings of foreign subsidiaries. A valuation allowance is recorded when it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of the deferred tax assets depends on
the ability to generate sufficient taxable income in the future in the
appropriate jurisdictions. The Company has provided a valuation allowance for
operating losses of partially owned foreign subsidiaries and tax credits for the
three months ended March 31, 2004 and 2003, respectively. During the three
months ended March 31, 2004, the Company increased the valuation allowance from
approximately $7.2 million to approximately $7.3 million.

NOTE 6:  SEGMENT INFORMATION

     The Company separately evaluates the performance of B.H. Acquisition and
Castlewood Holdings based on the different services provided by each of the
entities, and such evaluation is based on 100% of the entities' results of
operations. Prior to its sale in December 2003, the Company also separately
evaluated the performance of B-Line. The Company also reviews separate financial
results for JCF CFN and Enstar's corporate activity.

     B.H. Acquisition, through its wholly owned subsidiaries, Brittany and CEAI,
is principally engaged in the active management of books of reinsurance business
from international markets. Castlewood Holdings acquires and manages insurance
and reinsurance companies, including companies in "run-off," and provides
management, consulting and other services to the insurance and reinsurance
industry. B-Line provided services to credit card issuers and other holders of
similar receivables. B-Line also purchased credit card receivables and recovered
payments on these accounts. The JCF CFN Entities were formed to serve as a
member of Green Tree which, in turn, was formed to effect the acquisition of a
portfolio of home equity and manufactured housing loan securities and associated
servicing businesses from Conseco Finance.

     A reconciliation of the consolidated financial information by segment to
the Company's consolidated financial statements as of March 31, 2004 and
December 31, 2003 and for the three months ended March 31, 2004 and 2003,
respectively, is as follows:

<Table>
<Caption>
                                                                MARCH 31, 2004
                                           ---------------------------------------------------------
                                                          B.H.       CASTLEWOOD
                                           CORPORATE   ACQUISITION    HOLDINGS    JCF CFN    TOTAL
                                           ---------   -----------   ----------   -------   --------
                                                            (DOLLARS IN THOUSANDS)
<S>                                        <C>         <C>           <C>          <C>       <C>
Total reportable segment assets:
  Partially owned equity affiliates......                $12,637      $50,267     $25,936   $ 88,840
  Corporate assets.......................   $63,922                                           63,922
                                            -------      -------      -------     -------   --------
     Total...............................   $63,922      $12,637      $50,267     $25,936   $152,762
                                            =======      =======      =======     =======   ========
</Table>

                                        11
<PAGE>
                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --  (CONTINUED)

<Table>
<Caption>
                                                               DECEMBER 31, 2003
                                           ---------------------------------------------------------
                                                          B.H.       CASTLEWOOD
                                           CORPORATE   ACQUISITION    HOLDINGS    JCF CFN    TOTAL
                                           ---------   -----------   ----------   -------   --------
                                                            (DOLLARS IN THOUSANDS)
<S>                                        <C>         <C>           <C>          <C>       <C>
Total reportable segment assets:
  Partially owned equity affiliates......                $12,722      $49,385     $29,732   $ 91,839
  Corporate assets.......................   $60,610                                           60,610
                                            -------      -------      -------     -------   --------
     Total...............................   $60,610      $12,722      $49,385     $29,732   $152,449
                                            =======      =======      =======     =======   ========
</Table>

<Table>
<Caption>
                                                        THREE MONTHS ENDED MARCH 31, 2004
                                             -------------------------------------------------------
                                                            B.H.       CASTLEWOOD
                                             CORPORATE   ACQUISITION    HOLDINGS    JCF CFN   TOTAL
                                             ---------   -----------   ----------   -------   ------
                                                             (DOLLARS IN THOUSANDS)
<S>                                          <C>         <C>           <C>          <C>       <C>
Net underwriting income (loss).............                 $(290)       $1,840
Revenue....................................                               4,379
Net investment income......................                   458         2,206
Interest income............................   $   177
Share of net income of partly-owned
  companies................................                                 684     $2,334
General and administrative expenses........      (727)       (915)       (6,278)
Amortization of run-off provision..........                   333
Other income...............................       100
Foreign exchange gain......................                   157         1,077
                                              -------       -----        ------     ------
Income (loss) before income taxes..........      (450)       (257)        3,908      2,334
Minority interest..........................      (623)                     (456)
Income taxes...............................      (829)                     (266)
                                              -------       -----        ------     ------
Net income (loss)..........................   $(1,902)      $(257)       $3,186     $2,334
                                              =======
Company's economic ownership %.............                    33%       33 1/3%
                                                            -----        ------     ------
                                                                          1,062
Company's portion of earnings from JCF
  CFN......................................                                (311)
                                                                         ------
Earnings (loss) of partially owned equity
  affiliates...............................                 $ (85)       $  751     $2,334    $3,000
                                                            =====        ======     ======    ======
</Table>

