<PAGE>
                                    FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                    For the fiscal year ended January 3, 2003

                                       OR

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

             For the transition period from __________ to __________

                         Commission File Number: 0-21204

                           SOUTHERN ENERGY HOMES, INC.
             (Exact name of registrant as specified in its charter)

         Delaware                                      63-1083246
         --------                                      ----------
(State or other jurisdiction of                     (I.R.S. Employer
incorporation or organization)                      Identification No.)

144 Corporate Way, P.O. Box 390, Addison, Alabama         35540
-------------------------------------------------         -----
(Address of principal executive offices)                (Zip Code)

       Registrant's telephone number, including area code: (256) 747-8589
                                                           --------------

Securities registered pursuant to Section 12(b) of the Act:

      Title of each class           Name of each exchange on which registered
            N/A
------------------------------      ------------------------------------

           Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, par value $.0001
                         ------------------------------
                                 Title of class

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K. [ ]

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

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price of such stock on the
Nasdaq Stock Market as of March 19, 2003, was $8,860,412. The number of shares
of common stock outstanding at that date was 12,133,865 shares, $.0001 par
value.

Documents Incorporated By Reference

<TABLE>
<CAPTION>
                                                                                       Part      Item
                                                                                       ----      ----
<S>                                                                                    <C>       <C>
1.  Southern Energy Homes, Inc. Definitive Proxy Statement with respect to its
     May 20, 2003 Annual Meeting of Stockholders                                        III      10,11,12,13
</TABLE>


<PAGE>
                                     PART I

SOUTHERN ENERGY HOMES, INC.
ITEM  1.  BUSINESS

GENERAL

         Southern Energy Homes, Inc. (the "Company") is engaged in the
production and sale of manufactured homes, and the operation of three component
supply divisions. The Company produces manufactured homes sold primarily in the
southeastern and southcentral United States. The Company operates five home
manufacturing facilities (four in Alabama and one in Texas) to produce homes
sold in 22 states. The Company's homes are currently marketed under four brand
names by 235 independent dealers at 424 independent dealer locations and 3
company-owned retail centers.

         The Company manufactures homes that are designed as primary residences
ready for immediate occupancy. The homes, most of which are customized at the
Company's factories to the home buyer's specifications, are constructed by the
Company in one or more sections that are transported by independent trucking
companies to dealer locations.

         The Company's homes range in size from 672 to 3,268 square feet and
sell at retail prices ranging from $20,000 to $108,000, excluding land. The
Company believes that its willingness to customize floor plans and design
features to match homebuyer preferences is the principal factor which
differentiates it from most of its competitors.

         At the end of fiscal 1998, the Company had substantial retail sales
operations, consisting of 33 retail centers in seven states. As industry
conditions began to weaken during fiscal 1999, however, the Company responded,
among other ways, by closing or selling retail centers that did not meet profit
objectives. That process continued through the next three years, culminating in
the decision during fiscal 2002 to close most of the remaining retail centers
and focus on the Company's core manufacturing business. In fiscal 2002, eleven
retail centers were closed, and by the end of the year, the Company had closed
all but three of the retail centers that were formerly part of its retail
segment. These retail centers had been negatively affected by weak market
conditions, including excess retail capacity in the industry and restrictive
retail financing conditions, principally as a result of the withdrawal of
several lenders from the market (see "Discontinued Operations" below). The
decision to close the retail centers was based primarily on management's
evaluation of recent operating results and future prospects.

         The component supply segment sells various supply products to the
Company's manufacturing segment and to third-party customers.

         The Company provides home buyers with a source of financing for homes
sold by the Company, through Wenco 21, a joint venture between the Company and
21st Mortgage Corporation. Prior to the establishment of Wenco 21, the Company
originated financing for buyers through its subsidiary, Wenco Finance Inc. Since
the formation of Wenco 21, Wenco Finance has conducted minimal loan origination
operations. As part of its decision to redirect the Company's efforts to its
core manufacturing operations, the Company also sold the Wenco Finance business
in late 2002 (see "Discontinued Operations" below).

         The manufactured housing market is highly cyclical and seasonal and is
affected by the same economic factors which have an impact on the broader
housing market. Historically, most sectors of the home building industry have
been affected by, among other things, changes in general economic conditions,
levels of consumer confidence, employment and income, housing demand,
availability of financing and interest rate levels.

DESCRIPTION OF REPORTABLE SEGMENTS - CONTINUING OPERATIONS

MANUFACTURED HOMES

         The Company produces a variety of single- and multi-section homes under
four brand names. The Company's homes are manufactured in sections, which
individually are transported to their destination. The finished homes may
consist of one or more sections. Multi-section products are joined at their
destination by the dealer or its contractor. The Company initially concentrated
on the medium to higher priced segments of the manufactured housing market. Over
the past several years, the Company has broadened its product line with lower
priced homes that sell at retail for less than $25,000. Although each
manufacturing facility is an operating segment, they are aggregated into one
segment for reporting purposes because they produce similar products using
similar production techniques and they sell their products to the same class of
customer. In addition, they are subject to the same regulatory environment and
their economic characteristics (measured in terms of profitability) are similar.
The four manufacturing divisions of the Company are listed below with the type,
size, and retail price of the homes that each produces:


                                       2
<PAGE>

<TABLE>
<CAPTION>
                   Division                Type                        Square Feet        Retail Price Range
                   --------------------    ---------                   -----------        ------------------
                   <S>                     <C>                         <C>                <C>
                   Southern Energy         Multi-section               1,421 - 3,268      $38,900 - $108,000
                   Southern Lifestyle      Single and multi-section      908 - 2,381       22,500 -   97,900
                   Southern Homes          Single and multi-section      672 - 2,450       20,000 -   65,000
                   Southern Texas          Single and multi-section    1,088 - 2,432       20,000 -   57,500
</TABLE>

         The Company's manufacturing division accounted for 90.8%, 88.2% and
81.3% of the Company's net revenues for the fiscal years ended January 3, 2003,
December 28, 2001 and December 29, 2000, respectively.

         The Company's product development and engineering personnel design
homes in consultation with divisional management, sales representatives and
dealers. They also evaluate new materials and construction techniques in a
continuous program of product development and enhancement. With the use of
computer aided design technology, the Company has developed engineering systems
that permit customization of homes to meet the individual needs of prospective
buyers. These systems allow the Company to make modifications such as increasing
the length of a living room, moving a partition, changing the size and location
of a window or installing custom cabinets without significant impact upon
manufacturing productivity.

         Each home contains two to five bedrooms, a living room, dining room,
kitchen and one to three bathrooms, and features a heating system, a stove and
oven, refrigerator, carpeting and draperies. The Company has traditionally
focused on designing manufactured homes with features that make them comparable
to site-built homes, including stone fireplaces and vaulted ceilings, thus
broadening the base of potential customers. In addition to offering the consumer
optional features such as dishwashers, oak cabinets and furniture packages as
well as a wide range of colors, moldings and finishes, the Company generally
offers extensive customization of floor plan designs to meet specific customer
preferences.

RETAIL OPERATIONS

         The Company began its retail operations in November 1996 by acquiring a
group of retail companies operating in Alabama and Mississippi. During fiscal
1997, the Company expanded its retail operations by acquiring another retail
company with seven locations in South Carolina, and during 1998, the Company
added another 15 retail centers through acquisitions. However, beginning in
fiscal 1999, the industry began to weaken and in 2000 the Company began to close
unprofitable retail centers. During the latter part of fiscal 2002, the Company
made the decision to close most of its remaining retail centers, and completed
the closure of eleven centers by the end of December 2002. At January 3, 2003,
the Company had 3 retail sales centers; two in Alabama and one in South
Carolina. Each of the remaining three sales centers maintains a separate sales
force. The Company's three continuing retail centers accounted for 7%, 8% and
15% of the Company's net revenues for the fiscal years ended January 3, 2003,
December 28, 2001 and December 29, 2000, respectively (also see "Discontinued
Operations" below).

COMPONENT SUPPLY

The Company currently operates three component supply divisions. Classic Panel
Designs supplies laminated and other interior wall panels. Wind-Mar Supply
provides windows, doors and countertops. Trimmasters produces wood molding and
trim finishing, and is a provider of wood components and dining furniture. These
divisions sell products both to the Company's own manufactured housing segment
and to third-party customers. The Company's component supply division accounted
for 2%, 2% and 3% of the Company's net revenues for the fiscal years ended
January 3, 2003, December 28, 2001 and December 29, 2000, respectively.

HOME MANUFACTURING OPERATIONS

         The Company's homes are currently manufactured by four operating
divisions using assembly line techniques at five facilities; two manufacturing
facilities are located in Addison, Alabama, and one is located in each of Double
Springs, Alabama, Lynn, Alabama and Fort Worth, Texas.

         The Company's manufacturing facilities operate on a one shift per day,
five days per week basis. The Company believes that these facilities have the
capacity to produce a total of approximately 165 floor sections per week with
minimal labor additions. The Company plans to continue operating on a single
shift per day basis. During the fiscal year ended January 3, 2003, the Company
produced an average of 141 floor sections per week. This represented a 4%
decrease in floor section production from an average of 147 floor sections per
week in the fiscal year ended December 28, 2001. In the fiscal year ended
December 29, 2000, the Company produced an average of 174 floor sections per
week. The following table sets forth the total floor sections and homes sold as
well as the number of home manufacturing facilities operated by the Company for
the periods indicated:


                                       3
<PAGE>

<TABLE>
<CAPTION>
                                                                             Year Ended
                                                 --------------------------------------------------------------------
                                                 January 3, 2003          December 28, 2001         December 29, 2000
                                                 ---------------          -----------------         -----------------
<S>                                              <C>                      <C>                       <C>
Homes                                                      4,203                      4,411                     5,504
Floor sections                                             7,334                      7,620                     9,041
Home Manufacturing facilities                                  5                          5                         5
</TABLE>


         Each division operates as a separate strategic unit that is directed by
a general manager and has its own sales force. The general manager, production
managers and supervisory personnel of each division have an incentive
compensation system which is directly tied to the operating profit of the
division. In addition, production personnel of each division have a
productivity, turnover, labor efficiency and injury incentive compensation
system. The Company believes that these compensation systems help to focus
efforts on curtailing waste and inefficiencies in the production process, keep
qualified associates and maintain a safe workplace, and represent a divergence
from standard industry practices, which are typically designed to reward
personnel on production volume criteria.

         The extent of customization of the home performed by the Company varies
to a significant degree with the price of the home. In the higher price range of
the market, the home buyer is often less sensitive to the price increase that is
associated with significant design modifications that might be desired. However,
the Company's experience in producing a customized home on a cost-effective
basis has allowed the Company to offer customized homes in all price ranges.

         The principal materials used in the production of the Company's homes
include steel, aluminum, wood products, gypsum wallboard, fiberglass,
insulation, carpet, vinyl floor covering, fasteners and hardware items,
appliances, electrical items, windows and doors. These materials and components
are readily available and are purchased by the Company from numerous sources. No
supplier accounted for more than 3.2% of the Company's purchases during each of
the past three fiscal years. The Company believes that the size of its purchases
allows it to obtain favorable volume discounts. The Company's expenses can be
significantly affected by the availability and pricing of raw materials. Sudden
increases in demand for construction materials can greatly increase the costs of
materials. While in the past the Company has been able to pass along a
significant portion of increased material costs, more recently the Company has
had difficulties in passing on the increased costs due to competitive
conditions.

         Because the cost of transporting a manufactured home is significant,
substantially all of the Company's homes are sold to dealers within a 600 mile
radius of a manufacturing facility. The Company arranges, at the dealer's
expense, for the transportation of finished homes to dealer locations using
independent trucking companies. Customary sales terms are cash-on-delivery or
guaranteed payment from a floor plan financing source. Dealers or other
independent installers are responsible for placing the home on site, making
utility hook-ups and providing and installing certain trim items.

         Substantially all production is initiated against specific orders. The
Company's backlog of orders for manufactured homes as of March 1, 2003 was $0.7
million as compared with $1.0 million at March 1, 2002. Dealer orders are
subject to cancellation prior to commencement of production for a variety of
reasons, and the Company does not consider its backlog to be firm orders. In
addition, because the industry operates in an environment where order lead times
are extremely short, the Company does not view backlog at any point in time to
be indicative of the level of the Company's future revenues.

SALES NETWORK

         At January 3, 2003, the Company sold manufactured homes through
approximately 235 independent dealers at approximately 424 independent dealer
locations and through 3 company-owned retail centers in 22 states principally in
the southeastern and south central United States.

         Each of the Company's four home manufacturing divisions maintains a
separate sales force. At January 3, 2003, a total of 26 salespersons maintained
personal contact with the Company's independent dealers. The Company markets its
homes through product promotions tailored to specific dealer needs. In addition,
the Company advertises in local media and participates in regional manufactured
housing shows.

         The Company works to achieve the close working relationship between its
division management and the independent dealers they service, because it
considers this an important factor in the effective distribution of the
Company's products. In order to promote dealer loyalty and to enable dealers to
penetrate retail markets, only one independent dealer within a given local
market may distribute homes manufactured by a division of the Company. The
Company does not have formal marketing agreements with its independent dealers
and substantially all of the Company's independent dealers also sell homes of
other manufacturers. The Company believes its relations with its independent
dealers are good and the Company has experienced relatively low turnover in its
established independent dealers in the past three years. In the fiscal year
ended January 3, 2003, the Company's largest dealer accounted for 3.8% of net
revenues and the ten largest dealers accounted for 31.3% of net revenues. In the
fiscal year ended December 28, 2001, the



                                       4
<PAGE>

Company's largest dealer accounted for 5.3% of net revenues, and the Company's
ten largest dealers accounted for 26.7% of net revenues. In the fiscal year
ended December. 29, 2000, the Company's largest dealer accounted for 6.2% of net
revenues and the Company's ten largest dealers accounted for 27.0% of net
revenues.

         Buyers of manufactured homes typically shop at a number of locations
prior to purchasing a home. The Company believes that it provides most of its
dealers with a marketing advantage because of the dealer's ability to represent
that the Company's homes can be customized to meet the individual preferences of
the customer.

WARRANTY, QUALITY CONTROL AND SERVICE

         The Company endeavors to adhere to strict quality standards and
continuously refines its production procedures. In addition, in accordance with
the construction codes promulgated by the Department of Housing and Urban
Development ("HUD"), an independent HUD-approved, third-party inspector inspects
each of the Company's manufactured homes for compliance during construction at
the Company's manufacturing facilities. See "-Regulation."

         The Company provides the initial home buyer with a HUD-mandated,
one-year limited warranty against manufacturing defects in the home's
construction. In addition, there are often direct warranties that are provided
by the manufacturer of components and appliances.

         The Company has experienced quality assurance personnel at each of its
manufacturing facilities to provide on-site service to dealers and home buyers.
The Company continuously works to enhance its quality assurance systems, placing
high emphasis on improving the value and appeal of the Company's homes and
reducing consumer warranty claims.

INDEPENDENT DEALER FINANCING

         Substantially all of the Company's independent dealers finance their
purchases through "floor plan" arrangements under which a financial institution
provides the dealer with a loan for the purchase price of the home and maintains
a security interest in the home as collateral. In connection with a floor plan
arrangement, the financial institution which provides the independent dealer
financing customarily requires the Company to enter into a separate repurchase
agreement with the financial institution, under which the Company is obligated,
upon default by the independent dealer, to repurchase the homes at the Company's
original invoice price less cost of all damaged/missing items and less
curtailments, plus certain administrative and shipping expenses. Repurchases
were $2.0 million, $4.2 million and $8.7 million for the years ended 2002, 2001,
and 2000 respectively. Losses on homes repurchased under these agreements were
$0.5 million, $0.9 million and $0.9 million in 2002, 2001 and 2000,
respectively. At January 3, 2003, the Company's contingent repurchase liability
under floor plan financing arrangements through independent dealers was
approximately $38 million. While homes that have been repurchased by the Company
under floor-plan financing arrangements are usually sold to other dealers, no
assurance can be given that the Company will be able to sell to other dealers
homes which it may be obligated to repurchase in the future under such
floor-plan financing arrangements or that the Company will not suffer losses
with respect to, and as a consequence of, those arrangements. No dealer
accounted for more than 6.2% of the Company's net revenues in any of the past
three fiscal years. See "Sales Network." The Company does not view any single
independent dealer as being a material customer. The Company also finances
substantially its entire retail inventory through funds generated from
operations.

COMPETITION

         The manufactured housing industry is highly competitive at both the
manufacturing and retail levels, with competition based upon numerous factors,
including total price to the dealer, customization to homeowners' preferences,
product features, quality, warranty repair service and the terms of dealer and
retail customer financing. A number of firms with which the Company competes are
larger than the Company and possess greater manufacturing and financial
resources. In addition, there are numerous firms producing manufactured homes in
the southeastern and south-central United States, many of which are in direct
competition with the Company in the states where its homes are sold. Certain of
the Company's competitors provide retail customers with financing from captive
finance subsidiaries. While the Company's Wenco 21 joint venture provides
consumer financing to customers, increasing contractions in consumer credit may
provide an advantage to those competitors with larger or more established
internal financing capabilities.

         In addition, manufactured homes compete with other forms of housing,
including site-built and prefabricated homes. Historically, manufactured housing
has had a price advantage over these other forms of housing. That advantage has
deteriorated, however, as the credit market, at both the retail and wholesale
level, of the manufactured housing industry has continued to tighten, while
interest rates for site-built houses are at historic lows, thus increasing the
competitive pressures on manufactured housing.

         The capital requirements for entry as a producer in the manufactured
housing industry are relatively small. However, the Company believes that the
qualifications for obtaining inventory financing, which are based upon the
financial strength of the manufacturer and each of its dealers, have recently
become more difficult to meet due to the departure of financial institutions
from


                                       5
<PAGE>

the market and dealers requiring principal and curtailment payments from the
manufacturers.