     A minority interest for Castlewood Holdings' portion of earnings from the
JCF CFN Entities is reported in the Corporate column.

                                        12
<PAGE>
                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --  (CONTINUED)

<Table>
<Caption>
                                                        THREE MONTHS ENDED MARCH 31, 2003
                                             -------------------------------------------------------
                                                                      B.H.       CASTLEWOOD
                                             CORPORATE   B-LINE    ACQUISITION    HOLDINGS    TOTAL
                                             ---------   -------   -----------   ----------   ------
                                                             (DOLLARS IN THOUSANDS)
<S>                                          <C>         <C>       <C>           <C>          <C>
Net underwriting income....................                           $   2       $   698
Revenue....................................              $11,602                    5,601
Net investment income......................                             470         1,458
Interest income............................    $ 237
Share of net income of partly-owned
  company..................................                                            31
General and administrative expenses........     (790)     (5,976)      (751)       (5,579)
Amortization of run-off provision..........                             375
Interest expense...........................               (1,828)
Other income...............................      100
Foreign exchange loss......................                             (26)          (76)
                                               -----     -------      -----       -------
Income (loss) before income taxes..........     (453)      3,798         70         2,133
Income taxes...............................     (503)                                 (79)
                                               -----     -------      -----       -------
Net income (loss)..........................    $(956)    $ 3,798      $  70       $ 2,054
                                               =====
Company's economic ownership %.............                 8.34%        33%       33 1/3%
                                                         -------      -----       -------
Earnings of partially owned equity
  affiliates...............................              $   317      $  23       $   685     $1,025
                                                         =======      =====       =======     ======
</Table>

NOTE 7:  INCOME PER SHARE

     The table below illustrates the reconciliation between net income per
common share -- basic and net income per common share -- assuming dilution for
the three months ended March 31, 2004 and 2003. 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.

<Table>
<Caption>
                                                                THREE MONTHS ENDED
                                                                     MARCH 31,
                                                              -----------------------
                                                                 2004         2003
                                                              ----------   ----------
                                                              (DOLLARS IN THOUSANDS,
                                                              EXCEPT PER SHARE DATA)
                                                                    (UNAUDITED)
<S>                                                           <C>          <C>
Net income..................................................  $    1,098   $       69
                                                              ==========   ==========
Net income per common share -- basic........................  $     0.20   $     0.01
                                                              ==========   ==========
Net income per common share -- assuming dilution............  $     0.19   $     0.01
                                                              ==========   ==========
Weighted average shares outstanding -- basic................   5,465,753    5,465,753
Common share equivalents....................................     469,124      376,363
                                                              ----------   ----------
Weighted average shares outstanding -- assuming dilution....   5,934,877    5,842,116
                                                              ==========   ==========
</Table>

                                        13
<PAGE>

                        INDEPENDENT ACCOUNTANTS' REPORT

Board of Directors and Shareholders of
The Enstar Group, Inc.
Montgomery, Alabama

     We have reviewed the accompanying condensed consolidated balance sheet of
The Enstar Group, Inc. and Subsidiaries ("Enstar") as of March 31, 2004, and the
related condensed consolidated statements of income, comprehensive income and
cash flows for the three-month periods ended March 31, 2004 and 2003. 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 condensed consolidated financial statements for them to
be in conformity with accounting principles generally accepted in the United
States of America.

     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, 2003 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 12, 2004, we
expressed an unqualified opinion on those consolidated financial statements,
based on our audit and the report of other auditors. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 2003 is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.

                                               /s/ DELOITTE & TOUCHE LLP

Atlanta, Georgia
May 10, 2004

                                        14
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

OVERVIEW

     Through the operations of the Company's partially owned equity affiliates,
Castlewood Holdings and B.H. Acquisition, and their subsidiaries, the Company
has acquired and manages books of reinsurance business from the international
markets. In general, reinsurance is an arrangement in which the reinsurer agrees
to indemnify an insurance or reinsurance company against all or a portion of the
risks underwritten by such insurance or reinsurance company under one or more
insurance or reinsurance contracts. For a discussion of certain risks and
uncertainties relating to the Company's participation in the reinsurance
industry see "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, 2003, which is hereby incorporated by
reference.

     The Company is also actively engaged in the search for one or more
additional operating businesses which meet the Company's acquisition criteria.

CRITICAL ACCOUNTING POLICIES

  ENSTAR

     In the ordinary course of business, the Company has made a number of
estimates and assumptions relating to the reporting of results of operations and
financial condition in the preparation of its financial statements in conformity
with accounting principles generally accepted in the United States of America.
Actual results could differ significantly from those estimates under different
assumptions and conditions. The most significant accounting estimates inherent
in the preparation of the Company's consolidated financial statements include
estimates associated with its evaluation of income tax reserves.

     Income Tax Valuation Reserve -- The Company recognizes deferred tax assets
and liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. The effect of
temporary differences on the financial statements includes certain operating
losses of partially owned foreign subsidiaries and tax credit carryforwards. The
Company has established a valuation allowance for the uncertainty of the
realization of these and any other net deferred tax assets. However, utilization
of the remaining deferred tax assets at March 31, 2004 is based on management's
assessment of the Company's earnings history, expectations of future taxable
income, and other relevant considerations.

  CASTLEWOOD HOLDINGS AND B.H. ACQUISITION

     Certain amounts in Castlewood Holdings' and B.H. Acquisition's consolidated
financial statements are the result of transactions that require the use of best
estimates and assumptions to determine reported values. These amounts could
ultimately be materially different than what has been provided for in their
consolidated financial statements. The assessment of loss reserves and
reinsurance recoverable are considered to be the values requiring the most
inherently subjective and complex estimates. As such, the accounting policies
for these amounts are of critical importance to their consolidated financial
statements.

     Loss and Loss Adjustment Expenses -- Because a significant amount of time
can lapse between the assumption of risk, the occurrence of a loss event, the
reporting of the event to an insurance or reinsurance company and the ultimate
payment of the claim on the loss event, Castlewood Holdings' and B.H.
Acquisition's liability for unpaid losses and loss expenses is based largely
upon estimates. Castlewood Holdings' and B.H. Acquisition's management must use
considerable judgment in the process of developing these estimates. The
liability for unpaid losses and loss expenses for property and casualty business
includes amounts determined from loss reports on individual cases and amounts
for losses incurred but not reported. Such reserves are estimated by management
based upon reports received from ceding companies, supplemented by Castlewood
Holdings' and B.A. Acquisition's own estimates of reserves for which ceding
company reports have not been received and independent actuarial estimates of
ultimate unpaid losses. These estimates are continually reviewed and Castlewood
Holdings' and B.H. Acquisition's ultimate liability may be

                                        15
<PAGE>

significantly greater than or less than the amount estimated, with any
adjustments in such estimates being reflected in the periods in which they
become known.

     Reinsurance Balances Receivable -- One of the ways loss exposure is managed
is through the use of reinsurance. While reinsurance arrangements are designed
to limit losses and to permit recovery of a portion of direct unpaid losses,
reinsurance does not relieve Castlewood Holdings or B.H. Acquisition of their
liabilities to their insureds. Accordingly, loss reserves represent total gross
losses, and reinsurance recoverable represents anticipated recoveries of a
portion of those unpaid losses as well as amounts recoverable from reinsurers
with respect to claims, which have already been paid.

     Goodwill -- On January 1, 2002, Castlewood Holdings and B.H. Acquisition
adopted SFAS 142. This statement requires that goodwill be assessed for
impairment on at least an annual basis and that negative goodwill be reversed
immediately upon adoption. In assessing the recoverability of Castlewood
Holdings' goodwill, Castlewood Holdings must make assumptions regarding
estimated future cash flows to determine the fair value of the respective
assets. If these estimates or their related assumptions change in the future,
Castlewood Holdings may be required to record impairment charges for these
assets.