         The Company believes that its willingness to customize floor plans and
design features to match customer preferences is the principal factor which
differentiates it from most of its competitors in the manufactured housing
industry.

REGULATION

         The Company's manufactured homes are subject to a number of federal,
state and local laws. Construction of manufactured housing is governed by the
National Manufactured Housing Construction and Safety Standards Act of 1974
("1974 Act"). In 1976, HUD issued regulations under this Act establishing
comprehensive national construction standards. The HUD regulations cover all
aspects of manufactured home construction, including structural integrity, fire
safety, wind loads, thermal protection, plumbing and electrical. Such
regulations preempt conflicting state and local regulations. The Company's
manufacturing facilities and the plans and specifications of its manufactured
homes have been approved by a HUD-designated inspection agency. An independent,
HUD-approved third-party inspector checks each of the Company's manufactured
homes for compliance during at least one phase of construction. In 1994, HUD
amended manufactured home construction safety standards to improve the wind
force resistance of manufactured homes sold for occupancy in coastal areas prone
to hurricanes. Failure to comply with the HUD regulations could expose the
Company to a wide variety of sanctions, including closing the Company's plants.
The Company believes its manufactured homes meet or surpass all present HUD
requirements.

         Manufactured, modular and site-built homes are all built with
particleboard, paneling and other products that contain formaldehyde resins.
Since February 1985, HUD has regulated the allowable concentration of
formaldehyde in certain products used in manufactured homes and required
manufacturers to warn purchasers concerning formaldehyde associated risks. The
Company currently uses materials in its manufactured homes that meet HUD
standards for formaldehyde emissions and that otherwise comply with HUD
regulations in this regard. In addition, certain components of manufactured
homes are subject to regulation by the Consumer Product Safety Commission
("CPSC") which is empowered to ban the use of component materials believed to be
hazardous to health and to require the manufacturer to repair defects in
components of its homes. The CPSC, the Environmental Protection Agency and other
governmental agencies are evaluating the effects of formaldehyde. In February
1983, the Federal Trade Commission adopted regulations requiring disclosure of
manufactured home's insulation specifications.

         The Company's manufactured homes are also subject to local zoning and
housing regulations. A number of states require manufactured home producers to
post bonds to ensure the satisfaction of consumer warranty claims. A number of
states have adopted procedures governing the installation of manufactured homes.
Utility connections are subject to state and local regulation, and must be
complied with by the dealer or other person installing the home.

         The Company is subject to the Magnuson-Moss Warranty Federal Trade
Commission Improvement Act, which regulates the descriptions of warranties on
products. The description and substance of the Company's warranties are also
subject to a variety of state laws and regulations.

          Wenco 21, the Company's finance joint venture, is subject to a variety
of federal and state laws and regulations regulating consumer finance, including
the Truth in Lending Act, which regulates lending procedures and mandates
certain loan disclosures with respect to financing offered to consumers. Failure
by Wenco 21 to comply with any of these laws and regulations could have a
material adverse effect on the Company's business and results of operations.

EMPLOYEES

         As of January 3, 2003, the Company employed 1,191 full-time employees
involved in the following functional areas: manufacturing, 929; sales, 60; field
service, 71; administration and clerical, 95; and management, 36. The Company's
manufacturing operations require primarily semi-skilled labor and personnel
levels fluctuate with seasonal changes in production volume.

         None of the Company's employees are represented by a collective
bargaining agreement. The Company believes that it has a good relationship with
its employees, and it has never experienced any work stoppage.

EXECUTIVE OFFICERS

         Information concerning the Executive Officers of the Company is as
follows. Executive Officers are elected annually by and serve at the pleasure of
the Board of Directors.

         Wendell L. Batchelor (age 60) is the Founder and Chairman of the
Company and a Director since the Company's incorporation in 1982. Mr. Batchelor
was Chief Executive Officer of the Company from 1982 until May 2002 and
President of the Company from 1982 to 1999. From 1971 to 1982, Mr. Batchelor was
General Manager of Shiloh Homes, a division of Winston Industries. Mr. Batchelor
was Sales Manager of Marietta Homes, a division of Winston Industries, from 1968
to 1971. From 1966 to


                                       6
<PAGE>

1968, Mr. Batchelor was a Sales Representative for Madrid Homes. Mr. Batchelor
has served in the past as Chairman of the Alabama Manufacturer's Housing
Institute.

         Keith O. Holdbrooks (age 42) was elected as the Company's Chief
Executive Officer in May of 2002 by the Company's Board of Directors and has
served as the Company's President since June 1999 and Chief Operating Officer
since August 1996. From 1991 to 1996, Mr. Holdbrooks served as General Manager
for Southern Homes, a division of the Company, and from 1989 to 1991 served as
Sales Manager for Southern Homes. From 1985 to 1989 Mr. Holdbrooks served as
salesman for Southern Lifestyle, a division of the Company.

         James L. Stariha (age 41) joined the Company as its Chief Financial
Officer in January of 2003. From 1999 to 2002, Mr. Stariha served as Vice
President of Finance of BISYS Document Solutions, a subsidiary of the BISYS
Group, Inc., and from 1996 to 1999 served as Executive Vice President and Chief
Financial Officer of Healthcare Technology Delivery, Inc. From 1983 to 1996 Mr.
Stariha served in a variety of financial, marketing, and manufacturing positions
with Square D Company.

         Dan Batchelor (age 50) serves as the Company's General Counsel and
Executive Vice President. Mr. Batchelor practiced commercial and tort litigation
and business law for almost twenty years before joining the Company in 1998. Mr.
Batchelor received his B.A. from the University of Virginia, 1974; J.D. from
Cumberland School of Law of Samford University, 1978; and LL.M. from the
University of Miami School of Law, 1979. He is admitted to practice in Alabama,
Georgia and Florida and various federal jurisdictions.

DISCONTINUED OPERATIONS

RETAIL OPERATIONS

         As industry conditions began to weaken during fiscal 1999, the Company
began to close or sell retail centers that did not meet profit objectives. That
process continued, based on a case-by-case determination, through the next three
years, with fourteen of the 33 centers open at the end of fiscal 1998 having
been closed by the end of fiscal 2001. During the latter part of fiscal 2002,
management made the determination to close most of the fifteen retail centers
then remaining and essentially withdraw from any further significant retail
presence. In fiscal 2002, eleven retail centers were closed, and by the end of
the year, the Company had completed the closure of all but three of the retail
centers that were formerly part of its retail segment. Five of these eleven
centers were in Alabama, three were in South Carolina, two in Tennessee and one
in Kentucky. The decision to close the retail centers was based primarily on
management's evaluation of recent operating results and future prospects. These
centers had operating losses of $1.9 million (excluding disposal losses of $4.7
million), $2.9 million and $2.4 million for the fiscal years ended January 3,
2003, December 28, 2001 and December 29, 2000 respectively. The retail centers
that were closed had been negatively affected by weak market conditions,
including excess retail capacity in the industry, as well as restrictive retail
financing conditions, principally as a result of the withdrawal of several
lenders from the market. The decision to close the retail centers was based
primarily on management's evaluation of recent operating results and future
prospects of those centers, and was also part of a strategic decision to
concentrate the Company's resources on the primary manufacturing operations.

CONSUMER FINANCING

         Home buyers normally secure financing from third-party lenders such as
banks or independent finance companies. The availability and cost of financing
is important to the Company's sales. Starting in late 1999, financing started to
become more restrictive and some lenders began to exit the market. In order to
provide home buyers with an additional source of financing, the Company's
wholly-owned subsidiary, Wenco Finance, Inc. ("Wenco Finance"), originated and
serviced consumer loans for homes manufactured by the Company during the period
January 1996 through February 1997. The Wenco Finance portfolio was sold in
December 2002. The loan portfolio had losses of $0.8 million (excluding disposal
loss of $5.7 million), $0.1 million and $1.3 million for the fiscal years ended
January 3, 2003, December 28, 2001 and December 29, 2000 respectively.

AVAILABLE INFORMATION

The Company makes available, free of charge through its website
(www.soenergyhomes.com), the annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after electronically filing such material with the
Securities and Exchange Commission.


                                       7
<PAGE>
ITEM  2.   PROPERTIES

         The Company currently operates five home manufacturing facilities (four
in Alabama, and one in Texas) and three component supply facilities (all in
Alabama), as follows:

<TABLE>
<CAPTION>
                                                 Building                                                      Leased or
Unit                                             Location                      Square Feet                       Owned
---------------------------------------    ---------------------            ------------------            --------------------
<S>                                        <C>                              <C>                           <C>
Manufacturing

Southern Energy                                Addison, AL                       72,000                          Owned

Southern Lifestyle                             Addison, AL                       62,500                          Owned

Southern Homes

Plant #1                                    Double Springs, AL                   60,000                          Owned
Plant #4                                         Lynn, AL                        90,000                          Owned

Southern Energy Homes of Texas                Fort Worth, TX                     98,300                          Owned

Component Supply

Classic Panel                                 Hartselle, AL                      24,000                          Owned
Wind-Mar Supply                                Addison, AL                       22,000                          Owned
Trimmasters                                   Haleyville, AL                     50,000                         Leased
</TABLE>

         The Company considers its manufacturing facilities to be adequate for
its present needs. Additional information concerning production capacity and
extent of utilization is discussed under "Home Manufacturing Operations" in Item
1 of this Report.

         The Company currently operates 3 retail sales centers, two of which are
in Alabama and one of which is in South Carolina. Each of the retail centers are
currently leased for terms ranging from month to month to five years.

         The Company owns its corporate headquarters building located in
Addison, Alabama consisting of approximately 15,400 square feet of office space.

         Also see "Management's Discussion and Analysis of Financial Condition
and Results of Operations".

ITEM 3.  LEGAL PROCEEDINGS

         The Company is a party to various legal proceedings incidental to its
business. The company typically issues a one-year warranty on new manufactured
homes. The majority of these legal proceedings are claims related to warranty on
manufactured homes or employment issues such as workers' compensation claims.
Management believes that adequate reserves are maintained for such claims. In
the opinion of management, after consultation with legal counsel, the ultimate
liability, if any, with respect to these proceedings will not materially affect
the financial position or results of operations of the Company; however, the
ultimate resolution of these matters, which could occur within one year, could
result in losses in excess of the amounts reserved.

ITEM  4.  SUBMISSION TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of the Stockholders of the Company
during the fourth quarter of fiscal year 2002.

                                     PART II

ITEM  5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
          RECORD HOLDERS

         As of March 19, 2003, there were approximately 112 record holders of
the Company's common stock. This number does not include those stockholders
holding stock in "nominee" or "street" name.

STOCK PRICE PERFORMANCE

         The Company's common stock is publicly traded on the Nasdaq Stock
Market National Market System. The following table represents the high and low
bid price for each quarter of the last two fiscal years.


                                       8
<PAGE>

<TABLE>
<CAPTION>
                                    2002                            2001
                                Bid Price Range                Bid Price Range
                               High       Low                 High        Low
                              --------- ---------           ---------- ----------
<S>                           <C>       <C>                 <C>        <C>
First Quarter                    $2.75     $2.25                $1.69      $0.81
Second Quarter                    2.65      2.01                 2.85       1.28
Third Quarter                     2.41      1.25                 3.15       1.26
Fourth Quarter                    1.75      1.04                 2.70       1.18
</TABLE>

DIVIDENDS

         It is the Company's current policy to retain any future earnings to
finance the continuing development of its business and not to pay dividends. The
company has not paid any dividends since the initial public offering of its
stock.

ITEM  6.  SELECTED FINANCIAL DATA

Five-Year Selected Financial Data
Southern Energy Homes, Inc. and subsidiaries
(Dollars in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                   Year Ended
                                     -----------------------------------------------------------------------------------------------
                                     January 3,            December 28,           December 29,        December 31,        January 1,
                                     -----------          -------------          -------------       -------------        ----------
                                           2003                    2001                   2000                1999              1999
                                           -----                  -----                  -----                ----              ----
<S>                                  <C>                   <C>                    <C>                 <C>              <C>
OPERATING DATA

Net revenues                        $    138,514           $    129,105           $    156,347        $    233,012     $    289,222
Gross profit                              25,628                 26,682                 26,552              43,188           59,457
Selling, general and
  administrative                          24,914                 25,360                 32,862              36,175           39,591
Amortization of intangibles (1)               53                    299                    425                 320              607
Impairment charges (2)                        --                  2,240                  5,818               7,073              934
Start-up costs (3)                            --                     --                     --                  --              739
Operating income (loss) from
   continuing operations                     661                 (1,217)               (12,553)               (380)          17,586
Interest expense                             593                    893                  1,464               1,058            1,541
Interest income                               41                    112                    234                 130              709
Income taxes (benefit)                      (800)                    --                   (325)             (1,020)           6,089
Income (loss) from continuing
   operations                                909                 (1,998)               (13,458)               (288)          10,665
Income (loss) from discontinued
   operations                             (8,550)                (3,074)                (3,654)             (1,305)            (862)
Cumulative effect of accounting
   change (3)                                 --                     --                     --                  --             (507)
Net income (loss)                         (7,641)                (5,072)               (17,112)             (1,593)           9,296
Net income (loss) from
  continuing operations per share:
  Basic                             $       0.07           $      (0.17)          $      (1.11)       $      (0.02)    $       0.79
  Diluted                           $       0.07           $      (0.17)          $      (1.11)       $      (0.02)    $       0.78
Net income (loss) per share:
  Basic                             $      (0.63)          $      (0.42)          $      (1.41)       $      (0.13)    $       0.69
  Diluted                           $      (0.63)          $      (0.42)          $      (1.41)       $      (0.13)    $       0.68
Weighted average shares
   outstanding:
  Basic                               12,133,865             12,133,298             12,132,990          12,176,705       13,440,607
  Diluted                             12,133,865             12,133,298             12,132,990          12,176,705       13,647,216


BALANCE SHEET DATA
Total assets                        $     51,728           $     73,659           $     96,571        $    122,014     $    121,656
Short-term debt                               32                 10,677                 10,964              28,049           29,182
Long-term debt                                --                     --                     --               2,464            3,569
Stockholders' equity                      38,960                 46,601                 51,672              68,784           73,449
</TABLE>

The financial information for the periods above has been restated to reflect the
reclassification of the 2002 retail center closings and the consumer finance
segment as discontinued operations.

(1) On December 29, 2001, the Company adopted FASB Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, which
eliminates amortization of goodwill and requires an annual impairment test.


                                       9
<PAGE>

 (2) During 2001, the Company recorded a pre-tax charge of $1.6 million
associated with the impairment of intangible assets related to certain of the
Company's retail centers and a pre-tax charge of $602,000 related to impairment
of a joint venture. During 2000, the Company recorded a pre-tax charge of $6.0
million associated with the impairment of intangible assets and exit costs
related to certain of the Company's retail centers. During 1999, the Company
recorded pre-tax charges of $7.1 million associated with closing of its
manufacturing facility in North Carolina and three retail centers, one in
Kentucky and two in South Carolina. During 1998, the Company recorded an
additional pre-tax charge of $934,000 due to additional warranty, workmen's
compensation, and other costs incurred related to the closing of its
Pennsylvania facility.

(3) During 1998, the Company recorded pre-tax charges of $739,000 for the year
and $825,000 ($507,000 net of tax) for the cumulative effect of accounting
change due to the Company adopting a change in accounting principle requiring
the expensing of start-up costs in accordance with AICPA Statement of Position
98-5, Reporting on the Cost of Start-Up Activities.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

The Company uses accounting policies that it believes are appropriate to
accurately and fairly report its results of operations and financial position,
and it applies those accounting policies in a consistent manner. The preparation
of the Company's financial statements in conformity with generally accepted
accounting principles requires that the Company's management make estimates and
assumptions that may affect the reported amounts of assets, liabilities,
revenues and expenses. These estimates and assumptions are based on historical
and other factors believed to be reasonable under the circumstances. The Company
evaluates these estimates and assumptions on an ongoing basis. Actual results
can and frequently will differ from these estimates. It is possible that
materially different amounts would be reported under different conditions or
using different methods or assumptions.

The Company believes that the following accounting policies are the most
critical ones used in the preparation of its financial statements, because these
are the ones that involve the most significant judgments and estimates about the
effect of matters that are inherently uncertain.

PRODUCT WARRANTIES

The Company warrants its products against certain manufacturing defects for a
period of one year commencing at the time of retail sale. The estimated cost of
such warranties is accrued at the time of sale to the independent dealer based
on historical warranty costs incurred. Periodic adjustments to the accrual are
made when events occur that indicate changes are necessary.

LITIGATION

The Company is a party to various legal proceedings incidental to its business.
The Company typically issues a one-year warranty on new manufactured homes. The
majority of these legal proceedings are claims related to warranty on
manufactured homes or employment issues such as workers' compensation claims.
Management believes that adequate reserves are maintained for such claims. In
the opinion of management, after consultation with legal counsel, the ultimate
liability, if any, with respect to these proceedings will not materially affect
the financial position or results of operations of the Company; however, the
ultimate resolution of these matters, which could occur within one year, could
result in losses in excess of the amounts reserved.

INSURANCE ARRANGEMENTS

The Company is partially self-insured for workers compensation and health
insurance claims. The Company purchases insurance coverage for all workers
compensation claims in excess of $350,000 per occurrence, and for all health
care claims in excess of $75,000 per occurrence, with an annual aggregate
stop-loss limit of approximately $5.3 million for all claims. Amounts are
accrued currently for the estimated costs of claims incurred, including related
expenses. Management considers accrued liabilities for unsettled claims to be
adequate. However, there is no assurance that the amounts accrued will not vary
from the ultimate amounts incurred upon final disposition of all outstanding
claims. As a result, periodic adjustments to the reserves will be made as events
occur that indicate changes are necessary.

REPURCHASE AGREEMENTS

Substantially all of the Company's independent dealers finance their purchases
through "floor plan" arrangements under which a financial institution provides
the dealer with a loan for the purchase price of the home and maintains a
security interest in the home as collateral. In connection with a floor plan
arrangement, the financial institution which provides the independent dealer
financing customarily requires the Company to enter into a separate repurchase
agreement with the financial institution, under which the Company is obligated,
upon default by the independent dealer, to repurchase the homes at the Company's
original invoice price less cost of all damaged or missing items and less
certain curtailments, plus certain administrative and shipping expenses.
Repurchases were $2.0 million, $4.2 million and $8.7 million for the years ended
2002, 2001 and 2000 respectively. Losses on homes repurchased under these
agreements were $0.5 million, $0.9 million and $0.9 million in 2002, 2001 and
2000, respectively. At January 3, 2003, the Company's contingent repurchase
liability under floor plan financing arrangements through independent dealers
was approximately $38 million. Amounts are accrued currently for the estimated
losses to be incurred on homes repurchased. Management considers accrued
liabilities for future losses on home repurchases to be adequate. However, the
ultimate resolution could result in amounts different than the amounts reserved.
As a result, periodic adjustments to the reserves will be made as events occur
which indicate changes are necessary.


                                       10
<PAGE>

IMPAIRMENT OF LONG-LIVED ASSETS

The Company records impairment losses on long-lived assets used in operations
when events and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amount of those items. The Company's cash flow estimates are based
on historical results adjusted to reflect the Company's best estimate of future
market and operating conditions. Any material change affecting the assumptions
used to project the estimated undiscounted cash flows or our expectation of
future market conditions could result in a different conclusion. Assets for
which the carrying value is not fully recoverable are reduced to fair value.

RECOVERABILITY OF INVESTMENTS

Management periodically assesses the recoverability of the Company's investments
in joint ventures. The significant judgment required in management's
recoverability assessment is the determination of the fair value of the
investment. Since the investments are non-publicly traded investments,
management's assessment of fair value is based on the Company's analysis of the
investee's estimates of future operating results and the resulting cash flows.
Management's ability to accurately predict future cash flows is critical to the
determination of fair value.

In the event a decline in fair value of an investment occurs, management may be
required to make a determination as to whether the decline in market value is
other than temporary. Management's assessment as to the nature of a decline in
fair value is largely based on the Company's estimates of future operating
results, the resulting cash flows and intent to hold the investment. If an
investment is considered to be impaired and the decline in value is considered
to be other than temporary, an appropriate write-down is recorded.

DISCONTINUED OPERATIONS AND RESTRUCTURING RESERVES

During 2002, the Company established restructuring reserves for exit and
severance cost at a number of closed retail operations. These reserves required
the use of estimates. Though the Company believes that these estimates
accurately reflect the ultimate costs that will be incurred, actual results may
be different.

VOLUME INCENTIVES PAYABLE

Volume incentives are common practice in the industry in which the Company
operates and are accounted for as a reduction to gross sales. The volume
incentives payable is estimated and recorded when sales of products are made.
The payable is adjusted, if necessary, when information becomes available that
indicate revisions are needed.

RESULTS OF OPERATIONS

GENERAL

The Company continues to face a difficult competitive environment. Rapid
industry growth prior to 1998, particularly in retail sales expansion, resulted
in an increase in the overall number of dealers, an increase in manufacturing
output and an increase in the number of homes available at the retail level.
These larger inventories and the generally slower reduction of those inventories
led to increased price competition and reduced profits that have adversely
affected the entire industry during the past four years. Fiscal 2002 saw further
credit tightening and declines in overall economic conditions that have
compounded the situation, resulting in a significant reduction in the
availability of financing, at both the wholesale and retail levels, and
increasing repossession inventories.

The Company has responded to these adverse industry and general economic
conditions by taking a number of steps that have been effective in decreasing
costs and improving efficiency. In 2001 and 2002, these steps included closing
less efficient manufacturing facilities, consolidating divisions, and selling
unprofitable retail centers, as well as improving efficiency in the remaining
manufacturing plants, lowering labor costs and turnover, decreasing plant
injuries, and lowering warranty expenses by improved quality. Weak market
conditions still persist, however, including industry-wide excess retail
inventory and more restrictive retail financing conditions for consumers.

In 2002, the Company made a strategic decision to redirect its efforts to its
core manufacturing business. Eleven retail centers that formerly comprised the
bulk of the retail segment were closed, leaving only three retail centers
remaining. The closed retail centers had been negatively affected by both weak
market conditions and restrictive retail financing conditions, principally as a
result of the withdrawal of several lenders from the market. These centers were
sold or closed by the end of December 2002. The decision to close the retail
centers was based primarily on management's evaluation of recent operating
results and future prospects, and was also part of the determination that, in
light of those results and prospects, the Company's human and financial
resources could be more productively and efficiently deployed in the primary
base of its business, manufacturing. Five of these eleven centers were in
Alabama, three were in South Carolina, two in Tennessee and one in Kentucky.
These centers had operating losses of $1.9 million, $2.9 million and $2.4
million for the fiscal years ended January 3, 2003, December 28, 2001 and
December 29, 2000 respectively.

The Company also sold its consumer financing segment, principally consisting of
the Wenco loan portfolio in December 2002. The Wenco loan portfolio had a book
value of approximately $11.8 million. The loan portfolio was sold for $6.1
million in a cash transaction. The decision to sell the loan portfolio was also
prompted by and was a part of management's plan to eliminate


                                       11
<PAGE>

unprofitable business lines and thereby allow the Company to focus on its core
manufacturing business.

Accordingly, as required by FASB Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("FASB 144"), the operating results
and disposal of the eleven retail centers and the Wenco loan portfolio, which
were previously reported in the retail and consumer financing segments have been
classified in discontinued operations for all prior periods presented herein.
The Company recognized a $13.1 million loss ($8.5 million net of tax benefit) on
discontinued operations in the year ended January 3, 2003, which included $2.7
million of operating losses during the year (including $0.3 million for interest
allocated to retail centers based on average monthly inventory balances), $3.6
million to write down the carrying value of unsold homes in retail inventory,
$1.1 million for leasehold, severance, termination of leases and other related
costs and the $5.7 million loss on sale of the Wenco loan portfolio. As required
by FASB 144, any further operating losses, as well as adjustments to exit costs
accruals (if any), will be reported in discontinued operations as incurred, or
when circumstances warrant revisions of the related accounts.

YEAR ENDED JANUARY 3, 2003 AS COMPARED WITH YEAR ENDED DECEMBER 28, 2001

NET REVENUES

Total net revenues (consisting of gross revenues less volume discounts, dealer
interest, returns, and allowances) for the year ended January 3, 2003 from
continuing operations were $138.5 million, which represented an increase of 7.3%
from 2001 revenues of $129.1 million from continuing operations.

Net revenues from the manufactured home segment were $132.9 million (including
intersegment revenues of $6.7 million) for the year ended January 3, 2003 as
compared with $133.6 million (including intersegment revenues of $18.4 million)
for the prior year period, a decrease of $0.8 million, or 0.6%. Total homes
shipped in the year ended January 3, 2003 were 4,203, down 4.7% from the number
of homes shipped in the prior year period. The decrease in homes sold was
attributable to an overall industry decline in the Company's core market areas
and increased competition within these market areas. The average wholesale price
per home in 2002 was $30,012, as compared with $28,826 in 2001, an increase of
4.1%.

Net revenues from the retail sales segment from continuing operations were $9.2
million for the year ended January 3, 2003 as compared with $10.5 million for
the prior year period, a decrease of $1.3 million, or 12%. The decline in retail
revenue reflects both tighter consumer financing and other general economic
factors. The number of total homes (new and used) sold by the retail segment
from continuing operations in the year ended January 3, 2003 was 246, down 19.6%
from the number of homes sold in the prior year period. The average retail price
per new home in 2002 was $47,977 as compared with $46,593 in 2001, an increase
of 3.0%.

Net revenues from the component supply segment were $24.6 million (including
intersegment revenues of $21.8 million) for the year ended January 3, 2003, as
compared with $23.3 million (including intersegment revenues of $20.3 million)
for the prior year period, an increase of $1.3 million, or 5.5%.

         OPERATING FACTS

<TABLE>
<CAPTION>
                                                     FISCAL YEARS ENDED
                                             January 3,            December 28,
                                                2003                 2001 (1)
                                           ---------------       -----------------
<S>                                        <C>                   <C>
Company owned retail centers (continuing                3                       3
operations)
Retail units sold:
      New Single-section                               21                      42
      New Multi-section                               137                     167
      Used homes                                       88                      97
                                           ---------------       -----------------
          Total                                       246                     306
Wholesale units sold:
     External customers                             4,030                   3,794
     Intercompany                                     173                     617
                                           ---------------       -----------------
                                                    4,203                   4,411

Total homes sold                                    4,449                   4,717
                                           ===============       =================

Internalization (2)                                  100%                     95%

Average sales prices - retail (new)               $47,977                 $46,593
Average sales price - wholesale                   $30,012                 $28,826
Floor sections produced                             7,334                   7,620
</TABLE>


                                       12
<PAGE>

(1)      Summary operating data for the fiscal year ended December 28, 2001 have
         been restated to exclude discontinued operations of retail centers
         closed in 2002.

(2)      Represents the percentage of new homes sold at retail that are also
         manufactured by the Company.

GROSS PROFIT

Gross profit consists of net revenues less the cost of sales, which includes
labor, materials and overhead. Gross profit for the year ended January 3, 2003
from continuing operations was $25.6 million, or 18.5% of net revenues, as
compared with $26.7 million, or 20.7% of net revenues, in the prior year period.
This decline in the gross profit percentage was attributable primarily to higher
labor costs and material prices, offset slightly by higher sales prices and
lower warranty expenses.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses include primarily sales
commissions, advertising expenses, freight costs, salaries for support
personnel, administrative compensation, insurance costs, and professional fees.
Selling, general and administrative expenses from continuing operations were
$24.9 million, or 18.0% of net revenues, during the year ended January 3, 2003,
as compared with $25.4 million, or 19.6% of net revenues, for the same period of
the prior year. The decrease in selling, general and administrative expenses as
a percentage of sales was attributable to the following factors: lower dealer
interest payments and lower administrative salaries, offset slightly by higher
insurance expenses.

IMPAIRMENT AND OTHER CHARGES

During 2001, the Company recorded an impairment charge of $1.6 million for the
remaining goodwill related to its retail operations segment. The decision was
based primarily on continued losses at the two retail centers where the goodwill
was recorded. Fair value was determined by management based on the best
information available such as the value received in connection with the closure
of other retail centers. The Company also recorded a charge related to its
investment in one of the Company's manufacturing joint ventures of $602,000 due
to losses of this joint venture. There was no impairment charge recognized in
continuing operations in 2002.

INTEREST EXPENSE

Interest expense for the year ended January 3, 2003 from continuing operations
was $0.6 million as compared with $0.9 million for the year ended December 28,
2001. The decline in interest expense in the current year was a result of lower
interest rates, 5.7% compared to 7.6%, through the Company's line of credit and
lower average borrowings.

INCOME TAXES

Income taxes are provided for based on the tax effect of revenue and expense
transactions included in the determination of pre-tax book income. Because the
Company has operated at a loss in recent fiscal years, management believes that
under the provisions of SFAS No. 109, it is no longer appropriate to record
deferred income tax benefits on current losses in excess of anticipated refunds
of taxes previously paid. In fiscal 2001, the Company established valuation
allowances against the tax benefits of substantially all net operating loss
carry forwards and deductible temporary differences between financial and
taxable income.

In March 2002, Congress passed an economic stimulus bill containing certain
temporary business tax incentives. The tax provisions in the stimulus bill
extended the net operating loss ("NOL") carryback period to five years for NOLs
arising in tax years ending in 2001 and 2002, and allowed use of NOL carrybacks
and carryforwards to offset 100 percent of alternative minimum taxable income
(AMTI). These NOL carryback provisions allowed the Company to carry its 2002 and
2001 losses back to 1996 and the years following. The bill also allows an
additional first-year depreciation deduction equal to 30 percent of the adjusted
basis of qualified property acquired after September 10, 2001, and before
September 11, 2004, and placed in service before 2005 (2006 for certain property
with recovery period of 10 years or longer and certain transportation property).
Qualified property includes MACRS property with a recovery period of 20 years or
less, computer software, water utility property and leasehold improvement
property.

During the fiscal year ended January 3, 2003, in which the Company recognized
significant losses from the closing of retail centers and the sale of the Wenco
Finance loan portfolio, the Company recorded a $4.5 million current tax benefit
from discontinued operations. The Company expects to file a federal carryback
refund claim in the second quarter of fiscal 2003. Recorded income tax benefits
for the year-end January 3, 2003 from continued operations was $0.8 million
compared to no income tax benefit from continuing operations recorded for the
year ended December 28, 2001. The tax benefit otherwise applicable to the 2001
net operating losses was completely offset by the valuation allowance for
deferred tax assets discussed above.


                                       13
<PAGE>
YEAR ENDED DECEMBER 28, 2001 AS COMPARED WITH YEAR ENDED DECEMBER 29, 2000

NET REVENUES

Total net revenues (gross revenues less volume discounts, dealer interest,
returns, and allowances) for the year ended December 28, 2001 from continuing
operations were $129.1 million, which represented a decline of 17.4% from 2000
revenues of $156.3 million.

Net revenues from the manufactured home segment were $133.6 million (including
intersegment revenues of $18.4 million) for the year ended December 28, 2001 as
compared with $150.7 million (including intersegment revenues of $22.4 million)
for the prior year period, a decrease of $17.1 million, or 11.3%. The decline in
sales to dealers was primarily attributable to decreased demand and the closure
of one Alabama manufacturing plant in December 2000 and one in February 2000.
Total homes shipped in the year ended December 28, 2001 were 4,411, down 19.9%
from the number of homes shipped in the prior year period. The decrease in homes
sold was attributable to an overall industry decline in the Company's core
market areas and increased competition within these market areas. The average
wholesale price per home in 2001 was $28,826, as compared with $26,055 in 2000,
a increase of 10.6%.

Net revenues from the retail sales segment from continuing operations were $10.5
million for the year ended December 28, 2001 as compared with $22.9 million for
the prior year period, a decrease of $12.4 million, or 54%. The decline in
retail revenue reflects both tighter consumer financing and other general
economic factors, and because the Company operated two fewer retail centers in
2001 than it did in 2000. The average retail price per new home in 2001 was
$46,593 as compared with $42,174 in 2000, a increase of 10.5%.

Net revenues from the component supply segment were $23.3 million (including
intersegment revenues of $20.3 million) for the year ended December 28, 2001, as
compared with $30.1 million (including intersegment revenues of $25.6 million)
for the prior year period, a decline of $6.8 million, or 22.6%. The decline in
supply sales was mainly due to the decline in sales volume in the manufactured
home segment.

GROSS PROFIT

Gross profit consists of net revenues less the cost of sales, which includes
labor, materials, and overhead. Gross profit for the year ended December 28,
2001 from continuing operations was $26.7 million, or 20.7% of net revenues, as
compared with $26.6 million, or 17.0% of net revenues, in the prior year period.
This increase in the gross profit percentage was attributable primarily to
increased sales prices, lower labor costs, lower warranty expenses and lower
material prices.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses include primarily sales
commissions, advertising expenses, freight costs, salaries for support
personnel, administrative compensation, insurance costs, and professional fees.
Selling, general and administrative expenses from continuing operations were
$25.4 million, or 19.6% of net revenues, during the year ended December 28,
2001, as compared with $32.9 million, or 21.0% of net revenues, for the same
period of the prior year. The decrease in selling, general and administrative
expenses as a percentage of sales was attributable to the following factors:
decreased dealer interest payments, lower commissions, lower administrative
salaries, lower advertising and promotions expenses.

IMPAIRMENT CHARGES

Impairment charges of $2.2 million in 2001 were $3.6 million less than similar
charges of $5.8 million in 2000. During 2000, the Company decided to close
eleven of its 28 retail centers. In connection with the decision to close these
retail centers, the Company recorded a pre-tax charge of $5.8 million consisting
of the impairment of the intangible assets, exit costs related to rental
commitments and leasehold improvements.

INTEREST EXPENSE

Interest expense for the year ended December 28, 2001 from continuing operations
was $0.9 million as compared with $1.5 million for the year ended December 29,
2000. The decline in interest expense in the current year was a result of lower
interest rates and lower average borrowings.

INTEREST INCOME

Interest income for the year ended December 28, 2001 from continuing operations
was $0.1 million as compared with $0.2 million for the year ended December 29,
2000. The decline in interest income reflects lower average cash and cash
equivalent balances during the year ended December 28, 2001.