RECENT DEVELOPMENTS

     In March 2004, the JCF CFN Entities, along with certain affiliates of J.C.
Flowers I LP, signed a definitive agreement for the sale of their entire
interests in Green Tree for cash to FIT CFN Holdings LLC, an affiliate of
Fortress Investment Group LLC, or its assigns. In exchange for their entire
interest, the JCF CFN Entities will receive approximately $40 million in cash.
Of this amount, Castlewood Holdings will receive approximately $16 million. A
partial distribution of approximately $6.2 million has been received by the JCF
CFN Entities. This and any additional distributions which may be made by Green
Tree prior to closing of the sale will reduce the amount to be received at
closing. The sale is expected to close in the third quarter of 2004. The Company
anticipates a realized gain on the sale. Castlewood Holdings received
approximately $2.5 million as its proportionate shares of the $6.2 million
partial distribution.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's primary uses of liquidity include, but are not limited to,
funding normal operating expenses as well as various expenses incurred in
connection with the Company's search for one or more suitable acquisitions. In
addition, the Company uses cash on hand to fund commitments made in connection
with the purchase of its partially owned equity affiliates. The primary sources
of the Company's liquidity include the receipt of dividends and distributions
from partially owned equity affiliates.

     Net cash provided by operating activities decreased from approximately
$20.4 million for the three months ended March 31, 2003 to approximately $5.9
million for the same period in 2004. This substantial decrease was primarily due
to the receipt of approximately $20.8 million in dividends from Castlewood
Holdings in March 2003, partially offset by the receipt of a distribution from
Green Tree of approximately $6.2 in March 2004.

     Net cash used in investing activities was approximately $10.2 million for
the three months ended March 31, 2003. The Company funded capital contributions
to Castlewood Holdings of approximately $7.2 million and funded the Company's
initial investment in the JCF CFN Entities of approximately $3.0 million in the
first quarter of 2003.

     Net cash used in financing activities was approximately $2.5 million for
the three months ended March 31, 2004. This amount was distributed to Castlewood
Holdings as the minority interest portion of the approximately $6.2 million
distribution received from Green Tree in March 2004.

     The Company's assets, aggregating approximately $152.8 million at March 31,
2004, include approximately $59.2 million in cash and cash equivalents and
approximately $4.1 million in short-term certificates of deposit. The Company
believes its current liquidity is adequate to fund any foreseeable cash
requirements.

                                        16
<PAGE>

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

     In June 2002, the Company signed a two year lease renewal option on an
office building which serves as the corporate headquarters. The Company expects
to renew this lease for an additional two year period in June 2004.
Additionally, pursuant to an oral agreement, the Company leases space in a
warehouse at 703 Howe Street, Montgomery, Alabama on a month-to-month basis. The
Company leases the office building and warehouse space from unaffiliated third
parties for $2,750 and $350 per month, respectively. The Company believes the
rental amounts are competitive with market rates and that the cancellation or
termination of either of these leases would not have a material adverse effect
on the Company's results of operations. In February 2002, the Company entered
into an agreement with J.C. Flowers & Company, LLC running through November 2005
for the use of certain office space and administrative services from J.C.
Flowers & Company, LLC for an annual payment of $66,000. J.C. Flowers & Company,
LLC is managed by Mr. Flowers, a member of the Company's board of directors and
the Company's largest shareholder.

RESULTS OF OPERATIONS

     The Company reported net income of approximately $1.1 million for the three
months ended March 31, 2004, compared to net income of $69,000 for the same
period in the prior year. The increase in net income from the three months ended
March 31, 2004 compared to the same period in the prior year is primarily a
result of earnings from Green Tree, a partially owned equity affiliate acquired
in June 2003.

     Interest income was $177,000 for the three months ended March 31, 2004
compared to $237,000 for the three months ended March 31, 2003. Interest income
was earned from cash, cash equivalents and certificates of deposit. Interest
income decreased primarily as a result of 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 $3.0
million for the three months ended March 31, 2004 compared to approximately $1.0
million for the same period in 2003. The Company recorded equity in losses of
$85,000 and equity in earnings of $23,000 from B.H. Acquisition for the three
months ended March 31, 2004 and 2003, respectively. The Company recorded equity
in earnings of $751,000 from Castlewood Holdings for the three months ended
March 31, 2004 compared to $685,000 for the three months ended March 31, 2003.
The Company's equity in earnings from B-Line was $317,000 for the three months
ended March 31, 2003 (the Company sold its entire interest in B-Line in December
2003). The Company recorded approximately $2.3 million in earnings from Green
Tree for the three months ended March 31, 2004, with $623,000 reported as a
minority interest. For further discussion of the reasons underlying the changes
in earnings (losses) from B.H. Acquisition and Castlewood Holdings, see
"-- Results of Operations -- Partially Owned Equity Affiliates".

     Other income consists primarily of investment management fees charged to
Castlewood Holdings, one of the Company's partially owned equity affiliates.

     General and administrative expenses were $727,000 for the three months
ended March 31, 2004 compared to $790,000 for the same period in 2003. Of these
amounts, $301,000 and $407,000, including non-cash compensation, related to
employee expenses in 2004 and 2003, respectively. 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. Additionally, the Company incurs legal and professional
fees in connection with reporting requirements associated with being a publicly
traded company, and in connection with handling various other accounting and tax
matters. Legal and professional fees and travel expenses were $242,000 in the
first quarter of 2004 and $209,000 for the same period in 2003.

     Income tax expense was $829,000 for the three months ended March 31, 2004
compared to $503,000 for the same period in 2003. The Company's effective tax
rates for 2004 and 2003 differ from the statutory rate primarily due to changes
in the valuation allowance related to deferred tax assets and state income
taxes.

                                        17
<PAGE>

RESULTS OF OPERATIONS -- PARTIALLY OWNED EQUITY AFFILIATES

     Since a substantial portion of the Company's results of operations are
comprised of the results of operations of Castlewood Holdings and B.H.
Acquisition, the following additional summary information is provided with
respect to those companies' results of operations:

  CASTLEWOOD HOLDINGS

     Castlewood Holdings reported consolidated net earnings of approximately
$3.2 million for the three months ended March 31, 2004 compared to net earnings
of $2.1 million for the same period in 2003. The increase in income for the
quarter ended March 31, 2004 of approximately $1.1 million compared to the same
period in 2003 was primarily a result of an increase in foreign exchange gains
and earnings from partly-owned companies.

     Underwriting income was approximately $1.8 million and $698,000 for the
three months ended March 31, 2004 and 2003, respectively. The Company
establishes a provision at the date of acquisition of acquired insurance and
reinsurance companies equal to the anticipated expenses to be incurred over the
expected life of those run-offs. For the three months ended March 31, 2004 and
2003 the amortization of these provisions were approximately $1.8 and $698,000,
respectively.

     Castlewood Holdings earned consulting fees of approximately $4.4 million
for the three months ended March 31, 2004 compared to approximately $5.6 million
for the same period in 2003. Castlewood Holdings generates its consulting fees
based on a combination of fixed and success-based fee arrangements. Consulting
income will vary dependent on the success and timing of completion of
success-based fee arrangements. Included in these amounts was $313,000 in
consulting fees charged to B.H. Acquisition, a related party, for each of the
three months ended March 31, 2004 and 2003.

     Castlewood Holdings share of equity in earnings of partly-owned companies
was $684,000 and $31,000 for the three months ended March 31, 2004 and March 31,
2003, respectively. This amount represents Castlewood Holdings' proportionate
share of equity in the earnings of B.H. Acquisition and the JCF CFN entities.

     Net investment income for the three months ended March 31, 2004 was
approximately $2.2 million compared to approximately $1.5 million for the same
period in 2003. Investment income includes interest income earned from cash,
cash equivalents and debt securities and, in 2003, a loss from a currency option
of $945,000. During the first quarter of 2003, Castlewood Holdings sold a
currency option as an economic hedge on Castlewood Holdings' portion of the
purchase price of Toa-UK. The weakening of the British pound from the sale date
of the currency option to the completion date of the Toa-UK transaction had an
adverse effect on Castlewood Holdings' hedge, resulting in the loss of $945,000.

     Salaries and benefits, which include accrued bonuses, were approximately
$4.2 million for the three months ended March 31, 2004 compared to approximately
$3.3 million for the same period in 2003. Castlewood Holdings is a service based
company and, as such, employee salaries and benefits are its largest cost. The
increased cost is mainly attributable to the growth in staff of Castlewood
Holdings over the past year.