                                       14
<PAGE>

PROVISION FOR INCOME TAXES

No income tax benefits were recorded for the year-end December 28, 2001 compared
to an income tax benefit for the year ended December 29, 2000 of $325,000. The
tax benefit applicable to continuing operations in fiscal 2000 was substantially
less than the applicable federal and state statutory tax rate because the
Company established during fiscal 2000, a valuation allowance of $4.4 million
related to deferred income tax assets in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109. During 2001, the
valuation allowance was increased by $701,000 which effectively offset the tax
benefit from the loss on continuing operations. The Company has established
valuation allowances against the tax benefits of substantially all its net
operating loss carry forwards and deductible temporary differences between
financial and taxable income for all periods reflected in the accompanying
financial statements.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The Company has various contractual obligations and commercial commitments
arising from operations. These obligations and commitments are more fully
described in this Annual Report on Form 10-K under various headings in
"Management's Discussion and Analysis" as well as in the notes to the audited
financial statements. The following table lists the aggregate maturities of
various classes of obligations and expiration amounts of various classes of
commitments related to continuing operations at January 3, 2003 (in millions):

<TABLE>
<CAPTION>
Contractual Obligations                   Total     Less than 1 Year            1-3 Years          4-5 Years        After 5 Years
-----------------------                   -----     ----------------            ---------          ---------        -------------
<S>                                       <C>       <C>                         <C>                <C>              <C>
Operating Leases                           $0.4                 $0.1                 $0.3              $   -                $   -
</TABLE>

<TABLE>
<CAPTION>
                                   Total Amounts         Less Than 1
Other Commercial Commitments           Committed                Year            1-3 Years           4-5 Years         Over 5 Years
----------------------------       -----------------    ----------------    -----------------    ----------------    ---------------
<S>                                <C>                  <C>                 <C>                  <C>                 <C>
Letters of Credit                           $0.6             $   0.6                $   -               $   -                $   -
</TABLE>

Substantially all of the Company's independent dealers finance their purchases
through "floor plan" arrangements under which a financial institution provides
the dealer with a loan for the purchase price of the home and maintains a
security interest in the home as collateral. In connection with a floor plan
arrangement, the financial institution which provides the independent dealer
financing customarily requires the Company to enter into a separate repurchase
agreement with the financial institution, under which the Company is obligated,
upon default by the independent dealer, to repurchase the homes at the Company's
original invoice price less cost of all damaged/missing items and less certain
curtailments, plus certain administrative and shipping expenses. Repurchases
were $2.0 million, $4.2 million, and $8.7 million for the years ended 2002,
2001, and 2000 respectively. Losses on homes repurchased under these agreements
were $0.5 million, $0.9 million, and $0.9 million in 2002, 2001, and 2000,
respectively. At January 3, 2003, the Company's contingent repurchase liability
under floor plan financing arrangements through independent dealers was
approximately $38 million.

JOINT VENTURES

The Company owns interests in five joint ventures. Ownership interests range
from 30% to 50%. These joint ventures have total assets of $36.1 million and
total liabilities of $27.2. Because the Company is a limited partner or has an
interest in a limited liability company, the Company's exposure to loss is
generally limited to its investments and advances and any commitments to fund
operations of the investees. The Company and certain of its equity partners have
guaranteed certain debt for companies in which the Company owns various equity
interests. The guarantees are limited to various percentages of the outstanding
debt. At January 3, 2003, $4.0 million was outstanding under the various
guarantees, of which the Company had guaranteed $1.3 million. One of the
companies has a lease purchase agreement with a third party to sell a facility
financed by debt that the Company has guaranteed. The Company expects the
proceeds from the exercise of the purchase option to be used to pay off the debt
and to be released from the guaranty upon payoff in 2003.

The Company is also obligated to repurchase homes financed by Wenco 21, LLC upon
a third payment default for 50% of the outstanding loan balance. The Company's
potential exposure under this commitment is approximately $4.5 million. Losses
on homes repurchased under this obligation were not significant in fiscal 2002,
2001 and 2000.

LIQUIDITY AND CAPITAL RESOURCES

Since its organization, the Company has financed its operations primarily with
cash generated from a combination of operations, stock offerings and borrowings.
The Company lowered its outstanding balance on its line of credit from $10.6
million to zero during 2002.


                                       15
<PAGE>

During the year ended January 3, 2003, net cash provided by operating activities
of continuing operations was approximately $0.8 million. Net income from
continuing operations for the year was $0.9 million. Included in net income were
the following non-cash charges: amortization expenses of $0.4 million, provision
for doubtful accounts of $0.2 million and depreciation expense of $2.2 million.
Cash provided by operating activities also reflected decreased accounts
receivable of $1.5 million, decreased inventories of $0.9 million, and an
increase in accounts payable of $0.4 million, which were offset by an increase
in refundable income taxes of $3.8 million and a decrease in accrued liabilities
of $1.4 million. In addition to cash provided by operating activities, other
significant items affecting cash flows from continuing operations included
capital expenditures of $2.0 million, proceeds from the sale of property, plant
and equipment of $0.8 million, net repayments of notes payable of $10.6 million,
and net cash from joint ventures of $0.9 million.

In accordance with the Company's current revolving credit facility, the Company
applies all cash receipts to reduce the line of credit. At January 3, 2003 the
balance of the revolving credit facility was $0 and the Company's net working
capital from continuing operations was $13.2 million, including $7.0 million in
cash and cash equivalents, as compared with a negative working capital of $6.6
million at December 28, 2001, including $0.3 million in cash and cash
equivalents. The increase in net working capital was primarily attributable to
an increase in cash and cash equivalents of $6.6 million, an increase in
refundable income taxes and other assets of $3.8 million, a decrease in accrued
liabilities of $1.4 million and a decrease in notes payable of $10.6 million,
partially offset by a decrease in accounts receivable of $1.5 million, a
decrease in inventories of $0.9 million, and an increase in accounts payable of
$0.4 million.

During the year ended January 3, 2003, the Company's net cash flow from
discontinued operations was $16.7 million. The sale of the Wenco loan portfolio
for $6.1 million and sale of inventory and other assets from the closure of
eleven retail centers were the main contributing factors to the increase in
cash flow, offset by a net loss from discontinued operations of $8.6 million.

During the year ended December 28, 2001, the Company's net cash provided by
operating activities from continuing operations was approximately $14.7 million.
Although net loss from continuing operations for the year was $2.0 million, this
loss included the following non-cash charges: impairment charges of $2.2
million, depreciation expense of $2.3 million and amortization expense of $0.6
million. Cash provided by operating activities also included decreased
inventories of $5.4 million, increased accounts receivable of $0.8 million,
increased accounts payable of $0.1 million and a decrease in prepayment and
other assets of $6.5 million, partially offset by increased accrued liabilities
of $1.3 million. In addition to cash provided by operating activities from
continuing operations, other significant items affecting cash flows included
capital expenditures of $1.0 million, net repayments of notes payable of $12.2
million and payments for debt issuance costs of $1.0 million.

At December 28, 2001, the Company's net working capital from continuing
operations was a negative $6.6 million, including $0.3 million in cash and cash
equivalents, as compared with a negative $4.0 million at December 29, 2000,
including $6.0 million in cash and cash equivalents. The decrease in net working
capital was primarily attributable to a decrease in cash of $5.7 million, a
decrease in inventories of $5.4 million and a decrease in prepayments of $5.7
million, partially offset by increased accounts receivable of $0.8 million,
decreased notes payable of $12.2 million, accounts payable of $0.1 million and
accrued liabilities of $1.3 million.

During the year ended December 28, 2001, the Company's net cash flow from
discontinued operations was a negative $7.5 million. A net loss from
discontinued operations of $3.1 million and a decrease in accounts payable and
accrued expenses of $4.4 million were the main contributing factors to the
decrease in cash flow.

At January 3, 2003 the Company had a $40 million secured line of credit, which
matures on March 8, 2004 and bears interest at the prime rate plus 1%, which
amounted to 5.25% at January 3, 2003. At January 3, 2003 the Company's
availability on the line of credit (based on an asset base limitation) was $11
million. The Company's ability to draw upon this line of credit is dependent
upon its continued compliance with certain financial ratios and covenants. The
Company had outstanding borrowings of $0 and $10.7 million at January 3, 2003
and December 28, 2001, respectively.

CAPITAL EXPENDITURES

The Company does not currently plan to make any material capital expenditures
during the next twelve months.

INFLATION

The Company believes that the relatively moderate rate of inflation over the
past few years has not had a significant impact on its sales or profitability.
The Company has in the past been able to pass on most of the increases in its
costs by increasing selling prices, although there can be no assurance that the
Company will be able to do so in the future.


                                       16
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK.

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

Historically the Company has not entered into derivatives contracts to either
hedge existing risk or for speculative purposes. The Company also does not and
has not entered into contracts involving derivative financial instruments or
derivative commodity instruments. Pertinent provisions of Regulation S-K call
for disclosures to clarify exposures to market risk associated with activities
in derivative financial instruments, other financial instruments and derivative
commodity instruments. The Regulation defines "other financial instruments" to
include trade accounts receivable, loans and structured notes. The Company does
not utilize derivative instruments to manage such risks. The Company's principal
credit agreement bears a floating interest rate of 1.0% over prime. Accordingly,
the Company is subject to market risk associated with changes in interest rates.
At January 3, 2003, nothing was outstanding under the credit agreement. With
respect to accounts receivable, most of the Company's sales of manufactured
homes are pre-sold, such that orders exist before construction begins. When
manufactured homes are sold to dealers as inventory, such homes are generally
paid from availability under the dealer's floor plan financing arrangement. In
the typical case, funds are wired to the Company from the dealer's floor plan
lender within 21 days of delivery to the dealer's lot. Management thus does not
perceive that the Company is subject to a material market risk with respect to
its non-interest bearing accounts receivable.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 Forward-looking statements in this Annual Report on Form 10-K, including
without limitation, statements relating to the adequacy of the Company's
resources, are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that such
forward-looking statements involve risks and uncertainties, which could cause
actual results to differ materially from those in any forward looking
statements, including without limitation: general economic conditions; the
cyclical and seasonal nature of housing markets; competitive pricing pressures
at both the wholesale and retail levels; changes in market demand; recent
management changes; the impact of cost reduction programs and other management
initiatives; availability of financing for prospective purchasers of the
Company's homes and availability of floor plan financing for dealers;
availability and pricing of raw materials; concentration of the Company's
business in certain regional markets; adverse weather conditions that reduce
retail sales; the possibility of plant shutdowns from weather or other causes;
availability of labor for the Company to meet operating requirements; the highly
competitive nature of the manufactured housing industry; Federal, state and
local regulation of the Company's business; the Company's contingent repurchase
liabilities with respect to dealer financing; the Company's reliance on
independent dealers; and other risks indicated from time to time in the
Company's filings with the Securities and Exchange Commission.


                                       17
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO CONSOLIDATED
        FINANCIAL STATEMENTS

Consolidated Balance Sheets
Southern Energy Homes, Inc. and Subsidiaries

<TABLE>
<CAPTION>
                                                                                             JANUARY 3,             DECEMBER 28,
                                                                                                2003                     2001
                                                                                            ------------           ----------------
ASSETS                                                                                                             (Restated - see
                                                                                                                            Note 2)
<S>                                                                                         <C>                    <C>
CURRENT ASSETS:
 Cash and cash equivalents                                                                  $  6,960,000           $    328,000
 Accounts receivable, less allowance for doubtful accounts of
        $323,000 and $160,000, respectively                                                    6,740,000              8,178,000
 Inventories                                                                                   7,280,000              8,166,000
 Refundable income taxes                                                                       4,191,000                349,000
 Prepayments and other                                                                           483,000                440,000
 Current assets of discontinued operations                                                       800,000             11,981,000
                                                                                            ------------           ------------
                                                                                              26,454,000             29,442,000
                                                                                            ------------           ------------
PROPERTY, PLANT, AND EQUIPMENT:

   Property, plant and equipment, at cost                                                     31,636,000             31,899,000
   Less accumulated depreciation and amortization                                            (15,613,000)           (14,881,000)
                                                                                            ------------           ------------
                                                                                              16,023,000             17,018,000
                                                                                            ------------           ------------

INTANGIBLES AND OTHER NON-CURRENT ASSETS:

   Goodwill, net                                                                               3,305,000              3,305,000
   Investment in joint ventures                                                                4,300,000              4,908,000
   Other assets                                                                                  958,000              1,509,000
   Non-current assets of discontinued operations                                                 688,000             17,477,000
                                                                                            ------------           ------------
                                                                                               9,251,000             27,199,000
                                                                                            ------------           ------------
                                                                                            $ 51,728,000           $ 73,659,000
                                                                                            ============           ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:

  Notes payable                                                                             $     32,000           $ 10,677,000
  Accounts payable                                                                             1,662,000              1,271,000
  Volume incentive payable                                                                     3,204,000              3,760,000
  Accrued payroll related expenses                                                             1,713,000              1,939,000
  Accrued workers' compensation                                                                1,886,000              2,277,000
  Accrued warranty                                                                             2,143,000              2,440,000
  Accrued other                                                                                1,808,000              1,692,000
 Current liabilities of discontinued operations                                                  320,000              3,002,000
                                                                                            ------------           ------------
                                                                                              12,768,000             27,058,000
                                                                                            ------------           ------------
COMMITMENTS AND CONTINGENCIES (NOTE 8)

STOCKHOLDERS' EQUITY:

  Preferred stock, $.0001 par value, 1,000,000 shares authorized, none outstanding                    --                     --
  Common stock, $.0001 par value, 40,000,000 shares authorized, 12,133,865
     shares issued and outstanding                                                                 1,000                  1,000
  Capital in excess of par                                                                     8,330,000              8,330,000
  Retained earnings                                                                           30,629,000             38,270,000
                                                                                            ------------           ------------
                                                                                              38,960,000             46,601,000
                                                                                            ------------           ------------
                                                                                            $ 51,728,000           $ 73,659,000
                                                                                            ============           ============
</TABLE>

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


                                       18
<PAGE>

Consolidated Statements of Operations
Southern Energy Homes, Inc. and Subsidiaries

<TABLE>
<CAPTION>
                                                                                                Year Ended
                                                                       --------------------------------------------------------
                                                                           January 3,           December 28,       December 29,
                                                                                 2003               2001              2000
                                                                       ---------------         -------------      -------------
                                                                           (53 Weeks)           (52 Weeks)         (52 Weeks)
                                                                                                (Restated -        (Restated -
                                                                                                see Note 2)        see Note 2)
                                                                       ---------------         -------------      -------------
<S>                                                                    <C>                     <C>                <C>
Net revenues                                                           $ 138,514,000           $ 129,105,000      $ 156,347,000
Cost of sales                                                            112,886,000             102,423,000        129,795,000
                                                                       -------------           -------------      -------------
     Gross profit                                                         25,628,000              26,682,000         26,552,000
Operating expenses:
     Selling, general and administrative                                  24,914,000              25,360,000         32,862,000
     Amortization of intangibles                                              53,000                 299,000            425,000
     Impairment and other charges                                                 --               2,240,000          5,818,000
                                                                       -------------           -------------      -------------
                                                                          24,967,000              27,899,000         39,105,000

Operating income (loss) from continuing operations                           661,000              (1,217,000)       (12,553,000)

Interest expense                                                            (593,000)               (893,000)        (1,464,000)
Interest income                                                               41,000                 112,000            234,000
                                                                       -------------           -------------      -------------

Income (loss) from continuing operations before income taxes                 109,000              (1,998,000)       (13,783,000)

Benefit for income taxes                                                     800,000                      --            325,000
                                                                       -------------           -------------      -------------

Income (loss) from continuing operations                                     909,000              (1,998,000)       (13,458,000)

Loss from discontinued operations, net of tax benefit of $4.5
million for the fiscal year ended January 3, 2003                         (8,550,000)             (3,074,000)        (3,654,000)
                                                                       -------------           -------------      -------------

     Net loss                                                          $  (7,641,000)          $  (5,072,000)     $ (17,112,000)
                                                                       =============           =============      =============

PER SHARE DATA:
Basic and diluted net income (loss) per share:

      Income (loss) from continuing operations                         $        0.07           $       (0.17)     $       (1.11)
      Loss from discontinued operations                                        (0.70)                  (0.25)             (0.30)
                                                                       -------------           -------------      -------------
           Net loss                                                    $       (0.63)          $       (0.42)     $       (1.41)
                                                                       =============           =============      =============
Weighted average number of common shares outstanding:

      Basic and diluted                                                   12,133,865              12,133,298         12,132,990
                                                                       =============           =============      =============
</TABLE>


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


                                       19
<PAGE>
Consolidated Statements of Stockholders' Equity
Southern Energy Homes, Inc. and Subsidiaries

<TABLE>
<CAPTION>
                                             Common Stock                 Capital
                                     --------------------------          in Excess            Retained
                                       Shares           Amount             of Par              Earnings                Total
                                     ----------         -------          ----------          ------------           ------------
<S>                                  <C>                <C>              <C>                 <C>                    <C>
BALANCE, DECEMBER 31, 1999           12,132,990          $1,000          $8,329,000          $ 60,454,000           $ 68,784,000

  Net loss                                   --              --                  --           (17,112,000)           (17,112,000)
                                     ----------          ------          ----------          ------------           ------------
BALANCE, DECEMBER 29, 2000           12,132,990           1,000           8,329,000            43,342,000             51,672,000

  Exercise of stock options                 875              --               1,000                    --                  1,000
  Net loss                                   --              --                  --            (5,072,000)            (5,072,000)
                                     ----------          ------          ----------          ------------           ------------
BALANCE, DECEMBER 28, 2001           12,133,865           1,000           8,330,000            38,270,000             46,601,000

  Net loss                                   --              --                  --            (7,641,000)            (7,641,000)
                                     ----------          ------          ----------          ------------           ------------
BALANCE, JANUARY 3, 2003             12,133,865          $1,000          $8,330,000          $ 30,629,000           $ 38,960,000
                                     ==========          ======          ==========          ============           ============
</TABLE>








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


                                       20
<PAGE>
Consolidated Statements of Cash Flows
Southern Energy Homes, Inc. and Subsidiaries

<TABLE>
<CAPTION>
                                                                                            Year Ended
                                                                     ----------------------------------------------------------
                                                                       January 3,           December 28,           December 29,
                                                                             2003                   2001                  2000
                                                                    -------------          -------------       ---------------
                                                                      (53 Weeks)            (52 Weeks)            (52 Weeks)
                                                                    -------------          -------------       ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:                                                    (Restated - see      (Restated - see
                                                                                                 Note 2)              Note 2)
<S>                                                                 <C>                  <C>                  <C>
Income (loss) from continuing operations                            $    909,000           $ (1,998,000)          $(13,458,000)
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by operating activities:
      Equity (income) loss of joint ventures                            (329,000)              (365,000)               293,000
      Non-cash impairment charges                                             --              2,240,000              5,818,000
      Depreciation of property, plant and equipment                    2,240,000              2,327,000              2,379,000
      (Gain) loss on sale of property, plant and equipment               (44,000)               351,000                273,000
      Amortization of debt issuance costs                                370,000                290,000                     --
      Amortization of intangibles                                         53,000                299,000                425,000
      Provision for doubtful accounts receivable                         163,000                 (8,000)              (302,000)
   Change in assets and liabilities:
      Accounts receivable                                              1,478,000                836,000              5,102,000
      Inventories                                                        886,000              5,414,000             10,372,000
      Prepayments and other                                              (89,000)             6,497,000             (6,035,000)
      Refundable income taxes                                         (3,842,000)                    --              6,542,000
      Accounts payable                                                   390,000                111,000             (2,230,000)
      Accrued liabilities                                             (1,354,000)            (1,304,000)            (3,454,000)
                                                                    ------------           ------------           ------------
            Net cash provided by operating activities                    831,000             14,690,000              5,725,000
  CASH FLOWS FROM INVESTING ACTIVITIES:
      Capital expenditures                                            (2,023,000)            (1,072,000)            (1,294,000)
      Investments in joint ventures                                     (549,000)              (146,000)              (445,000)
      Proceeds from sale of joint venture                              1,250,000                     --                     --
      Distributions from joint ventures                                  235,000                371,000                442,000
      Proceeds from sale of property, plant and equipment                823,000              1,155,000                 41,000
                                                                    ------------           ------------           ------------
             Net cash provided by (used in) investing
               activities                                               (264,000)               308,000             (1,256,000)
                                                                    ------------           ------------           ------------
   CASH FLOWS FROM FINANCING ACTIVITIES:
      Net repayments on notes payable                                (10,645,000)           (12,170,000)            (8,208,000)
      Payment of debt issuance costs                                     (29,000)            (1,002,000)                    --
      Proceeds from exercise of stock options                                 --                  1,000                     --
                                                                    ------------           ------------           ------------
             Net cash used in financing activities                   (10,674,000)           (13,171,000)            (8,208,000)
                                                                    ------------           ------------           ------------
   Net increase (decrease) in cash and cash equivalents
      from in continuing operations                                  (10,107,000)             1,827,000             (3,739,000)
   Net cash provided by (used in) discontinued
      operations                                                      16,739,000             (7,544,000)               869,000
                                                                    ------------           ------------           ------------
    Net increase (decrease) in cash and cash equivalents               6,632,000             (5,717,000)            (2,870,000)
   Cash and cash equivalents at beginning of year                        328,000              6,045,000              8,915,000
                                                                    ------------           ------------           ------------
   Cash and cash equivalents at end of year                         $  6,960,000           $    328,000           $  6,045,000
                                                                    ============           ============           ============
   SUPPLEMENTAL CASH FLOW INFORMATION:
      Cash paid for interest                                        $    612,000           $  1,947,000           $  1,993,000
</TABLE>

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


                                       21
<PAGE>

                   Notes to Consolidated Financial Statements

 Southern Energy Homes, Inc. and Subsidiaries

1. THE COMPANY AND BASIS OF PRESENTATION

         Southern Energy Homes, Inc. (the "Company") has three reportable
segments: manufacturing, retail and component supply. The Company produces
manufactured homes, primarily on a custom basis, for wholesale to dealers
located primarily in the southeastern and south central regions of the United
States. Retail sales are concentrated in the southeastern United States. The
component supply segment sells various supply products to the Company's
manufacturing segment and to third-party customers.

         The Company is on a 52/53-week year with the fiscal year ending on the
Friday closest to the last day of December. The 2002 fiscal year included 53
weeks. The 2001 and 2000 fiscal years included 52 weeks.

         The Company's business is seasonal and cyclical with the potential for
significant fluctuations in earnings being affected by factors impacting the
broader housing market, including the availability and cost of customer
financing and changes in the cost of construction materials.

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.

2.  DISCONTINUED OPERATIONS

            In 2002, the Company closed eleven retail centers that were formerly
part of the retail segment. These retail centers had been negatively affected by
weak market conditions and restrictive retail financing conditions, principally
as a result of the withdrawal of several lenders from the market. The decision
to close the retail centers was based primarily on management's evaluation of
recent operating results and future prospects. These centers were sold or closed
by the end of December 2002.

         The Company also sold its consumer financing segment, principally
consisting of the Wenco loan portfolio, in December 2002. The Wenco loan
portfolio had a book value of approximately $11.8 million. The loan portfolio
was sold for $6.1 million in a cash transaction. The decision to sell the loan
portfolio was prompted by management's strategic plan to eliminate unprofitable
business lines and thereby allow the Company to focus on its core manufacturing
business.

            Accordingly, as required by FASB Statement No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets ("SFAS 144"), the operating
results and disposal of the eleven retail centers and the Wenco loan portfolio,
which were previously reported in the retail and consumer financing segments,
have been classified in discontinued operations for all prior periods presented
herein. The Company recognized a $13.1 million loss ($8.5 million net of tax
benefit) on discontinued operations in the year ended January 3, 2003, which
included $2.7 million of operating losses during the year (including $0.3
million for interest allocated to these retail centers based on average monthly
inventory balances), $3.6 million to write-down the carrying value of unsold
homes in retail inventory, $1.1 million for leasehold, severance, termination of
leases and other related costs and the $5.7 million loss on sale of the Wenco
loan portfolio. As required by SFAS 144, any further operating losses, as well
as adjustments to exit costs accruals (if any), will be reported in discontinued
operations as incurred, or when circumstances warrant revisions of the related
accounts. Historical operating results of the discontinued operations were as
follows for the years ended:

<TABLE>
<CAPTION>
                             January 3,          December 28,       December 29,
                               2003                  2001               2001
                             ----------         -------------      ------------
<S>                          <C>                <C>                <C>
(In thousands)
Net revenues                 $   16,836         $      27,888      $     27,803

Operational loss                 (2,662)               (3,074)           (3,654)
Disposal loss                   (10,388)                   --                --
                             ----------         -------------      ------------
Net loss before tax          $  (13,050)        $      (3,074)     $     (3,654)
                             ==========         =============      ============
</TABLE>

Assets and liabilities of the discontinued operations have been reflected in the
consolidated balance sheets as current or non-current based on the original
classification of these accounts, net of any necessary valuation allowances.
Although we believe we have appropriately reduced the carrying value of the
assets to their estimated recoverable amounts, net of disposal cost where
appropriate, actual results could be different and the difference will be
reported in discontinued operations in future periods.


                                       22
<PAGE>

Net assets of the discontinued operations are as follows:

<TABLE>
<CAPTION>
                                                         January 3,         December 28,
                                                            2003                2001
                                                       --------------     ----------------
<S>                                                    <C>                <C>
(In thousands)
CURRENT ASSETS:
Inventories                                            $          675     $         11,473
Prepayments and other                                             125                  508
                                                       --------------     ----------------
    Total current assets:                                         800               11,981
NON-CURRENT ASSETS:
Installment contracts receivable                                  342               13,165
Property, plant and equipment                                     344                2,251
Other assets                                                        2                2,061
                                                       --------------     ----------------
    Total non-current assets:                                     688               17,477
Current liabilities                                              (320)              (3,002)
                                                       --------------     ----------------
Net assets of discontinued operations                  $        1,168     $         26,456
                                                       ==============     ================
</TABLE>

There are no material contingent liabilities, including environmental
liabilities or litigation, related to the closed retail centers or the consumer
finance business discontinued in 2002.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

         The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated in the consolidated financial statements.

INVESTMENTS IN JOINT VENTURES

         The Company accounts for its investments of 50% or less in joint
ventures, where it does not have the ability to control, on the equity basis of
accounting. Therefore, the Company's share of income or loss is recorded as
equity income or loss from its ventures in the accompanying consolidated
statements of operations (see Note 5).

CASH AND CASH EQUIVALENTS

         For purposes of reporting cash flows, the Company considers cash and
cash equivalents to include cash on hand and highly liquid debt instruments and
investments purchased with an original maturity of three months or less.

ADVERTISING COSTS

         Advertising costs are expensed as incurred and totaled $1,631,000,
$1,493,000 and $1,916,000 for 2002, 2001 and 2000, respectively.


                                       23
<PAGE>
INVENTORIES

         Inventories are valued at first-in, first-out ("FIFO") cost, which is
not in excess of market. An analysis of inventories (excluding those reported in
discontinued operations) follows:

<TABLE>
<CAPTION>
                                                    January 3,          December 28,
                                                       2003                  2001
                                                    ----------          ----------
                          <S>                       <C>                 <C>
                          Raw materials             $3,725,000          $4,657,000
                          Work in progress             570,000             592,000
                          Finished goods             2,985,000           2,917,000
                                                    ----------          ----------
                                                    $7,280,000          $8,166,000
                                                    ==========          ==========
</TABLE>


PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment are recorded at cost. Depreciation is
computed on the straight-line, accelerated cost recovery system or modified
accelerated cost recovery system methods over the estimated service lives of
depreciable assets (5-39 years for buildings and improvements, 3-10 years for
machinery and equipment, 5-10 years for office and computer equipment, and 7-10
years for leasehold improvements, which is the lesser of the lease term or the
asset's useful life). Cost of property, plant and equipment (excluding those
reported in discontinued operations) is as follows:

<TABLE>
<CAPTION>
                                        January 3,          December 28,
                                          2003                  2001
                                       -----------          -----------
<S>                                    <C>                  <C>
Land                                   $   403,000          $   411,000
Buildings and improvements              13,900,000           14,827,000
Machinery and equipment                  9,715,000           10,567,000
Office and computer equipment            4,665,000            4,733,000
Leasehold improvements                   1,302,000            1,307,000
Construction-in-progress                 1,651,000               54,000
                                       -----------          -----------
                                       $31,636,000          $31,899,000
                                       ===========          ===========
</TABLE>


         Maintenance and repairs are charged to expense as incurred;
expenditures for renewals and betterments are capitalized. When assets are
retired or otherwise disposed of, the property, plant and equipment accounts are
relieved of cost and accumulated depreciation and any resulting gain or loss is
credited or charged to income.

GOODWILL

         On December 29, 2001, the Company adopted FASB Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, which
eliminates amortization of goodwill and requires an annual impairment test. SFAS
No. 142 requires that impairment be tested at the reporting unit level, using a
two-step approach. The first step determines if goodwill is impaired by
comparing the fair value of the reporting unit as a whole to the book value. If
a deficiency exists, the second step measures the amount of the impairment loss
as the difference between the implied fair value of goodwill and its carrying
value.

         The following table presents the impact of SFAS No. 142 on net loss and
net loss per share had the standard been in effect throughout each fiscal year
presented (in thousands, except per share amounts).

<TABLE>
<CAPTION>
                                        2002               2001              2000
                                     ---------           -------           --------
<S>                                  <C>                 <C>               <C>
Reported net  loss                   $  (7,641)          $(5,072)          $(17,112)
Pro forma adjustments
   Amortization of goodwill                 --               248                369
                                     ---------           -------           --------
Adjusted net loss                    $  (7,641)          $(4,824)          $(16,743)
                                     =========           =======           ========

Reported net loss per share          $   (0.63)          $ (0.42)          $  (1.41)
Adjusted net loss per share          $   (0.63)          $ (0.40)          $  (1.38)
</TABLE>

         The Company has completed both the transitional and annual impairment
tests of goodwill as required by SFAS 142 and concluded that the remaining
goodwill which has a carrying value of $3.3 million at January 3, 2003 (which is
net of accumulated amortization of $2.7 million), was not impaired.

LONG-LIVED ASSETS

         The Company continually evaluates whether events and circumstances have
occurred that indicate that the remaining balance of long-lived assets to be
held and used in the operations of the Company may be impaired and not be
recoverable. In performing this


                                       24
<PAGE>

evaluation, the Company uses an estimate of the related cash flows expected to
result from the use of the asset and its eventual disposition. When this
evaluation indicates the asset has been impaired, the Company will measure such
impairment based on the asset's fair value and the amount of such impairment is
charged to earnings (see Note 10).

COMPUTER SOFTWARE COSTS

         The Company capitalizes external direct costs of materials and
services, payroll and payroll-related costs for employees directly associated
with developing or obtaining computer software. Capitalized costs of computer
software developed or obtained for internal use are amortized on a straight-line
basis.

VOLUME INCENTIVE PAYABLE

         The Company provides rebates to dealers based upon a predetermined
formula applied to the volume of homes sold to the dealer during the year. Such
rebates (reflected as a reduction of gross revenues) are recorded at the time
sales to independent dealers are recognized.

PRODUCT WARRANTIES

         The Company warrants its products against certain manufacturing defects
for a period of one year commencing at the time of retail sale. The estimated
cost of such warranties is accrued at the time of sale to the independent dealer
based on historical warranty costs incurred. Periodic adjustments to the accrual
are made when events occur which indicate changes are necessary.

INSURANCE ARRANGEMENTS

         The Company is partially self-insured for workers' compensation and
health insurance claims. The Company purchases insurance coverage for all
workers' compensation claims in excess of $350,000 per occurrence, and for all
health-care claims in excess of $75,000 per occurrence (with an annual aggregate
stop-loss limit of approximately $5.3 million for all claims). Amounts are
accrued currently for the estimated costs of claims incurred, including related
expenses. Management considers accrued liabilities for unsettled claims to be
adequate; however, there is no assurance that the amounts accrued will not vary
from the ultimate amounts incurred upon final disposition of all outstanding
claims. As a result, periodic adjustments to the reserves will be made as events
occur which indicate changes are necessary.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying value of the Company's cash equivalents, accounts
receivable, accounts payable, accrued expenses and notes payable approximates
fair value because of the short-term nature of these instruments.

REVENUE RECOGNITION

         The Company manufactures its homes pursuant to dealer orders, and sales
to independent dealers and related transit costs are recognized upon delivery of
the home to the dealer's lot. Almost all of the Company's sales to its
independent dealers are under floor-plan financing arrangements. Under these
floor-plan financing arrangements, the Company bills the dealers upon completion
of manufacture and at the same time transfers title. Consistent with these
arrangements, the Company typically does not allow independent dealers to cancel
a purchase after manufacture by the Company has commenced. The Company carries
insurance which covers possible damage to a home while on the Company's premises
prior to shipment and during shipment independent trucking companies
transporting the Company's homes carry insurance to cover damage during
shipment.

         Prior to the fourth quarter of 2001, the Company recorded a retail home
sale when the customer signed an installment contract for the purchase of a
manufactured home, the Company received the appropriate down payment,
construction of the home was complete, and the home buyer had inspected and
accepted the home. Effective with the beginning of the fourth quarter of 2001,
the Company revised its criteria for recognizing revenue from retail operations
to require that the buyers' purchases be fully funded, in addition to meeting
all other purchase criteria previously required by the Company. The effect of
the change in the Company's revenue recognition criteria was not material to the
results of operations in 2001.

STOCK-BASED COMPENSATION

         Under fixed stock option plans, stock options may be granted to
employees and directors at exercise prices that are equal to, less than, or
greater than the fair market value of the Company's stock on the date of grant.
Compensation expense, equal to the difference in exercise price and fair market
value on the date of grant, is recognized over the vesting period for options
granted at less than fair market value.

         In accordance with the disclosure provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, the Company has elected to apply
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its stock based plans.
Accordingly, the Company has recognized no compensation expense for these plans
during the three-year period ended January 3, 2003. Had the Company accounted
for its stock-based compensation plans based on the fair value of awards granted
consistent with the methodology of SFAS 123, the Company's reported net income
and income per share for each of the three years ended January 3, 2003 would
have been affected as indicated below. The effects of applying SFAS 123 on a pro
forma basis for the three-year period ended January 3, 2003, are not likely to
be representative of the effects on reported pro forma


                                       25
<PAGE>

net income for future years as options vest over several years and as it is
anticipated that additional grants will be made in future years.

         The Company accounts for all forms of stock compensation granted to
directors and employees under APB Opinion No. 25, under which no compensation
cost is recognized for options that are issued with exercise prices that equal
or exceed the fair market value of the Company's common stock on the date of
grant. Had compensation expense for the Company's stock options been determined
under SFAS No. 123, Accounting for Stock-Based Compensation, the Company's net
loss and net loss per share would have been as follows:

<TABLE>
<CAPTION>
                                                     2002                  2001                   2000
                                                  -----------           -----------           ------------
<S>                                               <C>                   <C>                   <C>
Net loss - as reported                            $(7,641,000)          $(5,072,000)          $(17,112,000)
Deduct: Total stock-based employee
   compensation expense determined
   under fair value based method for all
   awards                                            (191,000)             (350,000)              (325,000)
                                                  -----------           -----------           ------------
Net loss - pro forma                              $(7,832,000)          $(5,422,000)          $(17,437,000)
                                                  ===========           ===========           ============

As reported - net loss per share                  $     (0.63)          $     (0.42)          $      (1.41)

Pro forma - net loss per share                    $     (0.65)          $     (0.45)          $      (1.44)
</TABLE>


SHIPPING FEES AND COSTS

         Shipping revenues are included as a component of net revenues. Total
shipping costs, which were included in selling, general and administrative
expenses were $6,840,000, $7,224,000, and $9,575,000, during 2002, 2001, and
2000, respectively.