     General and administrative expenses were approximately $2.1 million for the
three months ended March 31, 2004 compared to approximately $2.3 million for the
same period in 2003. General and administrative expenses include rent and rent
related costs, professional fees (legal, investment, audit and actuarial) and
travel expenses. Castlewood Holdings operates in both the UK and Bermuda, and
staff travel frequently in connection with Castlewood Holdings' search for
acquisition opportunities and in the general management of the business.

     Castlewood Holdings has recorded foreign exchange gains of approximately
$1.1 million for the three months ended March 31, 2004 and foreign exchange
losses of $76,000 for the same period in 2003. Through its subsidiaries,
Castlewood Holdings conducts business in a variety of foreign (non-U.S.)
currencies, the principal exposures being Euros and British pounds. At each
balance sheet date, recorded balances that are denominated in a currency other
than the functional currency of Castlewood Holdings are adjusted to reflect

                                        18
<PAGE>

the current exchange rate. Revenue and expense items are translated into U.S.
dollars at average rates of exchange for the periods. The resulting exchange
gains or losses are included in net earnings.

     Income taxes of $266,000 were recorded for the three months ended March 31,
2004 compared to $79,000 for the same period in 2003. Under current Bermuda law,
Castlewood Holdings and its Bermuda subsidiaries are not required to pay taxes
in Bermuda on either income or capital gains. Castlewood Holdings and its
Bermuda subsidiaries have received an undertaking from the Bermuda government
that, in the event of income or capital gains taxes being imposed, Castlewood
Holdings and its Bermuda subsidiaries will be exempted from such taxes until the
year 2016. United Kingdom subsidiaries record income taxes based on their
graduated statutory rates, net of tax benefits arising from tax loss
carryforwards.

     In March 2003, Castlewood Holdings and Shinsei completed the acquisition of
all of the outstanding capital stock of Toa-UK, a London-based subsidiary of The
Toa Reinsurance Company, Limited, for approximately $46 million. The acquisition
was effected through Hillcot, a newly formed Bermuda company, in which
Castlewood Holdings has a 50.1% economic interest and a 50% voting interest.
Castlewood Holdings recorded a minority interest in subsidiary income of
$456,000, representing Shinsei's proportionate share of earnings from Hillcot
for the three months ended March 31, 2004.

  B.H. ACQUISITION

     B.H. Acquisition reported a net loss of $257,000 for the three months ended
March 31, 2004 compared to net income of $70,000 for the same period in the
prior year.

     The Company had an underwriting loss of $290,000 for the three months ended
March 31, 2004 compared to net underwriting income of $2,000 for the same period
in 2003.

     Net investment income was $458,000 and $470,000 for the three months ended
March 31, 2004 and 2003, respectively. Investment income consists primarily of
interest income earned from cash, cash equivalents, debt securities and mutual
funds.

     Amortization of the run-off provision was $333,000 and $375,000 for the
three months ended March 31, 2004 and 2003, respectively. The Company
established a provision at the date of acquisition equal to the anticipated
expenses to be incurred over the expected life of the run-off. In 2003, an
additional provision was established and the expected life of the run-off was
extended 2 years. This provision is amortized on a straight-line basis over this
period.

     General and administrative expenses were $915,000 and $751,000 for the
three months ended March 31, 2004 and March 31, 2003, respectively. General and
administrative expenses include legal, audit, management and actuarial expenses.

     B.H. Acquisition recorded a foreign exchange gain of $157,000 and a foreign
exchange loss of $26,000 for the three months ended March 31, 2004 and 2003,
respectively. Through its subsidiaries, BH Acquisition conducts business in a
variety of foreign (non-U.S.) currencies, the principal exposures being Euros
and British pounds. At each balance sheet date, recorded balances that are
denominated in a currency other than the functional currency of B.H. Acquisition
are adjusted to reflect the current exchange rate. Revenue and expense items are
translated into U.S. dollars at average rates of exchange for the years. The
resulting exchange gains or losses are included in net income.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to market risk from changes in interest rates. At
March 31, 2004, the Company had cash and cash equivalents of approximately $59.2
million in interest bearing accounts (interest at floating rates) and
approximately $4.1 million of short-term certificates of deposit (interest at
fixed rates). Accordingly, each one percent change in market interest rates
would change interest income by approximately $633,000 per year. However, any
future transactions affecting the Company's cash and cash equivalents and
certificates of deposit will change this estimate. Additionally, although
interest rate changes would affect the fair value of the Company's certificates
of deposits, the weighted average original term of certificates held by

                                        19
<PAGE>

the Company at March 31, 2004 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.