DEALER INTEREST PAYMENTS

         The Company has agreements with certain independent dealers to
reimburse them for their interest costs incurred in connection with floor-plan
financing. Payments related to these agreements are treated as customer
incentives and are classified as a reduction of revenues in the accompanying
consolidated statements of operations. For the years ended January 3, 2003,
December 28, 2001, and December 29, 2000, such incentives amounted to $827,000,
$954,000 and $1,238,000, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 2001, the FASB issue SFAS 143, Accounting for Asset Retirement
Obligation, SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. It applies to legal obligations associated
with the retirement of long-lived assets that result from the acquisition,
construction, development and/or the normal operation of a long-lived asset,
except for certain obligations of lessees. SFAS 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002. The Company
has not yet determined the effect of the standard on the Company's financial
position, results of operations or cash flows.

         In July 2002, the FASB issued SFAS 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS 146 addresses the recognition,
measurement and reporting of costs that are associated with exit and disposal
activities, including restructuring activities that are currently accounted for
pursuant to the guidance set forth in EITF No 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity. SFAS
146 revises the accounting for certain lease termination costs and employee
termination benefits, which are generally recognized in connection with
restructuring activities. The adoption of SFAS 146 will be prospective as of the
beginning of fiscal 2003. Accordingly, the Company cannot predict the effect of
the standard on the Company's future financial position, results of operations
or cash flows.

         On December 31, 2002, the FASB issued SFAS 148, Accounting for
Stock-Base Compensation - Transition and Disclosure. SFAS 148 amends SFAS 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition to SFAS 123's fair value method of accounting for stock-base employee
compensation. SFAS 148 also amends the disclosure provisions of SFAS 123 and APB
Opinion 28, Interim Financial Reporting, to require disclosure in the summary of
significant accounting policies of the effects of an entity's accounting policy
with respect to stock-base compensation. While SFAS 148 require companies to
account for employee stock options using the fair value method, the disclosure
provisions of SFAS 148 are applicable to all companies with stock-based employee
compensation, regardless of whether they account for that compensation using the
fair value method of SFAS 123 or the intrinsic method of APB No. 25.

         In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No.
5, 57, and 107 and Rescission of FASB Interpretation No. 32 ("FIN 45"). FIN 45
clarifies the requirements of FASB Statement No. 5, Accounting for
Contingencies, relating to a guarantor's accounting for, and disclosure of,
specified types of guarantees. FIN 45 requires that upon issuance of a
guarantee, the entity (i.e., the guarantor) must recognize a liability for the
fair value of the obligation it assumes under that guarantee. The disclosure
provisions of FIN 45 are effective for financial statements of interim or annual
periods that end after December 15, 2002. FIN 45's provisions for initial
recognition and measurement must be applied on a prospective basis to guarantees


                                       26
<PAGE>

issued or modified after December 31, 2002, irrespective of the guarantor's
fiscal year end. The guarantor's previous accounting for guarantees that were
issued before the date of FIN 45's initial application may not be revised or
restated to reflect the effect of the recognition and measurement provisions of
FIN 45. The Company has guarantees that are subject to the disclosure provisions
of FIN 45. See Note 8, "Contingencies and Commitments." The adoption of the
prospective recognition and measurement aspects of FIN 45 is not expected to
have a material effect on the Company's financial position, results of
operations or cash flows.

         In August 2001, the FASB issued SFAS 144, Accounting for the Impairment
or Disposal of Long-lived Assets, which superseded both SFAS 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
and the accounting and reporting provisions for the disposal of a segment of a
business contained in APB Opinion No. 30, Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS
144 establishes a single accounting model for long-lived assets to be disposed
of by sale and broadens the presentation for discontinued operations. The
Company adopted SFAS 144 at the beginning of fiscal 2002. As a result, the
closing of eleven retail centers and the sale of the Company's consumer
financing business in 2002 are reported as discontinued operations. Those
operations would not have met the criteria for treatment as discontinued
operations under APB Opinion No. 30.

PRIOR YEAR RECLASSIFICATIONS

         Certain prior year amounts have been reclassified to conform to the
current year presentation.

4. EARNINGS PER SHARE

         At January 3, 2003, December 28, 2001 and December 29, 2000, 1,448,141,
1,222,871 and 928,871 outstanding options were excluded from the weighted
average number of common shares, on a diluted basis, because they were
antidilutive.

5.  INVESTMENTS IN JOINT VENTURES

         The Company owns interests in five joint ventures. The Company owns a
39% interest in WoodPerfect, Ltd., a manufacturing joint venture, which produces
rafters used in the production of homes manufactured by the Company and others.
The Company owns a 50% interest in Wenco 21, LLC, an entity that originates
installment loans for the purchase of homes manufactured by the Company and
others. The Company owned 33% of Ridge Pointe Mfg., LLC, which manufactures
cabinet doors for sale to participants in the joint venture as well as
third-party customers. The Ridge Pointe Mfg., LLC interest was sold in May 2002
.. The Company also owns 30% of WoodPerfect of Texas, Inc., which manufactures
rafters used in the production of manufactured homes. The Company owns a 33%
interest in Hillsboro Manufacturing, Inc., which manufactures laminate
wallboard. The Company owns 32% of Lamraft LLP which is a real estate holding
company that leases facilities to a third party (see Note 9).

         The Company's investments in and advances to unconsolidated joint
ventures amounted to $4.3 million and $4.9 million at January 3, 2003 and
December 28, 2001, respectively. The Company's equity in the net earnings
(losses) of these ventures was $0.3 million, $0.4 million and $(0.3) million in
2002, 2001 and 2000 respectively. The Company received cash distributions from
joint venture investments of $1.5 million, $0.4 million and $0.4 million in
2002, 2001 and 2000, respectively. Retained earnings at January 3, 2003 and
December 28, 2001, included undistributed earnings of joint ventures of $0.7
million and $1.3 million, respectively.

         The Company's significant joint ventures are Wenco 21 and WoodPerfect,
Ltd. Wenco 21, 50% owned by the Company, originates installment loans for the
purchase of manufactured homes. WoodPerfect, Ltd. a 39% owned joint venture,
produces rafters used in the production of manufactured homes. The Company
accounts for both investments by the equity method of accounting.

         A summary of the joint ventures' financial information is as follows:


<TABLE>
<CAPTION>
                                                                              As of
                                                     ----------------------------------------------------
                                                         January 3, 2003                December 28, 2001
                                                     -------------------           ----------------------
<S>                                                  <C>                           <C>
Current Assets                                                 5,855,000                        5,378,000
Non current assets                                            24,787,000                       26,302,000
                                                     -------------------           ----------------------
Total assets                                                  30,642,000                       31,680,000

Current liabilities                                            2,470,000                        2,645,000
Non current liabilities                                       20,674,000                       22,083,000
                                                     -------------------           ----------------------
Total liabilities                                             23,144,000                       24,728,000
Shareholder's equity                                           7,498,000                        6,952,000
Company equity investment                                      4,419,000                        4,240,000
</TABLE>


                                       27
<PAGE>

<TABLE>
<CAPTION>
                                                                            For the Years Ended
                                                 --------------------------------------------------------------------------
                                                    January 3, 2003           December 28, 2001          December 29, 2000
                                                 ---------------------     -----------------------    ---------------------
<S>                                              <C>                       <C>                        <C>
Revenues                                                    38,874,000                 37,291,000                29,536,000
Cost of sales                                               33,506,000                 32,377,000                25,296,000
                                                 ---------------------     ----------------------     ---------------------
Gross profit                                                 5,368,000                  4,914,000                 4,240,000

Operating Income                                               983,000                    912,000                   723,000
Net income                                                     986,000                    879,000                   381,000
</TABLE>

6. INCOME TAXES

         The provision (benefit) for income taxes for the fiscal years ended
January 3, 2003, December 28, 2001 and December 29, 2000 was as follows:

<TABLE>
<CAPTION>
                                               2002                   2001                 2000
                                           ------------           -----------           -----------
<S>                                         <C>                   <C>                   <C>
Continuing operations:
Current (benefit) expense:
    Federal                                 $  (751,000)          $  (304,000)          $(3,737,000)
    State                                       (49,000)              (45,000)             (550,000)
                                            -----------           -----------           -----------
                                               (800,000)             (349,000)           (4,287,000)
Deferred (benefit) expense:
    Federal                                          --               304,000             1,704,000
    State                                            --                45,000             2,258,000
                                            -----------           -----------           -----------
                                                     --               349,000             3,962,000
                                            -----------           -----------           -----------

Total  income tax benefit                            --
   continuing operations                       (800,000)                   --              (325,000)
Income tax benefit -
   discontinued operations                   (4,500,000)                   --                    --
                                            -----------           -----------           -----------
Total income tax expense (benefit)          $(5,300,000)          $        --           $  (325,000)
                                            ===========           ===========           ===========
</TABLE>


         The provision (benefit) for income taxes applicable to continuing
operations differed from the amounts computed by applying the federal statutory
rate of 34% in fiscal year 2002, 2001 and 2000 due to the following:

<TABLE>
<CAPTION>
                                                                   2002                2001                  2000
                                                                 ---------           ---------           -----------
<S>                                                              <C>                 <C>                 <C>
Federal taxes (benefit) at statutory rate on income              $  37,000           $(679,000)          $(4,686,000)
   from continuing operations  before income taxes
Change in valuation allowance                                     (171,000)            701,000             4,412,000
State taxes (benefit), net of federal income tax effect           (382,000)            (59,000)             (401,000)
Goodwill amortization and other                                   (284,000)             37,000               350,000
                                                                 ---------           ---------           -----------
                                                                 $(800,000)                 --           $  (325,000)
                                                                 =========           =========           ===========
</TABLE>


                                       28
<PAGE>

The deferred tax effects of temporary differences at January 3, 2003 and
December 28, 2001 are as follows:

<TABLE>
<CAPTION>
                                                   January 3,           December 28,
                                                      2003                  2001
                                                  -----------           -----------
<S>                                               <C>                   <C>
Deferred tax benefits:
     Warranty accrual                             $   793,000           $   903,000
     Workers' compensation accrual                    698,000               843,000
     Accrued expenses                                 988,000             1,271,000
     State operating loss carry forwards            2,597,000             2,244,000
     Other                                            518,000               560,000
                                                  -----------           -----------
                                                    5,594,000             5,821,000
Deferred tax liabilities:
     Depreciation                                    (381,000)             (467,000)
     Other                                           (271,000)             (241,000)
                                                  -----------           -----------
                                                     (652,000)             (708,000)
                                                  -----------           -----------

Net deferred tax benefits                           4,942,000             5,113,000
Valuation allowance                                (4,942,000)           (5,113,000)
                                                  -----------           -----------
     Net deferred taxes                           $        --           $        --
                                                  ===========           ===========
</TABLE>

         Because the Company has operated at a loss in recent fiscal years,
management believes that under the provisions of SFAS 109, it is not appropriate
to record income tax benefits on current losses in excess of anticipated refunds
of taxes previously paid. As a result, the Company has established valuation
allowances against the net deferred tax benefits related to net operating loss
carry forwards and other net deductible temporary differences between financial
and taxable income. The valuation allowance may be reversed in future years if
the Company returns to profitability.

         At January 3, 2003, the Company had no federal net operating loss carry
forward. State net operating loss carryforwards amounting to $48.2 million are
available to offset future taxable income in number of states and they expire at
various dates in 2006 through 2022. The tax losses generated in 2002 and 2001
for federal income tax purposes have been carried back under the temporary 5
year net operating loss carry back rules applicable to 2002 and 2001.
Accordingly, the Company will file a carryback refund claim in 2003 and expects
to receive federal income tax refunds of $5.0 million with respect to the 2002
net operating loss. Approximately $4.5 million of the 2002 refund claim relates
to losses incurred in 2002 on discontinued operations. Accordingly, this portion
of the 2002 carryback benefit has been allocated to discontinued operations in
the consolidated statements of operations.

7. NOTES PAYABLE

         The Company finances a portion of its inventory of homes held by its
retail centers through floor-plan notes payable with various financial
institutions. The notes normally require periodic payments of principal and
interest, and full payments when the home is sold to a customer. No inventory
was financed during 2002. The weighted average interest rates on these
borrowings during 2001 and 2000 were 7.75% and 10.0%, respectively. These notes
payable at December 28, 2001 amounted to $401,000.

          During fiscal 2002 and 2001, the Company financed a portion of its
retail inventory with a $40 million secured bank line of credit, which matures
on March 8, 2004 and bears interest at the Prime Rate plus 1% (5.25% at January
3, 2003). The weighted average interest rates on these borrowings during 2002
and 2001 were 5.7% and 7.6%, respectively. The line of credit is secured by
substantially all of the Company's assets. At January 3, 2003, the Company's
availability on the line of credit was $11,027,000. In February 2003, the
Company reduced the availability under its line of credit from $40 million to
$10 million because of its improved financial condition and to reduce ongoing
commitment fees. The Company's ability to draw upon this line of credit is
dependent upon its continued compliance with certain financial ratios and
covenants and is subject to a borrowing base limitation based on accounts
receivable and inventories. The Company had outstanding borrowings under the
secured line of credit of $0 and $10.7 million at January 3, 2003 and December
28, 2001, respectively.

8. COMMITMENTS AND CONTINGENCIES

REPURCHASE AGREEMENTS

         Substantially all of the Company's independent dealers finance their
purchases through "floor plan" arrangements under which a financial institution
provides the dealer with a loan for the purchase price of the home and maintains
a security interest in the home as collateral. In connection with a floor plan
arrangement, the financial institution which provides the independent dealer
financing customarily requires the Company to enter into a separate repurchase
agreement with the financial institution, under which the Company is obligated,
upon default by the independent dealer, to repurchase the homes at the Company's
original invoice price less cost of all damaged/missing items and less certain
curtailments, plus certain administrative and shipping expenses. Repurchases



                                       29
<PAGE>

were $2.0 million, $4.2 million, and $8.7 million for the years ended 2002, 2001
and 2000 respectively. Losses on homes repurchased under these agreements were
$0.5 million, $0.9 million, and $0.9 million in 2002, 2001 and 2000,
respectively. At January 3, 2003 the Company had a reserve of $250,000 for
future repurchase losses. At January 3, 2003, the Company's contingent
repurchase liability under floor plan financing arrangements through independent
dealers was approximately $38 million. While homes that have been repurchased by
the Company under floor-plan financing arrangements are usually sold to other
dealers, no assurance can be given that the Company will be able to sell to
other dealers homes which it may be obligated to repurchase in the future under
such floor-plan financing arrangements, or that the Company will not suffer
losses with respect to, and as a consequence of, those arrangements. The Company
is also obligated to repurchase homes financed by Wenco 21, LLC upon a third
payment default for 50% of the outstanding loan balance. The Company's potential
exposure under this commitment is approximately $4.5 million. Losses on homes
repurchased under this obligation were not significant in fiscal 2002, 2001 and
2000.

LETTERS OF CREDIT

         The Company has provided a letter of credit for $0.5 million to a
lending institution to provide additional wholesale floor plan resources for the
Company's independent dealers and $0.1 million letter of credit to an insurance
company to secure a bond to do business in a particular state.

OPERATING LEASES

         The Company leases certain manufacturing facilities and retail sales
centers under operating leases. Rent expense under all leases was $0.7 million
for the year ended January 3, 2003, $1.1 million for the year ended December 28,
2001, and $1.5 million for the year ended December 29, 2000. Future minimum
lease payments for each of the next five years at January 3, 2003, are $0.1
million, $0.1 million, $0.2 million, $0 and $0, respectively.

LITIGATION

         The Company is a party to various legal proceedings incidental to its
business. The Company typically issues a one-year warranty on new manufactured
homes. The Company provides for warranty costs at the time of sale in the
ordinary course based on historical warranty experience as described in Note 2.
The majority of the Company's outstanding legal proceedings are claims related
to warranty on manufactured homes or employment issues such as workers'
compensation claims. Management believes that adequate reserves are maintained
for such claims. In the opinion of management, after consultation with legal
counsel, the ultimate liability, if any, with respect to these proceedings will
not materially affect the financial position or results of operations of the
Company; however, the ultimate resolution of these matters, which could occur
within one year, could result in losses in excess of the amounts reserved. For
the years ended January 3, 2003 and December 28, 2001, accrued litigation
reserves, (in addition to normal warranty and workmen's compensation claims
reserves) were $0.9 million and $0.8 million, respectively.

9. EMPLOYEE BENEFIT PLANS

         The Company has employee stock options outstanding under its 1993 Stock
Option Plan and 2002 Incentive Award Plan. The 1993 Plan (which has now
terminated although outstanding options granted thereunder remain exercisable)
authorized a total of 1,500,000 shares of Company common stock for issuance to
key employees and advisors upon exercise of options, and the 2002 Plan
authorizes a total of 1,000,000 shares for issuance upon exercise of options or
in the form of restricted stock awards. The Company granted options to acquire
220,000, 319,250, and 330,250 shares of common stock in 2002, 2001, and 2000,
respectively. The Company has not to date made any restricted stock awards. The
exercise prices of the options under both plans approximated the fair market
value of the Company's common stock at the date of grant. Of the 1,500,000
shares authorized and reserved for issuance under the 1993 Plan, at January 3,
2003, a total of 1,116,391 were subject to outstanding options, of which
1,074,391 were then exercisable. No further grants will be made under the 1993
Plan. Of the 1,000,000 shares authorized and reserved for issuance under the
2002 Plan, at January 3, 2003, a total of 219,250 were subject to outstanding
options, of which 26,000 were exercisable on that date, and 780,750 remained
available for issuance or grant.

         The Company also maintains a stock option plan, which authorizes a
total of 100,000 shares of Company common stock for issuance to the Company's
non-employee directors. Under the plan, outside directors each year are
automatically granted options to purchase 3,750 shares. In 2002, 2001, and 2000,
the Company granted options to acquire 18,750, 22,500 and 22,500 shares,
respectively, of common stock to its non-employee directors. The grants in 2002
included 6,250 shares under the plan, and 12,500 shares granted by the board on
the same terms and conditions as under the plan. The exercise prices of the
options approximated the fair market value of the Company's common stock at the
date of grant. At January 3, 2003, options to purchase 100,000 shares were
outstanding and exercisable under the plan, and 12,500 shares were reserved for
issuance upon exercise of the options granted by the board of directors on the
same terms and conditions as under the plan.


                                       30
<PAGE>

The following table summarizes the changes in the number of shares under option
pursuant to the plans described above:

<TABLE>
<CAPTION>
                                                          Weighted                     Weighted                       Weighted
                                                           Average                      Average                        Average
                                           January 3,     Exercise    December 28,     Exercise       December 29,     Exercise
                                              2003          Price         2001            Price           2000          Price
                                           ----------   ------------  ------------    ------------   -------------   -----------
<S>                                        <C>          <C>           <C>             <C>            <C>             <C>
Outstanding at beginning of year           1,222,871           $3.24       928,871           $3.83       604,708           $5.19
Granted                                      238,750            2.11       341,750            1.61       352,750            1.06
Exercised                                         --              --          (875)           1.65            --              --
Forfeited                                    (13,480)           1.64       (46,875)           3.18       (28,587)           4.08
                                          ----------    ------------    ----------    ------------   -----------     -----------
Outstanding at end of year                 1,448,141           $2.75     1,222,871           $3.24       928,871           $3.83
                                          ==========    ============    ==========    ============   ===========     ===========
Exercisable at end of year                 1,212,891           $3.27     1,091,684           $3.44       789,144           $4.17
Weighted average fair value of
options granted during the year                                $1.70                         $1.03                         $0.75
</TABLE>

The following table summarizes information about stock options outstanding at
January 3, 2003:

<TABLE>
<CAPTION>
                                   Options Outstanding                                     Options Exercisable
                   ------------------------------------------------------           ---------------------------------
                        Number           Weighted-                                    Number
     Range of       Outstanding at         Average           Weighted-              Exercisable          Weighted-
     Exercise         January 3,          Remaining           Average                 January 3,          Average
      Prices             2003          Contractual Life    Exercise Price               2003           Exercise Price
      ------       ----------------    ----------------    --------------         -----------------    --------------
    <S>            <C>                 <C>                 <C>                    <C>                  <C>
        Under 2.04          626,250               6.85             $ 1.30                  584,250            $ 1.29
       2.05 - 2.43          238,000               9.18               2.11                   44,750              2.08
       2.44 - 4.52           91,800               6.66               2.46                   91,800              2.46
       4.53 - 5.49           11,250               6.41               4.53                   11,250              4.53
       5.50 - 9.49          443,341               4.47               5.50                  443,341              5.50
    9.49 and above           37,500               4.46              10.80                   37,500             10.80
                   ----------------    ---------------    ---------------         ----------------    --------------
                          1,448,141               6.09             $ 2.75                1,212,891            $ 3.27
                   ================    ===============    ===============         ================    ==============
</TABLE>


         The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2002, 2001, and 2000:

<TABLE>
<CAPTION>
                                        2002                        2001                         2000
                             ---------------          ------------------             -----------------
<S>                          <C>                      <C>                            <C>
Dividend yield                            0%                          0%                           0%
Expected volatility                      72%                         74%                          50%
Risk-free interest rate                5.10%                       5.09%                        6.47%
Expected life (years)                     10                          10                           10
</TABLE>

         Of the options granted in 2002, 43,750 options were exercisable
immediately, 100,000 shares become exercisable equally over four years and the
remainder become exercisable equally over two years. Vesting of the 2001 grants
is 247,500 options vesting immediately and the remainder vesting equally over
two years. Vesting of the 2000 grants is 247,500 options vesting immediately and
the remainder vesting equally over two years.

         The Company offers a 401(k) retirement plan to employees having
completed one year of service, whereby eligible employees may contribute up to
20% of their annual compensation subject to limitations by the Internal Revenue
Service. The Company may match up to 100% of the employee contributions as
limited by the Internal Revenue Service. For the years ended January 3, 2003,
December 28, 2001, and December 29, 2000, Company contributions to the plan were
$75,000, $84,000 and $98,000, respectively.

10. IMPAIRMENT AND OTHER CHARGES

         During 2001, the Company recorded an impairment charge of $1.6 million
for the remaining goodwill related to its retail operations segment. The charge
was required because of continued losses at the two retail centers where the
goodwill was recorded. This impairment charge is reported in continuing
operations in the accompanying statement of operations because under the

                                       31
<PAGE>

accounting rules governing discontinued operations in 2001 (APB 30), these
retail centers did not meet the criteria for classification as discontinued
operations. The Company also recorded a $602,000 impairment charge related to
its investment in an unprofitable joint venture.

         During 2000, the Company decided to close eleven retail centers. In
connection with the decision to close these retail centers, the Company recorded
a pre-tax charge of $5.8 million consisting of the impairment of the intangible
assets and exit costs associated with rental commitments and leasehold
improvements.

         A summary of activity in the restructuring liability accounts
(including amounts reported in the accompanying balance sheets as current
liabilities of discontinued operations in 2002) follows:

<TABLE>
<CAPTION>
                                                          2002                2001                  2000
                                                        ---------           ---------           -----------
<S>                                                     <C>                 <C>                 <C>
Restructuring liabilities at beginning of year          $  29,000           $ 227,000           $ 1,397,000
Exit costs accrued                                        832,000                  --               427,000
Employee termination costs accrued                        103,000                  --                    --
Payments charged to the liability accounts               (620,000)           (198,000)           (1,597,000)
                                                        ---------           ---------           -----------
Restructuring liabilities at end of year                $ 344,000           $  29,000           $   227,000
                                                        =========           =========           ===========
</TABLE>

A substantial portion of the impairment and other charges recognized in 2000
through 2002 involved the write-down of assets and did not require cash
payments.

A summary of non-cash related components of the special charges follows:

<TABLE>
<CAPTION>
                                                     2002                2001                2000
                                                  ----------          ----------          ----------
<S>                                               <C>                 <C>                 <C>
Impairment of facilities                          $  429,000          $       --          $  153,000
Impairment of intangible assets                           --           1,638,000           4,978,000
Inventory write down                               3,584,000                  --                  --
Leasehold impairments                                248,000                  --             206,000
Other                                                462,000             602,000             481,000
                                                  ----------          ----------          ----------
Total non-cash charges                            $4,723,000          $2,240,000          $5,818,000
                                                  ==========          ==========          ==========
These non-cash charges are reflected in:

Continuing operations                             $       --          $2,240,000          $5,818,000
Discontinued operations                           $4,723,000                  --                  --
</TABLE>

11. SEGMENT AND RELATED INFORMATION

         The Company has three reportable segments: manufacturing, retail
operations and component supply. The manufacturing segment produces manufactured
homes for sale to independent and company-owned retail centers. Although each
manufacturing facility is an operating segment, they are aggregated into one
segment for reporting purposes because they produce similar products using
similar production techniques and they sell their products to the same class of
customer. In addition, they are subject to the same regulatory environment and
their economic characteristics (measured on terms of profitability) are similar.
The retail operations segment sells homes to retail customers which have been
produced by the Company's manufacturing segment and various other manufacturers.
The component supply segment sells various supply products to the Company's
manufacturing segment and to third-party customers.

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

         Revenue from segments below the quantitative thresholds are
attributable to two other operating segments of the Company which include a
trucking business (closed in July 2001) and a small insurance business. These
segments have never met the quantitative thresholds for determining reportable
segments. The Corporate segment does not generate any revenues, but does incur
certain administrative expenses that are not allocated to reportable segments.

         The financial information for the periods ended December 28, 2001 and
December 29, 2000 concerning reportable segments has been restated to reflect
the reclassification of the eleven retail centers closed in 2002 and the
consumer financing business as discontinued operations (Note 2).


                                       32
<PAGE>

         The following tables present information about segment revenues, gross
profit, and operating profit or loss (dollars in thousands):

<TABLE>
<CAPTION>
                                                         2002                2001                2000
                                                      ---------           ---------           ---------
<S>                                                   <C>                 <C>                 <C>
REVENUES:
    Manufacturing                                     $ 132,862           $ 133,640           $ 150,725
    Retail Operations                                     9,234              10,487              22,900
    Component Supply                                     24,632              23,342              30,097
    All Other                                               289               3,439               8,091
    Eliminations for intersegment revenues:
       Manufacturing                                     (6,735)            (18,395)            (22,426)
       Component Supply                                 (21,768)            (20,327)            (25,596)
       All Other                                             --              (3,081)             (7,444)
                                                      ---------           ---------           ---------
Total revenues                                        $ 138,514           $ 129,105           $ 156,347
                                                      =========           =========           =========

GROSS PROFIT:

    Manufacturing                                     $  21,195           $  21,324           $  19,875
    Retail Operations                                     1,774               3,940               5,545
    Component Supply                                      2,187               2,065               2,376
    All Other                                              (672)              2,674               5,713
    Eliminations                                          1,144              (3,321)             (6,957)
                                                      ---------           ---------           ---------
Gross profit                                          $  25,628           $  26,682           $  26,552
                                                      =========           =========           =========


SEGMENT OPERATING INCOME (LOSS) BEFORE TAX:

    Manufacturing                                     $   3,971           $   5,027           $   2,253
    Retail Operations                                    (2,474)             (4,592)            (13,692)
    Component Supply                                      1,346               1,114               1,064
    All Other                                               100                 137                 391
    Eliminations                                          1,144                (240)                486
                                                      ---------           ---------           ---------
Total segment operating income (loss)                     4,087               1,446              (9,498)

Income/expenses not allocated to segments:

    Corporate expenses                                   (3,978)             (3,444)             (4,285)
    Tax benefit                                             800                  --                 325
                                                      ---------           ---------           ---------

Income (loss) from continuing operations              $     909           $  (1,998)          $ (13,458)
                                                      =========           =========           =========
</TABLE>


                                       33

<PAGE>

A summary of segment assets, depreciation and amortization, and capital
additions for the years ended 2002, 2001, and 2000, is as follows for continued
operations:

<TABLE>
<CAPTION>
                                                Segment          Depreciation and       Capital
                                                Assets            Amortization         Additions
                                             ------------         ------------        ------------
<S>                                          <C>                  <C>                 <C>
2002:
    Manufacturing                            $ 16,561,000           $  852,000          $  277,000
    Retail Operations                           4,368,000              114,000               9,000
    Component Supply                            3,583,000              199,000             999,000
                                             ------------           ----------          ----------
          Total reportable segments            24,512,000            1,165,000           1,285,000

    All Other                                       9,000                   --                  --
    Corporate (unallocated)                    26,725,000            1,498,000             738,000
    Eliminations                               (1,006,000)                  --                  --
    Discontinued operations                     1,488,000                   --                  --
                                             ------------           ----------          ----------
    Consolidated                             $ 51,728,000           $2,663,000          $2,023,000
                                             ============           ==========          ==========

2001:

    Manufacturing                            $ 19,252,000           $  925,000          $  608,000
    Retail Operations                           6,748,000              238,000              68,000
    Component Supply                            3,601,000              234,000               2,000
                                             ------------           ----------          ----------
          Total reportable segments            29,601,000            1,397,000             678,000

    All Other                                      48,000                2,000                  --
    Corporate (unallocated)                    17,654,000            1,517,000             394,000
    Eliminations                               (3,102,000)                  --                  --
    Discontinued operations                    29,458,000                   --                  --
                                             ------------           ----------          ----------
    Consolidated                             $ 73,659,000           $2,916,000          $1,072,000
                                             ============           ==========          ==========

2000:

    Manufacturing                            $ 23,624,000           $1,141,000          $  244,000
    Retail Operations                          13,773,000              433,000             168,000
    Component Supply                            4,147,000              246,000             109,000
                                             ------------           ----------          ----------
          Total reportable segments            41,544,000            1,820,000             521,000

    All Other                                     336,000                8,000                  --
    Corporate (unallocated)                    27,906,000              976,000             773,000
    Eliminations                               (2,683,000)                  --                  --
    Discontinued operations                    28,084,000                   --                  --
                                             ------------           ----------          ----------
    Consolidated                             $ 95,187,000           $2,804,000          $1,294,000
                                             ============           ==========          ==========
</TABLE>

12. CONCENTRATION OF CREDIT RISK

         Financial instruments which potentially subject the Company to
concentration of credit risk, consist principally of temporary cash investments
and trade receivables. The Company places its temporary cash investments with
credit-worthy, high-quality financial institutions.

         The Company's customer base is concentrated in the manufactured home
industry. Customers are located in the southeastern and southwestern United
States. The Company requires no collateral or other security to support customer
receivables. An allowance for doubtful accounts has been established for
potential credit losses.

13. RELATED PARTY TRANSACTIONS

         The Company sold homes to a development company affiliated with certain
stockholders who were also executive officers of the Company during the years
ended January 3, 2003, December 28, 2001, and December 29, 2000, which amounted
to $42,000, $52,000, and $44,000, respectively.


                                       34
<PAGE>

14. SUMMARY OF UNAUDITED QUARTERLY FINANCIAL DATA

         Unaudited quarterly financial information is as follows:

<TABLE>
<CAPTION>
                                                                    Quarter Ended                                    Year Ended
                                       ----------------------------------------------------------------------     ----------------
                                           March 29,      June 28,             September 27,      January 3,         January 3,
                                            2002 (2)      2002 (2)               2002 (1)          2003 (1)             2003
                                       -------------- ---------------       ----------------   --------------     ----------------
<S>                                    <C>            <C>                    <C>               <C>                <C>
Net revenues                            $ 31,105,000     $ 39,656,000           $ 34,522,000     $ 33,231,000        $ 138,514,000
Gross profit                               5,718,000        7,755,000              6,969,000        5,186,000           25,628,000
Income tax benefit                                --               --                     --          800,000              800,000
Income (loss) from continuing
   operations                                105,000        1,272,000                647,000       (1,115,000)             909,000
Loss from discontinued
   operations(3)(4)                         (903,000)      (1,017,000)            (3,514,000)      (3,116,000)          (8,550,000)
Net income (loss)                           (798,000)         255,000             (2,867,000)      (4,231,000)          (7,641,000)
Income (loss) per share:
   Income (loss) from
      continuing  operations            $       0.01     $       0.10           $       0.05     $      (0.09)       $        0.07
   Loss from discontinued
      operations                               (0.07)           (0.08)                 (0.29)           (0.26)               (0.70
   Net  income (loss)                   $      (0.06)    $       0.02           $      (0.24)    $      (0.35)       $       (0.63)
Weighted average number of
     common shares outstanding            12,133,865       12,133,865             12,133,865       12,133,865           12,133,865
</TABLE>

<TABLE>
<CAPTION>
                                                                     Quarter Ended                                    Year Ended
                                       -------------------------------------------------------------------------    -------------
                                           March 30,      June 29,        September 28,           December 28,       December 28,
                                            2001 (2)      2001 (2)             2001 (2)              2001 (2)          2001 (2)
                                       ---------------  ------------      -----------------       --------------    -------------
<S>                                    <C>              <C>               <C>                     <C>               <C>
Net revenues                           $ 27,384,000     $ 34,161,000           $ 33,551,000         $ 34,009,000    $ 129,105,000
Gross profit                              5,415,000        7,192,000              7,420,000            6,655,000       26,682,000
Income taxes (benefit)                           --               --                     --                   --               --
Income (loss) from continuing
   operations (5)                        (1,255,000)         558,000                698,000           (1,999,000)      (1,998,000)
Loss from discontinued
   operations                              (207,000)        (433,000)              (968,000)          (1,466,000)      (3,074,000)
Net income (loss)                        (1,462,000)         125,000               (270,000)          (3,465,000)      (5,072,000)
Income (loss) per share:
      Income (loss) from
        continuing operations          $      (0.10)     $      0.04           $       0.05         $      (0.16)    $      (0.17)
      Loss from discontinued
         operations                           (0.02)           (0.03)                 (0.08)               (0.12)           (0.25)
           Net  loss                   $      (0.12)    $       0.01           $      (0.03)        $      (0.28)    $      (0.42)
Weighted average number of
    common shares outstanding            12,132,990       12,132,990             12,133,350           12,133,865       12,133,298
</TABLE>

(1) In the third quarter of 2002 the Company made the decision to close seven
retail centers and in the fourth quarter of 2002 the Company closed an
additional four retail centers and sold its Wenco Finance loan portfolio.

(2) The financial information for the periods shown above has been restated to
reflect the reclassification of closed retail centers and the consumer finance
business as discontinued operations (see note 2).

(3) In the third quarter of 2002, the Company closed seven retail centers. The
Company recognized a loss on discontinued operations in the third quarter of
$3.3 million (net of a tax benefit of $1.8 million) or $0.27 per share
consisting of operating losses during the quarter, a write-down of the carrying
value of unsold homes in current retail inventory, severance, exit costs
associated with rental commitments, and write-down of equipment and leasehold
improvements.

(4) In the fourth quarter of 2002, the Company sold its Wenco loan portfolio.
The Company recognized a pre-tax loss on discontinued operations in the fourth
quarter from the sale of the loan portfolio of $5.7 million.

(5) During the fourth quarter of 2001, the Company recorded charges of $2.5
million associated with the impairment of intangible assets related to the
Company's retail centers ($1.6 million), a reserve for the impairment of a joint
venture ($602,000) and loss on sale of the North Carolina manufacturing plant
($321,000).