     The Company is also exposed to foreign currency risk through its holdings
in partially owned equity affiliates and their subsidiaries. Foreign currency
risk is the risk that the Company will incur economic losses due to adverse
changes in foreign currency exchange rates. These entities conduct business in a
variety of foreign (non-U.S.) currencies, the principal exposures being in Euros
and British pounds. Assets and liabilities denominated in foreign currencies are
exposed to risk stemming from changes in currency exchange rates. Exchange rate
fluctuations impact the Company's and its partially owned equity affiliates'
reported consolidated financial condition, results of operations and cash flows
from year to year.

ITEM 4.  CONTROLS AND PROCEDURES

     As required by Securities and Exchange Commission ("SEC") rules, the
Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures as of the end of the period covered by this
quarterly report. This evaluation was carried out under the supervision and with
the participation of the Company's management, including its principal executive
officer and principal financial officer. Based on this evaluation, these
officers have concluded that the design and operation of the Company's
disclosure controls and procedures are effective. There were no changes to the
Company's internal controls over financial reporting during the period covered
by this report that materially affected, or are reasonably likely to materially
affect, the Company's internal controls over financial reporting subsequent to
the date of their evaluation.

     Disclosure controls and procedures are the Company's controls and other
procedures that are designed to ensure that information required to be disclosed
by the Company in the reports that it files or submits under the Exchange Act,
is recorded, processed, summarized and reported, within the time periods
specified in SEC rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act are accumulated and communicated to the Company's
management, including its principal executive officer and principal financial
officer, as appropriate, to allow timely decisions regarding required
disclosure.

                                        20
<PAGE>

                                    PART II

                               OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits

<Table>
<Caption>
REFERENCE
 NUMBER                           DESCRIPTION OF EXHIBITS
---------                         -----------------------
<C>       <S>   <C>
   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).
   2.7    --    Agreement Relating to the Sale and Purchase of the Entire
                Issued Share Capital of Toa-UK, dated as of March 28, 2003,
                between The Toa Reinsurance Company, Limited, Castlewood
                Holdings and Shinsei (incorporated by reference to Exhibit
                2.1 to the Current Report on Form 8-K, dated April 11,
                2003).
   2.8    --    Purchase and Sale Agreement, dated March 10, 2004, by and
                among J.C. Flowers I L.P., JCF CFN LLC, JCF CFN II LLC, JCF
                AIV II LP, JCF AIV III LP, JCF Associates I LLC and FIT CFN
                Holdings LLC (incorporated by reference to Exhibit 99.2 to
                the Current Report on Form 8-K, dated March 23, 2004).
   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).
  31.1    --    Certification of Chief Executive Officer pursuant to Rule
                13a -- 14(a) or Rule 15d -- 14(a) of the Securities Exchange
                Act of 1934 as adopted under Section 302 of the
                Sarbanes-Oxley Act of 2002.
</Table>

                                        21
<PAGE>

<Table>
<Caption>
REFERENCE
 NUMBER                           DESCRIPTION OF EXHIBITS
---------                         -----------------------
<C>       <S>   <C>
  31.2    --    Certification of Chief Financial Officer pursuant to Rule
                13a -- 14(a) or Rule 15d -- 14(a) of the Securities Exchange
                Act of 1934 as adopted under Section 302 of the
                Sarbanes-Oxley Act of 2002.
  32.1    --    Certification of Chief Executive Officer pursuant to 18
                U.S.C. Section 1350, as adopted pursuant to Section 906 of
                the Sarbanes-Oxley Act of 2002.
  32.2    --    Certification of Chief Financial Officer pursuant to 18
                U.S.C. Section 1350, as adopted pursuant to Section 906 of
                the Sarbanes-Oxley Act of 2002.
  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 March
                15, 2004).
</Table>

     (b) Reports on Form 8-K

     On March 23, 2004 the Company filed a Current Report on Form 8-K pursuant
to Item 2 -- Acquisition or Disposition of Assets and Item 7 -- Financial
Statements, Pro Forma Financial Information and Exhibits.

                                        22
<PAGE>

                                   SIGNATURES

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

                                          THE ENSTAR GROUP, INC.

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

Date: May 10, 2004

                                        23