                                       35
<PAGE>
Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Shareholders
Southern Energy Homes, Inc.

         We have audited the accompanying consolidated balance sheets of
Southern Energy Homes, Inc. (a Delaware Corporation) and subsidiaries as of
January 3, 2003 and December 28, 2001, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the three fiscal
years in the period ended January 3, 2003. Our audits also included the
financial statement schedule listed in the Index at Item 15 (a) (2). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Southern Energy
Homes, Inc. and subsidiaries as of January 3, 2003 and December 28, 2001, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended January 3, 2003 in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

As discussed in Note 3 to the consolidated financial statements, in fiscal 2002
the Company changed its method of accounting for goodwill.

                                                          /s/ ERNST & YOUNG LLP

Birmingham, Alabama
February 26, 2003

Statement of Management's Responsibility
Southern Energy Homes, Inc. and subsidiaries

         The consolidated financial statements and related information herein
were prepared by the Company and were based on accounting principles generally
accepted in the United States, appropriate in the circumstances to reflect in
all material respects the consolidated financial position of the Company as of
January 3, 2003 and December 28, 2001, and the consolidated results of
operations and cash flows for each of the years ended January 3, 2003 and
December 28, 2001 and December 29, 2000. The financial information presented
elsewhere in this Annual Report on Form 10-K has been prepared in a manner
consistent with the financial statement disclosures.

         Management is responsible for the reliability and integrity of these
statements. In meeting this responsibility, management maintains an accounting
system and related internal controls to provide reasonable assurance that the
financial records are reliable for preparing financial statements and
maintaining accountability for assets. The Company's systems and controls are
also designed to provide reasonable assurance that assets are safeguarded and
those transactions are executed in accordance with management's authorizations
and recorded properly.

         The Board of Directors has appointed an Audit Committee that meets
periodically with management and the independent public accountants.

         Ernst & Young LLP has audited the consolidated financial statements in
accordance with auditing standards generally accepted in the United States and
their report appears herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         On April 16, 2002, the Company determined not to renew the engagement
of its independent accountants, Arthur Andersen LLP ("Andersen") and on April
17, 2002 appointed Ernst & Young LLP ("Ernst & Young") as its new independent
accountants, effective immediately. This determination followed the Company's
decision to seek proposals from independent accountants to audit


                                       36
<PAGE>

its financial statements for the fiscal year ending January 3, 2003. The
decision not to renew the engagement of Andersen and to retain Ernst & Young was
approved by the Company's Board of Directors upon the recommendation of its
Audit Committee. Andersen's report on the Company's fiscal 2001 financial
statements was issued earlier in March 2002, in conjunction with the filing of
the Company's Annual Report on Form 10-K for the year ended December 28, 2001.

         During the Company's two most recent fiscal years ended December 28,
2001, and the subsequent interim period through April 16, 2002, there were no
disagreements between the Company and Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to Andersen's satisfaction,
would have caused Andersen to make reference to the subject matter of the
disagreement in connection with its reports.

         The audit reports of Andersen on the Company's financial statements as
of and for the fiscal years ended December 29, 2000 and December 28, 2001 did
not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope, or accounting principles.
A letter from Andersen is incorporated by reference herein as indicated in Item
15 (a) (3).

         None of the reportable events described under Item 304(a)(1)(v) of
Regulation S-K occurred within the Company's two most recent fiscal years and
the subsequent interim period through April 16, 2002.

         During the Company's most recent fiscal years ended December 28, 2001,
and the subsequent interim period through April 16, 2002, neither the Company
nor anyone on its behalf consulted with Ernst & Young regarding any of the
matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.


                                       37
<PAGE>
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information concerning directors is contained in the Company's proxy
statement for the annual meeting of stockholders to be held on May 20, 2003 and
is incorporated herein by reference.

         Information concerning executive is contained in the text appearing
under Part I, Item 1 under the caption "Executive Officers."

         Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 is contained in the Company's proxy statement for the
annual meeting of stockholders to be held May 20, 2003 and is incorporated
herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

         Information required by this Item is contained in the Company's proxy
statement for the annual meeting of stockholders to be held on May 20, 2003 and
is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

         Information required by this Item is contained in the Company's proxy
statement for the annual meeting of stockholders to be held on May 20, 2003 and
is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information required by this Item is contained in the Company's proxy
statement for the annual meeting of stockholders to be held on May 20, 2003 and
is incorporated herein by reference.

ITEM 14.  CONTROLS AND PROCEDURES

         The Company has evaluated the effectiveness of its disclosure controls
and procedures pursuant to Securities Exchange Act Rule 13a-14. The evaluation
was performed under the supervision and with the participation of the Company's
management, including the principal executive officer and the principal
financial officer, within 90 days prior to the date of the filing of this annual
report. Based on this evaluation, the principal executive officer and principal
financial officer have concluded that the disclosure controls and procedures are
effective in ensuring that all material information required to be disclosed in
this annual report has been communicated to them in a manner appropriate to
allow timely decisions regarding required disclosure. There have been no
significant changes in the Company's internal controls, or in other factors that
could significantly affect internal controls, including any corrective actions
with regard to significant deficiencies and material weaknesses with regard to
the Company's internal controls, subsequent to that evaluation.

                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K

  (a)    The following documents are filed as part of this report in item 8:


         (1)  Financial Statements

         Consolidated Balance Sheets as of January 3, 2003 and December 28,
         2001.

         Consolidated Statements of Operations for each of the three fiscal
         years in the period ended January 3, 2003.

         Consolidated Statements of Stockholders' Equity for each of the three
         fiscal years in the period ended January 3, 2003.

         Consolidated Statements of Cash Flows for each of the three fiscal
         years in the period ended January 3, 2003.

         Notes to Consolidated Financial Statements


                                       38
<PAGE>

         Report of Ernst & Young LLP, Independent Auditors

         Statement of Management's Responsibility

         (2)  Financial Statement Schedules

         Schedule II - Valuation and Qualifying accounts and reserves for the
         years ended January 3, 2003, December 28, 2001 and December 29, 2000.

         All other schedules have been omitted because they are either not
         applicable or substantially equivalent information is disclosed
         elsewhere in this report.

         (3)  Exhibits

         The following exhibits are hereby incorporated by reference:

                  2.1      Asset Purchase Agreement, dated as of July 31, 1994,
                           by and among the Registrant, Imperial Manufactured
                           Homes of N.C., Inc. ("Imperial") and the stockholders
                           of Imperial. (Filed as Exhibit 2.1 to the Current
                           Report on Form 8-K dated August 14, 1994, File No.
                           0-21204.)

                  2.2      Real Estate Purchase Agreement, dated as of July 31,
                           1994, between Imperial N.C. Associates and Lawyer's
                           Title of North Carolina, Inc. and Assignment of such
                           Agreement to Southern Energy Homes of North Carolina,
                           Inc. (Filed as Exhibit 2.2 to the Current Report on
                           Form 8-K dated August 14, 1994, File No. 0-21204.)

                  2.3      Asset Purchase Agreement, dated April, 1998, by and
                           between the Registrant, Rainbow Homes, Inc., and the
                           sole stockholder of Rainbow Homes, Inc. (filed as
                           Exhibit 2.3 to the Company's Annual report on Form
                           10K for the year ended January 1, 1999.)

                  3.1      Certificate of Incorporation of the Company, as
                           amended (filed as Exhibit 3.1 to the Registration
                           Statement on Form S-3, Registration No. 333-32933.)

                  3.2      By-Laws of the Company. (Filed as Exhibit 3.2 to the
                           Registration Statement on Form S-1, Registration No.
                           33-57420.)

                  4.1      Specimen of Stock Certificate. (Filed as Exhibit 4.1
                           to the Registration Statement on Form S-1,
                           Registration No. 33-57420.)

                  4.8      Stockholders' Agreement, dated as of June 8, 1989.
                           (Filed as Exhibit 4.12 to the Registration Statement
                           on Form S-1, Registration No. 33-57420.)

                  4.9      Form of First Amendment to Stockholders' Agreement,
                           dated as of January 13, 1993. (Filed as Exhibit 4.13
                           to the Registration Statement on Form S-1,
                           Registration No. 33-57420.)

                  *10.1    Employment Agreement with Wendell L. Batchelor, dated
                           as of June 8, 1989. (Filed as Exhibit 10.1 to the
                           Registration Statement on Form S-1, Registration No.
                           33-57420.)

                  *10.4    Southern Energy Homes, Inc. 1993 Stock Option Plan.
                           (Filed as Exhibit 10.4 to the Registration Statement
                           on Form S-1, Registration No. 33-57420.)

                  *10.5    Form of Southern Energy Homes, Inc. 401(k) Retirement
                           Plan. (Filed as Exhibit 10.5 to the Registration
                           Statement on Form S-1, Registration No. 33-57420.)

                  10.9     Lease Agreement by and between Hillard Brannon and
                           Southern Energy Homes, Inc., dated November 16, 1989.
                           (Filed as Exhibit 10.17 to the Registration Statement
                           on Form S-1, Registration No. 33-57420.)

                  10.10    Lease Agreement by and between Robert Lowell Burdick,
                           Nina Burdick Vono, Carolyn Burdick Hunsaker, Jean
                           Burdick Hall, Mildred Burdick Marmont and Lane
                           Burdick Adams, as Landlord, and Southern Energy
                           Homes, Inc. dated as of November 20, 1985, as
                           amended. (Filed as Exhibit 10.23 to the Registration
                           Statement on Form S-1, Registration No. 33-57420.)

                  10.11    Agreement and Plan of Merger of Southern Energy
                           Homes, Inc., a Delaware corporation, and Southern
                           Energy Homes, Inc., an Alabama corporation, dated as
                           of January 15, 1993. (Filed as Exhibit 10.25 to the
                           Registration Statement on Form S-1, Registration No.
                           33-57420.)

                  10.12    Certificate of Merger Merging Southern Energy Homes,
                           Inc., an Alabama corporation, with and into Southern
                           Energy Homes, Inc., a Delaware corporation, dated as
                           of January 19, 1993. (Filed as Exhibit 10.26 to the
                           Registration Statement on Form S-1, Registration No.
                           33-57420.)

                  10.19    Deed of Real Estate dated July 30, 1993 relating to
                           the Company's manufacturing facility in Fort Worth,
                           Texas. (Filed as Exhibit 10.27 to the Registration
                           Statement on Form S-1, Registration No. 33-68954.)

                  *10.20   Southern Energy Homes, Inc. 1996 Option Plan for
                           Non-employee Directors. (Filed as Exhibit 10.20 to
                           the Company's Annual Report of Form 10-K for the year
                           ended December 29, 1995).

                  10.21    Agreement and Plan of Reorganization of Southern
                           Energy Homes, Inc., a Delaware Corporation, and SE


                                       39
<PAGE>

                           Management, Inc., an Alabama Corporation, dated
                           November 22, 1996 (filed as Exhibit 10.21 to the
                           Company's Annual Report on Form 10K for the year
                           ended January 3, 1997).

                  *10.22   Amended and Restated Employment Agreement with
                           Wendell L. Batchelor, dated as of June 14, 1996
                           (filed as Exhibit 10.22 to the Company's Annual
                           Report on Form 10K for the year ended January 3,
                           1997).

                  10.24    Asset Purchase Agreement, dated as of December 3,
                           1997, by and among the Registrant, A&G, Inc. and the
                           sole stockholder of A&G, Inc. (filed as Exhibit 10.24
                           to the Company's Annual Report on Form 10K for the
                           year ended January 2, 1998).

                  10.26    Loan and Security Agreement, dated as of March 9,
                           2001, among the financial institutions named therein
                           as Lenders, AmSouth Bank as Agent, AmSouth Capital
                           Corp. as Administrative Agent, Southern Energy Homes,
                           Inc. as a borrower and the other borrowers named
                           therein (filed as exhibit 10.26 to the Company's Form
                           10-Q for the quarter ended March 30, 2001)

                  16.1     Letter of Arthur Andersen LLP regarding change in
                           certifying accountant, Letter of Arthur Andersen LLP
                           regarding change in certifying accountant (filed as
                           Exhibit 16.1 to the Company's Current Report on Form
                           8-K dated April 16, 2003.

                           The following Exhibits are filed herewith:

                  10.25    Southern Energy Homes, Inc. 2002 Incentive Award Plan

                  10.27    Amendments to Loan and Security Agreement dated as of
                           March 9, 2001, among the financial institutions named
                           herein as Lenders, AmSouth Bank as Agent, AmSouth
                           Capital Corp. as Administrative Agent, and Southern
                           Energy Homes, Inc. and subsidiaries, as Borrowers,
                           dated September 30, 2001 (letter agreement), February
                           21, 2002 (No. 1) August 30, 2002 (No. 2), November 7,
                           2002 (No. 3), and March 25, 2003 (No. 4).

                  21       List of Subsidiaries of the Registrant

                  23       Consent of Ernst & Young LLP, Independent Auditors

                  99.1     Officer's Certifications pursuant to Section 906 of
                           Sarbanes-Oxley Act of 2002

                  99.2     Officer's Certifications pursuant to Section 906 of
                           Sarbanes-Oxley Act of 2002

(b)      Reports on Form 8-K.

During the quarter ended January 3, 2003, the Company filed the following
current reports on Form 8-K:

                  On October 1, 2002, Southern Energy Homes, Inc. filed a Form
                  8-K reporting its announcement that it will close or sell the
                  majority of its remaining retail distribution centers.

                  On October 17, 2002, Southern Energy Homes, Inc. filed a Form
                  8-K reporting its news release announcing the results of the
                  Company's operations for the quarter ended September 27, 2002.


                                       40
<PAGE>
         Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                               SOUTHERN ENERGY HOMES, INC.
                               Registrant




                               By: :/S/ Keith O. Holdbrooks
                                    ------------------------------------
                                    Keith O. Holdbrooks
                                    Chief Executive Officer

Date:  March 31, 2003

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE                                            TITLE                              DATE
---------                                            -----                              ----
<S>                                                  <C>                                <C>
/S/ Keith O. Holdbrooks                              Chief Executive Officer            March 31, 2003
-------------------------------------                President
Keith O. Holdbrooks                                  and Director

/S/ James L. Stariha                                 Chief Financial Officer,           March 31, 2003
------------------------------------                 Treasurer
James L. Stariha


/S/ Wendell L. Batchelor                             Chairman                           March 31, 2003
------------------------------------                 and Director
Wendell L. Batchelor


/S/ Johnny R. Long                                   Director                           March 31, 2003
------------------------------------
Johnny R. Long

/S/ Louis C. Henderson Jr.                           Director                           March 31, 2003
------------------------------------
Louis C. Henderson, Jr.


/S/ Clinton O. Holdbrooks                            Director                           March 31, 2003
----------------------------------------
Clinton O. Holdbrooks

/S/A.C. (Del) Marsh                                  Director                           March 31, 2003
----------------------------------------
A.C. (Del) Marsh

/S/  James A. Taylor                                 Director                           March 31, 2003
-------------------------------------
James A. Taylor
</TABLE>


                                       41
<PAGE>

               CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,
      AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Keith O. Holdbrooks, certify that:

1. I have reviewed this yearly report on Form 10-K of Southern Energy Homes,
Inc.;

2. Based on my knowledge, this yearly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this yearly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this yearly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this yearly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         a) designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this yearly report is
         being prepared;

         b) evaluated the effectiveness of the registrant's disclosure controls
         and procedures as of a date within 90 days prior to the filing date of
         this yearly report (the "Evaluation Date"); and

         c) presented in this yearly report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

         a) all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

         b) any fraud, whether or not material, that involves management or
         other employees who have a significant role in the registrant's
         internal controls; and

6. The registrant's other certifying officer and I have indicated in this yearly
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 31, 2003

/s/ KEITH O. HOLDBROOKS
Keith O. Holdbrooks
Chief Executive Officer


                                       42
<PAGE>

               CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,
      AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James L. Stariha, certify that:

1. I have reviewed this yearly report on Form 10-K of Southern Energy Homes,
Inc.;

2. Based on my knowledge, this yearly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this yearly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this yearly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this yearly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         a) designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this yearly report is
         being prepared;

         b) evaluated the effectiveness of the registrant's disclosure controls
         and procedures as of a date within 90 days prior to the filing date of
         this yearly report (the "Evaluation Date"); and

         c) presented in this yearly report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

         a) all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

         b) any fraud, whether or not material, that involves management or
         other employees who have a significant role in the registrant's
         internal controls; and

6. The registrant's other certifying officer and I have indicated in this yearly
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 31, 2003

/s/ JAMES L. STARIHA
James L. Stariha
Chief Financial Officer


                                       43
<PAGE>
                           SOUTHERN ENERGY HOMES, INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>
                                             Balance at             Additions charged
                                            beginning of              to costs and                                   Balance at end
              Description                      period                   expense                Deductions              of period
------------------------------------     -------------------     ---------------------        --------------        ----------------
<S>                                      <C>                     <C>                          <C>                   <C>
Allowance for Doubtful Accounts
                 2002                              $160,000                  $271,000  (1)         $108,000  (2)           $323,000
                 2001                               168,000                   488,000  (1)          496,000  (2)            160,000
                 2000                               470,000                    63,000  (1)          365,000  (2)            168,000
Litigation reserve
                 2002                               763,000                 1,061,000  (3)          922,000  (4)            902,000
                 2001                             1,475,000                    45,000  (3)          757,000  (4)            763,000
                 2000                             1,541,000                   375,000  (3)          441,000  (4)          1,475,000
</TABLE>

(1)      Bad debt expense
(2)      Write-offs, net of recoveries
(3)      Provisions and reserve adjustments
(4)      Settlement payments charged to reserve


                                       44